-----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, R8/F7Ojv6oc3WrJ6xruYfoUd1573CnIYU0w6TtnniXi7zuUBGNY2yQVYFNJ+9FMA Rwosjiy3We7janD5GXDKqw== 0000950116-98-000740.txt : 19980401 0000950116-98-000740.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950116-98-000740 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: YARDVILLE NATIONAL BANCORP CENTRAL INDEX KEY: 0000787849 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 222670267 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26086 FILM NUMBER: 98582768 BUSINESS ADDRESS: STREET 1: 3111 QUAKERBRIDGE RD CITY: MERCERVILLE STATE: NJ ZIP: 08619 BUSINESS PHONE: 6095855100 MAIL ADDRESS: STREET 1: 3111 QUAKERBRIDGE RD CITY: MERCERVILLE STATE: NJ ZIP: 08619 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 0-26086 YARDVILLE NATIONAL BANCORP ------------------------------------------------------ (Exact Name of Registrant as specified in its Charter) New Jersey 22-2670267 - ----------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3111 Quakerbridge Road, Trenton, New Jersey 08619 - --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (609) 585-5100 ----------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Indicate by checkmark whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K[X] Aggregate market value of voting stock held by non-affiliates (computed by using the average of the closing bid and asked prices on March 19, 1998, in the NASDAQ National Market System: $80,561,175. Number of shares of common stock, no par value, outstanding as of March 19, 1998: 4,944,857. (continued) DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into DOCUMENT which Document is Incorporated -------- ------------------------------ Annual Report to Stockholders for fiscal year ended December 31, 1997 II Definitive proxy statement for the 1997 Annual Meeting of Stockholders to be held on April 28, 1998 III FORM 10-K INDEX PART I PAGE Item 1. Business 1 Item 2. Properties 15 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 16 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 PART III Item 10. Directors and Executive Officers of the Registrant 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18 Signatures 19 Index to Exhibits E-1 YARDVILLE NATIONAL BANCORP FORM 10-K PART I ITEM 1. BUSINESS. General Yardville National Bancorp (the "Company") is a bank holding company registered with the Board of Governors of the Federal Reserve System (the "FRB") under the Bank Holding Company Act of 1956 (the "Bank Holding Company Act"). The Company's business is the ownership and management of The Yardville National Bank, a national banking association and the Company's sole banking subsidiary (the "Bank"). The Company was incorporated under the laws of New Jersey and became the holding company of the Bank in 1985. At December 31, 1997, the Company had consolidated total assets of approximately $614,686,000, deposits of approximately $422,944,000 and stockholders' equity of approximately $39,745,000. The Bank The Bank received its charter from The Office of the Comptroller of the Currency (the "OCC") in 1924 and commenced operations as a commercial bank in 1925. The Bank currently operates nine full-service banking offices in Mercer County, New Jersey, five in Hamilton Township, two in Ewing Township, one in East Windsor Township and one in Trenton. In September 1997 the Bank opened its new Telephone Help Center. The Telephone Help Center serves as a centralized sales and information center for all of the banking offices. The Bank's principal executive offices are located at 3111 Quakerbridge Road, Trenton, New Jersey. The Bank conducts a general commercial and retail banking business. The principal focus of the Bank has been to provide a full range of traditional commercial and retail banking services, including savings and time deposits, letters of credit, checking accounts and commercial, real estate and consumer loans, for individuals and small and medium size businesses in each of the local communities that it serves. The Bank has four wholly-owned non-bank subsidiaries. Yardville National Investment Corporation, which was incorporated in 1985, was formed to separate a portion of the Bank's 1 investment portfolio functions and responsibilities from its regular banking operations and to increase the net yield of the investment portfolio. YNB Real Estate Holding Company is utilized to hold Bank branch properties. Brendan, Inc. and Nancy-Beth, Inc. are utilized for the control and disposal of other real estate properties. Yardville Capital Trust Yardville Capital Trust, a wholly-owned subsidiary of the Company, was formed on August 28, 1997 for the exclusive purposes of (i) issuing and selling trust preferred securities, (ii) using the proceeds from the sale of the trust preferred securities to acquire subordinated debentures issued by the Company and (iii) engaging in only those other activities necessary, advisable or incidental thereto. Supervision and Regulation General Bank holding companies and banks are extensively regulated under both Federal and state laws. Because the Company is a "bank holding company" under the Bank Holding Company Act, the FRB, acting through the Federal Reserve Bank of Philadelphia ("FRBP") is the primary supervisory authority for, and examines, the Company and any non-bank subsidiaries which are not subsidiaries of the Bank. Because the Bank is a national bank, the primary supervisory authority for the Bank and its subsidiaries is the OCC, which regularly examines the Bank. The FDIC and the FRB (because the Bank is a member of the Federal Reserve System) also regulate, supervise and have power to examine the Bank and its subsidiaries. The regulation and supervision of the Company and the Bank are designed primarily for the protection of depositors and the FDIC, and not the Company or its stockholders. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance on deposits, the imposition of civil money penalties and removal and prohibition orders. If any enforcement action is taken by a banking regulator, the value of an equity investment in the Company could be substantially reduced or eliminated. Bank Holding Company Act The Bank Holding Company Act requires a "bank holding company" such as the Company to secure the prior approval of the FRB before it owns or controls, directly or indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of any bank. In addition, a bank holding company is 2 generally prohibited from engaging in or acquiring direct or indirect control of more than five percent (5%) of the voting shares of any company engaged in non-banking activities unless the FRB, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making this determination, the FRB considers whether the performance of these activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects. Applications under the Bank Holding Company Act and the Change in Control Act (see discussion below) are subject to review based upon the record of compliance of the applicant with the Community Reinvestment Act of 1977 ("CRA") as discussed below. The Company is required to file an annual report with the FRB and any additional information that the FRB may require pursuant to the Bank Holding Company Act. The FRB may also make examinations of the Company and any or all of its subsidiaries. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of credit or provision of any property or services. The so-called 'anti-tie-in' provisions state generally that a bank may not condition the pricing or provision of certain products and services on a requirement that the customer provide certain products or services to the bank holding company or bank, or any other subsidiary of the bank holding company, or that the customer not obtain certain products or services from competitors, or that the customer also obtain certain other products or services from the bank, its bank holding company or any other subsidiary of the bank holding company. There is an exception to the tie-in prohibition for "traditional" banking products and services. The FRB permits bank holding companies to engage in non-banking activities so closely related to banking or managing or controlling banks as to be a proper incident thereto. A number of activities are authorized by FRB regulation, while other activities require prior FRB approval. The types of permissible activities are subject to change by the FRB. FRB regulations require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. The FRB has, in some cases, entered orders for bank holding companies to take affirmative action to strengthen the finances or management of subsidiary banks. Change in Bank Control Act Under the Change in Bank Control Act of 1978 ("Change in Control Act"), no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire 3 "control" of any federally insured depository institution unless the appropriate Federal banking agency has been given 60 days' prior written notice of the proposed acquisition and within that period has not issued a notice disapproving of the proposed acquisition or has issued written notice of its intent not to disapprove the action. For this purpose, "control" is generally defined as the power, directly, or indirectly, to direct the management or policies of an institution or to vote 25% or more of any class of its voting securities. Under applicable regulations, control is presumed to exist in certain circumstances, including ownership of more than 10% of any class of voting shares of a public company such as the Company. The period for the agency's disapproval may be extended by the agency. Upon receiving such notice, the Federal agency is required to provide a copy to the appropriate state regulatory agency if the institution of which control is to be acquired is state chartered, and the Federal agency is obligated to give due consideration to the views and recommendations of the state agency. Upon receiving a notice, the Federal agency is also required to conduct an investigation of each person involved in the proposed acquisition. Notice of such proposal is to be published and public comment solicited thereon. A proposal may be disapproved by the Federal agency if the proposal would have anti-competitive effects, if the proposal would jeopardize the financial stability of the institution to be acquired or prejudice the interests of its depositors, if the competence, experience or integrity of any acquiring person or proposed management personnel indicates that it would not be in the interest of depositors or the public to permit such person to control the institution, if any acquiring person fails to furnish the Federal agency with all information required by the agency, or if the Federal agency determines that the proposed transaction would result in an adverse effect on a deposit insurance fund. In addition, the Change in Control Act requires that, whenever any federally insured depository institution makes a loan or loans secured, or to be secured, by 25% or more of the outstanding voting stock of a federally insured depository institution, the president or chief executive officer of the lending bank must promptly report such fact to the appropriate Federal banking agency regulating the institution whose stock secures the loan or loans. Supervision and Regulation of the Bank The operations of the Bank are subject to Federal and state statutes and regulations applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System and to banks whose deposits are insured by the FDIC. 4 The primary supervisory authority of the Bank is the OCC (also its primary Federal regulator), which regularly examines the Bank. The OCC has the authority to prevent a national bank from engaging in an unsafe or unsound practice in conducting its business. Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, the investments a bank may make, the reserves against deposits a bank must maintain, loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. All nationally and state-chartered banks in New Jersey are permitted to maintain branch offices in any county of the state. Branching outside of New Jersey is also permitted under certain circumstances. See "Interstate Banking." National bank branches may be established only after approval by the OCC. It is the general policy of the OCC to approve applications to establish and operate domestic branches provided that approval would not violate applicable Federal or state laws regarding the establishment of such branches. The OCC reserves the right to deny an application or grant approval subject to conditions if (1) there are significant supervisory concerns with respect to the application or affiliated organizations, (2) in accordance with CRA, the applicant's record of helping meet the credit needs of its entire community, including low and moderate income neighborhoods, consistent with safe and sound operation, is less than satisfactory, or (3) any financial or other business arrangement, direct or indirect, involving the proposed branch or device and bank "insiders" (directors, officers, employees and 10%-or-greater stockholders) involves terms and conditions more favorable to the insiders than would be available in a comparable transaction with unrelated parties. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC's prior approval is also required for any new branch application of a bank which is ranked in any of the three "undercapitalized" categories established by FDICIA. See -- "Prompt Corrective Action." Under the Federal Deposit Insurance Act, the OCC possesses the power to prohibit institutions regulated by it (such as the Bank) from engaging in any activity that would be an unsafe and unsound banking practice and in violation of the law. Moreover, Federal law 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 5 which have an office within a specified geographic area, and restrict management personnel from borrowing from another institution that has a correspondent relationship with their bank. The Bank, as a member of the Federal Reserve System, is subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or its subsidiaries, on investments in the stock or other securities of the bank holding company or its subsidiaries and on taking such stock or securities as collateral for loans. The Federal Reserve Act and FRB regulations also place certain limitations and reporting requirements on extensions of credit by the Bank to principal stockholders of its parent holding company, among others, and to related interests of such principal stockholders. Such legislation and regulations may affect the terms upon which any person becoming a principal stockholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship. In addition, as a bank whose deposits are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default of any assessment due to the FDIC. The Bank is not in default under any of its obligations to the FDIC. The FDIC also has authority under the Federal Deposit Insurance Act to prohibit an insured bank from engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or unsound practice in conducting its business. It is possible, depending upon the financial condition of the Bank and other factors, that the FDIC could claim that the payment of dividends or other payments might, under some circumstances, be an unsafe or unsound banking practice. Under CRA, the record of a bank holding company and its subsidiary banks must be considered by the appropriate Federal banking agencies in reviewing and approving or disapproving a variety of regulatory applications including approval of a branch or other deposit facility, office relocation, a merger and certain acquisitions of bank shares. Regulators are required to assess the record of the Company and the Bank to determine if they are meeting the credit needs of the community (including low and moderate neighborhoods) they serve. Regulators make publicly available an evaluation of banks' records in meeting credit needs in their communities, including a descriptive rating and a statement describing the basis for the rating. In addition, the Bank is subject to a variety of banking laws and regulations governing consumer protection, including the Truth in Lending Act ("TILA"), the Truth in Savings Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Electronic Funds Transfer Act, and the Real Estate Settlement Procedures Act ("RESPA"), FDIC deposit insurance regulations, 6 and FRB regulations governing such matters as reserve requirements for deposits, securities margin lending, collection of checks and other items and availability of deposits for withdrawal by customers, security procedures, and prohibitions of payment of interest on demand deposits. Under the Americans With Disabilities Act ("ADA"), certain bank facilities are identified as "public accommodations" and are subject to regulation to promote accessibility of their facilities for disabled persons. Capital Rules Under risk-based capital requirements for bank holding companies, the Company is required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) of eight percent. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less goodwill ("tier 1 capital" and together with tier 2 capital "total capital"). The remainder may consist of subordinated debt, nonqualifying preferred stock and a limited amount of the loan loss allowance ("tier 2 capital"). At December 31, 1997, the Company's tier 1 capital and total capital ratios were 12.24 percent and 13.49 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets ("leverage ratio") equal to three percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of from at least four to five percent. The Company's leverage ratio at December 31, 1997, was 8.93 percent. The requirements also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the requirements indicate that the Federal Reserve Board will continue to consider a "tangible tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised the Company of any specific minimum tier 1 leverage ratio applicable to it. The Bank is subject to similar capital requirements adopted by the OCC. The OCC has not advised the Bank of any specific minimum leverage ratios applicable to it. The capital ratios of the Bank are set forth below under "Prompt Corrective Action." 7 Banking regulators continue to indicate their desire to raise capital requirements applicable to banking organizations, including a proposal to add an interest rate risk component to risk-based capital requirements. Prompt Corrective Action In addition to the required minimum capital levels described above, federal law establishes a system of "prompt corrective actions" which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a federally regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution which is not adequately capitalized. Under the rules, an institution will be deemed to be "adequately capitalized" or better if it exceeds the minimum Federal regulatory capital requirements. However, it will be deemed "undercapitalized" if it fails to meet the minimum capital requirements, "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0 percent, a Tier 1 risk-based capital ratio that is less than 3.0 percent, or a leverage ratio that is less than 3.0 percent, and "critically undercapitalized" if the institution has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent. The following table sets forth the minimum capital ratios that a bank must satisfy in order to be considered adequately capitalized or well capitalized under the prompt corrective action regulations, and the Bank's capital ratios at December 31, 1997: Adequately Well Bank ratios at Capitalized Capitalized December 31, 1997 ----------- ----------- ----------------- Total Risk-Based Capital Ratio 8.00% 10.00% 12.5% Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 11.2% Leverage Ratio 4.00% 5.00% 8.5% The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain "management fees" to any "controlling person". Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the 8 institution's ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be "critically undercapitalized" and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership. Deposit Assessments Deposits of the Bank are insured by the FDIC through the Bank Insurance Fund ("BIF"). Deposits of certain savings associations are insured by the FDIC through the Savings Association Insurance Fund ("SAIF"). The FDIC sets deposit insurance assessment rates on a semiannual basis and will increase deposit insurance assessments whenever the ratio of reserves to insured deposits in a fund is less than 1.25. The insurance assessments paid by an institution are to be based on the probability that the fund will incur a loss with respect to the institution. The FDIC has adopted deposit insurance regulations under which insured institutions are assigned to one of the following three capital groups based on their capital levels: "well-capitalized," "adequately capitalized" and "undercapitalized." Banks in each of these three groups are further classified into three subgroups based upon the level of supervisory concern with respect to each bank. The resulting matrix creates nine assessment risk classifications to which are assigned deposit insurance premiums ranging from 0.00% for the best capitalized, healthiest institutions, to 0.27% for undercapitalized institutions with substantial supervisory concerns. In addition, the Bank is subject to semi-annual assessments relating to interest payments on Financing Corporation (FICO) bonds issued in connection with the resolution of the thrift industry crisis. Currently, the FICO assessments on BIF-insured deposits are made at one-fifth the rate currently applicable to SAIF-insured deposits. It is expected that after December 31, 1999 (or when the last savings association ceases to exist, if earlier), all assessable deposits at all institutions will be assessed at the same rates in order to pay FICO bond interest. Limitations on Payment of Dividends; Regulatory Agreement Under applicable New Jersey law, the Company is not permitted to pay dividends on its capital stock if, following the payment of the dividend, (i) the corporation would be unable to 9 pay its debts as they become due in the usual course of business or (ii) the corporation's total assets would be less than its total liabilities. Determinations under clause (ii) above may be based upon (i) financial statements prepared on the basis of generally accepted accounting principles, (ii) financial statements prepared on the basis of other accounting principles that are reasonable under the circumstances, or (iii) a fair valuation or other method that is reasonable in the circumstances. Since it has no significant independent sources of income, the ability of the Company to pay dividends is dependent on its ability to receive dividends from the Bank. Under national banking laws, a national bank must obtain the approval of the OCC before declaring any dividend which, together with all other dividends declared by the national bank in the same calendar year will exceed the total of the bank's net profits of that year combined with its retained net profits of the preceding 2 years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Net profits are to be calculated without adding back any provision to the bank's allowance for loan and lease losses. These restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time. FDICIA prohibits FDIC- insured institutions from paying dividends or making capital distributions that would cause the institution to fail to meet minimum capital requirements. The FDICIA restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time. The Bank in 1991 entered into a written agreement with the OCC (the "Regulatory Agreement") to, among other things, create a Compliance Committee, implement a plan to correct any compliance deficiencies, and reduce its classified assets and to maintain the Bank's common stockholders' equity at 5% of total assets. In 1991, in connection with the Regulatory Agreement and at the recommendation of the FRBP, the Board of Directors of the Company adopted a resolution, under which the Board could not declare a dividend to the Company's stockholders except with 10 days' prior written notice to the FRBP. The Regulatory Agreement was terminated on October 18, 1993, and on December 21, 1994, the Board of Directors of the Company rescinded its resolution with the permission of the FRBP, which was granted on November 30, 1994. New Jersey Banking Laws Provisions of the New Jersey Banking Act of 1948 with supplements (the "New Jersey Banking Act") may apply to national banking associations with their principal offices in New Jersey, subject to pre-emption by applicable Federal laws. The merger of a national bank into a state bank requires approval of the New Jersey Commissioner of Banking; however, a state bank may merge into a national bank without such prior approval. The New Jersey 10 Banking Act also purports to regulate certain aspects of bank business, including small loans and certain deposit accounts. New Jersey law permits interstate banking and branching, subject to certain limitations. See the discussion under "Interstate Banking", below. Interstate Banking Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), beginning on September 29, 1995, bank holding companies are now permitted to acquire banks in any state without regard to state law, except that state laws which require the acquiror to have been in existence for a specified minimum period of time are preserved, up to a maximum existence requirement of 5 years. Except for initial entry into a state, after an acquisition the acquiror may not control more than 10% of total insured deposits in the U. S. or more than 30% of insured deposits in the acquiror's home state. Stricter state deposit concentration caps apply if they are nondiscriminatory. In addition, effective June 1, 1997, banks in different states may be merged into a single bank with interstate branches, subject to any necessary regulatory approvals and provided the banks are adequately capitalized, unless the state in which such branches would be located has enacted legislation prohibiting such transactions. Once a bank has established branches in a host state through an interstate merger transaction, it may establish and acquire additional branches anywhere in the host state where the acquiree could have branched. The establishment of de novo branches or acquisition of one or more branches in another state without acquisition of the entire bank are only permitted if the other state has enacted legislation authorizing such branching in that state. On April 17, 1996, New Jersey enacted legislation authorizing interstate mergers and acquisitions of branches. The New Jersey legislation does not authorize de novo branching into the state. Because of reciprocity rules adopted by other states (such as Pennsylvania) the lack of authorization for de novo branching into New Jersey may also affect the ability of the Bank to branch into other states. Bank management anticipates that the Interstate Banking Act will increase competitive pressures in the Bank's market by permitting entry of additional competitors. 1996 Federal Banking Legislation The Economic Growth And Regulatory Paperwork Reduction Act of 1996 (the "1996 Banking Law"), enacted as Title II of the Omnibus Consolidated Appropriations Act for Fiscal Year 1997 was signed into Law on September 30, 1996, implemented a wide range of regulatory relief provisions affecting federal insured depository institutions. Among the supervisory provisions of the 1996 Banking Law which may affect the Bank, the 1996 Banking Law included the following: per branch capital requirement for 11 national banks were eliminated; ATM's and other remote service units were excluded from the definition of "branch" for purposes of certain branch approval requirements and geographic restrictions; the law permits well-capitalized banks rated CAMEL 1 or 2 to invest in bank premises in amounts up to 150 percent of the bank's capital and surplus with only a 30-day after-the-fact notice and establishes expedited procedures to permit certain bank holding companies to engage in permissible nonbanking activities, except for acquisitions of thrifts; exempted from the insider lending restrictions a bank's company-wide benefit or compensation plans that are widely available to employees of the bank and that do not give preference to any officer, director, or principal shareholder (or related interests) over other employees of the bank; permits the Federal banking agencies to raise the asset limit for an 18-month examination cycle from $175,000,000 to $250,000,000 for banks with a CAMEL 2 rating; permits the OCC to waive the State residency requirement for directors of national banks; eliminates the independent auditor attestation requirement for compliance with safety and soundness laws; authorizes the Federal banking agencies to permit a bank's independent audit committee to include some inside directors if the bank is unable to find competent outside directors, provided a majority of the committee is still made up of outside directors; requires FRB and the U.S. Department of Housing and Urban Development, within 6 months of enactment, to simplify and improve RESPA and TILA disclosures and provide a single format for such disclosures; makes a number of changes to RESPA's disclosure requirements; generally provides that, if a bank or a third party self-tests for compliance under the Equal Credit Opportunity Act and the Fair Housing Act, the test results will not be used against the bank if the bank identifies possible violations and is taking appropriate corrective actions, and if the bank is not using the results in its defense; sunsets the Truth-in-Savings Act's civil liability provision in five years; recapitalizes the SAIF as of October 1, 1996; requires banks after December 31, 1996 to pay 20% of the interest on the bonds that funded the initial capitalization of SAIF ("FICO bonds") but banks would be required to pay a full pro-rata share of the interest obligation beginning after the earlier of December 31, 1999 or the date on which the last savings association ceases to exist; merges SAIF and the BIF on January 1, 1999, but only if no insured depository institution is a savings association on that date; requires the Department of Treasury to conduct a study by March 31, 1997 on the development of a common charter for all insured depository institutions; substantially amends the Fair Credit Reporting Act ("FCRA"); prohibits the Federal banking agencies from examining for compliance with FCRA unless there has been a complaint about a violation or the agency otherwise has knowledge of a violation; and amends the Comprehensive Environmental Response, Compensation, and Liability Act to clarify that a lender is not liable for environmental cleanups of 12 property securing a loan unless the lender, among other things, participates in day-to-day decision making over the operations of the property or has control over environmental compliance and provides that lenders that foreclose on property may take certain post-foreclosure actions without incurring liability for environmental cleanup if the lender did not participate in management of the property prior to foreclosure and the lender seeks to dispose of the property as soon as it is commercially reasonable. Other Laws and Regulations The Company and the Bank are subject to a variety of laws and regulations which are not limited to banking organizations. In lending to commercial and consumer borrowers, and in owning and operating its own property, the Bank is subject to regulations and risks under state and Federal environmental laws. Legislation and Regulatory Changes Legislation and regulations may be enacted which increase the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions are frequently made in Congress and before various bank regulatory agencies. No prediction can be made as to the likelihood of any major changes or the impact such changes might have on the Company and the Bank. Effect of Government Monetary Policies The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The FRB has had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The FRB has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks' deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. 13 Competition The Bank faces significant competition both in generating loans and in attracting deposits. The central New Jersey area is a highly competitive market. The Bank is subject to vigorous competition in all aspects of its business from other financial institutions such as commercial banks, savings banks, savings and loan associations, credit unions, insurance companies and finance and mortgage companies. Within the direct market area of the Bank there are a significant number of offices of competing financial institutions. The Bank competes in its market area with a number of larger commercial banks that have substantially greater resources, higher lending limits, larger branch systems and provide a wider array of banking services. The effect of liberalized branching and acquisition laws has been to lower barriers to entry into the banking business and increase competition for banking business, as well as to increase both competition for and opportunities to acquire other financial institutions. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans. In its lending business, the Bank is subject to increasing competition from consumer finance companies and mortgage companies, which are not subject to the same kind of regulatory restrictions as banks and can often offer lower loan rates than banks. Financial institutions are intensely competitive in the interest rates they offer on deposits. In addition, the Bank faces competition for deposits from non-bank institutions such as brokerage firms and insurance companies in such instruments as short-term money market funds, corporate and government securities funds, mutual funds and annuities. Finally, a number of the Bank's competitors provide a wider array of services (such as trust and international services, which the Bank does not provide) and, by virtue of their greater financial resources, have higher lending limits and larger branch systems. Employees At December 31, 1997, the Company employed 169 full-time employees and 10 part-time employees. 14 Statistical Disclosure Statistical disclosure information regarding the Company is included in "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations," which is incorporated by reference to the Company's 1997 Annual Report to Stockholders. ITEM 2. PROPERTIES. The principal executive offices of the Company are located at 3111 Quakerbridge Road, Trenton, New Jersey in a building owned by the Bank and the management and staff of the Company utilize the facilities and equipment of the Bank. The Bank owns its principal executive offices, where it also has a banking office, in Yardville, New Jersey, and three additional banking offices in Hamilton Township, New Jersey. The Bank leases its banking office in Ewing Township, New Jersey. The lease provides for a term of five years ending in 1999, renewable for three 5- year periods, and a base monthly rental of $2,333.34 during the initial term. The Bank also leases its banking office in East Windsor Township, New Jersey. The lease provides for a term of five years ending in 1999, renewable for three 5-year periods, and provides for a base monthly rental of $2,457.92 during the initial term. The Bank also leases its banking office in Trenton. The lease provides for a term of five years ending in 1999, renewable for three 5-year periods, and provides for a base monthly rental of $1,875.00. The Bank also leases its banking office in Hamilton Square, New Jersey, which opened in the second quarter of 1996. The Bank assumed a 20 year lease effective April 1, 1996. The lease commenced on October 1, 1991 and ends on September 30, 2011 and is renewable for 5-year periods, and provides for a base monthly rental of $5,573.53 during the initial term. The Bank purchased a building and property in Ewing Township and opened its ninth branch in the third quarter of 1996. Yardville National Investment Corporation leases space from the Bank at the Bank's principal executive offices. The Bank also leases its Telephone Help Center located in Hamilton Township. The lease provides for a term of two years ending in August 31, 1999, renewable for a one year period and provides for a base monthly rental of $3,250. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to various legal actions as of December 31, 1997, arising out of the ordinary course of business. Management of the Company does not deem any of the claims against the Company in such matters are material in relation to the Company's financial condition, results of operations or liquidity based on information currently available to the Company. 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1997, through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information The Common Stock is traded in the NASDAQ National Market. The following table shows the range of high and low closing bid prices of the Common Stock in the NASDAQ National Market during 1996 and 1997. The prices below reflect the two-for-one stock split declared December 23, 1997. The price quotations reflect inter-dealer quotations without adjustment for retail markup, markdown or commission, and may not represent actual transactions. Bid Price High Low Year Ended December 31, 1996: - ----------------------------- First Quarter $ 8 1/2 $ 7 7/8 Second Quarter 8 3/8 7 3/4 Third Quarter 9 3/16 7 13/16 Fourth Quarter 10 1/2 9 Year Ended December 31, 1997: - ----------------------------- First Quarter $11 13/16 $ 9 5/8 Second Quarter 13 9 7/8 Third Quarter 14 3/4 12 3/8 Fourth Quarter 17 13/16 13 5/8 Holders As of December 31, 1997, the Company had approximately 581 holders of record of the Common Stock. 16 Dividends In 1996, the Company paid cash dividends on the Common Stock in the aggregate amount of $1,083,000. Dividends paid per share in 1996 totaled $0.225. In 1997, the Company paid cash dividends on the Common Stock in the aggregate amount of $1,233,000. Dividends paid per share in 1997 totaled $0.25. All dividend information reflects the two-for-one stock split declared December 23, 1997. In the first quarter of 1998, the Company paid a cash dividend in the amount of $.07 per share on the Common Stock. Because substantially all of the funds available for the payment of cash dividends are derived from the Bank, future cash dividends will depend primarily upon the Bank's earnings, financial condition, need for funds, and government policies and regulations applicable to both the Bank and the Company. As of December 31, 1997, the net profits of the Bank available for distribution to the Company as dividends without regulatory approval were approximately $6,512,000. The Company expects to pay quarterly cash dividends in 1998 to holders of Common Stock, subject to the Company's financial condition. ITEMS 6, 7 AND 8 Information required by items 6, 7 and 8 is provided in the Company's 1997 Annual Report to Stockholders under the captions and on the pages indicated below, and is incorporated by reference: PAGES IN 1997 ANNUAL REPORT CAPTION IN 1997 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15-35 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 36-52 INDEPENDENT AUDITORS' REPORT 53 The Company is not required to provide selected quarterly financial data in response to Item 8 and, therefore, such data has been omitted from the 1997 Annual Report to Stockholders. 17 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEMS 10 THROUGH 13 Information required by Items 10 through 13 is provided in the Company's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 28, 1998. Such information is incorporated by reference. The information contained in the Company's definitive proxy statement under the caption "Organization and Compensation Committee Report" shall not be deemed to be incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Exhibits The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page E-1. (b) Financial Statements The following audited consolidated financial statements and the Company's independent auditors' report thereon have been incorporated in this report by reference to the Company's 1997 Annual Report to Stockholders: 1. Consolidated Statements of Condition 2. Consolidated Statements of Income 3. Consolidated Statements of Changes in Stockholders' Equity 4. Consolidated Statements of Cash Flows 5. Notes to Consolidated Financial Statements 6. Independent Auditors' Report (c) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended December 31, 1997. 18 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized on March 25, 1998. YARDVILLE NATIONAL BANCORP By: /s/ Patrick M. Ryan -------------------------------- Patrick M. Ryan, President and Chief Executive Officer Signatures Title ---------- ----- /s/ Jay G. Destribats - ------------------------- Chairman of the Board Jay G. Destribats and Director /s/ Patrick M. Ryan - ------------------------- Director, President and Patrick M. Ryan Chief Executive Officer /s/ Stephen F. Carman - ------------------------- Treasurer, Secretary, Stephen F. Carman Principal Financial Officer and Principal Accounting Officer /s/ C. West Ayres - ------------------------- Director C. West Ayres /s/ Elbert G. Basolis, Jr. - ------------------------- Director Elbert G. Basolis, Jr. /s/ Lorraine Buklad - ------------------------- Director Lorraine Buklad /s/ Anthony M. Giampetro - ------------------------- Director Anthony M. Giampetro /s/ Sidney L. Hofing - ------------------------- Director Sidney L. Hofing /s/ James J. Kelly - ------------------------- Director James J. Kelly 19 Signatures Title ---------- ----- /s/ Gilbert W. Lugossy - ------------------------- Director Gilbert W. Lugossy /s/ Louis R. Matlack - ------------------------- Director Louis R. Matlack /s/ Weldon J. McDaniel, Jr - ------------------------- Director Weldon J. McDaniel, Jr. /s/ F. Kevin Tylus - ------------------------- Director F. Kevin Tylus 20 INDEX TO EXHIBITS
Exhibit Number Description Page - ------ ----------- ---- 3.1 Restated Certificate of Incorporation of the Company, as amended by the Certificate of Amendment thereto filed March 6, 1998 ................ **3.2 By-Laws of the Company................................................... **4.1 Specimen Share of Common Stock........................................... ****10.1 Employment Contract between Registrant and Patrick M. Ryan............... ****10.2 Employment Contract between Registrant and Jay G. Destribats............. 10.3 Employment Contract between Registrant and Stephen F. Carman............. 10.4 Employment Contract between Registrant and James F. Doran................ 10.5 Employment Contract between Registrant and Richard A. Kauffman........... 10.6 Employment Contract between Registrant and Mary C. O'Donnell............. 10.7 Employment Contract between Registrant 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 18, 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 as of February 9, 1996 ++10.18 1997 Stock Option Plan................................................... 10.19 Employment Contract between Registrant and Howard N. Hall................ 10.20 Employment Contract between Registrant and Sarah J. Strout............... 10.21 Employment Contract between Registrant and Nina D. Melker................ 10.22 Employment Contract between Registrant and Timothy J. Losch.............. 10.23 Survivor Income Plan for the Benefit of Timothy J. Losch ................ (Continued)
E-1
10.24 Lease Agreement between The Ibis Group and the Bank dated July, 1997..... 13.1 1997 Annual Report to Stockholders....................................... 21 List of Subsidiaries of the Registrant................................... 23.1 Consent of KPMG Peat Marwick LLP ........................................ 27.1 Financial Data Schedules.................................................
* 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 Registration Statement on Form SB-2 (Registration No. 33-78050) *** Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. **** Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. + Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, as amended by Form 10-Q/A filed on August 15, 1997. ++ Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 333-28193) E-2 EX-3.1 2 CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF YARDVILLE NATIONAL BANCORP To: The Secretary of State State of New Jersey EIN #22-2670267 Pursuant to the provisions of Section 14A:9-2(2) and Section 14A:9-4(2), Corporations, General, of the New Jersey Statutes (the "Business Corporation Act"), the undersigned corporation (hereinafter the "Corporation") executes the following Certificate of Amendment to its Certificate of Incorporation: 1. The name of the Corporation is Yardville National Bancorp. 2. Pursuant to Section 14A:7-15.1 of the Business Corporation Act, the board of directors of the Corporation adopted a resolution on December 23, 1997, approving the issuance on January 20, 1998, to each holder of record of the Common Stock, no par value, of the Corporation (the "Common Stock") on January 5, 1998 (the "Record Date"), of a dividend payable in additional shares of authorized but unissued shares of Common Stock at the rate of one share of Common Stock for each share of Common Stock held of record by each holder on the Record Date (the "Share Dividend"). The number of shares of Common Stock subject to the Share Dividend was 2,479,049 and the number of shares of Common Stock issued pursuant to the Share Dividend was 2,479,049. 3. In connection with the Share Dividend, pursuant to Section 14A:7-15.1 of the Business Corporation Act, the board of directors of the Corporation adopted the following amendment to the Corporation's Certificate of Incorporation(the "Certificate"): RESOLVED, that the first sentence of Article III.A. of the Certificate shall be amended and restated as follows: "The total authorized capital stock of the Corporation shall be 13,000,000 shares, consisting of 12,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock which may be issued in one or more classes or series." 4. The foregoing amendment to the Certificate will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series and will not result in the percentage of authorized shares that remains unissued after the Share Dividend exceeding the percentage of authorized shares that was unissued before the Share Dividend. Date: February 27, 1998. YARDVILLE NATIONAL BANCORP By: /s/ Patrick M. Ryan ----------------------------- Patrick M. Ryan, President and Chief Executive Officer -2- RESTATED CERTIFICATE OF INCORPORATION OF YARDVILLE NATIONAL BANCORP Pursuant to the provisions of Section 14A:9-5, Corporations, General of the New Jersey Statutes, the undersigned corporation (hereinafter the "Corporation") hereby executes the following Restated Certificate of Incorporation: ARTICLE I CORPORATION NAME The name of the Corporation shall be Yardville National Bancorp. ARTICLE II CORPORATE PURPOSE The purpose for which the Corporation is organized is to engage in any activities for which corporations may be organized under the New Jersey Business Corporation Act, subject to any restrictions which may be imposed from time to time by the laws of the United States or the State of New Jersey with regard to the activities of a bank holding company. ARTICLE III CAPITAL STOCK A. The total authorized capital stock of the corporation shall be 7,000,000 shares, consisting of 6,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock which may be issued in one or more classes or series. The shares of Common Stock shall constitute a single class and shall be without nominal or par value. The shares of Preferred Stock of each class or series shall be without nominal or par value, except that the amendment authorizing the initial issuance of any class or series, adopted by the Board of Directors of the Corporation (hereinafter, the "Board") as provided herein, may provide that shares of any class or series shall have a specified par value per share, in which event all of the shares of such class or series shall have the par value per share so specified. B. The Board is expressly authorized from time to time to adopt and to cause to be executed and filed without further approval of the shareholders amendments to this Restated Certificate of Incorporation authorizing the issuance of one or more classes or series of Preferred Stock for such consideration as the Board may fix. In an amendment authorizing any class or series of Preferred Stock, the Board is expressly authorized to determine: (1) the distinctive designation of the class or series and the number of shares which will constitute the class or series, which number may be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board; (2) the dividend rate on the shares of the class or series, whether dividends will be cumulative, and, if so, from what date or dates; (3) the price or prices at which, and the terms and conditions on which, the shares of the class or series may be redeemed at the option of the Corporation; (4) whether or not the shares of the class or series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relating to the operation thereof; (5) whether or not the shares of the class or series will be convertible into, or exchangeable for, any other shares of stock of the Corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (6) the rights of the shares of the class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (7) whether or not the shares of the class or series will have priority over, be on parity with, or be junior to the shares of any other class or series in any respect, whether or not the shares of the class or series will be entitled to the benefit of limitations restricting the issuance of shares of any other class or series having priority over or on parity with the shares of such class or series and whether or not the shares of the class or series are entitled to restrictions on the payment of dividends on, the making of other distributions in respect of, and the purchase or redemption of shares of any other class or -2- series of Preferred Stock or Common Stock ranking junior to the shares of the class or series; (8) whether the class or series will have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; and (9) any other preferences, qualifications, privileges, options and other relative or special rights and limitations of that class or series. ARTICLE IV CURRENT REGISTERED OFFICE AND CURRENT REGISTERED AGENT The address of the Corporation's current registered office is Woodland Falls Corporate Park, 200 Lake Drive East, Suite 206, Cherry Hill, New Jersey 08002, and the name of its current registered agent at that address is Stradley, Ronon, Stevens & Young, Attention: Joseph V. Del Raso, Esquire. ARTICLE V BOARD OF DIRECTORS A. Number of Directors; Classification. The number of directors of the Corporation shall be not less than 5 nor more than 25 persons. The exact number of directors within such minimum and maximum limitations shall be fixed from time to time by the Board pursuant to a resolution adopted by a majority of the entire Board. The directors constituting the Board shall be classified, with respect to the time for which they hold office, into three classes, as nearly equal in number as possible. At the annual meeting of shareholders held in 1986, one class will be elected for a term of two years, and another class will be elected for a term of three years, each class to hold office until its successors are elected and qualified. At each annual meeting thereafter the successors of the class of directors whose term expires in that year shall be elected to hold office for a term of three years and thereafter until their successors are elected and qualified. B. Newly Created Directorships and Vacancies. -3- Newly created directorships resulting from any increase in the number of directors may be filled by the Board and any vacancies on the Board resulting from death, resignation, disqualification, retirement, removal or other cause may be filled by the affirmative vote of a majority of the remaining directors even though less than a quorum of the Board, or by a sole remaining director. Any director chosen in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director. C. Removal. Any director, or the entire Board, may be removed at any time by the shareholders, with or without cause, but only by the affirmative vote of the holders of at least 80% of the shares of the Corporation entitled to vote for the election of directors. The Board may remove any director for cause by a majority vote of the entire Board. D. Amendment, Repeal, Etc. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of at least 80% of the shares of the Corporation entitled to vote thereon shall be required to amend or repeal any provision in this Article V. Notwithstanding the foregoing, the Corporation may issue Preferred Stock, and classes and series thereof, which grant the holders of such Preferred Stock, or any class of series thereof, the right to elect (annually or otherwise), and to remove, additional directors in the event of dividend default or arrearage. E. Current Directors. The number of directors constituting the current Board of Directors is twelve (12). The name and address of each of the directors is as follows: Jay G. Destribats Edward M. Hendrickson 4 Bernath Drive 625 Medford Leas Trenton, NJ 08610 Medford, NJ 08055 Patrick M. Ryan Gilbert W. Lugossy 63 Corona Court 100 W. Park Avenue Old Bridge, NJ 08610 Trenton, NJ 08610 -4- John C. Stewart Weldon J. McDaniel, Jr. 2238 Spruce Street 2238 Spruce Street Trenton, NJ 08638 Trenton, NJ 08620 C. West Ayres Samuel E. Proctor Route 130 & Jones Street 112 Mercer Street Burlington, NJ 08016 Hamilton Square, NJ 08690 Lorraine Buklad William J. Steiner, Jr. 2141 South Board Street 107 Brighton Drive Hamilton, NJ 08610 Mercerville, NJ 08619 Anthony M. Giampetro F. Kevin Tylus 643 North Ithan Avenue 4 Azalea Way Rosemont, PA 19010 Hamilton Square, NJ 08690 ARTICLE VI INDEMNIFICATION The Corporation shall indemnify its officers, directors, employees, and agents and formers officers, directors, employees and agents, and any other person 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, judgments, 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 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 could have the power to indemnify him against such liability under the provisions of this Article VI. ARTICLE VII -5- SHAREHOLDER ACTION; SPECIAL MEETINGS Any action required or permitted to be taken by the shareholders of the Corporation shall be effected at a duly called annual or special meeting of shareholders of the Corporation and may not be effected by any consent in writing by such shareholders unless all the shareholders entitled to vote thereon consent thereto in writing. Special meetings of shareholders of the Corporation may be called only by the Board pursuant to a resolution approved by a majority of the entire Board, or by the Chairman of the Board, the President, or the Executive Committee of the Board. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at 80% of the shares of the Corporation entitled to vote thereon shall be required to amend or repeal this Article VII. Notwithstanding the foregoing, the Corporation may issue Preferred Stock, and classes and series thereof, which grant the holders of such Preferred Stock the right to call a special meeting and to act by non-unanimous written consent. ARTICLE VIII BUSINESS COMBINATIONS A. Vote Required for Certain Business Combinations. In addition to any affirmative vote required by law or this Restated Certificate of Incorporation and except as otherwise expressly provided in paragraph B of this Article VIII, (1) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as hereinafter defined) or (b) any other corporation or other person (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder, or (2) any plan of exchange for all the outstanding shares of the Corporation or any Subsidiary or for any class of shares of either with (a) any Interested Shareholder or (b) any other corporation or other person (whether or not itself an Interested Shareholder) which is, or after such plan of exchange would be, an Affiliate of an Interested Shareholder, or (3) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions to or with any Interested Shareholder or Affiliate of any Interested Shareholder of any assets of the Corporation or any -6- Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $2,000,000 or more, or (4) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $2,000,000 or more, or (5) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder, or (6) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder (any transaction referred to in any one or more of clauses (1) through (6) of this paragraph is hereinafter referred to as a "Business Combination"), shall require the affirmative vote of the holders of at least 80% of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, by this Restated Certificate of Incorporation or otherwise. B. When Higher Vote is not Required. The provisions of paragraph A of this Article VIII shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law and any other provision of this Restated Certificate of Incorporation, if the Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined) or all of the following conditions shall have been met: -7- (1) The aggregate of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (ii) in the transaction in which it became an Interested Shareholder, whichever is higher; (b) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this Article VIII as the "Determination Date"), whichever is higher; and (c) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph B(1)(b) above, multiplied by the ratio of (i) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (ii) the Fair Market Value per share of Common Stock on the first day in such two-year period upon which the Interested Shareholder acquired any shares of Common Stock. (2) The consideration to be received by the holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class of Voting Stock. If the Interested Shareholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (3) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (b) -8- there shall have been (i) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any division of the Common Stock), except as approved by a majority of the Continuing Directors, and (ii) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (c) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder. (4) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (5) A proxy or information statement describing the proposed Business Combination, and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. Certain Definitions and Interpretations. For the purpose of this Article VIII: (1) "Person" shall mean any individual, firm, corporation or other entity. (2) "Interested Shareholder" shall mean any person (other than the Corporation or any Subsidiary) who or which (a) is the beneficial owner, directly or indirectly, of more than 10% of the outstanding Voting Stock, or -9- (b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock, or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. For the purpose of determining whether a person is an Interested Shareholder, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph C(3) of this Article VIII but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (3) A person shall be deemed the "beneficial owner" of any Voting Stock (a) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly, or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (4) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12B-2 of the General Rules and Regulations under the Securities and Exchange Act of 1934, as in effect on April 29, 1986. (5) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph C(2) of this Article VIII, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. -10- (6) "Continuing Director" means any member of the Board who was on the Board on April 29, 1986, and any subsequent member of the Board who is unaffiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. (7) "Fair Market Value" means (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stock, or if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc.'s Automated Quotation System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. (8) In the event of any Business Combination in which the Corporation survives, for purposes of paragraph B(1) and (2) of this Article VIII the consideration to be received shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (9) The directors of the Corporation shall have the power and duty to determine for the purposes of this Article VIII, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Shareholder, (b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $2,000,000 or more. D. No effect on Fiduciary Obligations of Interested Shareholders. -11- Nothing contained in this Article VIII shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. E. Amendment, Repeal, Etc. Notwithstanding any other provisions of this Restated Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Restated Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of 80% or more of the shares of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal this Article VIII. ARTICLE IX LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS A. A director or officer of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, except that such provision shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of such person's duty of loyalty to the Corporation or its shareholders, (ii) not in good faith or involving a knowing violation of law, or (iii) resulting in receipt by such person of an improper personal benefit. If the New Jersey Business Corporation Act is amended after March 17, 1987, to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director and/or officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the New Jersey Business Corporation Act as so amended. B. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation or otherwise shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification. ARTICLE X CONSIDERATIONS OF NON-ECONOMIC FACTORS IN CONSIDERING A TAKEOVER BID The Board, when evaluating any offer of another party to (i) purchase or exchange any securities or property for any outstanding -12- equity securities of the Corporation, (ii) merge or consolidate the Corporation with another corporation, or (iii) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation (each of the foregoing, an "Acquisition Proposal") shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its shareholders, give due consideration not only to the price or other consideration being offered but also to all other relevant factors, including without limitation the financial and managerial resources and future prospects of the other party, the possible effects of the Acquisition Proposal on the business of the Corporation and its subsidiaries and on the employees, customers, suppliers and creditors of the Corporation and its subsidiaries, and the effects of the Acquisition Proposal on the communities in which the Corporation's facilities are located. In so evaluating any Acquisition Proposal, the Board of Directors shall be deemed to be performing their duly authorized duties and acting in good faith and in the best interests of the Corporation within the meaning of the New Jersey Business Corporation Act, as it may be amended from time to time. YARDVILLE NATIONAL BANCORP By:/s/ Patrick M. Ryan ---------------------- Name: Patrick M. Ryan Title: President/CEO -13- EX-10 3 EXHIBIT 10.3 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation organized under the laws of the State of New Jersey, and Stephen F. Carman (the "Officer"). RECITALS WHEREAS, the Holding Company desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES During the period of his employment hereunder, the Officer shall serve as Executive Vice President and Chief Financial Officer of The Yardville National Bank (the "Bank") reporting to the President of The Bank. 2. TERMS AND DUTIES (a) The period of the Officer's employment agreement shall commence as of January 31, 1998, and shall continue for a period of twenty-four (24) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as herein defined). This Agreement is subject to approval, for continuation, by the President/Chief Executive Officer and the Board of Directors of the Yardville National Bancorp, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Executive Vice President and Chief Financial Officer of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause" means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $100,000.00, and an annual salary of not less than $110,000.00 in the second year of the contract period; which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary or said review shall be fixed by the Board from time to time. (b) The Executive shall be entitled to participate in or receive benefits under any retirement plan, pension plan, medical coverage or any other employee benefit plan or prerequisite arrangement currently available or which may hereafter be adopted by the Bank for its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the executive is entitled under this agreement. (c) The executive shall be provided by the Bank with an automobile for his individual use. (d) In addition to the salary provided for under Section 4: (a) the Bank shall pay for all reasonable travel and other reasonable expenses incurred by the Executive in performing his obligations under this Agreement. STOCK OPTIONS (a) the Bank agrees to grant to the Executive the right, privilege, and option to purchase 5,000 shares of its common stock of the bank Holding Company (at the private placement price of $16.00 (subject to shares becoming available through existing or additional approvals by shareholders) subject to the terms and conditions of the Holding Company's 1988 Stock Option Plan (the "Plan"). It is the intention of this Agreement that the Executive be granted options that will not be subject to state or federal income taxes when they are exercised, but rather only when the resultant stock is sold, assuming that such date of sale is at least two years after the date such options were granted one year after the date such stock was acquired by the executive. it is understood that the Holding Company will receive no tax benefits or tax deduction in connection with these options. (b) the options as to the 4,700 shares may be exercised by the Executive at any time during a period commencing with the vesting date of such options and ending three (3) years after the option grant date, except to the extent that said time period may be decreased in accordance with the provisions contained in Subsection 5(c), 5(f) and The options shall vest in accordance with the following schedule: Number of Options Vesting Date ----------------- ------------ 1570 November 25, 1993 1570 November 25, 1994 1560 November 25, 1995 The rights to exercise shall be cumulative, and any option exercised in a prior year may be exercised in a subsequent year throughout the ten year option period. (c) In connection with any proposed sale or conveyance of all or substantially all of the assets of the Bank or Holding Company or recently accomplished Change in Control of the Holding Company, the vesting schedule of all options granted hereunder to the Executive shall accelerate and 100% of all options shall immediately vest to the Executive. (d) If and to the extent that the number of issued shares of common stock of the Holding Company shall be increased or reduced by any change in the par value, split-stock, or the like, the number of shares proportionately adjusted. If the Holding Company is reorganized, consolidated or merged with another corporation in the same proportion and at an equivalent price and subject to the same conditions. For the purposes of the preceding sentence, the excess of the aggregate fair market value of all shares subject to the option immediately after the reorganization, consolidation or merger over the aggregate option price of such shares, and a new option or assumption of the old option shall not give the Executive additional benefits which he did not have under the old option. (e) The options granted hereunder are transferable by the Executive. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive two year's salary at the annual salary currently being paid, which payment shall be made in lump sum promptly after the occurrence of such termination. (b) The Officer will have the option within six (6) months after a Change in Control (as herein defined), to elect to resign his position. If the officer's voluntary departure is for other than death, disability or cause the Executive shall be entitled to receive two (2) years salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such voluntary resignation. 8. TERMINATION UPON DISABILITY (a) in the event that the Officer experiences a Disability during the period of his employment, his salary shall continue at the same rate as was in effect on the date of the occurrence of such Disability, reduced by any concurrent disability benefit payments provided under disability insurance maintained by the Bank. If such Disability continues for a period of six (6) consecutive months, the Bank at its option may thereafter, upon written notice to the Officer or his personal representative, terminate the Officer's employment with no further notice. 9. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 10. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bancorp /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- Patrick M. Ryan President/CEO WITNESS /s/ Stephen F. Carman - ------------------------- ---------------------------------- Stephen F. Carman Executive Vice President Chief Financial officer EX-10 4 EXHIBIT 10.4 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and James F. Doran (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES During the period of his employment hereunder, the Officer shall serve as First Senior Vice President and Senior Lending Officer of The Yardville National Bank (the "Bank") reporting to the President of The Bank. 2. TERMS AND DUTIES (a) The period of the Officer's employment agreement shall commence as of January 31, 1998, and shall continue for a period of twenty-four (24) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as herein defined). This Agreement is subject to approval, for continuation, by the President/Chief Executive Officer and the Board of Directors of the Yardville National Bank, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the First Senior Vice President and Senior Lending Officer of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause" means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $82,500.00, and an annual salary of not less than $85,000.00 in the second year of the contract period; which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary or said review shall be fixed by the Board from time to time. (c) The officer shall be provided by the Bank with an automobile for his individual use. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that the officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in lump sum promptly after the occurrence of such termination. 8. TERMINATION UPON DISABILITY (a) In the event that the Officer experiences a Disability during the period of his employment, his salary shall continue at the same rate as was in effect on the date of the occurrence of such Disability, reduced by any concurrent disability benefit payments provided under disability insurance maintained by the Bank. If such Disability continues for a period of six (6) consecutive months, the Bank at its option may thereafter, upon written notice to the Officer or his personal representative, terminate the Officer's employment with no further notice. 9. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 10. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bancorp /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- President/CEO WITNESS /s/ Sarah J. Strout /s/ James F. Doran - ------------------------- ---------------------------------- James F. Doran First Senior Vice President EX-10 5 EXHIBIT 10.5 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and Richard A. Kauffman (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, the Officer shall serve as Senior Vice President & Chief Technology Officer of The Yardville National Bank (the "Bank") reporting to the Executive Vice President and Chief Financial Officer. 2. TERMS AND DUTIES. (a) The period of the Officer's employment agreement shall commence as of January 31, 1998 and shall continue for a period of twelve (12) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as Herein defined). This Agreement is subject to approval, for continuation, by the President/CEO, and the Board of Directors of Yardville National Bank, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Senior Vice President and Chief Technology Officer of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause" means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class of equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the Bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $78,795.00, which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the Board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary on said review shall be fixed by the Board from time to time. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State of Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such termination. 8. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 9. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bank /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- President/CEO WITNESS /s/ Kathleen A. Fone /s/ Richard A. Kauffman - ------------------------- ---------------------------------- Individually EX-10.6 6 EXHIBIT 10.6 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and Mary C. O'Donnell (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES During the period of his employment hereunder, the Officer shall serve as First Senior Vice President and Chief Credit Officer of The Yardville National Bank (the "Bank") reporting to the President of The Bank. 2. TERMS AND DUTIES (a) The period of the Officer's employment agreement shall commence as of January 31, 1998, and shall continue for a period of twenty-four (24) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as herein defined). This Agreement is subject to approval, for continuation, by the President/Chief Executive Officer and the Board of Directors of the Yardville National Bancorp, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the First Senior Vice President and Chief Credit Officer of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause" means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $82,500.00, and an annual salary of not less than $85,000 in the second year of the contract period; which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary or said review shall be fixed by the Board from time to time. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) in the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in lump sum promptly after the occurrence of such termination. 8. TERMINATION UPON DISABILITY (a) In the event that the Officer experiences a Disability during the period of her employment, her salary shall continue at the same rate as was in effect on the date of the occurrence of such Disability, reduced by any concurrent disability benefit payments provided under disability insurance maintained by the Bank. If such Disability continues for a period of six (6) consecutive months, the Bank at its option may thereafter, upon written notice to the Officer or her personal representative, terminate the Officer's employment with no further notice. 9. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 10. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the _______ 31st ____ day of ________ January __, 1998. ATTEST: Yardville National Bank - --------------------------- ---------------------------------------- President/CEO WITNESS - --------------------------- ---------------------------------------- Mary C. O'Donnell First Senior Vice President EX-10 7 EXHIBIT 10.7 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and Frank Durand, III (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, the Officer shall serve as Senior Vice President and Bank Administrator of The Yardville National Bank (the "Bank") reporting to the Chairman of the Board. 2. TERMS AND DUTIES. (a) The period of the Officer's employment agreement shall commence as of January 31, 1998 and shall continue for a period of twelve (12) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as Herein defined). This Agreement is subject to approval, for continuation, by the President/CEO, and the Board of Directors of Yardville National Bank, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Senior Vice President and Bank Administrator of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class of equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the Bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $62,500.00, which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the Board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary on said review shall be fixed by the Board from time to time. (b) The Officer shall receive a monthly expense stipend of $250.00 for associated expenses incurred for extensive travel and vehicle maintenance for the performance of his duties as Bank Administrator. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extend that the officer may be legally entitled to participate by virtue of COBRA or any other State of Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such termination. 8. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 9. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bank /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- President/CEO WITNESS /s/ Kathleen A. Fone /s/ Frank Durand, III - ------------------------- ---------------------------------- Individually EX-10 8 EXHIBIT 10.19 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and Howard N. Hall (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, the Officer shall serve as Senior Vice President and Controller of The Yardville National Bank (the "Bank") reporting to the Executive Vice President and Chief Financial Officer. 2. TERMS AND DUTIES. (a) The period of the Officer's employment agreement shall commence as of January 31, 1998 and shall continue for a period of twelve (12) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as Herein defined). This Agreement is subject to approval, for continuation, by the President/CEO, and the Board of Directors of Yardville National Bank, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Senior Vice President and Controller of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause" means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class of equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the Bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $70,000.00, which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the Board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary on said review shall be fixed by the Board from time to time. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State of Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such termination. 8. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 9. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bank /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- President/CEO WITNESS /s/ Stephen F. Carman /s/ Howard N. Hall - ------------------------- ---------------------------------- Individually EX-10 9 EXHIBIT 10.20 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and Sarah J. Strout (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the Officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, the Officer shall serve as Senior Vice President and Commercial Lending Team Leader of The Yardville National Bank (the "Bank") reporting to the First Senior Vice President and Senior Lending Officer. 2. TERMS AND DUTIES. (a) The period of the Officer's employment agreement shall commence as of January 31, 1998 and shall continue for a period of twelve (12) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as Herein defined). This Agreement is subject to approval, for continuation, by the President/CEO, and the Board of Directors of Yardville National Bank, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Senior Vice President and Commercial Lending Team Leader of a commercial bank. 7 3. DEFINITIONS For purposes of the Agreement, (a) "Cause means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class of equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the Bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $71,379.00, which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the Board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary on said review shall be fixed by the Board from time to time. (b) The Officer shall receive a monthly expense stipend of $250.00 for associated expenses incurred for extensive travel and vehicle maintenance for the performance of her duties as Commercial Lending Team Leader. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that the Officer may be legally entitled to participate by virtue of COBRA or any other State of Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such termination. 8. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 9. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bank /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- xxxxxxxxxxxxxxx President/CEO WITNESS /s/ James F. Dorn /s/ Sarah J. Strout - ------------------------- ---------------------------------- Individually EX-10 10 EXHIBIT 10.21 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this thirty-first day of January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation organized under the laws of the State of New Jersey, and Nina D. Melker (the "Officer"). RECITALS WHEREAS, the Bank desires to employ and retain the services of the officer for the period provided in this Agreement; and WHEREAS, Officer is willing to serve in the employ of the Bank on a full-time basis for said period; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, the Officer shall serve as Senior Vice President and Retail Administrator of The Yardville National Bank (the "Bank") reporting to the Executive Vice President & Chief Operating Officer. 2. TERMS AND DUTIES. (a) The period of the Officer's employment agreement shall commence as of January 31, 1998 and shall continue for a period of twelve (12) full calendar months thereafter unless terminated by the Bank on account of death, disability or cause (as Herein defined). This Agreement is subject to approval, for continuation, by the President/CEO, and the Board of Directors of Yardville National Bank, at the conclusion of each contract period. Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Senior Vice President and Retail Administrator of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause means any of the following: (i) the willful commission of an act that causes that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in the concert of beneficial ownership of forty percent (40%) or more of any class of equity security of the Bank or the Bank's Holding Company, or (ii) the approval by the Board, and appropriate regulatory authorities of the sale of all or substantially all of the assets of the Bank or Holding Company, or (iii) the approval by the Board and appropriate regulatory authorities of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of an event described in clause (i) or (ii) above. (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment the Bank shall pay the Officer an annual salary of not less than $54,678.00, which salary shall be paid in bi-weekly installments. Such salary shall be reviewed by the Board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary on said review shall be fixed by the Board from time to time. (b) The Officer shall receive a monthly expense stipend of $250.00 for associated expenses incurred for extensive travel and vehicle maintenance for the performance of her duties as Retail Administrator. 5. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 6. TERMINATION BY THE OFFICER (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extend that the Officer may be legally entitled to participate by virtue of COBRA or any other State of Federal Law concerning employee rights to benefits upon termination. 7. CHANGE OF CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or cause, the Officer shall be entitled to receive eighteen (18) months salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such termination. 8. GOVERNING LAW This Agreement and other obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 9. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the 31st day of January, 1998. ATTEST: Yardville National Bancorp /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- President/CEO WITNESS /s/ Kathleen A. Fone /s/ Nina D. Melker - ------------------------- ---------------------------------- Individually EX-10.22 11 EXHIBIT 10.22 1 EMPLOYMENT CONTRACT This AGREEMENT is made effective as of this 2nd day of June, 1997 by and between THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation organized under the laws of the State of New Jersey, and Timothy J. Losch (the "Executive"). RECITALS WHEREAS, the Holding Company desires to employ and retain the services of the Officer; and WHEREAS, the Officer is willing to serve in the employ of the Bank; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, the Officer shall serve as Executive Vice President and Chief Operating Officer of the Yardville National Bank (the "Bank") reporting to the President and Chief Executive Officer. 2. TERMS AND DUTIES (a) The period of the Officer's employment under this Agreement shall commence as of June 2, 1997 and shall continue for a period of twenty (20) full calendar months unless terminated by the Bank on account of death, disability or cause (as herein defined). This Agreement is subject to approval, for continuation, by the President/CEO, and the Board of Directors of the Yardville National Bancorp, at the conclusion of each contract period (conclusion for this contract period will be January 31, 1999). Renewals shall be on the same terms and conditions as set forth herein, except for such modification of compensation and benefits as may hereafter be agreed upon between the parties hereto from time to time. 2 This Agreement shall be deemed to continue for an additional twelve months from each succeeding anniversary date of the Agreement, it being the intention of the parties that, unless notice is given to the contrary by either party, the Agreement shall be extended for an additional one year period so that there be a full twelve month term remaining. (b) During the period of employment, the Officer shall devote full time and attention to such employment and shall perform such duties as are customarily and appropriately vested in the Executive Vice President and Chief Operating Officer of a commercial bank. 3. DEFINITIONS For purposes of the Agreement, (a) "Cause" means any of the following: (i) the willful commission of an act that causes or that probably will cause substantial economic damage to the Bank or substantial injury to the Bank's business reputation; or, (ii) the commission of an act of fraud in the performance of the Officer's duties; or (iii) a continuing willful failure to perform the duties of the Officer's position with the Bank; or (iv) the order of a bank regulatory agency or court requiring the termination of the Officer's employment. (b) "Change in Control" means any of the following: (i) the acquisition by any person or group acting in concert of beneficial ownership of forty percent (40%) or more of any class of equity security of the Bank or the Bank's Holding Company, or, (ii) the approval by the Board of the sale of all or substantially all of the assets of the Bank or Holding Company; or, (iii) the approval by the Board of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (i) or (ii) above. 3 (c) "Disability" means a mental or physical illness or condition rendering the Officer incapable of performing his normal duties for the Bank. (d) "Willfulness" means an act or failure to act done not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank. 4. COMPENSATION AND REIMBURSEMENT (a) During the period of employment, the Bank shall pay to the Officer an annual salary of not less than $105,000.00, in the 1997 period of this agreement, and $115,000.00, in the second year (1998) of this agreement; proceeds shall be paid in bi-weekly installments. Such salary shall be reviewed by the Board or a duly appointed committee thereof at least annually and any adjustments in the amount of salary on said review shall be fixed by the Board from time to time. (b) The Officer shall be entitled to participate in or receive benefits under any retirement plan, salary continuation plan, pension plan, profit-sharing plan, stock plan, executive group term replacement plan, health-and-accident plan, medical coverage or any other employee benefit plan or prerequisite arrangement currently available or which may hereafter be adopted by the Bank for its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Officer under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Officer is entitled under this Agreement. (c) The Officer shall be provided by the Bank with an automobile for his individual use. (d) In addition to the salary provided for under Section 4: (a) The Bank shall pay for all reasonable travel and other reasonable expenses incurred by the Officer in performing his obligations under this Agreement. 4 5. STOCK OPTIONS (a) the Bank agrees to grant to the Officer the right, privilege, and option to purchase 5,000 shares of common stock of the Bank Holding Company at the fair market value of said stock as of the date of the Agreement, subject to the terms and conditions of the Holding Company's Stock Option Plan (the "Plan"). It is the intention of this Agreement that the Officer be granted options that will not be subject to state or federal income taxes when they are exercised, but rather only when the resultant stock is sold, assuming that such date of sale is at least two years after the date such options were granted one year after the date such stock was acquired by the Officer. It is understood that the Holding Company will receive no tax benefits or tax deduction in connection with these options. (b) the options as to the 5,000 shares may be exercised by the Officer at any time during a period commencing with the vesting date of such options and ending three (3) years after the option grant date, except to the extent that said time period may be decreased in accordance with the provisions contained in Subsections 5(c), 5(f) and 7(d). The options shall vest in accordance with the following schedule: Number of Options Vesting Date ----------------- ------------ 1750 June 2, 1998 1750 June 2, 1999 1500 June 2, 2000 The rights to exercise shall be cumulative, and any option not exercised in a prior year may be exercised in a subsequent year throughout the ten year option period. (c) In connection with any proposed sale or conveyance of all or substantially all of the assets of the Bank or Holding Company or recently accomplished Change in Control of the Holding Company, the vesting schedule of all options granted hereunder to the Executive shall accelerate and 100% of all options shall immediately vest to the Officer. (d) If and to the extent that the number of issued shares of common stock of the Holding Company shall increased by or reduced by any change in the par value, split-up, reclassification, distribution of a dividend payable in stock or the like, the number of shares proportionately adjusted. 5 If the Holding Company is reorganized, consolidated or merged with another corporation, the Executive shall be entitled to receive options covering shares of such reorganized, consolidated or merged corporation in the same proportion and at an equivalent price and subject to the same conditions. For the purposes of the preceding sentence, the excess of the aggregate fair market value of the shares subject to the option immediately after the reorganization, consolidation or merger over the aggregate option price of such shares shall not be more than the excess of the aggregate fair market value of all shares subject to the option immediately before such reorganization, consolidation or merger over the aggregate option price of such shares, and a new option or assumption of the old option shall not give the Officer additional benefits which he did not have under the old option. (e) The options granted hereunder are nontransferable by the Officer. (f) Any additional Incentive Stock Options granted, outside of this Agreement, will be periodically negotiated for the Officer under the terms and conditions of the shareholder approved Employee Stock Option Plan. 6. TERMINATION FOR CAUSE (a) The Officer shall not have the right to receive compensation or other benefits provided hereunder for any period after termination for Cause, except to the extent that Officer may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. (b) Any unexercised stock option granted to the officer shall become null and void effective upon the Officer's receipt of notice of termination for Cause and shall not be exercisable by the Officer at any time subsequent to such termination for Cause. 7. CHANGE IN CONTROL (a) In the event that within three (3) years after a Change in Control (as herein defined), the Officer's employment is terminated by the Bank, other than for death, disability or Cause, the Officer shall be entitled to receive two (2) years' salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such termination. 6 (b) The Executive will have the option within six (6) months after a Change in Control (as herein defined), to elect to resign his position. If the Executive's voluntary departure is for other than death, disability or cause the Executive shall be entitled to receive two (2) years salary at the annual salary currently being paid, which payment shall be made in a lump sum promptly after the occurrence of such voluntary resignation. 8. TERMINATION UPON DISABILITY (a) In the event that the Officer experiences a Disability during the period of his employment, his salary shall continue at the same rate as was in effect on the day of the occurrence of such Disability, reduced by any concurrent disability benefit payments provided under disability insurance maintained by the Bank. If such Disability continues for a period of six (6) consecutive months, the Bank at its option may thereafter, upon written notice to the Officer or his personal representative, terminate the Officer's employment with no further notice. 9. OTHER TERMINATION BY THE BANK (a) In the event the Officer's employment is terminated by the Bank, other than for disability, death or cause, and in the absence of occurrence of a Change in Control, the Officer will be entitled to payment of the remaining term of this agreement, at the annual salary currently being paid with said payment to be a lump sum payment upon termination. 10. TERMINATION BY THE EXECUTIVE (a) In the event of the Officer's voluntary termination, the Officer shall not have the right to receive compensation or benefits as provided hereunder after such date of termination, except to the extent that Executive may be legally entitled to participate by virtue of COBRA or any other State or Federal Law concerning employee rights to benefits upon termination. 11. SOURCE OF PAYMENTS It is intended by the parties hereto that all payments provided in this Agreement shall be paid in cash or check from the general funds of the Bank, as the case may be. 7 12. MODIFICATION AND WAIVER This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. 13. NOTICES Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by registered mail to his residence in the case of the Officer or to its principal place of business in the case of the Bank. 14. GOVERNING LAW This Agreement and the obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the laws of the State of New Jersey. 15. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties. It may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on the 2nd day of June, 1997, and as amended in 7(b) of this Agreement on the 31st day of January, 1998. ATTEST: YARDVILLE NATIONAL BANCORP /s/ Kathleen A. Fone /s/ Patrick M. Ryan - -------------------------- ---------------------------------- Patrick M. Ryan President/CEO WITNESS /s/ Kathleen A. Fone /s/ Timothy J. Losch - ------------------------- ---------------------------------- Timothy J. Losch Executive Vice President Chief Operating Officer EX-10 12 EXHIBIT 10.23 YARDVILLE NATIONAL BANK SURVIVOR INCOME PLAN FOR THE BENEFIT OF TIMOTRY J. LOSCH This agreement is made and entered into effective as of the 1st day of January, 1998, by and between YARDVILLE NATIONAL BANK, a corporation organized and existing under the laws of the state of New Jersey (hereinafter called "Company"), and TIMOTHY J. LOSCH hereinafter called "Executive"). WITNESSETH: WHEREAS, the Executive is now serving the Company as Senior Vice President and Chief Operating Officer; and WHEREAS, the services of the Executive is considered by the Company to be an invaluable contribution to the 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 Operating 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. ARTICLE TWO 2.1 Pre-Termination Survivor Income Benefit. If the Executive dies before otherwise terminating employment with the Company, the Company shall pay to the Executive's designated beneficiary the survivor income benefit described in Section 2.2. 2.2 Form of Benefits. The survivor income benefit shall be equal to SEVENTY-FIVE PERCENT (75%) of the Executive's final annual salary that was paid to him at the time of his death and shall be paid to the Executive's beneficiary in one hundred twenty (120) equal monthly installments payable on the first day of each month commencing with the first day of the month following the Executive's death until one hundred twenty (120) payments have been made. 2.3 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's surviving spouse, if any, and if none, to the Executive's surving children and the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Executive's estate. 2.4 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property; the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetency, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. ARTICLE THREE 3.1 Claims Review. The Company shall notify the Executive's beneficiary in writing, within ninety (90) days of his or her written application for benefits, of his or her eligibility or ineligibility for benefits under the Agreement. If the Company determines that the beneficiary is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of the Agreement on which the denial is based, (3) a description of any additional information or material necessary for the claimant to perfect his or her claim, and a description of why it is needed, 2 and (4) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the beneficiary wishes to have the claim reviewed. If the Company determines that there are special circumstances requiring additional time to make a decision, the Company shall notify the beneficiary of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period. 3.2 Review Procedure. If the beneficiary is determined by the Company to not be eligible for benefits, or if the beneficiary believes that he or she is entitled to greater or different benefits, the beneficiary shall have the opportunity to have such claim reviewed by the Company by filing a petition for review with the Company within sixty (60) days after the receipt of the notice issued by the Company. Said Petition shall state the specific reasons which the beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Company of the petition, the Company shall afford the beneficiary an opportunity to present his or her position to the Company orally or in writing, and the beneficiary shall have the right to review the pertinent document. The Company shall notify the beneficiary of its decision in writing within the sixty-day period stating specifically the bases of its decision, written in a manner calculated to be understood by the beneficiary and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Company, but notice of this deferral shall be given to the beneficiary. ARTICLE FOUR 4.1 lnsurance. If the Company PIP elects 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, 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 3 agrees to sign any papers that may be required for that purpose and to undergo any medical examination or tests which may be necessary. 4.2 Rights of the Executive. This article shall not be construed as giving the Executive or the Beneficiary any greater rights then those of any other unsecured creditor of the Company. Any insurance on the Executive's life is a general asset of the Company to which the Executive and designated beneficiary have no preferred or secured claim. ARTICLE FIVE Amendment and Termination. This agreement may be amended at any time or from time to time by written agreement of the parties. The Company may terminate this Agreement at any time prior to the Executive's death by written notice to the Executive. ARTICLE SIX Assignment. Neither the Executive, nor the Beneficiary, nor any other person entitled to payment hereunder 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 operator of law in the event of bankruptcy, insolvency or otherwise. ARTICLE SEVEN 7.1 Binding effect. This agreement shall be binding upon the parties, their heirs, executors, administrators, successors and assigns. This agreement is the entire agreement between the Company and the Executive, written or oral, related to the Company's obligation to pay any survivor income benefits to the Executive's beneficiaries or survivors. This agreement supersedes all prior agreements, understandings and negotiations. 7.2 No Guaranty of Employment. This Agreement is not an employment policy or contract and does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employer nor restrict the right of the Executive to terminate his employment at any time. 4 7.3 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 7.4 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of New Jersey. IN WITNESS WHEREOF the parties have executed this agreement this 20th day of March, 1998. /s/ Timothy J. Losch ______________________________ - ----------------------------- YARDVILLE NATIONAL BANK Timothy J. Losch By: /s/ Patrick M. Ryan ----------------------------------- Patrick M. Ryan, President & CEO ATTEST: Kathleen A. Fone ----------------------------------- EX-10 13 EXHIBIT 10.24 LEASE This lease ("Lease") is made and entered into by and between THE IBIS GROUP, a New Jersey general partnership, having an office at 3535 Quaker Bridge Road, Suite 105, Hamilton, New Jersey 08619 ("Landlord"), and YARDVILLE NATIONAL BANK, whose address is 3111 Quaker Bridge Road, in the City of Mercerville, County of Mercer, State of New Jersey ("Tenant"). I. DEFINITIONS A. Specific Definitions. As used throughout this Lease, the following terms have the following meanings: I Landlord: THE IBIS GROUP, a New Jersey general partnership 2 Tenant: YARDVILLE NATIONAL BANK 3 Premises: IBIS PLAZA consists of two (2) buildings, IBIS PLAZA NORTH, 3535 Quaker Bridge Road (Block 1358, Lot 47), consisting of approximately 50,000 square feet and IBIS PLAZA SOUTH, 3525 Quaker Bridge Road (Block 1358, Lot 46), consisting of approximately 68,000 square feet, both of which share common parking, ingress, egress and landscaping. The Premises are a portion of the building commonly known as IBIS PLAZA NORTH (hereinafter the "Building") located on the land known as Block 1358, Lot 47, Hamilton Township, Mercer County, New Jersey (hereinafter the "Land"), more particularly described as Suite 201 consisting of 3,000 Rentable Square Feet 4 Land: The real property on which the buildings are situated, commonly known and designated as Block 1358, Lots 46 and 47 on the current tax and assessment map of Hamilton Township, Mercer County, New Jersey. 5 Purpose: Office Use 6 a. Landlord's Address for Notices and All Payments: IBIS Group c/o George Geiger & Associates, Inc. 103 Carnegie Center, Suite # 319 Princeton, NJ 08540 b. Tenant's Address for Notices: Yardville National Bank P.O. Box 8487 Trenton, NJ 08650 7 Term: Two (2) years, commencing on September 1, 1997, and ending on August 3 1, 1999. In the event this Lease is extended beyond this latter date, "Term" means the end of any such extension period, unless the context indicates otherwise. 8 Base Rental and Base Operating Expense: The "Base Rental" is $39,000 per annum (3,000 square feet times $13.00 per square foot) or $3,250.00 per month, payable on the first (1st) day of 1 each month. The "Base Operating Expense" of $3.55 per square foot per month is included in and payable as part of the Base Rental. 9 Tenant's Pro Rata Share of Increase in Direct Expenses and Direct Tax Expenses: The percentage obtained by dividing the Premises Area by the Building Area which percentage is 2.54% multiplied by the particular expense item in question. 10 Additional Rental: That portion by which Tenant's pro rata share of the Direct Expenses (Operating Expenses) and Direct Tax Expenses, as these terms are hereinafter defined, exceed the Base Operating Expenses and Direct Tax Expenses of the buildings for each year of the Term and any renewal thereof. 11 Security Deposit: $6,500.00 to secure the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Term. 12 Base Year: The calendar year in which the Term commences. 13 Base Year for Real Property Taxes: The Base Year. 14 Anniversary Date: The first (1st) day of September, one (1) year after the date on which possession of the Premises is delivered to Tenant and the first (1st) day of every year after that date. 15 Adjustment Dates: The first (1st) day of September of each of the Term of this Lease commencing with the next succeeding January 1st after the commencement of the Term. 16 Direct Expenses: a. All direct costs of operation and maintenance of the Common Area, including, but not limited to, the following costs: water and sewer charges (other than individually metered utilities), property and liability insurance premiums, utilities (other than individually metered utilities), snow removal, landscaping, parking lot maintenance, parking lot lighting, labor, any costs incurred in the management of the buildings including management fees and professional accounting fees associated in the preparation of statements for the buildings' Operating Expenses, utilities (electric, gas and water) for common areas, waste removal, supplies, materials, equipment, tools, maintenance, costs, and upkeep of all common areas, all determined in accordance with Generally Accepted Accounting Principles. b. All costs, amortized over such period as Landlord shall determine, together with interest on such costs at the maximum legal rate on the unamortized balance, of any capital improvement made to the Building by Landlord after the Base Year which capital improvement acts in any manner to reduce any Direct Expenses of the building but not more than the amount of any such actual reduction. "Direct Expenses" shall not include depreciation on the Building of which the Premises are part or on equipment in such Building, loan payments, or real estate broker's commissions. 17 Direct Tax Expenses: a. All real property taxes and annual installments of real estate assessments on the Building and Land; personal property taxes on the personal property Landlord used in the operation of the Building and Land; taxes upon the gross or net rental income of Landlord derived from the Building and Land, excluding, however, state and federal personal or corporate income taxes measured by the 2 income of Landlord from all sources, and the costs of contesting by appropriate proceeding the amount or validity of any of such taxes. b. The parties recognize that, during the Term of this Lease or any extension of it, the present real property tax may be wholly or partly replaced or supplemented by another form of tax. In such an event, there shall be included within the definition of Direct Tax Expenses any such tax, levy, or assessment (other than federal, state, or city and county net income taxes or estate, gift or other similar taxes) that, now or in the future, and whether or not now customary or within the contemplation of the parties, may be charged to Landlord and is (i) levied upon, allocable to, or measured by the rental payable under this Lease, (ii) levied upon the business of owning and operating rental properties to the extent such tax is applicable to the Premises leased, (iii) levied upon or with respect to the possession, leasing, operation, management, or occupancy by Tenant of the Premises or any portion of it, or (iv) levied upon or measured by the value of Tenant's personal property of leasehold improvements. 18 Estimate: The projection by Landlord of the amount of Direct Expenses and Direct Tax Expenses for the stated calendar year and the amount of increase, if any, over the estimate for the preceding calendar year. B. General Definitions. As used throughout this Lease, the following words have the meanings set out after such words, unless the context in which they appear clearly indicates otherwise. 1 Alteration. Any addition or change to, or modification of, the Premises made by Tenant after any initial fixturing period, including, without limitation, the installation of fixtures, Tenant's trade fixtures, and Tenant's improvements as defined in this Lease. 2 Authorized Representative. Any officer, agent, employee, or independent contractor retained or employed by either party, acting within the authority given him or her by that party. 3 Damage. Death, injury, deterioration, or loss to a person or injury, deterioration, or loss to property caused by another person's acts or omissions. 4 Damages. Monetary compensation or indemnity that can be recovered in the courts by any person who has suffered damage to the person, property, or rights of such person through another's act or omission. 5 Destruction. Any damage, as defined in this lease, to or disfigurement of the Premises. 6 Encumbrance. Any deed of trust, mortgage, or other written security device or agreement affecting the Premises, and the note or other obligation secured by it. 7 Expiration. The coming to an end of the time specified in the Lease as its duration, including any extension of the Term, if applicable. 8 Good condition. The good physical condition of the Premises and each portion of the Premises, including, without limitation, signs, windows, appurtenances, and Tenant's personal property as defined in this Lease. "In good condition" means in the condition for buildings of the Building's class, neat, broom clean, and is equivalent to similar phrases referring to physical adequacy in appearance and for use. 3 9 Hold harmless. To defend and indemnify from all liability, losses, penalties, damages as defined in this Lease, costs, expenses, including, without limitation, attorneys' fees, causes of action, claims, or judgments arising out of or related to any damage, as defined in this Lease, to any person or property. 10 Law. Any judicial decision, constitution, statute, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the parties or the Premises, or both, in effect either at the time of execution of the Lease or at any time during the Term, including, without limitation, any regulation or order of a quasi-official entity or body such as Board of Fire Examiners or public utilities. 11 Lender. Beneficiary, mortgagee, secured party, or other holder of an encumbrance, as defined in this Lease. 12 Lien. Charge imposed on the Premises by someone other than Landlord by which the Premises are made security for the performance of an act. Most of the liens referred to in this Lease are mechanics' liens. 13 Maintenance. Repairs, replacement, repainting and cleaning. 14 Person. One or more human beings or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations, and any combination of human beings and legal entities. 15 Provision. Any term, agreement, covenant, condition, clause, qualification, restriction, reservation, or other stipulation in the lease that defines or otherwise controls, establishes, or limits the performance required or permitted by either party. 16 Rent. Base Rental, Additional Rental, Prepaid Rent, security deposit, and other similar charges payable by Tenant to Landlord. 17 Restoration. Reconstruction, rebuilding, rehabilitation, and repairs that are necessary to return destroyed portions of the Premises and other property to substantially the same physical condition as they were in immediately before the destruction. 18 Successor. Any assignee, transferee, personal representative, heir, or other person or entity succeeding lawfully, and pursuant to the provisions of this Lease, to the rights or obligations of either party. 19 Tenant's improvements. Any addition to or modification of the Premises made by Tenant before, at, or after commencement of the Term, including, without limitation, fixtures, but not including Tenant's trade fixtures, as defined in this Lease. 20 Tenant's personal property. Tenant's equipment, furniture, merchandise, and movable property placed in the Premises by Tenant, including Tenant's trade fixtures, as defined in this Lease. 21 Tenant's trade fixtures. Any property installed in or on the Premises by Tenant for purposes of trade, manufacture, ornament, or related use. 4 22 Termination. The ending of the Term for any reason before expiration, as defined in this Lease. II. LEASING AND PAYMENT OF BASE RENTAL A. Landlord leases to Tenant and Tenant rents from Landlord the Premises for the Term and for the Rent as defined in Specific Definitions. Tenant agrees to pay to Landlord each installment of Base Rental, in advance on the first (1st) day of each month of the Term with the Rent for the first (1st) month of the Term to be paid upon the execution of this Lease. B. The Rent shall be paid by Tenant to Landlord, without deduction or offset, in lawful money of the United States of America to The IBIS Group, c/o George Geiger & Associates, Inc. (Managing Agent), 103 Carnegie Center, Suite 319, Princeton, NJ, 08540 or at such other place as Landlord may from time to time designate in writing. C. No security or guaranty which may now or subsequently be furnished Landlord for the payment of the Rent or for performance by Tenant of the other covenants or conditions of this Lease shall in any way be a bar or defense to any action in unlawful detainer, or for the recovery of the Premises, or to any action which Landlord may at any time commence for a breach of any of the covenants or conditions of this Lease. III. ADDITIONAL RENTAL Tenant shall pay to Landlord as Additional Rent its pro rata share of increase in Direct Expenses and Direct Tax Expense. Landlord shall endeavor to give to Tenant on or before the Adjustment Date a statement of any increase in Additional Rental payable by Tenant under this Lease, but failure by Landlord to give such a statement by such a date shall not constitute a waiver by Landlord of its right to require an increase in Additional Rental. If Tenant's Additional Rental payable under this Lease as shown on the Adjustment Date statement is greater or less than the total amounts actually billed to and paid by Tenant pursuant to the estimate during the year covered by such statement, a payment shall be made by Landlord or Tenant, whichever the case may be, within thirty (30) days. Even though the Term has expired or terminated, and Tenant has vacated the Premises when the final determination is made of Tenant's pro rata share of increase in Direct Expenses and Direct Tax Expense for the year in which this Lease expires or terminates, Tenant shall immediately pay any increase due over the estimate, and, conversely, any overpayment made in the event such Expenses decrease shall be immediately refunded by Landlord to Tenant. IV. SECURITY Tenant shall pay to Landlord upon the execution of this Lease the Security Deposit required in Specific Definitions. Landlord shall not be required to segregate the Security Deposit from its other funds and no interest shall accrue or be payable with respect to it. V. OCCUPANCY A. The Premises shall be deemed ready for immediate occupancy in its "as is" condition. 5 B. In the event that the Premises are not ready for Tenant's occupancy at the time of the commencement of the Term fixed by this Lease, this Lease shall not be affected thereby, but in such event no rent shall be due hereunder until Landlord shall have given notice of completion to the Tenant or Tenant shall have in fact occupied the Premises unless the reason for the Premises not being ready are due to acts of Tenant, in which case Rent shall be due as called for under the terms of this Lease. VI. WORK TO BE PERFORMED BY LANDLORD Landlord shall not be required to perform any work upon the Premises of any type or nature unless a special agreement to that effect is expressed in a rider attached to and forming a part of this Lease, also known as the "Tenant Work Letter" and then only to the extent such work is set forth in the Tenant Work Letter. VII. RELOCATION OF TENANT Notwithstanding anything herein to the contrary, Landlord does hereby in all cases retain the right and power to relocate Tenant within the Building or in a building in which Landlord or the partners of the Landlord have an interest in space which is comparable to the Premises and suited to the Tenant's use, such right and power to be exercised reasonably and such relocation to be made at Landlord's sole cost and expense. Landlord shall not be liable or responsible for any claims, damages, or liabilities in connection with or occasioned by such relocation. Landlord's reasonable exercise of such right and power shall include, but shall in no way be limited to, a relocation to consolidate the rentable area occupied in order to provide Landlord services more efficiently, or a relocation to provide contiguous vacant space to a prospective tenant. If such a relocation is deemed necessary, such relocation shall be limited to once during the first initial two year term upon sixty (60) days notice to Tenant. VIII. USE OF PREMISES The leased Premises, or any part thereof, shall not be used by anyone except the Tenant, its invitees, customers and employees and shall be used or permitted to be used for no use other than the Use permitted in Specific Definitions above. Tenant acknowledges and agrees with Landlord that the Building should be maintained and preserved as a prestigious and first class office Building and that its special character arising from its location should be specifically protected and preserved. Tenant therefore represents that it is not leasing the Premises, and it will not use such Premises, for any purpose other than that provided in this Lease. Tenant further agrees that Landlord may refuse to consent to the assignment of this Lease or the subletting of the Premises for any of the following prohibited uses: an educational facility of any type including correspondence schools, employment agencies, model agencies, spas, health, physical fitness or exercise salons, small loan offices, real estate brokers, residential land development offices, dentist or other professions or businesses that by their nature tend to generate excess customer traffic or any other use which Landlord in good faith determines will or is likely to demean the character of the Building or its environment, and such refusal shall not be considered unreasonable. Moreover, Tenant specifically agrees that Landlord's leasing of any portion of the Building of which the Premises are a part for any of the foregoing prohibited uses shall not constitute or be deemed to constitute a waiver of Landlord's right to prohibit Tenant from assigning or subletting the leased Premises or any part thereof for any such prohibited use. 6 The Tenant will not, without the prior written consent of the Landlord, permit the preparation, dispensing or serving of any beverages and/or foods within the leased Premises, except that this shall not prohibit the consumption of hot and cold beverages or the consumption of sandwiches. Tenant shall not use the Premises so as to subject the Premises to the provisions of the Industrial Site Recovery Act, N.J.S.A. 13: 1k-6 et seq. ("ISRA") nor shall Tenant permit any hazardous substances or hazardous waste as defined in ISRA, the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. sec. 6901 et seq.), the Comprehensive Environmental Response Compensation and Liability Act (422 U.S.C. sec. 9601 et seq.) or any other State or Federal environmental law or regulation to be brought to the Premises or the property of Landlord on which the Premises are located. Tenant agrees to execute such documents as are reasonable required by Landlord in connection with compliance with ISRA and, if by reason of the activities of the Tenant at the Premises the Landlord's property is subjected to provisions of ISRA, Tenant agrees that it shall do all that is necessary in order to comply with the Environmental Clean-Up Responsibility Act including, at Landlord's option, (a) preparing and filing affidavits with ISRA so as to determine that ISRA does not apply to the premises, and/or (b) undertaking reasonable tests as are required from time to time to prepare clean up plans and implementing same, and/or (c) submitting such other and further information under oath so that Landlord may obtain a "negative declaration", and/or (d) obtaining an approved Clean-Up Plan and implementing of same so that Landlord may obtain an "negative declaration". IX. PARKING Landlord assigns to Tenant a number of parking spaces equal to three point seven per thousand square foot (3.7/1,000 S.F.). The spaces that the Tenant is entitled to shall be located in Landlord's outside parking lot (the "Outside Parking Area"). These spaces will not be specifically designated for the exclusive use of the Tenant, however, but rather shall be available to all tenants of the Building. The use of parking spaces assigned to Tenant shall be subject to such rules and regulations as may be established by Landlord, including all signs and notices posted by Landlord in the Outside Parking Area, or roadways leading thereto. Landlord reserves the right to designate all spaces in the Outside Parking Area as reserved for the tenants of IBIS PLAZA NORTH and SOUTH. Tenant agrees to comply with any law, regulation or ordinance regarding "car pooling" of employees. X. TENANT WORK LETTER Tenant accepts the Premises in "as is" condition. XI. ALTERATIONS, MECHANICS' LIENS Tenant shall not make, directly or indirectly, any alterations without first obtaining the written consent of Landlord. Any alteration shall become at once a part of the realty and belong to Landlord subject, however, to Landlord's right to require removal and restoration as provided in Surrender of Premises of this Lease. Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, material furnished, or obligations incurred by Tenant. Tenant agrees that if Tenant shall make any alterations of the Premises, Tenant will not take such action until five (5) days after receipt by Tenant of the written consent of Landlord required by this paragraph, in order that Landlord may post appropriate notices to avoid any possible liability with respect to mechanics' liens or other such claims. Tenant shall at all times permit such notices to be posted and to remain posted until the completion and acceptance of such work. Consent for such alterations shall not be unreasonably withheld by Landlord. 7 XII. COMPLIANCE WITH LAW Tenant shall, at its sole cost and expense, comply with all laws pertaining to Tenant's use of the Premises, and shall faithfully observe all laws in the use of the Premises. The judgment of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party to it or not, that Tenant has violated any law in the use of the Premises shall be conclusive of that fact as between Landlord and Tenant. Without limiting the generality of the foregoing, the duties of Tenant under this provision shall include the making of all such alterations of the premises as may be required by law by reason of the particular manner or mode of use of the premises by Tenant, or occasioned by reason of the failure of Tenant to maintain or repair the premises as required under this Lease. XIII. REPAIR By taking possession of the Premises leased under this Lease, Tenant accepts the Premises as being in good sanitary order, condition, and repair. Tenant's acceptance without written exception also constitutes a confirmation by the Tenant that all Landlord's work has been done in conformance with the Work Letter without defect. Tenant, at Tenant's sole cost and expense, shall keep the Premises and every part of it in good condition and repair, damage to it by fire, earthquake, act of God or the elements excepted. Tenant waives all rights to make repairs at the expense of Landlord as provided in any law, statute, or ordinance now or subsequently in effect. Upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in the same condition as when received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements excepted. No representations respecting the conditions of the Premises or the Building have been made by Landlord to Tenant except as specifically stated in this Lease. XIV. RULES AND REGULATIONS Tenant shall faithfully observe and comply with the rules and regulations printed on or attached to this Lease and all reasonable modifications of and additions to it from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of any of such rules and regulations. XV. RESTRICTIONS ON USE No use shall be made or permitted to be made of the Premises, nor acts done, that will increase the existing rate of insurance upon the Building, or cause a cancellation of any insurance policy covering such Building, or any part of it, nor shall Tenant sell, or permit to be kept, used, or sold, in or about the Premises any article that may be prohibited by the standard form of fire insurance policies. Tenant shall, at Tenant's sole cost and expense, comply with any and all requirements, pertaining to the Premises, of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance covering such Building and appurtenances. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, or use or allow the Premises to be used for any immoral, unlawful, or objectionable purposes. No loudspeakers or other similar device, system, or apparatus which can be heard outside the Premises shall, without the prior written approval of Landlord, be used in or at the Premises. Tenant shall not commit, or suffer to be 8 committed, any waste upon the Premises, or any nuisance, public or private, or other act or thing of any kind that may disturb the quiet enjoyment or cause unreasonable annoyance of any other tenant in the Building. XVI. INDEMNITY AND EXCULPATIONS; INSURANCE A. Exculpation and Indemnity of Landlord. Landlord shall not be liable to Tenant for any damage to Tenant or Tenant's property, and Tenant waives all claims against Landlord for damage to person or property from any cause. Tenant shall hold Landlord harmless from all damages arising directly or indirectly out of any damage or injury to any person or property occurring in, on, or about the premises and the buildings. B. Public Liability and Property Damage Insurance. Tenant at its cost shall maintain public liability and property damage insurance with liability limits of not less than $2,000,000.00 per occurrence insuring against all liability of Tenant and its authorized representatives arising out of and in connection with Tenant's use or occupancy of the premises. All public liability insurance and property damage insurance shall insure performance by Tenant of the indemnity provisions of this section. Both parties shall be named as additional insureds, the policy shall contain cross-liability endorsements, and shall be primary insurance as far as Landlord is concerned. C. Increase in Amount of Public Liability and Property Damage Insurance. Not more frequently than every three (3) years, if, in the opinion of Landlord's lender, the amount of public liability and property damage insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as reasonably required by Landlord's lender. D. Waiver of Subrogation. The parties release each other, and their respective authorized representatives, from any claims for damage or injury to any person, or to the Premises and the Building and other improvements in which the Premises are located, and to the fixtures, personal property, Tenant's improvements, and alterations of either Landlord or Tenant in or on the Premises and the Building and other improvements in which the Premises are located that are caused by or result from risks insured against under any fire and extended coverage insurance policies carried by the parties and in force at the time of any such damage. Tenant shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against Landlord in connection with any damage covered by any policy. E. Other Insurance Matters. All the insurance required under this Lease shall: 1 Be issued by insurance companies authorized to do business in the State of New Jersey, with a financial rating of at least an A + 3A status as rated in the most recent edition of Best's Insurance Reports. 2 Be issued as a primary policy. 3 Contain an endorsement requiring thirty (30) days written notice from the insurance company to both parties and Landlord's lender before cancellation or change in the coverage, scope, or amount of any policy. 4 Be renewed not less than twenty (20) days before expiration of the term of the policy. 9 Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with Landlord at the commencement of the Term and on each renewal of the policy. XVII. UTILITIES Landlord and Tenant hereby agree that all utilities (gas, electric, water and sewer) supplied to the Premises are separately metered and Tenant shall pay the cost of same. Landlord is obligated under this Lease to provide all water, sewer, electric and HVAC systems and equipment as required for general office purposes. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rent by reason of Landlord's failure to furnish any of the foregoing when such failure is caused by accident, breakage, repairs, strikes, lockouts, or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be liable under any circumstances for loss of business or injury to property, however occurring, through or in connection with, or incidental to, failure to furnish any of the foregoing. Landlord is obligated to complete repairs within a reasonable period of time and to take all steps possible not to interfere with Tenant's occupation and quiet enjoyment of the property during said repairs. Wherever heat-generating machines or equipment are used in the Premises by Tenant which affect the temperature otherwise maintained by the building air-conditioning system, Landlord shall have the right to install supplementary air-conditioning units in the premises and its cost, including the cost of installation and the cost of operation and maintenance, shall be paid by Tenant to Landlord forthwith upon demand. Tenant shall pay for all services and utilities not furnished by Landlord. XVIII. PERSONAL PROPERTY TAXES All property taxes assessed by any governmental body upon Tenant's personal property and Tenant's improvements shall be paid by Tenant and, should these taxes be applied in any manner to the real property taxes, Tenant, upon demand, will pay such personal property taxes to Landlord, who in turn will pay them to the proper tax collector. XIX. SURRENDER OF PREMISES Tenant agrees that prior to the expiration of the Term of the Lease, or upon the earlier termination of the Lease, or upon Tenant's unlawful abandonment of the Premises, whichever occurs first, Tenant will leave the Premises in the same condition as when received, reasonable wear and tear, loss by fire or other casualty, and acts of God excepted, and if Tenant made any alteration or improvement of the Premises, with or without Landlord's consent as required by the terms of this Lease, Tenant will in all cases restore the Premises substantially to their original condition as of the inception of the term of the Lease, wear and tear, loss by fire or other casualty, and acts of God excepted, unless Landlord has expressly set forth in writing that a particular alteration or improvement shall not be removed. XX. SURRENDER OF LEASE The voluntary or other surrender of this Lease by Tenant, accepted by Landlord, or the mutual cancellation of this Lease, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of any or all of such subleases or subtenancies. 10 XXI. ENTRY BY OWNER Tenant shall permit Landlord and its authorized representatives to enter the Premises at all reasonable times for purposes of inspection, maintenance, or making repairs or additions to, or alterations of, any other portion of the buildings, including the erection and maintenance of such scaffolding, canopies, fences, and props as may be required, or for the purpose of posting notices of non-liability for alterations or repairs, without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises occasioned by such acts, and Tenant shall permit Landlord, at any time within ninety (90) days prior to the expiration of this Lease, to list and show such Premises during normal business hours or otherwise and advertise same for rental within the Building or otherwise at sole option of Landlord. Landlord is obligated to complete repairs within a reasonable amount of time and to take all steps possible not to interfere with Tenant's occupation and quiet enjoyment of the property during said repairs. XXII. ESTOPPEL CERTIFICATES Tenant shall at any time and from time to time, upon not less than twenty (20) days prior written request by Landlord, execute, acknowledge, and deliver to such party a statement in writing certifying that this Lease is unmodified and in full force and effect, or if there has been any modification of this Lease that it is in full force and effect as modified and stating the modification or modifications, and that there are no defaults existing, or if there is any claimed default stating its nature and extent, and stating the dates to which the rent and other charges have been paid in advance. It is expressly understood and agreed that any such statement delivered pursuant to this section may be relied upon by any prospective purchaser of the estate of Landlord, or any lender or prospective assignee of any lender on the security of the Premises or the property of which it is a part, or any part of it, and by any third person. XXIII. ABANDONMENT OF PREMISES; TRADE FIXTURES Tenant shall not vacate or abandon the Premises at any time during the Term. If Tenant abandons, vacates, or surrenders the Premises, or is dispossessed by process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, and, at the option of Landlord, such property may either be removed and stored in any public warehouse or elsewhere at the cost of and for the account of Tenant. XXIV. REMOVAL OF TRADE FIXTURES OF TENANT AT END OF TERM If Tenant shall fully and faithfully perform all of Tenant's obligations under this Lease, then Tenant may, and upon the request of Landlord shall, remove all trade fixtures installed in the Premises by Tenant at the expiration or termination of the Term of this Lease, or any renewal of this Lease, provided that such removal may be effected without damage to the Premises. XXV. OPTION TO EXTEND No option to extend this Lease exists under any circumstance unless a written addendum executed by both Landlord and Tenant is attached hereto as an exhibit whether at the time of execution or thereafter but always prior to the termination, breach or expiration of the Lease Term. 11 XXVI. HOLDING OVER Any holding over after the expiration of the Term of this Lease without the consent of Landlord shall be construed to be a tenancy from month to month at a rent equal to TWICE (2 times) the rent payable as if this Lease were still in force and effect. XXVII. GRACE PERIOD A. No default or breach of any of the covenants and conditions shall exist on the part of Landlord or Tenant until the party claiming default or breach shall serve upon the other a written notice, as provided in this Lease, specifying with particularity the alleged default or breach, and the other party shall fail to perform or observe such a covenant or condition, as the case may be, within thirty (30) days after the serving of such notice on it ("Grace Period"). B. In the event, however, that any damage be incurred or created, or interest be charged by reason of lapse of time due to the failure or omission of such party to have performed or observed such covenant or condition, then such party shall bear and pay for such damage or discharge such interest as additional rental under this Lease. C. The foregoing Grace Period shall not apply to rent payments, other payments required of Tenant under this Lease, the time of such payments being of the essence of this Lease nor shall the Grace Period apply to breaches of Tenant that affect the compliance with laws, restrictions on use, alterations, insurance, Estoppel Certificate, insolvency, subletting and other "time sensitive" breaches. D. If either party shall be delayed or prevented from the performance of any act required by this Lease by reason of acts of God, strikes, lockouts, labor troubles, inability to procure materials, restrictive laws, or other cause, without fault and beyond the reasonable control of the party obligated (financial inability excepted), performance of such act shall be extended for a period equivalent to the period of such delay, provided, however, that nothing in this section shall excuse Tenant from the prompt payment of any rent or other charge required of Tenant except as may be expressly provided elsewhere in this Lease. XXVIII. EVENTS OF DEFAULT Each of the following events shall constitute a default of Tenant hereunder: A. If the Basic Rent or any part thereof or the Additional Rent or any part thereof due hereunder shall be unpaid when due. B. If the Leased Premises shall be vacated, deserted, or abandoned during the term hereof for a period for three (3) consecutive months. C. If Tenant, contrary to the provisions of this Lease, shall sell, assign or mortgage this Lease, or let or underlet the Leased Premises or any part thereof, or use or permit the same to be used for any purpose other than herein permitted. D. If Tenant shall make an agreement or composition or an assignment for the benefit of creditors, or if a receiver is applied for or appointed for Tenant, or if there be filed a petition in bankruptcy or insolvency or for an arrangement or reorganization by or against Tenant, or consented to by Tenant, or if Tenant is adjudicated a bankrupt or is adjudged to be insolvent or if Tenant is advertised to be sold out by any sale under process of law, or if the assets or property of Tenant in the Leased Premises shall be attached 12 or levied upon, or if this Lease or the estate of Tenant shall pass to another by virtue of court proceedings, writ of execution or operation of law. E. If Tenant fails to comply with any other provision of this Lease which imposes an obligation upon the Tenant, or if Tenant otherwise violates any provision or condition of this Lease. XXIX. LANDLORD'S REMEDIES UPON DEFAULT Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive but are in addition to any remedies now or later allowed by law. A. Landlord shall have the right either to terminate Tenant's right to possession of the Premises and thereby terminate this Lease or to have this Lease continue in full force and effect with Tenant at all times having the right to possession of the premises. Should Landlord elect to terminate Tenant's right to possession of the Premises and terminate this Lease, then Landlord shall have the immediate right of entry and may remove all persons and property from the Premises. Such property so removed may be stored in a public warehouse or elsewhere at the cost and for the account of Tenant. The Landlord may relet the premises for the purpose of mitigating damages suffered by Landlord because of Tenant's failure to perform Tenant's obligations under this Lease. B. Any proof of Tenant of the amount of rent loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting commercial property of the same type and use as the Premises, and in the same geographic vicinity; such two (2) real estate brokers shall select a third (3rd) licensed real estate broker; and the three (3) licensed real estate brokers so selected shall determine the amount of rent loss that could be reasonably avoided for the balance of the Term of this Lease after the time of award. The decision of the majority of such licensed real estate brokers shall be final and binding upon the parties to this Agreement. C. Should Landlord, following any breach or default of this Lease by Tenant, elect to keep this Lease in full force and effect, for so long as Landlord does not terminate Tenant's right to possession of the Premises, notwithstanding the fact that Tenant may have abandoned the Premises, then Landlord, in addition to all other rights and remedies which Landlord may have at law or in equity, shall have the right to enforce all of Landlord's rights and remedies under this Lease. Notwithstanding any such election to have this Lease remain in full force and effect, Landlord may at any time thereafter elect to terminate Tenant's right to possession of the Premises and thereby terminate this Lease for any previous breach or default which remains uncured, or for any subsequent breach or default. For the purposes of Landlord's right to continue this Lease in effect upon Tenant's breach or default, act of maintenance or preservation, or efforts of Landlord to relet the property, or the appointment of a receiver on initiative of Landlord to protect its interest under this Lease, does not constitute a termination of Tenant's right to possession. D. In the event Landlord elects, upon breach or default of this Lease by Tenant, to keep this Lease in full force and effect, Landlord may, as attorney-in-fact of Tenant, from time to time sublet the Premises or any part of it for such term and at such rent and upon such other terms as Landlord in Landlord's sole discretion may deem advisable, with the right to make alterations, restoration, and maintenance to the Premises. Upon each such subletting, (1) the Tenant shall be immediately liable to pay to Landlord, in addition to indebtedness other than rent due under this Lease, the cost of such subletting and of such alterations and repairs incurred by Landlord, and the amount by which the rent under this Lease for the period of such subletting (to the extent such period does not exceed the term of this Lease) exceeds the amount agreed to be paid as rent for the Premises for such period of such subletting, or (2) at the option of 13 Landlord, rents received from such subletting shall be applied: first, to payment of indebtedness other than rent due under this Lease from Tenant to Landlord; second, to the payment of costs of such subletting and of such alterations and repairs; third, to payment of rent due and unpaid under this Lease; and the residue, if any, shall be held by Landlord and applied in payment of future rents as they become due under this Lease. If Tenant has been credited with any rent to be received by such subletting under option (1) and such rent shall not be promptly paid to Landlord by the subtenant, or if such rent received from such subletting under option (2) during any month be less than that to be paid during that month by Tenant under this Lease, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No taking possession of the Premises by Landlord, as attorney-in-fact for Tenant, shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. At Landlord's option and application, a receiver for Tenant shall be appointed to take possession of the Premises and to exercise Landlord's right to sublet the premises as attorney-in-fact for Tenant and to apply any rent collected from the premises as provided in this lease. E. Nothing in this section affects the right of the Landlord to indemnification for liability arising prior to the termination of the Lease for personal injuries or property damage where the Lease provides for such indemnification. F. If Tenant shall be in default in the performance of any covenant to be performed by it under this Lease, then, after notice and without waiving or releasing Tenant from the performance of such covenant, Landlord may, but shall not be obligated to, perform any such covenant, and in exercising any such right pay necessary and incidental costs and expenses in connection with it. All sums so paid by Landlord, together with interest on it at the maximum rate of interest per year allowed by law, shall be deemed additional rental and shall be payable to Landlord on the next rent-paying day. G. Rent not paid when due shall bear interest at the maximum rate of interest per year allowed by law from the date due until paid. XXX. ATTORNEYS' FEES ON DEFAULT If Landlord shall obtain legal counsel or bring an action against the Tenant by reason of the breach of any covenant, warranty, or condition of this Lease, or otherwise arising out of this Lease, Tenant, if unsuccessful shall pay to the Landlord as the "prevailing party" reasonable attorneys' fees, which shall be payable whether or not such action is prosecuted to judgment. The term "prevailing party" shall mean the Landlord who obtains legal counsel or brings an action against the Tenant by reason of the Tenant's breach or default and obtains substantially the relief sought whether by compromise, settlement or judgment. XXXI. ASSIGNMENT OR SUBLETTING A. Tenant shall not assign this Lease or any interest in it, and shall not sublet the Premises or any part of it or any right or privilege appurtenant to this Agreement or permit any other person, the agents and servants of Tenant excepted, to occupy or use the Premises or any portion of it without first receiving the written consent of Landlord. Landlord agrees not to unreasonably withhold such consent but may, in lieu of granting such consent, terminate this Lease. A consent to one assignment, subletting, or occupation and use by another person shall not be deemed to be a consent to any other or further assignment, subletting, or occupation, nor a waiver of the provisions of this section, except as to the specific instance covered by it. Any such assignment, subletting, or occupation without consent shall be void and shall at the option of 14 Landlord terminate this Lease. This Lease and any interest in it shall not be assignable as to the interest of Tenant by operation of law without the written consent of Landlord. B. Any transfer of shares by Tenant by reason of which the present shareholders own less than fifty-one percent (51%) of the outstanding stock of Tenant or a surviving corporation shall constitute an assignment of this Lease subject to the provisions limiting assignment. C. Except as otherwise expressly provided in this Lease, Tenant shall remain fully liable on this Lease and shall not be released from performing any of the terms, covenants, and conditions of this Lease unless Landlord consents. D. Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent from any subletting of all or a part of the Premises as permitted by this Lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this Lease, except that, until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent. E. In no event shall Tenant assign this Lease or sublet the Premises, or any portion of it, to any then-existing or prospective Tenant of the buildings. F. Tenant agrees to reimburse Landlord for all expenses and time, including attorneys' fees, incurred by Landlord in connection with any requested and permitted assignment or subleasing. This sum shall be in addition to the attorneys' fees and costs allowed under this Lease. XXXII. TRANSFER BY LANDLORD; RELEASE FROM LIABILITY In the event Landlord shall sell or transfer the buildings or any part of it, and as a part of such transaction shall assign its interest as Landlord in and to this Lease, then from the effective date of such a sale, assignment, or transfer Landlord shall have no further liability under this Lease to Tenant except as to any matters of liability that have accrued and are unsatisfied and of which the Landlord has been given written notice as of such a date, it being intended that the covenants and obligations contained in this Lease on the part of Landlord shall be binding upon Landlord and its successors and assigns only during their respective periods of ownership of the fee or leasehold estate, as the case may be and any undisclosed claims or causes of action of the Tenant are waived and released. XXXIII. DAMAGE TO OR DESTRUCTION OF PREMISES In the event of a partial destruction of the Premises from any cause covered by Landlord's standard fire and extended coverage insurance, Landlord shall immediately repair such destruction, provided the cost of repair does not exceed the insurance proceeds and such repairs can be made within ninety (90) days, but such partial destruction shall in no way annul or void this Lease, and Tenant shall not be entitled to a proportionate reduction of rent while such repairs are being made. If such partial destruction was caused by any risk not covered by Landlord's insurance, or if the cost of repair exceeds the insurance proceeds payable, Landlord may, at its option, make such repairs, provided the repairs can be made within ninety (90) days, and the Lease shall remain in full force and effect. If the Landlord does not elect to make repairs it is not obligated to make, or if such repairs cannot be made within ninety (90) days, or if such repairs cannot be made under law, this Lease may be terminated at the option of either party. In the event the building is destroyed to the extent of not less than thirty-three and one-third percent (33 1/3%) of the replacement cost 15 of it, Landlord may elect to terminate this Lease, whether the Premises are injured or not and without liability to Tenant. A total destruction of the Premises, or of the building, shall terminate this Lease. In the event of any dispute between Landlord and Tenant relative to the provisions of this section, they shall submit their dispute to arbitration in accordance with the rules of the American Arbitration Association. The arbitration shall take place in the State of New Jersey. New Jersey law shall apply. A written decision is to be required and requested from the Arbitrator by both parties. The arbitration shall be final and binding upon both Landlord and Tenant. If the American Arbitration Association and/or the Arbitrator refuses to provide the parties with a written opinion then this clause requiring Arbitration shall be void and of no force and effect. The cost of such arbitration shall be borne equally between Landlord and Tenant. XXXIV. EMINENT DOMAIN If all or any part of the Premises shall be taken or appropriated by any public or quasi-public authority under any power of eminent domain, either party to this Agreement shall have the right, at its option, to terminate this Lease upon notice given within ninety (90) days after the date of such taking or appropriation. In such event, Landlord shall be entitled to, and Tenant upon demand of Landlord shall assign to Landlord, any rights of Tenant to any and all income, rent, award, or any interest which may be paid or made in connection with such public or quasi-public use or purpose, and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease. XXXV. SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST This Lease shall be subject and subordinate at all times to the lien of any mortgages now or hereafter placed on the land and buildings of which the Leased Premises form a part and also to all renewals, modifications, consolidations and replacements thereof. Although no instrument or act on the part of the Tenant shall be necessary to effectuate such subordination, the Tenant, nevertheless, covenants and agrees to execute and deliver upon demand such further instrument or instruments subordinating this Lease to the lien of any such mortgage or mortgages as shall be desired by any mortgagee or proposed mortgagee. Tenant further acknowledges that the Landlord may be required by any mortgagee or proposed mortgagee to assign this Lease as additional security for any mortgage or proposed mortgages, and Tenant agrees that it will upon demand join with Landlord in the execution of any such assignment or agreement, which may be in form for recording, as any such mortgagee or proposed mortgagee may reasonably require. Tenant's failure to comply on demand with the provisions hereof shall constitute a default under this Lease. Tenant hereby appoints Landlord attorney-in-fact, irrevocably, to execute any such instruments for Tenant. XXXVI. WAIVER The waiver by Landlord of any breach of any term, covenant, or condition contained in this Lease shall not be deemed to be a waiver of such term, covenant, or condition, or of any subsequent breach of such term, covenant, or condition, or of any other term, covenant, or condition in this Lease. The acceptance of rent under this Lease by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of this Lease other than Tenant's breach in failing to pay the particular rent so accepted regardless of Landlord's knowledge of such additional preceding breach at the time of the acceptance of such rent. XXXVII. MISCELLANEOUS A. Time is of the essence of this Lease and each and all of its provisions. 16 B. All notices to be given to Tenant may be given in writing personally or by depositing such notices in the United States mail, certified mail, return receipt requested, postage prepaid, and addressed: if to Tenant, at Tenant's Address for Notices as set forth in Specific Definitions or at such other place or places as Tenant may from time to time designate in writing; if to Landlord, at the Landlord's Address for Notices as set forth in Specific Definitions, or at such other place or places as Landlord may from time to time designate in writing. C. This Lease represents the entire agreement of the parties with respect to the parties' rights and duties under this Lease. Tenant acknowledges that neither Landlord nor any agent, servant, or representative of Landlord, or any person purporting to act on Landlord's behalf, has made any representation, warranty, or statement with respect to the amount of taxes that may or will be assessed against the Premises or about the cost of any insurance required to be secured by Tenant under this Lease or any other matter relating to this Lease that is not expressly covered in this Lease. With respect to such matters, Tenant is relying upon Tenant's own independent investigation and sources of information, and Tenant expressly waives any right Tenant might otherwise have under the law to rescind this Lease or to claim damages by reason of the fact that such taxes or assessments or costs of insurance may be in excess of any sum deemed reasonable by Tenant, or in excess of any amount Tenant anticipated paying under this Lease. D. This Lease contains all the agreements of the parties with respect to the subject matter and cannot be amended or modified except by a written agreement. E. The Definitions contained at the beginning of and in the text of this Lease shall be used to interpret this Lease. F. Landlord shall not become or be deemed a partner or a joint venturer with Tenant by reason of the provisions of this Lease. G. The table of contents and headings of the sections of this Lease are descriptive and for convenience only, are not a part of this Lease, and shall have no effect on the construction or interpretation of this Lease. H. All provisions, whether stated as covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. I. The terms, conditions, covenants and provisions of this Lease shall be deemed to be severable. If any clause or provision herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. In addition, the Landlord may pursue the relief or remedy sought in any invalid clause, by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency in such case made and provided as if the particular provisions of the applicable statutes or regulations were set forth herein at length. J. In all references herein to any parties, persons, entities or corporations the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the test of the within instrument may require. All the terms, covenants and conditions herein contained shall be for and shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assigns. 17 K. The Tenant shall not erect, make or maintain on or attach or affix to any part of the Leased Premises or the Building in which the same is located, including the windows and doors of said Building, but excluding interior walls within Leased Premises except those visible from the exterior, any sign, fixture, other representation, advertisement, notice of any kind or any other matter which is visible from any location outside of such Building or the Leased Premises, or visible from the lobby of such Building, without the express written consent of the Landlord obtained prior to commencement of the Lease. In the event that such restriction is violated, the Landlord shall have the right to remove same on twenty-four (24) hours notice or to pursue any other remedy available to it at law or in equity, including but not by way of limitation, the right to declare a default in the Lease. L. The Tenant agrees to pay for the cost of all telephone equipment and installation including telephone outlets throughout the Leased Premises unless a telephone system communications company agrees to pay for same. M. Tenant covenants and agrees that no diminution of light, air, or view by any structure which may subsequently be erected, whether or not by Landlord, shall entitle Tenant to any reduction of rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease. N. Tenant shall not use the name of the Building for any purpose other than as the address of the business conducted by Tenant in the Premises without the written consent of Landlord. 0. Common facilities for purposes of this Lease shall mean the non-assigned parking areas, landscape, lobby, fire stairs, public hallways, public lavatories, and all other general building facilities that service all Building tenants; air conditioning room, fan room, janitor's closet, electrical closet, telephone closet, boiler room, flues stacks, pipe shafts and vertical ducts with their enclosing walls. P. The Landlord will not provide any janitorial service but will provide waste removal service by placing containers on the Premises for regular solid waste, cardboard, glass and aluminum. This will not include any waste removal for waste that requires special methods of disposal as prescribed by Federal, State or local authorities. Q. Tenant agrees not to conduct "Quitting Business", "Lost Our Lease", "Bankruptcy", or other such types of sales on the Premises without Landlord's written consent. R. Any lettering, "logo" or design or artwork placed upon the entrance doors to Tenant's Premises shall be subject to the reasonable approval of the Landlord. If such signage requires permits from local authorities, the cost of permits and approvals will be for the Tenant's account. Standard building signage located next to entrance door of Premises will be Landlord's responsibility. S. Any reasonable rules and regulations with regard to the use and occupancy of the Leased Premises and the Building of which they are a part by the Tenant as attached hereto or as adopted at any time during the term of this Lease and of which the Tenant is notified, shall in all things be observed and performed by the Tenant, its servants, agents, and invitees, provided that such rule shall not be inconsistent with the Tenant's rights or the Landlord's obligations as herein expressed. T. At least ninety (90) days before the last day of the Term, Tenant shall give to Landlord a written notice of intention to surrender the Premises on that date, but nothing contained in this Lease shall be construed as an extension of the Term or as consent of Landlord to any holding over by Tenant. 18 U. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. V. The provisions of this Lease shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, administrators, and executors, of the parties. W. This Lease shall be construed and interpreted in accordance with the laws of the State of New Jersey. An Addendum one page in length describing the Renewal Option is attached to this Lease and same is incorporated in this Lease and made a part of it. The parties have executed this Agreement this day of , 1997. - ------------------------------- ------------------------------------ WITNESS: THE IBIS GROUP, BY: Partner - ------------------------------- ------------------------------------ ATTEST, SECRETARY YARDVILLE NATIONAL BANK, BY: Corporate Resolution authorizing the Tenant's leasing of the Premises and execution of this Agreement is attached hereto and made a part hereof as Exhibit "A". CERTIFICATION BY TENANT Tenant certifies that Tenant has carefully read and understood every word in this Lease and by signing this Lease agrees to faithfully comply with its provision - ------------------------------- ------------------------------------ WITNESS: THE IBIS GROUP, BY: Partner - ------------------------------- ------------------------------------ ATTEST, SECRETARY YARDVILLE NATIONAL BANK, BY: ADDENDUM OPTION Provided that Tenant shall not be in default of any terms, provisions, conditions or covenants herein at the time of the exercise of this option and at the time said option shall take effect, and provided further that Tenant is substantially physically occupying the Leased Premises so as to enable Tenant to carry out its business at the time of the exercise of the option and at the time said option take effect, Tenant shall have the right to extend the term of this Lease for one (1) additional period of one ( 1 ) year commencing on the date following termination of the initial Term. Said option to extend the Term shall be on the same terms, conditions, provisions and covenants as are set forth herein, with the following exceptions: A. The "Base Rental" during the option period shall be $45,000.00 per annum (3,000 square feet times $15.00 per square foot) or $3,750.00 per month, payable on the first (1st) day of each month. The "Base Operating Expense" of $3.55 per square foot per month is included in and payable as part of the Base Rental. B. Nothing contained herein shall be construed to permit or grant any option(s) or extension(s) of the Term beyond the option period set forth herein. C. Notice: The option herein granted to extend the Term shall be exercised by Tenant by the delivery of written notice thereof to Landlord, not less than six (6) months prior to the expiration of the initial or first extended Term as the case may be. In the event that Tenant shall fail to deliver said notice within such time, it shall be conclusively deemed to mean that Tenant has elected not to exercise said option, whereupon all options shall cease and terminate and be of no further force and effect. - ------------------------------- ------------------------------------ WITNESS THE IBIS GROUP, BY: Partner - ------------------------------- ------------------------------------ ATTEST, SECRETARY TENANT, BY: EX-13 14 EXHIBIT 13.1 YARDVILLE NATIONAL BANCORP stability progress YNB community strength 1997 ANNUAL REPORT Table of Contents FINANCIAL HIGHLIGHTS____________________________________________________ 3 MANAGEMENT LETTER_______________________________________________________ 5 HONORING THE PAST, BUILDING FOR THE FUTURE______________________________ 9 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA_________________________ 13 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS__________________________ 15 FINANCIAL STATEMENTS____________________________________________________ 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS______________________________ 40 INDEPENDENT AUDITORS' REPORT____________________________________________ 53 OFFICERS________________________________________________________________ 54 BOARD OF DIRECTORS______________________________________________________ 55 STOCKHOLDER INFORMATION_________________________________________________ 56 ON THE COVER: THE FORMER U.S. POST OFFICE AT EAST STATE AND MONTGOMERY STREETS IN TRENTON, BUILT IN 1910. new logo modern headquarters state-of-the-art technology traditional banking personal service community commitment Moving Forward AT YNB, WE PRESERVE THE OLD WHILE WE MOVE FORWARD TO NEW AND MODERN BANKING CONCEPTS. WHEN OUR NEW CORPORATE HEADQUARTERS SHOWN HERE IS COMPLETED NEXT YEAR, WE'LL GAIN EFFICIENCY OF OPERATIONS AND MUCH-NEEDED NEW SPACE IN ORDER TO GROW AND SERVE OUR CUSTOMERS BETTER. BUT AT BRANCHES LIKE OUR HISTORIC YARDVILLE MAIN OFFICE, AS WELL AS IN MODERN OFFICES THROUGHOUT OUR BRANCH NETWORK, YNB PEOPLE WILL CONTINUE TO DELIVER THE HIGH QUALITY PERSONAL ATTENTION THAT HAS BEEN OUR TRADEMARK FOR ALMOST THREE-QUARTERS OF A CENTURY. YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES Financial Highlights
- ------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1997 1996 Increase - ------------------------------------------------------------------------------------- For the Year Ended December 31 Net income $ 5,006 $ 4,026 24.3% Cash dividends declared per common share* 0.25 0.225 11.1 - ------------------------------------------------------------------------------------- Balance Sheet Data as of December 31 Total assets $614,686 $490,545 25.3% Total deposits 422,944 364,445 16.1 Total loans 385,751 331,237 16.5 Stockholders' equity 39,745 35,230 12.8 - ------------------------------------------------------------------------------------- Consolidated Ratios Return on average assets 0.93% 0.90% Return on average stockholders' equity 13.32 12.25 Total equity to total assets 6.47 7.18 Tier I capital to risk-weighted assets 12.24 10.17 Total capital to risk-weighted assets 13.49 11.43 Nonperforming loans to total assets 0.86 1.66 Nonperforming loans to year-end loans 1.38 2.46 - -------------------------------------------------------------------------------------
* Adjusted for two-for-one stock split effected in the form of a stock dividend declared December 23, 1997. ================== INSERT CHARTS HERE ================== 3 Long-Term Stability MEMBERS OF YNB SENIOR MANAGEMENT DISCUSS THE BANK'S FUTURE IN THE HISTORIC KUSER FARM MANSION IN HAMILTON TOWNSHIP. LEFT TO RIGHT: JAY G. DESTRIBATS, CHAIRMAN; PATRICK M. RYAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER; STEPHEN F. CARMAN, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER; AND TIMOTHY J. LOSCH, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER HAMILTON TOWNSHIP. THE EXTERIOR OF THE KUSER FARM MANSION, ORIGINALLY SUMMER HOME TO THE FRED KUSER FAMILY. THE KUSERS OWNED THE MERCER MOTOR CAR COMPANY ALONG WITH THE ROEBLING FAMILY AND WERE MAJOR FINANCIERS OF THE FOX FILM CORPORATION, WHICH LATER BECAME 20TH CENTURY FOX. THE HOUSE MUSEUM IS NOW A MAJOR TOURIST ATTRACTION OWNED BY HAMILTON TOWNSHIP. 4 "This past year, YNB has continued its development into a bank well-positioned to serve customers into the next century." To Our Shareholders Employees and Friends AS WE MOVE WITH GREAT ENTHUSIASM INTO THE FUTURE OF BANKING, WE AT YARDVILLE NATIONAL BANK WORK HARD TO RETAIN ALL THE POSITIVE ELEMENTS OF OUR PAST. THE TRADITION OF ATTENTIVE PERSONAL SERVICE NEVER GROWS OLD. NEITHER DOES THE VALUE OF COMMUNITY COMMITMENT AND MARKET KNOWLEDGE. IN THIS YEAR'S ANNUAL REPORT, WE INTEND TO DEMONSTRATE HOW YNB BLENDS THE BEST OF BOTH THE PAST AND THE FUTURE, HONORING OUR TRADITIONS WHILE OFFERING STATE-OF-THE-ART BANKING PRODUCTS AND SERVICES. This year, we also want to take special note of the important role you, as stakeholders in this institution, play in our success. We identify ourselves as a community bank. This means, of course, that we believe it is important to serve as good neighbors to those around us. But we also embrace a broader sense of communitythe people who, as a result of shared interests, form a broad and deep support group for YNB. Many of our customers are shareholders. All of our directors refer business to the bank. T hose to whom we lend build their companies, employ our neighbors, and make this institution even stronger with ever increasing circles of business. We are part of a total banking community, and we thrive under this concept. We are making our presence felt even more in our community this year, as we have announced plans to occupy a new corporate headquarters during 1999. It will serve as both a symbol of our ongoing dedication to the neighborhood banking concept and as notice that we plan to maintain our position as an independent, full service community bank. In keeping with our movement toward the future, we have adopted a new corporate logo, which you as stakeholders have the opportunity to see first on the cover of this annual report. We are adopting the name that most of our customers already useYNBwhile retaining the Yardville National Bank attitude, history, and commitment. Nothing has changed, but everything has evolved. We think that's the right way to grow. This past year, YNB has continued its development into a bank well-positioned to serve customers into the next century. We have broadened the products and services we offer both business and individual customers, and we have further enhanced our technology to deliver them. We have continued to look beyond the borders of Hamilton Township and, indeed, beyond Mercer County, as we make our plans for expansion of our network in the years to come. But most important, we constantly work to maintain the personal approach and high level of service that our customers value. The results of these efforts to you, as shareholders, can be seen in our financial performance. We have gained many customers and relationships this year as people and businesses have chosen to bank where personal attention and quality service are valued. The community banking concept is alive and doing very well at YNB. Growth in All Dimensions In 1997, net income rose 24.3% to $5,006,000, or $1.00 per share on a diluted basis, compared with 1996 net income of $4,026,000, or $0.82 per share on a diluted basis. Our year-end assets reached $614.7 million, compared with $490.5 million in 1996. 5 "As we continue to evolve into the best combination possible of high technology and a high level of personal contact, we look to our past for inspiration even as we build for the future." Our commercial lending performance continues to fuel YNB's earnings growth, as businesses of all sizes have come to realize that YNB can fulfill all of their needs while offering the personal service that is not found elsewhere. YNB's total loan outstandings reached $385.8 million at December 31, 1997, an increase of 16.5% over the $331.2 million outstanding at December 31, 1996. The portfolio, composed of both commercial and consumer loans, is diverse, well-balanced and predominantly local. We worked diligently in 1997 to maintain and improve credit quality as our portfolio grew. Nonperforming assets decreased slightly to $8,486,000 at December 31, 1997, compared to nonperforming assets of $8,535,000 at December 31, 1996. The allowance for loan losses now totals $5,570,000 or 1.44% of total loans, covering 104.8% of total nonperforming loans. The deposit side of the ledger helps to support this excellent loan growth. Total deposits increased 16.1% in 1997 to $422.9 million at year end, compared with $364.4 million at year-end 1996. YNB is fostering further growth in both the deposit and consumer lending areas with a variety of new products and services. These include our newest CD offerings at highly competitive interest rates, our Home Equity Line of Credit at one of the lowest rates in the area, and our Service Direct business package offering a company's employees numerous benefits associated with direct deposit of their paychecks. For more information on our product offerings, please see the section entitled "Honoring the Past, Building for the Future" beginning on page nine. YNB's shareholders also did well in 1997, as a 100% stock dividend was declared by the YNB Board of Directors on December 23, 1997. This two-for-one stock split was payable to shareholders of record January 5, 1998. YNB's annual dividend increased 11.1% in 1997 compared to 1996. Our share price has shown strength and stability, as our listing on NASDAQ continues to provide additional liquidity and flexibility for current shareholders as well as opening up the market for new ones. YNB also continues to have a strong capital structure. At December 31, 1997, YNB's Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios were 9.5%, 12.2%, and 13.5%, respectively, exceeding all ratios required to be considered well-capitalized under regulatory guidelines. Our directors-both at the corporate and advisory board levelscontinue to be a major component of our bank's growth, as they are an excellent source of new business referrals. Their input and guidance as we move into the future are greatly appreciated. We were sorry to note the passing of N. Gerald Sapnar, one of our Advisory Board members, this past year, and we want to take this opportunity to thank all of our directors for their valuable contributions to the bank's growth. As we continue to evolve into the best combination possible of high technology and a high level of personal contact, we look to our past for inspiration even as we build for the future. Our objectives are clear: we want to be the best community bank in our marketplace, offering our customers what they need and our shareholders the returns they deserve. We believe the past year has shown concrete results of our efforts, and promise to keep our sights set firmly on these objectives as we move toward the next millennium. Sincerely yours, Jay G. Destribats Patrick M. Ryan Chairman of the Board President and Chief Executive Officer 6 New Technologies WHEN YNB'S FIRST BRANCH WAS OPENED IN 1925 IN "DOWNTOWN" YARDVILLE, CUSTOMERS BANKED WITH TELLERS WHO RECORDED EACH TRANSACTION BY HAND FROM BEHIND CARVED WOODEN TELLER WINDOWS. TODAY, YNB CONTINUES TO BE KNOWN FOR ITS PERSONAL TOUCH, BUT CUSTOMERS CAN ALSO USE ELECTRONIC PRODUCTS LIKE OUR SECOND CHECK DEBIT CARD TO MAKE PURCHASES OF ALL KINDS AND HAVE THEM CONVENIENTLY DEDUCTED FROM THEIR YNB CHECKING ACCOUNTS. 7 Customer Service WHEN THE QUAKER MEETING HOUSE OF PRINCETON WAS USED FOR WEEKLY GATHERINGS, TRANSACTIONS, WHETHER SOCIAL, RELIGIOUS, OR FINANCIAL, WERE HANDLED FACE-TO-FACE. WITH TODAY'S BUSY LIFESTYLE, INDIVIDUALS STILL MEET IN PERSON FOR SOCIAL AND RELIGIOUS PURPOSES, BUT CONDUCT MUCH OF THEIR DAILY BUSINESS ON THE TELEPHONE. THAT'S WHY PRODUCTS LIKE YNB'S TELEBANK SERVICE ARE SO ESSENTIAL, ALLOWING INDIVIDUALS AND BUSINESSES TO CHECK BALANCES, TRANSFER OR VERIFY FUNDS, REVIEW RECENT TRANSACTIONS, AND PERFORM OTHER BANKING FUNCTIONS WITH JUST A FEW TOUCHES TO A PUSHBUTTON PHONE. 8 "As the economy has strengthened in New Jersey, more and more customers are interested in longer term savings vehicles and investment products, and YNB is right there with what they need." Honoring the Past Building for the Future YNB ENJOYS A LONG AND DISTINGUISHED HISTORY. SINCE OUR FOUNDING IN 1925, WE HAVE BEEN THERE FOR OUR COMMUNITY, FINANCING THE GROWTH OF MERCER COUNTY AS IT EVOLVED FROM A FARMING AREA TO A COMMERCIAL CENTER AT THE CROSSROADS OF THE STATE'S MAJOR HIGHWAYS. WE HAVE HELPED PEOPLE BUILD HOMES AND BUSINESSES HERE, SENDING THEIR CHILDREN TO COLLEGE AND BUILDING THE DREAM OF A SECURE RETIREMENT. OUR BANK'S FRANCHISE HAS BEEN BUILT ON OUR KNOWLEDGE OF OUR MARKETPLACE, OUR ATTENTION TO EACH CUSTOMER, WHETHER LARGE OR SMALL, AND A REAL CONCERN FOR EACH ONE'S INDIVIDUAL NEEDS. We are proud of that history, but well aware that the key to our ongoing success is taking our longstanding strengths and building upon them as we have evolved into a bank for the 21st century. The key to our future, we believe, is combining the two: keeping the most important parts of our tradition of community service and adding all of the up-to-the-minute banking products today's technology allows us to offer. We are gratified that YNB has become that bank of the future for our customers. Technology Transforms Retail Banking It is in the area of electronic banking that the financial world has seen the most change in the past ten years. We have moved far beyond the advent of automated teller machines (ATMs) which can accept deposits and dispense cash to an increasingly cashless society. Debit cards, which serve not only to provide ATM access, but also take the place of checkbooks and cash, are gaining enormous popularity as customers are able to make purchases of items from groceries to swimming pools by automatically having the amount of the purchase deducted from their checking accounts. To fulfill this need, YNB introduced the Second Check(R) debit card early in 1997, and its usage increased dramatically as the year went on. Second Check can be used everywhere that VISA(R) is acceptedat more than 12 million merchants. Customers avoid the delays sometimes involved in writing checks at an unfamiliar location, while they also avoid the interest charges that can accrue with credit card purchases. Savings, Loan, and Investment Products Spark Interest As the economy has strengthened in New Jersey, more and more customers are interested in longer term savings vehicles and investment products, and YNB is right there with what they need. YNB's competitive rates and a strong advertising campaign made its CDs very popular in 1997, bringing in millions of dollars in new deposits to our institution. The CD product lineup is being further enhanced in 1998, with the same high rate offered for a variety of terms, up to 60 months. 9 Saving the Business Comunity THE GRAND LODGE OF NEW JERSEY, FREE & ACCEPTED MASONS, MADE THE MASONIC TEMPLE ON BARRACKS STREET ITS HEADQUARTERS UNTIL THE LATE 1970S. SEVERAL LODGES OF THE MASONS, WHO HAVE ALWAYS INCLUDED MANY BUSINESS AND PROFESSIONAL LEADERS OF THE COMMUNITY, STILL MEET THERE TODAY. BUSINESS LEADERS AND THEIR EMPLOYEES COME TO YNB, TOO, FOR OFFERINGS LIKE SERVICE DIRECT, A GROUPING OF SPECIAL ACCOUNTS AND RATES AVAILABLE TO THE EMPLOYEES OF ANY COMPANY WHICH MAKES DIRECT DEPOSIT OF PAYCHECKS TO A YNB ACCOUNT. 10 "For several years, YNB has been a lender of choice for many, thanks to our high level of personal srvice ans the market understanding we bring to each relationship." Honoring the Past Building for the Future For those customers who are looking for higher returns and are willing to forego FDIC insurance and take a greater risk, YNB will be introducing the sale of mutual funds and annuities in 1998. Licensed sales representatives can explain the variety of choices to customers, and investments in these alternative vehicles can be made right in a YNB branch. We also instituted a very competitive interest rate on our home equity line of credit in 1998, as YNB customers who meet certain requirements can take advantage of a rate that is indexed below prime. It's an excellent offer, and one that we believe many consumers will want to use to refinance their mortgages, make home improvements, pay tuition costs, or even take a special trip or vacation. Adding Convenience for Busy Consumers More families have become two-earner households, and it seems we have more and more tasks to accomplish in a day and far less time to do them. That's where the ability to perform routine banking transactions by telephone or by computer has gained popularity in the late 90s. Accordingly, we've added even more convenience for YNB customers with our Telebank Service, allowing customers to check balances, transfer or verify funds, find out about recent transactions, order a mini statement to be faxed, and complete other banking transactionsright on the phone. The telephone has become an even greater resource for YNB customers with the opening of our new Telephone Help Center this past September. Staffed by a hand-picked group of "Customer Satisfaction Ambassadors," the Telephone Help Center offers information about current accounts, investment rates, available loan or mortgage programs, ATM locationswhatever our customers may need to make banking with YNB even more convenient than it already is. Customers can call the Telephone Help Center at 1-8884-HELPLINE Monday through Friday from 8:30 AM to 7:00 PM, and on Saturdays from 9:00 AM to 12:00 PM. In its first five months of operation, the center fielded over 4,000 calls, and continues to serve as a centralized sales, information, and communication center for all of YNB. Reaching Out Geographically For some time, we have discussed our intention to expand beyond the reaches of Hamilton Township and even Mercer County. Plans are well underway for the opening of new branches in 1998, including one in Hopewell Township in the thriving Pennington area. We continue to examine potential locations both in New Jersey and right across the river in Bucks County, Pennsylvania, too. Many of YNB's customers, both consumer and commercial, are already doing business or living in those areas, and the expansion of our branch network to include these areas is a logical extension of our marketplace. "Stand-alone" ATMs are another area of future expansion for YNB, and plans are on the drawing board for the first of these in Washington Township for 1998 completion. ATMs without a branch attached are cost effective for the bank to install and maintain, while enhancing our delivery network and increasing convenience for customers. 11 "YNB - steped in tradition, devoted to our community - is poised and ready to move into the future of banking." Honoring the Past Building for the Future Gaining the Business of Larger Business As YNB has expanded its offerings, we have also expanded the services we offer to businesses in our marketplace. For several years, YNB has been a lender of choice for many, thanks to our high level of personal service and the market understanding we bring to each relationship. With the upgrade of our technological capabilities in the past two years, however, we've been able to offer an even broader range of state-of-the-art business services. In 1997, for example, we added a menu of electronic cash management services for business customers called Cash Command. Using sophisticated automated clearing house (ACH) services, YNB's Cash Command allows customers to make direct deposit of payroll right from their offices, consolidate funds, make tax payments, transfer among accounts, and even make overnight investment sweeps, increasing efficiency and convenience for all businesses. We also added lockbox services in the past year, to assist both businesses and non-profit organizations who collect recurring payments from a number of people. YNB provides a central location for those checks to be mailed, handles the bookkeeping, makes sure the money is credited to the customer's account, and provides detailed reports as often as the customer wishes. Keeping client accounts in good order is something YNB has been doing for a long time with MATS (Multiple Account Trust Services)an attorney trust sub-accounting system. This allows lawyers to handle multiple escrow accounts safely and efficiently. Most gratifying, we're finding more and more area law firms are using YNB's MATS because they get all the professionalism they need, along with the personal attention that only a hometown bank can deliver. Professionalism and service also count when companies want to offer their employees special benefits. Service Direct is a new service combining business and consumer banking, which is helping to cement our relationships with many area companies of all sizes and their employees. Whenever a business uses direct deposit for employee payroll, those employees are offered this special package of money-saving services. Service Direct checking accounts offer unlimited check writing with no per check fees and no monthly maintenance fees. These customers can also access their funds without ever writing a check with the YNB Second Check debit card we discussed earlier. Statement savings accounts can be linked to a Service Direct account, too, while customers can also qualify for YNB's special Service Direct consumer loans, including home equities and residential mortgages. Indeed, the whole range of YNB servicesincluding the Premier Plus Money Market Account and Community Plus linked accountsis right at the customer's fingertips. So from sophisticated cash management to direct deposit, loans to lockbox and custodial accounts, YNB has all the business services a firm or institution of any size could wantaccompanied by the personal service that only a bank like YNB can deliver. Coupled with the wide range of offerings our consumer banking clients can receive, the combination is unbeatable. YNBsteeped in tradition, devoted to our communityis poised and ready to continue meeting all the challenges we know the future will bring. 12 Selected Historical Consolidated Financial Data The following table sets forth certain historical financial data with respect to Yardville National Bancorp and subsidiaries on a consolidated basis. This table should be read in conjunction with Yardville National Bancorp's historical consolidated financial statements and related notes thereto. All share and per share data has been restated to reflect the two-for-one stock split effected in the form of a stock dividend in December 1997 and November 1994.
December 31, - --------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Statement of Income (in thousands) Interest income $40,768 $ 34,251 $ 27,336 $ 18,004 $ 14,055 Interest expense 21,100 17,041 12,841 6,360 5,355 - --------------------------------------------------------------------------------------------------------------------------- Net interest income 19,668 17,210 14,495 11,644 8,700 Provision for loan losses 1,125 1,640 865 305 Securities gains (losses), net 24 (136) (91) (124) 294 Gains on sales of mortgages, net 30 21 19 92 354 Other non-interest income 2,490 2,228 1,927 1,586 1,542 Non-interest expense 13,341 11,479 10,260 9,285 8,423 - --------------------------------------------------------------------------------------------------------------------------- Income before income tax expense and cumulative effect of the change in accounting principle 7,746 6,204 5,225 3,608 2,467 Income tax expense 2,740 2,178 1,822 1,085 733 - --------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of the change in accounting principle 5,006 4,026 3,403 2,523 1,734 Cumulative effect of the change in accounting principle 191 - --------------------------------------------------------------------------------------------------------------------------- Net income $5,006 $ 4,026 $ 3,403 $ 2,523 $ 1,925 - --------------------------------------------------------------------------------------------------------------------------- Balance Sheet (in thousands, except per share data) Assets$ 614,686 $ 490,545 $ 403,115 $ 280,550 $223,438 Deposits 422,944 364,445 302,972 259,296 206,688 Loans, net of unearned income 385,751 331,237 245,054 196,910 134,983 Stockholders' equity 39,745 35,230 31,717 18,451 14,208 Allowance for loan losses 5,570 4,957 3,677 2,912 2,703 Per Share Data Net income basic* $ 1.02 $ 0.84 $ 0.87 $ 0.87 $ 0.94 Net income diluted* 1.00 0.82 0.84 0.84 0.93 Cash dividends 0.25 0.22 50.19 0.14 Stockholders' equity (book value) 8.02 7.25 6.75 5.96 6.21 Other Data Average shares outstanding diluted 4,994,000 4,919,000 4,053,000 3,021,000 2,075,000 - ---------------------------------------------------------------------------------------------------------------------------
* Income per share has been retroactively adjusted to implement the provisions of Statement on Financial Accounting Standards No. 128, "Earnings Per Share." 13 Selected Historical Consolidated Financial Data continued
December 31, - --------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Financial Ratios Return on average assets 0.93% 0.90% 0.99% 1.04% 0.92% Return on average stockholders' equity 13.32 12.25 13.84 15.89 15.81 Net interest margin (FTE) (1) 3.95 4.10 4.49 5.16 4.51 Efficiency ratio (2) 60.06 59.41 62.75 70.35 77.35 Average stockholders' equity to average assets 7.00 7.33 7.14 6.57 5.79 Dividend payout ratio 24.63 26.90 21.69 15.06 Tier 1 leverage ratio (3) 9.53 7.80 9.07 7.84 7.60 Tier 1 capital as a percent of risk-weighted assets 12.24 10.17 11.95 9.59 9.38 Total capital as a percent of risk-weighted assets 13.49 11.43 13.20 10.84 10.64 Allowance for loan losses to total loans (year end) 1.44 1.50 1.50 1.48 2.00 Net loan charge offs to average total loans 0.14 0.13 0.05 0.06 0.20 Nonperforming loans (5) to total loans 1.38 2.46 1.15 1.05 1.83 Nonperforming assets (4) to total loans and other real estate owned (year end) 2.18 2.57 1.40 1.21 2.83 Allowance for loan losses to nonperforming assets (4) (year end) 65.64 58.08 106.77 122.35 69.92 Allowance for loan losses to nonperforming loans (5) (year end) 104.80% 60.90% 130.44% 140.95% 109.30% - --------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent based on a 34% Federal tax rate for all periods presented (FTE = Federal tax equivalent basis). (2) Efficiency ratio is equal to non-interest expense divided by the sum of the net interest income and non-interest income. (3) Tier 1 leverage ratio is Tier 1 capital to average assets. (4) Nonperforming assets include nonperforming loans and other real estate owned. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition." (5) Nonperforming loans include nonaccrual loans, restructured loans, and loans 90 days past due or greater and still accruing. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition." 14 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations The purpose of this discussion and analysis is to assist in the understanding and evaluation of the financial condition, changes in financial condition and results of operations of Yardville National Bancorp (the "Parent Company") and its wholly-owned subsidiaries Yardville National Bank (the "Bank"), and Yardville Capital Trust, collectively referred to as "YNB". This discussion should be read in conjunction with the consolidated financial statements and supplemental financial information appearing elsewhere in this report. 1997 OVERVIEW YNB's continued emphasis on establishing and building relationships helped achieve successful results in 1997. YNB recorded increases in net income, loans, and deposits in a competitive marketplace. The significant upgrade to our operational systems in 1996 has yielded positive results in 1997. Quality customer service has continued and product diversity has increased. Net income amounted to $5,006,000, a 24.3% increase, compared to the record results of $4,026,000 reported in 1996. Earnings were primarily enhanced by commercial loan growth experienced throughout the year. Earnings per share, on a diluted basis, adjusted for the two-for-one stock split declared December 23, 1997, increased from $0.82 in 1996 to $1.00 in 1997. The loan portfolio grew 16.5% in 1997 compared to 1996. At December 31, 1997 total loan outstandings were $385,751,000 compared to $331,237,000 recorded at the end of 1996. The allowance for loan losses now totals $5,570,000 or 1.44% of total loans, covering 104.8% of total nonperforming loans. YNB's deposit base increased 16.1%, to total $422,944,000, at December 31, 1997. Growth in YNB's deposit base in 1997 primarily occurred in higher yielding certificates of deposit, a higher costing funding source, and interest bearing demand deposits. Two industry measures of the performance of a bank are its return on average assets and return on average equity. Return on average assets increased to 0.93% in 1997 from 0.90% in 1996. The 1997 return on average stockholders' equity increased to 13.32% compared to 12.25% in 1996. RESULTS OF OPERATIONS YNB earned $5,006,000 or $1.00 per share (diluted) for the year ended December 31, 1997 compared to $4,026,000 or $0.82 per share (diluted) for the year ended December 31, 1996. YNB reported net income of $3,403,000 or $0.84 per share (diluted) in 1995. The increase in earnings per share in 1997 is principally attributable to increased earnings. NET INTEREST INCOME Net interest income, YNB's largest and most significant component of operating income, is the difference between interest and fees earned on loans and other earning assets, and interest paid on deposits and borrowed funds. This component represented 88.5% of YNB's net revenues in 1997. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. The following tables set forth YNB's consolidated average balances of assets, liabilities and stockholders' equity as well as the amount of interest income and expense on related items, and YNB's average yield/rate for the years ended December 31, 1997, 1996, 1995, 1994, and 1993. 15 Financial Summary Average Balances, Rates Paid and Yields
- ---------------------------------------------------------------------------------------------------------------------------- December 31, 1997 December 31, 1996 - ---------------------------------------------------------------------------------------------------------------------------- Average Average Average Yield/ Average Yield/ (in thousands) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------------------- Interest Earning Assets: Time deposits with other banks $ 2,533 $ 107 4.22% $ 1,992 $984.92 Federal funds sold 7,121 380 5.34 4,265 228 5.35 Securities 140,655 8,770 6.24 132,036 8,194 6.21 Loans, net of unearned income (1) 355,526 31,511 8.86 287,289 25,731 8.96 - ---------------------------------------------------------------------------------------------------------------------------- Total interest earning assets $ 505,835 $ 40,768 8.06% $ 425,582 $34,251 8.05% - ---------------------------------------------------------------------------------------------------------------------------- Non-Interest Earning Assets: Cash and due from banks $ 15,425 $ 11,905 Allowance for loan losses (5,254) (4,190) Premises and equipment, net 5,288 5,037 Other assets 15,337 10,156 - ---------------------------------------------------------------------------------------------------------------------------- Total non-interest earning assets 30,796 22,908 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $ 536,631 $448,490 - ---------------------------------------------------------------------------------------------------------------------------- Interest Bearing Liabilities: Deposits: Savings, money markets, and interest bearing demand $ 159,720 $ 5,083 3.18% $ 133,450 $ 4,014 3.01 Certificates of deposit of $100,000 or more 23,357 1,273 5.45 18,188 922 5.07 Other time deposits 168,962 9,759 5.78 125,332 7,138 5.70 - ---------------------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 352,039 16,115 4.58 276,970 12,074 4.36 Borrowed funds 84,492 4,761 5.63 87,065 4,967 5.70 Trust preferred securities 2,422 224 9.25 - ---------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 438,953 21,100 4.81 364,035 17,041 4.68 - ---------------------------------------------------------------------------------------------------------------------------- Non-Interest Bearing Liabilities: Demand deposits $ 56,700 $ 49,078 Other liabilities 3,404 2,507 Stockholders' equity 37,574 32,870 - ---------------------------------------------------------------------------------------------------------------------------- Total non-interest bearing liabilities and stockholders' equity $ 97,678 $ 84,455 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 536,631 $448,490 - ---------------------------------------------------------------------------------------------------------------------------- Interest rate spread (2) 3.25% 3.37% - ---------------------------------------------------------------------------------------------------------------------------- Net interest income and margin (3) $ 19,668 3.89% $ 17,210 4.04% - ---------------------------------------------------------------------------------------------------------------------------- Net interest income and margin (tax equivalent basis) (4) $ 19,993 3.95% $ 17,432 4.10% ============================================================================================================================
(1) Loan origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances include nonaccrual loans with no related interest income. (2) The interest rate spread is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities. (3) The net interest margin is equal to net interest income divided by average interest earning assets. (4) In order to make pre-tax income and resultant yields on tax exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment is made equally to interest income and income tax expense with no effect on after tax income. The tax equivalent adjustment has been computed using a Federal income tax rate of 34% and has increased interest income by $325,000, $222,000, $202,000, $194,000, and $105,000 for the years ended December 31, 1997, 1996, 1995, 1994, and 1993, respectively. 16
- ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- $ 685 $ 36 5.26% $ 643 $ 23 3.58% $ 1,266 $ 34 2.69% 7,838 464 5.92 1,200 52 4.33 3,211 97 3.02 97,456 5,756 5.91 70,045 3,761 5.37 72,928 3,939 5.40 221,232 21,080 9.53 157,411 14,168 9.00 117,671 9,985 8.49 - ---------------------------------------------------------------------------------------------------------------------------- $327,211 $27,336 8.35% $229,299 $18,004 7.85% $195,076 $14,055 7.20% - ---------------------------------------------------------------------------------------------------------------------------- $ 8,778 $ 8,079 $ 9,449 (3,265) (2,736) (2,860) 4,175 3,857 3,812 7,490 3,207 4,699 - ---------------------------------------------------------------------------------------------------------------------------- 17,178 12,407 15,100 - ---------------------------------------------------------------------------------------------------------------------------- $344,389 $241,706 $210,176 - ---------------------------------------------------------------------------------------------------------------------------- $123,029 $ 4,107 3.34% $113,239 $ 3,156 2.79% $105,178 $ 2,832 2.69% 15,521 883 5.69 7,083 299 4.22 4,202 168 4.00 103,637 5,792 5.59 66,020 2,810 4.26 55,827 2,338 4.19 - ---------------------------------------------------------------------------------------------------------------------------- 242,187 10,782 4.45 186,342 6,265 3.36 165,207 5,338 3.23 33,339 2,059 6.18 2,248 95 4.23 747 17 2.28 -- -- -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- 275,526 12,841 4.66 188,590 6,360 3.37 165,954 5,355 3.23 - ---------------------------------------------------------------------------------------------------------------------------- $ 42,321 $ 36,634 $ 31,082 1,950 605 967 24,592 15,877 12,173 - ---------------------------------------------------------------------------------------------------------------------------- $ 68,863 $ 53,116 $ 44,222 - ---------------------------------------------------------------------------------------------------------------------------- $344,389 $ 241,706 $210,176 - ---------------------------------------------------------------------------------------------------------------------------- 3.69% 4.48% 3.97% - ---------------------------------------------------------------------------------------------------------------------------- $14,495 4.43% $11,644 5.08% $ 8,700 4.46% - ---------------------------------------------------------------------------------------------------------------------------- $14,697 4.49% $11,838 5.16% $ 8,805 4.51% ============================================================================================================================
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.
- --------------------------------------------------------------------------------------------------------------------------------- Yardville National Bancorp and Subsidiaries Rate/Volume Analysis 1997 vs. 1996 1996 vs. 1995 Increase (Decrease) Increase (Decrease) Due to changes in: Due to changes in: - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Volume Rate Total Volume Rate Total - --------------------------------------------------------------------------------------------------------------------------------- Interest Earning Assets: Time deposits with other banks $ 24 $ (15) $ 9 $ 64 $ (2) $ 62 Federal funds sold 152 -- 152 (195) (41) (236) Securities 537 39 576 2,133 305 2,438 Loans, net of unearned income (1) 6,051 (271) 5,780 5,980 - --------------------------------------------------------------------------------------------------------------------------------- Total interest income 6,764 (247) 6,517 7,982 (1,067) 6,915 - --------------------------------------------------------------------------------------------------------------------------------- Interest Bearing Liabilities: Deposits: Savings, money markets, and interest bearing demand 826 243 1,069 332 (425) (93) Certificates of deposit of $100,000 or more 278 73 351 142 (103) 39 Other time deposits 2,519 102 2,621 1,234 112 1,346 - --------------------------------------------------------------------------------------------------------------------------------- Total deposits 3,623 418 4,041 1,708 (416) 1,292 Borrowed funds (61) (145) (206) 3,076 (168) 2,908 Trust preferred securities 224 -- 224 -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total interest expense 3,786 273 4,059 4,784 (584) 4,200 Net interest income $ 2,978 $ (520) $ 2,458 $ 3,198 $ (483) $ 2,715 - ---------------------------------------------------------------------------------------------------------------------------------
(1) Loan origination fees are considered adjustments to interest income. YNB's net interest income totaled $19,668,000 in 1997, an increase of 14.3% from the $17,210,000 reported in 1996. The prior year's increase was 18.7% from 1995's net interest income of $14,495,000. The primary factor contributing to the increase in net interest income in 1997 was an increase in interest income of $6,517,000 due to a substantial increase in loan volume, specifically commercial, offset by decreases in loan yields and increases in deposits and trust preferred securities and the related interest expense. Average interest earning assets increased by $80,253,000 or 18.9% for 1997 with increases of $68,237,000 in loans, net of unearned income, and $8,619,000 in securities. From December 31, 1996 to December 31, 1997, YNB's average loan portfolio increased by 23.8%, however, loan yields averaged 8.86%, or 10 basis points lower, reflecting declining market interest rates in a competitive market. Conversely, the yield on YNB's securities portfolio increased 3 basis points when comparing 1997 to 1996. Overall, the yield on earning assets increased 1 basis point to 8.06% in 1997 from 8.05% in 1996. Interest expense was $21,100,000 for 1997, an increase of $4,059,000, or 23.8%, from $17,041,000 a year ago. The increase in interest expense for the comparable time periods was principally the result of a larger deposit base, specifically time deposits. The increase in time deposits in 1997 continues the trend established over the last several years. With competition for deposits strong, time deposits have been aggressively priced to fund loan growth. Average interest bearing liabilities increased 20.6% in 1997 compared to 1996. The cost of total interest bearing liabilities rose 13 basis points to 4.81% in 1997 from 4.68% in 1996. Net interest income was $17,210,000 in 1996, an increase of 18.7% from $14,495,000 in 1995. The principal factor contributing to the improvement was an increase in interest income due to a substantial increase in commercial loan volume offset by decreases in loan yields and increases in deposits and borrowed funds and the related interest expense. Average loans increased by 29.9% from 1995 to 1996. The net interest margin (tax equivalent basis), which is the difference between yields on average interest earning assets and costs of average funding sources, was 3.95% in 1997 versus 4.10% in 1996 and 4.49% in 1995. The decrease in the net interest margin in 1997 was 18 principally due to two factors. Increased loan and deposit competition resulted in lower loan yields and higher deposit costs which negatively impacted the margin. Management also employs an investment leverage strategy (Investment Growth Strategy) that also had a negative impact on the margin. The Investment Growth Strategy's specific goal is to increase interest income by purchasing investments utilizing repurchase agreements or other funding sources. The targeted spread on this strategy is 75 basis points after tax. The primary goals of the strategy are to improve return on equity and earnings per share. Incrementally any increase to net interest income by this strategy will improve return on equity and earnings per share. Conversely, because of the targeted spread on this strategy there will be a negative impact to the net interest margin and return on assets. For the period ended December 31, 1997 the Investment Growth Strategy averaged approximately $61,100,000. The positive impact to return on equity and earnings per share was approximately 1.40% and $0.10, respectively. The negative impact to the net interest margin and return on assets was approximat ely .35% and .02%, respectively. This strategy continues to be proactively managed through the asset and liability simulation model analyzing risk and reward relationships in different interest rate environments based on the composition of investments in the strategy. Average interest earning assets exceeded interest bearing liabilities by $66,882,000 in 1997, $61,547,000 in 1996, and $51,685,000 in 1995. The ratio of average interest bearing liabilities to average interest earning assets increased from 85.5% in 1996 to 86.8% in 1997. Average non-interest bearing demand deposits increased 15.5% to $56,700,000 in 1997 from $49,078,000 in 1996. Throughout the comparative periods, increases in average non-interest bearing deposits contributed to the increase in net interest income. Nonaccrual loans totaled $3,355,000 in 1997, a decrease of $3,728,000 from the $7,083,000 reported in 1996. The decrease in nonaccrual loans is the result of nonaccrual loans being transferred into other real estate owned. Had such nonaccrual loans been paid in the manner and at the rate and term contracted at the time the loans were made, YNB would have recognized additional interest income of approximately $254,000 in 1997, $351,000 in 1996, and $143,000 in 1995. Moreover, YNB's net interest margin would have been .05% higher in 1997, .08% higher in 1996 and .05% higher in 1995. NON-INTEREST INCOME Non-interest income continues to be an important source of revenue for YNB. YNB, through its Product Development and Management Committee, is introducing other non-interest income generating products which include annuities and mutual funds. The prudent growth in non-interest income is one of YNB's long-term strategies. Non-interest income consists of service charges on deposit accounts, gains on sales of mortgages and securities gains or losses. YNB also generates non-interest income from a variety of fee-based services. These include mortgage servicing fees, safe deposit box rentals, check fee income and Automated Teller Machine (ATM) fee income which are ATM fees on non-customers. These fees were instituted in October 1996. The major components of non-interest income are presented in the following table. Year Ended December 31, - ------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------- Service charges on deposit accounts $1,174 $ 1,153 $ 1,069 Other service fees 593 438 381 Gains on sales of mortgages, net 302 1 19 Securities gains (losses), net 24 (136) (91) Other non-interest income 723 637 477 - ------------------------------------------------------------------------- Total $2,544 $ 2,113 $ 1,855 ========================================================================= For 1997, non-interest income totaled $2,544,000, an increase of $431,000 or 20.4%, from non-interest income of $2,113,000 for 1996. Non-interest income in 1996 increased by $258,000, or 13.9% from 1995's reported total of $1,855,000. Service charges on deposit accounts have historically represented the largest single source of non-interest income. This continued to be the case in 1997, as such revenues totaled $1,174,000, an increase of 1.8%, compared to $1,153,000 in 1996. Service charge income totaled $1,069,000 in 1995. This component of non-interest income represented 46.1%, 54.6%, and 57.6% of the total non-interest income in 1997, 1996, and 1995, respectively. YNB's Product Development and Management Committee reviews established deposit products and develops new deposit products and the service charges associated with them. Deposit services are repriced annually to reflect current costs and competitive factors. Gains on sales of mortgages, net, increased in 1997 to $30,000 from $21,000 in 1996. Gains on sales of mortgages, net, totaled $19,000 in 1995. Over the last few years YNB has been less active in the secondary mortgage market. YNB recorded net securities gains of $24,000 in 1997 and net securities losses of $136,000 and $91,000 in 1996 and 1995, respectively. In 1997 proceeds from securities sold were utilized to fund higher yielding commercial loan assets. Net securities losses realized during 19 1996 and 1995 were the result of management's decision to reposition funds in the portfolio to improve Investment Growth Strategy spreads and provide funds for loan growth. Other non-interest income is primarily composed of income derived from life insurance assets, and to a lesser extent, mortgage servicing income. Other non-interest income totaled $723,000 in 1997, an increase of $86,000, or 13.5% when compared to $637,000 in 1996. Other non-interest income totaled $477,000 in 1995. YNB has purchased life insurance assets throughout the comparable periods to fund executive compensation plans and a deferred compensation plan for directors. Other non-interest income from the life insurance assets totaled $541,000, increasing $122,000, or 29.1%, when comparing 1997 to 1996. NON-INTEREST EXPENSE Non-interest expense totaled $13,341,000 in 1997, an increase of $1,862,000 or 16.2%, compared to $11,479,000 in 1996. Non-interest expense in 1996 increased 11.9% from $10,260,000 in 1995. The increase in non-interest expense in 1997 compared to 1996 was primarily the result of increases in salaries and employee benefits, equipment expenses and expenses associated with nonperforming assets. Salaries and employee benefits, which represent the largest portion of non-interest expense, increased $817,000 in 1997 or 12.3% over 1996. Salaries and employee benefits in 1996 increased $936,000, or 16.4% over 1995. The increase in 1997 resulted from additional staffing required as YNB has grown for the comparable periods and normal annual salary compensation and benefit increases. Full time equivalent employees increased to 173 at December 31, 1997 from 163 at December 31, 1996. Staffing enhancements have continued throughout the bank. In 1997 executive management was strengthened with the hiring of a chief operating officer. Additional staffing was also required with the opening of the Bank's Telephone Help Center in September. Employee benefits also increased 8.7% for the comparable time periods. 1996's increase over 1995 primarily was the result of the additional staffing required due to growth and normal salary increases. A management trainee program was also instituted in key strategic areas in 1996. Salaries and employee benefits as a percent of average assets were 1.4% in 1997, 1.5% in 1996 and 1.7% in 1995, respectively. Net occupancy expense increased $57,000 to $977,000 in 1997 from $920,000 reported in 1996. The increase in occupancy expenses in 1997 compared to 1996 was due to increased maintenance costs, and to a lesser extent, rental and other expenses associated with the Telephone Help Center opened in September. These increases were offset by decreases in snow removal costs for the comparative periods. The total number of bank facilities, including the operations building, is now 11. This component of non-interest expense has remained constant as a percentage of average assets at 0.2% in 1997, 1996, and 1995, respectively. Equipment expenses increased $412,000, or 59.3%, to $1,107,000 in 1997 from $695,000 in 1996. In 1996 equipment expenses increased 35.5% from 1995. The increase in equipment expenses in 1997 was, in part, attributable to the full-year depreciation expense of YNB's in-house computer system implemented in 1996. Conversely, computer servicer expenses were eliminated in the first quarter of 1996. Hardware and software upgrades also took place in 1997 designed to address Year 2000 issues. Management continues to proactively resolve Year 2000 issues which will result in higher equipment expenses. The increase in equipment expenses in 1996 compared to 1995 was attributable to in creased depreciation costs of YNB's new in-house computer system, and to a lesser extent, additional equipment, furniture and fixtures in YNB's expanding retail network and the related depreciation expense. The accompanying table presents the major components of non-interest expense for the years indicated. Year Ended December 31, - ------------------------------------------------------------------------------ (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------ Salaries and employee benefits $7,446 $ 6,629 $ 5,693 Occupancy expense, net 977 920 726 Equipment 1,107 695 513 Attorney's fees 373 153 162 O.R.E. expenses 378 163 166 Outside services and processing 332 325 289 Stationery and supplies 347 388 300 Communication and postage 373 354 322 FDIC insurance premium 47 1 290 Marketing 575 522 479 Other 1,386 1,329 1,320 - ------------------------------------------------------------------------------ Total $13,341 $11,479 $ 10,260 ============================================================================== Expenses associated with the work-out of nonperforming assets increased in 1997. Attorney's fees increased $220,000 to $373,000 in 1997 from $153,000 in 1996. The increase in these expenses is primarily due to the increase in nonperforming assets in the last quarter of 1996. Attorney's fees totaled $162,000 in 1995. Other real estate (O.R.E.) expenses increased $215,000 to $378,000 in 1997 when compared to 1996. O.R.E. expenses decreased 1.8% in 1996 to $163,000 from $166,000 in 1995. The increase in O.R.E. properties in 1997 and associated expenses, which include taxes, clean-up and maintenance costs, are reflected when comparing 1997 to 1996. 20 Outside services and processing expenses are composed of consulting fees and the processing costs by an outside vendor of YNB's mortgages. These expenses increased $7,000 or 2.2% in 1997 to $332,000. Outside service and processing expenses totaled $325,000 in 1996, an increase of $36,000, or 12.5%, from $289,000 in 1995. Marketing expenses increased by $53,000, or 10.2%, in 1997 to $575,000, compared to $522,000 in 1996. Marketing expenses totaled $479,000 in 1995. The primary increase in marketing expenses for the comparable periods relate to increased advertising to attract deposits to fund loan growth as well as YNB's emphasis on participation in community activities. To a lesser extent, marketing expenses increased due to additional promotional costs in connection with branch or facility openings. Other expenses, which include various professional fees, loan-related expenses and other operating expenses, were $1,386,000 in 1997, an increase of $57,000 or 4.3% from $1,329,000 in 1996. Other expenses totaled $1,320,000 in 1995. The increase in 1997 other expenses compared to 1996, in part, is attributable to loan related expenses due to the growth in the loan portfolio, increased professional fees and other operating expenses associated with a growing institution. YNB's ratio of non-interest expense to average assets decreased to 2.5% for 1997 compared to 2.6% for 1996 and 3.0% for 1995. The efficiency ratio is computed by dividing total operating expenses by net interest income and other income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same or greater volume of income while a decrease would indicate a more efficient allocation of resources. YNB's efficiency ratio for 1997 was 60.06%, compared to 59.41% in 1996 and 62.75% in 1995. YNB's efficiency ratio compares favorably with banks in its peer group. INCOME TAXES The provision for income taxes, which is comprised of Federal and state income taxes, was $2,740,000 in 1997 compared to $2,178,000 in 1996 and $1,822,000 in 1995. The increase was primarily the result of higher pre-tax income. The provisions for income taxes for 1997, 1996, and 1995 were at effective tax rates of 35.4%, 35.1% and 34.9%, respectively. The slight increase in the effective tax rate for 1997 was the result of increased pre-tax earnings with a relatively constant level of tax-free income. 21 Financial Condition As of December 31, 1997 and 1996 TOTAL ASSETS YNB's assets were $614,686,000 at year-end 1997 versus $490,545,000 the previous year, an increase of $124,141,000, or 25.3%. The growth in YNB's asset base throughout 1997 was due primarily to an increase in loans and securities available for sale. The increase in loans was the product of an ongoing consistent strategy to improve the profitability of the organization through relationship banking. The continued consolidation in YNB's marketplace has solidified YNB's competitive position in the small and middle markets. YNB's ratio of average interest earning assets to average assets decreased slightly to 94.3% at December 31, 1997 compared to 94.9% at December 31, 1996. YNB's ratio of average interest bearing liabilities to average assets increased from 81.2% at December 31, 1996 to 81.8% at December 31, 1997. SECURITIES YNB's securities portfolio represented $186,636,000, or 30.4% of assets at December 31, 1997 versus $124,967,000, or 25.5%, of assets at December 31, 1996. The $61,669,000 or 49.3% increase for the comparable periods were in securities available for sale. On an average basis, the securities portfolio represented 27.8% of average interest earning assets for the year ended Decemb er 31, 1997 compared to 31.0% of average interest earning assets for the year ended December 31, 1996. Investments included in the Investment Growth Strategy totaled approximately $108,200,000 at December 31, 1997 compared to approximately $51,000,000 at December 31, 1996. All securities purchased in this strategy are held in the available for sale portfolio. The purpose of this strategy is to improve return on equity and earnings per share. After completion of YNB's trust preferred securities offering on October 16, 1997, Investment Growth Strategy securities were purchased to offset interest costs associated with the offering as well as generate additional interest income. In the last quarter of 1997 approximately $55,000,000 in securities were purchased to achieve the goals listed above. Management has built a diversified Investment Growth Strategy portfolio consisting of agency callable securities and fixed and floating rate mortgage-backed securities. The available for sale securities portfolio increased $66,053,000 to $159,724,000 at December 31, 1997 from $93,671,000 at December 31, 1996. The increase is primarily the result of securities purchased for the Investment Growth Strategy. Short-term treasuries and government agency bonds were purchased during 1997 to enhance liquidity. During 1997, the only securities purchased not held in the available for sale portfolio were municipal bonds. Securities available for sale are held for indefinite periods of time and may be sold due to changing market and interest rate conditions and as part of YNB's asset/liability management strategy. As of December 31, 1997 available for sale securities represented 85.6% of the entire portfolio. This portfolio is principally comprised of mortgage-backed securities issued by Federal agencies, U.S. Treasury and other agency securities. The available for sale portfolio, except securities purchased using repurchase agreements, provide a secondary source of liquidity for YNB. There are no securities designated for trading. Investment securities classified as held to maturity totaled $26,912,000 at December 31, 1997 compared to $31,296,000 at December 31, 1996. This portfolio is comprised of mortgage-backed securities and state and municipal securities. The following tables present the amortized cost and market values of YNB's securities portfolios as of December 31, 1997, 1996, and 1995.
- ------------------------------------------------------------------------------------------------------------------------------------ AVAILABLE FOR SALE SECURITIES December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Amortized Cost Market Value Amortized Cost Market Value Amortized Cost Market Value - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury securities and obligations of other U.S. government agencies $ 62,465 $ 62,540 $ 31,951 $ 31,942 $ 17,795 $ 17,823 Mortgage-backed securities 91,193 91,316 59,441 59,182 78,725 78,874 Corporate obligations 3,297 3,306 Federal Reserve Bank Stock 587 587 572 572 512 512 Federal Home Loan Bank Stock 1,975 1,975 1,975 1,975 1,260 1,260 - ------------------------------------------------------------------------------------------------------------------------------------ Total $159,517 $159,724 $ 93,939 $ 93,671 $ 98,292 $ 98,469 ====================================================================================================================================
22
- ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT SECURITIES December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Amortized Cost Market Value Amortized Cost Market Value Amortized Cost Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Obligations of state and political subdivisions $ 8,819 $ 8,957 $ 9,070 $ 9,108 $ 8,630 $ 8,659 Mortgage-backed securities 18,093 17,891 22,226 21,770 26,754 26,378 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 26,912 $26,848 $31,296 $ 30,878 $35,384 $ 35,037 - ------------------------------------------------------------------------------------------------------------------------------------
The expected maturities and average weighted yields for YNB's securities portfolio as of December 31, 1997 are shown below. Yields for tax-exempt securities are presented on a fully-taxable equivalent basis assuming a 34% tax rate.
- ------------------------------------------------------------------------------------------------------------------------------------ Security Maturities and Average Weighted Yields Available for Sale Securities December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ After one After five Within but within but within After (in thousands) one year five years ten years ten years Total - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury securities and obligations of other U.S. government agencies $ 8,482 $ 16,983 $ 12,000 $ 25,000 $ 62,465 Mortgage-backed securities 648 6,156 2,393 81,996 91,193 Corporate obligations -- -- -- 3,297 3,297 Federal Reserve Bank Stock -- -- -- 587 587 Federal Home Loan Bank Stock -- -- -- 1,975 1,975 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 9,130 $ 23,139 $ 14,393 $112,855 $159,517 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average yield, computed on a tax equivalent basis 5.89% 6.34% 6.92% 7.20% 6.97% ==================================================================================================================================== Investment Securities December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ After one After five Within but within but within After (in thousands) one year five years ten years ten years Total - ------------------------------------------------------------------------------------------------------------------------------------ Obligations of state and political subdivisions $ 302 $ 4,387 $ 3,397 $ 733 $ 8,819 Mortgage-backed securities 5,484 6,352 -- 6,257 18,093 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 5,786 $ 10,739 $ 3,397 $ 6,990 $ 26,912 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average yield, computed on a tax equivalent basis 5.03% 5.96% 6.98% 6.66% 6.07% ====================================================================================================================================
Investments in mortgage-backed securities involve prepayment and interest rate risk. At December 31, 1997 and 1996 YNB had mortgage-backed securities totaling $109,286,000 and $81,667,000, respectively. At December 31, 1997 and 1996 there were $73,565,000 and $59,078,000 in fixed-rate mortgage-backed securities outstanding, respectively. The risk to fixed-rate mortgage-backed securities is similar to fixed-rate loans. In rising interest rate environments, the rate of prepayment on fixed-rate, pass-through mortgage-backed securities tends to decrease because of lower repayments on the underlying mortgages, and conversely as interest rates fall, repayments on such securities tend to rise. In 1997 YNB realized $16,900,000 in cash flows from repayments of mortgage-backed securities compared to $19,300,000 in 1996. Cash flows have been consistent due to stable interest rates. YNB attempts to minimize these risks by diversifying the coupons of the mortgage-backed securities, buying seasoned securities with consistent and predictable prepayment histories and adhering to strict pricing policies when purchasing mortgage-backed securities. Collateralized mortgage obligations (CMOs) totaled approximately $24,500,000 at December 31, 1997. A CMO is a mortgage-backed security that is comprised of classes of bonds created by prioritizing the cash flows 23 from the underlying mortgage pool in order to meet different objectives of investors. Floating rate agency named CMOs were purchased totaling $18,516,000 in the last quarter as part of the Investment Growth Strategy. The remaining fixed rate CMOs in the investment portfolio are agency named and were generally originally purchased with short average lives of two to four years. Fixed rate CMOs totaled $6,000,000 at December 31, 1997. At December 31, 1997 YNB held no private labeled or corporate CMOs. Stress tests are performed at least semi-annually to assess prepayment speeds and their impact to the average lives and yields on those securities. All CMOs at December 31, 1997 were held in the available for sale portfolio. LOAN PORTFOLIO During 1997, total loans increased $54,514,000, or 16.5% to $385,751,000 at December 31, 1997 from $331,237,000 at December 31, 1996. The principal areas of loan growth in 1997 were commercial real estate mortgage loans and commercial and agricultural loans which grew 19.1% and 39.1%, respectively. Agricultural loans represent less than 1% of total commercial and agricultural loans. YNB's loan portfolio represented 62.8% of assets at December 31, 1997 versus 67.5% the prior year end. YNB's lending focus continues to be centered on commercial loans, owner-occupied commercial mortgage loans and tenanted commercial real estate loans. In underwriting such loans, YNB first evaluates the cash flow capability of the borrower to repay the loan. In addition, a substantial majority of commercial loans are also secured by real estate, business assets and guarantees. YNB makes commercial loans primarily to small to medium-sized businesses and professionals. Real estate - residential loans are primarily comprised of residential mortgage loans and business loans secured by residential real estate. This portion of the portfolio totaled $85,754,000 at December 31, 1997, up $2,571,000, or 3.1% from the prior year. Residential mortgage loans represented $52,115,000, or 60.8%, of the total. YNB's residential mortgage loans are secured by first liens on the underlying real property. At December 31, 1997, approximately 35% of the residential mortgage loan portfoli o had fixed interest rates and 65% had adjustable interest rates. The home equity portfolio totaled $23,805,000 or 6.2% of YNB's loan portfolio at December 31, 1997. This compares to $23,457,000, or 7.1% of the total loan portfolio at December 31, 1996. Aggressive competition for home equity loans in YNB's markets continued throughout 1997. The home equity portfolio has provided consistent operating income to YNB with controllable delinquencies and minimal losses. Real estate - commercial loans increased by $21,585,000, or 19.1%, in 1997 to $134,499,000 from $112,914,000 at December 31, 1996. YNB's lending policies require an 80% or lower loan-to-value ratio for commercial real estate mortgages. Collateral values are established based upon independently prepared appraisals. Generally, these loans are secured by owner-occupied properties or are part of a broader commercial lending relationship. Commercial and agricultural loans increased $24,802,000, or 39.1%, at December 31, 1997 to $88,228,000 from $63,426,000 at December 31, 1996. Commercial and agricultural loans are made to small to middle market businesses for inventory, working capital and equipment needs. These loans are generally secured by business assets of the borrower. The following table sets forth the components of YNB's loan portfolio at the dates indicated.
- ------------------------------------------------------------------------------------------------------------------------------------ Loan Portfolio Composition December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Amount % Amount % Amount % Amount % Amount % - ------------------------------------------------------------------------------------------------------------------------------------ Real estate -- mortgage: Residential $ 85,754 22.2% $ 83,183 25.1% $ 73,076 29.8% $ 60,156 30.5% $ 35,283 26.1% Commercial 134,499 34.9 112,914 34.1 73,164 29.8 49,186 25.03 2,517 24.1 Home equity 23,805 6.2 23,457 7.1 26,951 11.0 29,388 14.9 30,107 22.3 Commercial and agricultural 88,228 22.9 63,426 19.2 33,218 13.6 26,626 13.5 17,642 13.1 Real estate construction 28,182 7.3 25,958 7.8 19,353 7.9 15,560 7.9 9,742 7.2 Consumer 18,519 4.8 15,034 4.5 12,386 5.1 10,934 5.6 7,440 5.5 Other loans 6,764 1.7 7,265 2.2 6,906 2.8 5,060 2.6 2,252 1.7 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans $385,751 100.0% $331,237 100.0% $245,054 100.0% $196,910 100.0% $134,983 100.0% ====================================================================================================================================
24 Real estate-construction loans increased $2,224,000 to $28,182,000 at December 31, 1997 compared to $25,958,000 at December 31, 1996. These loans represented 7.3% of the total loan portfolio at December 31, 1997. Generally, these loans are closely monitored with advances made only after work is completed and independently inspected and verified by qualified professionals. YNB makes automobile, motorcycle, personal and other loans to consumers. Consumer loans increased to $18,519,000 at December 31, 1997 compared to $15,034,000 at December 31, 1996. The majority of YNB's business is with customers located within Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate collectibility of the loan portfolio and the recovery of the carrying amount of real estate are subject to changes in the region's real estate market. The following table provides information concerning the maturity and interest rate sensitivity of YNB's commercial and agricultural and real estateconstruction loan portfolios at December 31, 1997.
- ------------------------------------------------------------------------------------------------------------------- After one After Within but within five (in thousands) one year five years years Total - -------------------------------------------------------------------------------------------------------------------------- Maturities: Commercial and agricultural $31,895 $44,927 $11,406 $ 88,228 Real estate construction 21,787 3,382 3,013 28,182 - -------------------------------------------------------------------------------------------------------------------------- Total $53,682 $48,309 $14,419 $116,410 - -------------------------------------------------------------------------------------------------------------------------- Type: Fixed Rate Loans $ 3,181 $27,075 $ 9,727 $ 39,983 Floating Rate Loans 50,501 21,234 4,692 76,427 - -------------------------------------------------------------------------------------------------------------------------- Total $53,682 $48,309 $14,419 $116,410 ==========================================================================================================================
25 NONPERFORMING ASSETS Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans are composed of (1) loans on a nonaccrual basis, (2) loans which are contractually past due 90 days or more as to interest and principal payments but have not been classified as nonaccrual and (3) loans whose terms have been restructured to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. YNB's policy with regard to nonaccrual loans varies by the type of loan involved. Generally, commercial loans are placed on a nonaccrual status when they are 90 days past due unless they are well secured and in the process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal and interest is in doubt. Consumer loans are generally charged off after they become 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. Nonperforming loans totaled $5,315,000 at December 31, 1997, a decrease of $2,825,000 from the $8,140,000 amount reported at December 31, 1996. The decrease in nonperforming loans is primarily the result of nonaccrual loans being transferred into other real estate owned. Nonperforming assets decreased $49,000, to $8,486,000 at December 31, 1997 compared to $8,535,000 at December 31, 1996. YNB continues to actively manage nonperforming assets with the goal of reducing these assets in relation to the entire portfolio. Where possible, existing loan relationships are being restructured in an effort to return these loans to performing status. Nonperforming assets represented 1.38% of total assets at December 31, 1997 and 1.74% at December 31, 1996. Nonaccrual loans were $3,355,000, or 0.9% of total loans, at December 31, 1997, a decrease of $3,728,000 from December 31, 1996. Restructured loans totaled $969,000 at December 31, 1997. These loans are in compliance with restructured terms and conditions. There were no restructured loans in 1996. The following table sets forth nonperforming assets and risk elements in YNB's loan portfolio by type for the years indicated.
- ------------------------------------------------------------------------------------------------------------------- NONPERFORMING ASSETS December 31, - ------------------------------------------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Nonaccrual loans: Commercial and agricultural $ 515 $ 961 $ -- $ -- $ -- Real estate mortgage 384 1,451 1,395 1,203 1,764 Real estate construction 2,106 4,659 142 521 480 Consumer 38 12 30 -- 17 Other 312 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------- Total 3,355 7,083 1,567 1,724 2,261 - ------------------------------------------------------------------------------------------------------------------- Restructured loans 969 -- 612 -- -- - ------------------------------------------------------------------------------------------------------------------- Loans 90 days or more past due: Real estate mortgage 886 1,014 588 326 209 Consumer 105 43 52 16 3 - ------------------------------------------------------------------------------------------------------------------- Total 991 1,057 640 342 212 - ------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 5,315 8,140 2,819 2,066 2,473 - ------------------------------------------------------------------------------------------------------------------- Other real estate 3,171 395 625 314 1,393 - ------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $8,486 $8,535 $3,444 $2,380 $3,866 ====================================================================================================================
26 At December 31, 1997, loans that were 90 days or more past due but still accruing interest income totaled $991,000, or 0.3% of total loans compared to $1,057,000, or 0.3% of total loans at December 31, 1996. Management's decision to accrue income on these loans was based on the level of collateral and the status of collection efforts. Other real estate (O.R.E.) totaled $3,171,000 at December 31, 1997 and $395,000 at December 31, 1996. O.R.E. represented 0.8% of total loans at December 31, 1997. Management uses an active strategy to liquidate these assets and re-deploy the proceeds in YNB's loan portfolio. 27 ALLOWANCE FOR LOAN LOSSES Management utilizes a systematic and documented allowance adequacy methodology for loan losses that requires specific allowance assessment for all loans, including residential real estate mortgages and consumer loans. This methodology assigns reserves based upon credit risk ratings for specific loans and general reserves for all other loans. The general reserves are based on various factors, including historical performance and the current economic environment. On a quarterly basis, management reviews all criticized 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 years indicated, an analysis of the allowance for loan losses and other related data. YNB provides for possible loan losses by a charge to current operations to maintain the allowance for loan losses at an adequate level determined according to management's documented allowance adequacy methodology. The provision for loan losses for 1997 was $1,125,000. This compares to a provision for loan losses of $1,640,000 in 1996 and $865,000 in 1995. It is management's assessment that the allowance for loan losses is adequate in relation to credit risk exposure levels. At December 31, 1997, the allowance for loan losses totaled $5,570,000, an increase of $613,000 or 12.4%, from $4,957,000 at December 31, 1996, which compares to $3,677,000 at December 31, 1995. The ratio of allowance for loan losses to total loans was 1.44% at
- ------------------------------------------------------------------------------------------------------------------------------------ ALLOWANCE FOR LOAN LOSSES Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Allowance balance, beginning of year $ 4,957 $ 3,677 $ 2,912 $ 2,703 $ 2,940 Charge offs: Commercial, financial, and agricultural (212) (47) Real estate mortgage (161) (72) (26) (51) (222) Real estate construction (75) (30) (25) (45) Consumer (201) (252) (153) (83) (84) - ------------------------------------------------------------------------------------------------------------------------------------ Total charge offs (574) (399) (209) (206) (351) - ------------------------------------------------------------------------------------------------------------------------------------ Recoveries: Commercial, financial, and agricultural 7 20 21 Real estate mortgage 6443 37 Consumer 5539 45 47 56 - ------------------------------------------------------------------------------------------------------------------------------------ Total recoveries 6239 109 110 114 - ------------------------------------------------------------------------------------------------------------------------------------ Net charge offs (512) (360) (100) (96) (237) Provision charged to operations 1,125 1,640 865 305 -- - ------------------------------------------------------------------------------------------------------------------------------------ Allowance balance, end of year $ 5,570 $ 4,957 $ 3,677 $ 2,912 $ 2,703 - ------------------------------------------------------------------------------------------------------------------------------------ Loans, end of year $ 385,751 $ 331,237 $ 245,054 $ 196,910 $ 134,983 Average loans outstanding $ 355,526 $ 287,289 $ 221,232 $ 157,411 $ 117,671 Ratio of allowance for loan losses to total loans, end of year 1.44% 1.50% 1.50% 1.48% 2.00% Ratio of net charge offs to average loans outstanding 0.14% 0.13% 0.05% 0.06% 0.20% Nonperforming loans to total loans 1.38% 2.46% 1.15% 1.05% 1.83% Nonperforming assets to total loans and other real estate owned, end of year 2.18% 2.57% 1.40% 1.21% 2.83% Ratio of allowance for loan losses to nonperforming assets, end of year 65.64% 58.08% 106.77% 122.35% 69.92% Ratio of allowance for loan losses to nonperforming loans, end of year 104.80% 60.90% 130.44% 140.95% 109.30% ====================================================================================================================================
28 December 31, 1997 and 1.50% at December 31, 1996 and 1995, respectively. Another measure of the allowance for loan losses is the ratio of the allowance to total nonperforming loans. At December 31, 1997 this ratio was 104.8% versus 60.9% at December 31, 1996. YNB's gross charge offs in 1997 totaled $574,000, compared with $399,000 in 1996 and $209,000 in 1995. Losses on loans and loans which are determined to be uncollectible are charged against the allowance and subsequent recoveries, if any, are credited to it. YNB's gross recoveries totaled $62,000 in 1997 compared to $39,000 in 1996 and $109,000 in 1995 as a result of collection efforts. The balance of the allowance for loan losses is determined by an overall analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for potential loan losses. Management has established the necessary steps to identify potential credit problems in its loan portfolio by strengthening lending policies and quality 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 YNB's internal loan review officer. A formal loan review function, independent of loan origination, is used to identify and monitor problem loans. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The following tables describe the allocation for loan losses among various categories of loans and certain other information as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future loan losses may occur. The total allowance is available to absorb losses from any segment of loans.
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Percent of Percent of Percent of Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to (in thousands) Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans - ------------------------------------------------------------------------------------------------------------------------------------ Commercial, financial & agricultural $1,627 29.2% 22.9% $1,704 34.4% 19.2% $ 983 26.7% 13.6% Real estate mortgage 1,740 31.2 63.3 2,064 41.7 66.3 1,816 49.4 70.6 Real estate construction 1,775 31.9 7.39 38 18.9 7.8 664 18.1 7.9 Consumer 283 5.1 4.8 175 3.5 4.5 132 3.6 5.1 Other loans 145 2.6 1.7 761.5 2.2 822.2 2.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total $5,570 100.0% 100.0% $4,957 100.0% 100.0% $3,677 100.0% 100.0% ==================================================================================================================================== December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Percent of Percent of Reserve Percent of Loans to Reserve Percent of Loans to (in thousands) Amount Allowance Total Loans Amount Allowance Total Loans - ------------------------------------------------------------------------------------------------------------------------------------ Commercial, financial & agricultural $1,137 39.0% 13.5% $ 933 34.5% 13.1% Real estate mortgage 1,152 39.6 70.4 1,415 52.3 72.5 Real estate construction 398 13.7 7.9 237 8.8 7.2 Consumer 141 4.8 5.6 86 3.2 5.5 Other loans 84 2.9 2.6 32 1.2 1.7 - ------------------------------------------------------------------------------------------------------------------------------------ Total $2,912 100.0% 100.0$ 2,703 100.0% 100.0% ====================================================================================================================================
29 DEPOSITS The following table provides information concerning average rates and average balances of deposits for the years indicated.
- ------------------------------------------------------------------------------------------------------------------------------ AVERAGE DEPOSIT BALANCES AND RATES - ------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ % of % of % of (in thousands) Balance Rate Total Balance Rate Total Balance Rate Total - ------------------------------------------------------------------------------------------------------------------------------ Non-interest bearing demand deposits $ 56,700 --% 13.87% $ 49,078 --% 15.05% $ 42,321 --% 14.88% Interest bearing demand deposits 44,024 3.46 10.77 23,554 2.50 7.22 21,236 2.77 7.46 Savings and money market deposits 115,696 3.08 28.31 109,896 3.12 33.71 101,793 3.46 35.78 Time deposits 192,319 5.74 47.05 143,520 5.62 44.02 119,158 5.60 41.88 - ------------------------------------------------------------------------------------------------------------------------------ Total $408,739 3.94% 100.00% $326,048 3.70% 100.00% $284,508 3.79% 100.00% ===============================================================================================================================
YNB's deposit base is the principal source of funds supporting interest earning assets. YNB offers a full range of deposit products, including demand deposits, savings deposits, insured money market accounts and certificates of deposit. YNB's overall philosophy of building and maintaining long-term customer relationships is the key to further expanding the core deposit base, which, in turn, presents opportunities for YNB to cross-sell its services. Total deposits amounted to $422,944,000 at year-end 1997 compared to $364,445,000 at the end of 1996, an increase of 16.1%. Average total deposits during 1997 totaled $408,739,000 compared to $326,048,000 during 1996, an increase of 25.4%. In 1997 YNB's deposit base grew primarily due to the successful bidding for municipal deposits and competitive pricing of certificates of deposit (CDs). Time deposits were competitively priced to reduce levels of borrowed funds and to help fund loan growth throughout the year. The nine and fifteen month CD products introduced in the second half of 1996 were the featured CD products in 1997. In 1997, competition for deposits was strong in YNB's marketplace from other commercial banks and savings institutions as well as non-bank financial institutions. The average balance of non-interest bearing demand deposits was $56,700,000 during 1997, an increase of $7,622,000, or 15.5% from $49,078,000 during 1996. Non-interest bearing demand deposits represent a stable, interes t 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 86.9%, 5.3% and 34.0%, respectively, from 1996 to 1997. Growth in interest bearing demand deposits resulted from successful bidding for municipal deposit s. Total average time deposits, which consist of certificates of deposit and individual retirement accounts, increased $48,799,000 to $192,319,000 from $143,520,000 in 1996. In 1997, depositors continued to place their funds in higher yielding CDs which is reflected in the growing percentage of average time deposits to average total deposits. The average rate paid on YNB's deposit balances in 1997 was 3.94%, a 6.5% increase from the 3.70% average rate for 1996. The following table details amounts and maturities for certificates of deposit of $100,000 or more for the years indicated: December 31, - ------------------------------------------------------------ (in thousands) 1997 1996 - ------------------------------------------------------------ Maturity range: Within three months $5,742 $ 3,273 After three but within six months 5,232 3,955 After six but within twelve months 7,979 9,291 After twelve months 2,603 5,643 - ------------------------------------------------------------ Total $21,556 $ 22,162 ============================================================ Certificates of deposit of $100,000 or more totaled $21,556,000, or 5.1% of deposits, at December 31, 1997 compared to $22,162,000, or 6.1% of deposits, at December 31, 1996. YNB does not depend on historically less stable funding sources. YNB has not purchased deposits through wholesale deposit brokers, preferring to rely on more stable core deposits to support growth. 30 BORROWED FUNDS Borrowed funds consist of securities sold under agreement to repurchase, Federal Home Loan Bank of New York (FHLB) advances, Federal funds purchased, treasury tax and loan deposits and other forms of short-term borrowings. Management utilizes, from time to time, unsecured Federal funds lines of credit with two of its correspondent banks for daily funding needs. Borrowed funds totaled $134,316,000 at December 31, 1997 compared to $86,339,000 at December 31, 1996. Short-term and long-term funding needs increased in 1997 primarily due to the increase in the Investment Growth Strategy and the faster rate of growth in the loan portfolio compared with the growth rate of core deposits. Repurchase agreements totaling approximately $100,050,000 at year-end 1997 were used as part of the Investment Growth Strategy. Borrowed funds averaged $84,492,000 in 1997, a decrease of $2,573,000 from the average reported in 1996 of $87,065,000. At year-end 1997 there was $29,338,000 in outstanding borrowings with the FHLB and $4,000,000 outstanding with YNB's correspondents. Management will continue to strategically utilize borrowed funds to meet short-term liquidity needs and as an additional source of funding for the loan and investment portfolios. LIQUIDITY Liquidity measures the ability to satisfy current and future cash flow needs as they become due. YNB has an Asset/Liability Committee (ALCO) whose function is to monitor and coordinate all activities relating to maintaining adequate liquidity and protection of net interest income from fluctuations in market interest rates. Liquidity management refers to YNB's ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of customers. In addition to maintaining liquid assets, factors such as capital position, profitability, asset quality, and availability of funding affect a bank's ability to meet its liquidity needs. On the asset side, liquid funds are maintained in the form of cash and cash equivalents, Federal funds sold, investment securities held to maturity maturing within one year, securities available for sale and loans held for sale. Additional asset-based liquidity is derived from scheduled loan repayments as well as investment repayments of principal and interest from mortgage-backed securities. On the liability side , the primary source of liquidity is the ability to generate core deposits, which generally excludes CDs over $100,000. Short term borrowings are used as supplemental funding sources when growth in the core deposit base does not keep pace with that of earning assets. At December 31, 1997, liquid assets (excluding securities purchased utilizing repurchase agreements) amounted to $74,322,000, as compared to $62,574,000 at December 31, 1996. This represents 15.9% and 15.2% of earning assets, and 14.7% and 14.2% of total assets at December 31, 1997 and 1996, respectively. YNB has the availability to borrow up to $24,500,000 from the FHLB through its line of credit program, subject to collateral requirements. In addition, the bank is eligible to borrow up to 30% of assets under the FHLB advance program, subject to FHLB stock level requirements, collateral requirements, and individual advance proposals based on FHLB credit standards. YNB also has the ability to borrow at the Federal Reserve discount window along with agreements to borrow from two of its correspondent banks. 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. Interest rate risk is derived from timing differences in the repricing of assets and liabilities, loan prepayments, deposit withdrawals, and differences in lending and funding rates. YNB's ALCO actively seeks to monitor and control the mix of interest rate-sensitive assets and interest rate-sensitive liabilities. One measure of interest rate risk is the gap ratio, which is defined as the difference between the dollar volume of interest-earning assets and interest-bearing liabilities maturing or repricing within a specified period of time as a percentage of total assets. A positive gap results when the volume of interest rate-sensitive assets exceeds that of interest rate-sensitive liabilities within comparable time periods. A negative gap results when the volume of interest rate-sensitive liabilities exceeds that of interest rate-sensitive assets within comparable time periods. As indicated in the accompanying table, YNB's one year gap position at December 31, 1997 was a negative 13.2%. Generally, a financial institution with a negative gap position will most likely experience decreases in net interest income during periods of rising rates and increases in net interest income during periods of falling interest rates. The negative gap was brought about, in part, due to customer preferences for short-term certificate of deposit products which caused interest-rate sensitive liabilities to exceed interest-rate sensitive assets during the earlier time periods presented. The gap was also negatively impacted by the increase in the size of the Investment Growth Strategy. While gap analysis represents a useful asset/liability management tool, it does not necessarily indicate the effect of general interest rate movements on YNB's net interest income, due to discretionary repricing of assets and liabilities, and other competitive pressures. YNB reports its callable agency securities ($52.5 million at December 31, 1997) at their Option Adjusted Spread ("OAS") modified duration date, as opposed to 31 the call or maturity date. In management's opinion, using modified duration dates on callable agency securities provides a better estimate of the option exercise date at December 31, 1997. The OAS methodology is an approach whereby the likelihood of option exercise takes into account the coupon on the security, the distance to the call date, the ma turity date and the current interest rate volatility. In addition, prepayment assumptions derived from historical data have been applied to mortgage-related securities, which are included in investments. Included in the analysis of YNB's gap position are certain savings deposit and interest checking accounts which are less sensitive to fluctuations in interest rates than other interest-bearing sources of funds. In determining the sensitivity of such deposits, management reviews the movement of its deposit rates for the past five years relative to market rates. Using regression analysis, management's ALCO committee has estimated that these deposits are approximately 50-65% sensitive to interest rate change s (i.e., if short term rates were to increase 100 basis points, the interest rate on such deposits would increase 50-65 basis points). The table sets forth certain information at December 31, 1997 relating to YNB's assets and liabilities by scheduled repricing for adjustable assets and liabilities, or by contractual maturity for fixed-rate assets and liabilities. In addition to the utilization of gap for interest rate risk management, the ALCO utilizes simulation analysis whereby the model estimates the variance in net interest income with a change of interest rates of plus and minus 300 basis points over 12 and 24 month periods. Given
- ------------------------------------------------------------------------------------------------------------------------------------ RATE SENSITIVE ASSETS AND LIABILITIES December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ More than More than More than More than Under Six months one year two years five years ten years six through through through through and not (in thousands) months one year two years five years ten years repricing Total - ------------------------------------------------------------------------------------------------------------------------------------ Assets Cash and due from banks $ -- $ -- $-- $-- $-- $ 18,923 $ 18,923 Federal funds sold and interest bearing deposits 3,719 -- -- -- -- -- 3,719 Available for sale securities 37,923 21,042 27,355 44,998 22,340 6,066 159,724 Investment securities 1,465 6,152 2,701 9,687 6,174 733 26,912 Loans, net of unearned income 174,059 15,286 36,150 113,498 23,009 23,749 385,751 Other assets, net -- 9,448 -- -- -- 10,209 19,657 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $ 217,166 $ 51,928 $ 66,206 $168,183 $51,523 $ 59,680 $614,686 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Non-interest bearing demand $ -- $ -- $-- $-- $-- $ 66,560 $ 66,560 Savings and interest bearing demand 66,529 -- 15,291 37,747 -- -- 119,567 Money market 34,090 -- -- 5,847 -- -- 39,937 Certificates of deposit of $100,000 or more 10,974 7,979 2,261 342 -- -- 21,556 Other time deposits 80,896 41,334 32,261 20,833 -- -- 175,324 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits 192,4894 9,313 49,813 64,769 66,560 422,944 Borrowed funds 80,004 28,587 14,914 811 10,000 134,316 Trust preferred securities -- -- -- -- -- 11,500 11,500 Other liabilities -- -- -- -- -- 6,181 6,181 Stockholders' equity -- -- -- -- -- 39,745 39,745 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $ 272,493 $ 77,900 $ 64,727 $ 65,580 $10,000 $ 123,986 $614,686 - ------------------------------------------------------------------------------------------------------------------------------------ Gap (55,327) (25,972) 1,479 102,603 41,523 (64,306) Cumulative gap (55,327) (81,299) (79,820) 22,783 64,306 Cumulative gap to total assets -9.0% -13.2% -13.0% 3.7% 10.5% -- ====================================================================================================================================
32 recent simulations, YNB is presently positioned to benefit from the current stable rate environment, with only minor negative variances with higher or lower rates over the next 12 months. These variances are well within the Bank's internal policy guidelines. Lastly, YNB measures longer term risks through the Economic Value of Portfolio Equity ("EVPE"). The present value of asset and liability cash flows are subjected to rate shocks of plus and minus 200 basis points. The variance in the residual, or economic value of equity, is measured as a percentage of total assets. This variance is managed within a negative 3% boundary. MARKET RISK For YNB, market risk is defined as the potential loss in the value of financial instruments due to adverse changes in interest rates. This is different than accounting losses that may occur over the next one to two years due to maturity mismatches or spread changes between assets and liabilities, which are measured through simulation analysis. As a financial intermediary, YNB assumes market risk by holding both financial assets (primarily loans, securities, and Fed funds sold) and financial liabilities (deposits and borrowings) on the balance sheet. Rising rates have a negative impact on the value of fixed rate assets and a positive impact on the value of fixed rate and non-maturity deposits, as well as fixed rate borrowings. Deposits or borrowings acquired at today's market rate levels are more valuable to YNB as interest rates rise in the future, resulting in an economic gain. This occurs at the same time fixed rate asset values are declining. The table below shows the expected repricing of YNB's financial instruments subject to market risks, the weighted average interest rate, and fair value of the instruments as of December 31, 1997. The expected repricings take into account amortization and expected prepayments on mortgage-related securities and probable call dates on U.S. Agency notes and debentures represented by the option adjusted spread modified
- ----------------------------------------------------------------------------------------------------------------------------------- EXPECTED REPRICING OF FINANCIAL INSTRUMENTS - ----------------------------------------------------------------------------------------------------------------------------------- Beyond Fair (in thousands) 1998 1999 2000 2001-2002 2003-2007 10 Years Totals Value - ----------------------------------------------------------------------------------------------------------------------------------- Financial Assets Cash and due from banks $ -- $ -- $ -- $ -- $ -- $ 18,923 $ 18,923 $ 18,923 Average rate -- -- -- -- -- -- -- Federal Funds sold and interest bearing deposits 3,719 -- -- -- -- -- 3,719 3,719 Average rate 5.15% -- -- -- -- -- 5.15% Available for sale securities 58,965 27,355 27,166 17,832 22,340 6,066 159,724 159,724 Average rate 6.32% 6.57% 7.28 6.84 6.93% 8.01% 6.73% Investment securities 7,617 2,701 6,282 3,405 6,174 733 26,912 26,848 Average rate 5.10% 5.25% 5.57 5.16 5.34% 5.18% 5.29% Loans, net of unearned income 189,345 36,150 43,009 70,489 23,009 23,749 385,751 388,770 Average rate 9.46% 8.86% 8.59 8.60 8.20% 6.87% 8.91% - ----------------------------------------------------------------------------------------------------------------------------------- Financial Liabilities Non-interest demand deposits $ -- $ -- $ -- $ -- $ -- $ 66,560 $ 66,560 $ 66,560 Average rate -- -- -- -- -- -- -- Savings 47,531 -- -- 27,516 -- -- 75,047 75,047 Average rate 3.18% -- -- 2.77% -- -- 3.03% Interest bearing demand 18,998 15,291 -- 10,231 -- -- 44,520 44,520 Average rate 2.15% 5.85% -- 2.15% -- -- 3.42% Money market 34,090 -- 5,847 -- -- -- 39,937 39,937 Average rate 3.68% -- 3.18% -- -- -- 3.61% CDs of $100,000 or more 18,953 2,261 209 133 -- -- 21,556 21,522 Average rate 5.39% 5.77% 5.74 5.45% -- -- 5.43% Other time deposits 122,230 32,261 13,118 7,715 -- -- 175,324 175,496 Average rate 5.61% 5.90% 6.27 5.88% -- -- 5.72% Borrowed funds 108,591 14,914 15 796 10,000 -- 134,316 134,248 Average rate 5.86% 5.70% 6.47 6.21 5.75% -- 5.84% Trust preferred securities -- -- -- -- -- 11,500 11,500 12,075 Average rate -- -- -- -- -- 9.25% 9.25% ====================================================================================================================================
33 duration. The table does not include prepayments on loans, as they are less predictable than securities with homogenous coupons and maturity dates. Loan repricings are therefore likely to be shorter than what is indicated in this table, as some prepayments can be expected. Deposits, other than time deposits and non-interest demand, are shown with a "rate sensitive" component due in 1998 and a "non-rate sensitive" component due in subsequent periods. Although these deposits are "payable on demand", YNB does not anticipate a situation where all of the deposits mature simultaneously. Therefore, rate sensitivity of non-contractual interest bearing deposits are measured through a historical regression analysis, which correlates the changes in the rates paid on these deposits to an external market rate (Fed Funds). Since the regression is based on a historical relationship, it may not be indicative of how YNB will price these products in the future, but does provide some basis to determine the market risk of these liabilities. STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY Stockholders' equity at December 31, 1997 totaled $39,745,000 compared to $35,230,000 at December 31, 1996. This represents an increase of $4,515,000 or 12.8%. This increase resulted from (i) earnings of $5,006,000 (less dividend payments of $1,233,000) and a positive equity adjustment of $285,000 for the unrealized gain on securities available for sale, (ii) proceeds of $457,000 from exercised options. YNB trades on the NASDAQ National Market System under the symbol "YANB." The listing on the NASDAQ National Market System has provided increased liquidity for YNB stockholders. During 1997, 3,559,912 shares were traded. There were 4,958,098 shares of common stock outstanding at December 31, 1997. All share and dividend information reflects the two-for-one stock split declared December 23, 1997. Dividends paid per share in 1997 totaled $0.25. As a result of YNB's performance during 1997, the common stock dividend was increased from $0.06 per share to $0.065 per share in the last two quarters of 1997. Yardville National Bancorp and its banking subsidiary are subject to minimum risk-based and leverage capital guidelines issued by the Federal Reserve Board and Comptroller of the Currency. The measurement of risk-based capital takes into account the credit risk of both balance sheet assets and off-balance sheet exposures. These guidelines require minimum risk-based capital ratios of 4% for Tier 1 capital and 8% for total capital (Tier I plus Tier II). In addition, the current minimum regulatory guideline for the Tier 1 leverage ratio is 4.0%. The Federal Deposit Insurance Corporation 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 a minimum Tier 1 and total risk-based capital ratios of 6% and 10%, respectively, and a minimum Tier 1 leverage ratio of 5%. At December 31, 1997 the capital ratios for YNB exceeded the above ratios required to be well capitalized. The table below summarizes YNB's capital ratios for the years indicated: December 31, - ------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------ Tier 1 leverage ratio 9.5% 7.8% 9.1% Tier 1 risk-based 12.2% 10.2% 12.0% Total risk-based 13.5% 11.4% 13.2% ============================================================================== COMPANY - OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (Trust Preferred Securities) On October 16, 1997, Yardville Capital Trust (the Trust), a statutory business trust, and a wholly owned subsidiary of Yardville National Bancorp issued $11,500,000 of 9.25% Trust Preferred Securities maturing on November 1, 2027 to investors. Proceeds from the issuance of the Trust Preferred Securities were immediately used by the Trust to purchase $11,500,000 of 9.25% Subordinated Debentures due November 1, 2027, of Yardville National Bancorp. In conjunction with its formation the Trust purchased $356,000 in Subordinated Debentures from Yardville National Bancorp. These Subordinated Debentures constitute the sole assets of the Trust. The Subordinated Debentures are redeemable in whole or in part prior to maturity after November 1, 2002. The Trust is obligated to distribute all proceeds of a redemption, whether voluntary or upon maturity, to holders of Trust Preferred Securities. Yardville National Bancorp's obligations with respect to the Trust Preferred Securities and the Subordinated Debentures, when taken together, provide a full and unconditional guarantee on a subordinated basis by Yardville National Bancorp of the Trust's obligations to pay amounts when due on the Trust Preferred Securities. In the last quarter of 1997 investments were purchased to leverage YNB's capital and $7,500,000 was contributed to the Bank to fund its operations. YEAR 2000 Issues surrounding the year 2000 arise out of the fact that many existing computer programs use only two digits to identify a year in the date field. Additionally, the year 2000 is not just a computer issue, but involves communication, building, and environmental systems as well as office equipment. Year 2000 readiness can be affected to the extent that other entities such as bank 34 customers and key vendors are unsuccessful in addressing this issue. The year 2000 issue affects virtually all aspects of YNB's organization. YNB, through its Technology and Systems and Operations committees, began taking a proactive response to this issue in 1997. YNB's response includes a written plan and the adoption of a reporting system that provides information to both senior management and the Board of Directors on the progress of the year 2000 efforts. The first step taken by YNB was an organization-wide effort to educate the Board of Directors, senior management and all employees concerning the year 2000 issue. This included education seminars, questionnaires, and presentations to the Board of Directors. Corporate-wide communication is critical to the success of YNB's effort and will continue through the entire process. Management is currently in the process of assessing all critical in-house systems and evaluating key outside vendors. YNB will determine which systems are year 2000 compliant and which require upgrade or replacement. This process has included the use of outside consultants and discussion with outside vendors. Management anticipates that all assessments of critical systems and vendors will be completed in the second quarter of 1998. Replacement, renovation and upgrade of systems not year 2000 compliant will begin in the second quarter of 1998. This process includes the testing of systems and ongoing monitoring of the compliance efforts of key outside vendors. Management will also test systems believed to be year 2000 compliant throughout 1998. During this period, YNB will further refine contingency plans to deal with key outside vendors who are either not year 2000 compliant or where there is a reasonable chance that the vendor will not be year 2000 compliant in a timely manner. Management is currently on schedule with its plan and expects to have all system and application changes completed by the first quarter of 1999. At the same time, YNB anticipates having contingency plans in place to minimize the risk of key vendors not being year 2000 compliant. Management believes the level of resources committed to the project is adequate and the oversight provided by senior management and the Board of Directors is appropriate. The cost of the year 2000 conversion is estimated to be $500,000. This estimate included internal and external personnel costs for all aspects of the program as well as the replacement of certain hardware and software that is not year 2000 compliant. The cost of the project and the expected completion dates are based on management's best estimates. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS 129 lists required disclosures about capital structure that have been included in a number of separate statements and opinions. This statement is effective for financial statements for periods ending after December 15, 1997. The adoption of the Statement should not have a material effect on the consolidated financial statements of YNB. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This statement is effective for financial statements for fiscal years beginning after December 15, 1997. The adoption of this statement should not have a material effect on the consolidated financial statements of YNB. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement standardizes the disclosure requirements for pensions and other postretirement benefits by requiring additional information that will facilitate financial analysis, and eliminating certain disclosures that are considered no longer useful. SFAS 132 supersedes the disclosure requirements in FASB statements No. 87, 88, and 106. This statement is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required unless the information is readily available. FORWARD-LOOKING STATEMENTS This annual report contains express and implied statements relating to the future financial condition, results of operations, plans, objectives, performance and business of YNB, which are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements that relate to, among other things, profitability, liquidity, loan loss reserve adequacy, plans for growth, interest rate sensitivity, market risk and year 2000 issues. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in economic conditions, interest rate fluctuations, continued levels of loan quality and origination volume, successful implementation of year 2000 technology changes by YNB, its vendors and suppliers, competitive product and pricing pressures within YNB's markets, continued relationships with major customers including sources for loans and deposits, personal and corporate customers' bankruptcies, legal and regulatory barriers and structure, inflation, and technological changes, as well as other risks and uncertainties detailed from time to time in the filings of YNB with the Securities and Exchange Commission 35 Yardville National Bancorp and Subsidiaries Consolidated Statements of Condition
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except share data) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Assets: Cash and due from banks (Note 2) $ 18,923 $ 13,110 Federal funds sold 1,500 4,040 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents 20,423 17,150 - ------------------------------------------------------------------------------------------------------------------------------------ Interest bearing deposits 2,219 1,357 Securities available for sale (Note 3) 159,724 93,671 Investment securities (market value of $26,848 in 1997 and $30,878 in 1996) (Note 3) 26,912 31,296 Loans 385,751 331,237 Less: Allowance for loan losses (5,570) (4,957) - ------------------------------------------------------------------------------------------------------------------------------------ Loans, net (Note 4) 380,181 326,280 Bank premises and equipment, net (Note 5) 5,192 5,418 Other real estate 3,171 395 Other assets (Note 9) 16,864 14,978 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $ 614,686 $ 490,545 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity: Deposits Non-interest bearing $ 66,560 $ 55,519 Interest bearing 356,384 308,926 - ------------------------------------------------------------------------------------------------------------------------------------ Total Deposits (Note 6) 422,944 364,445 - ------------------------------------------------------------------------------------------------------------------------------------ Borrowed funds Securities sold under agreements to repurchase 100,050 64,185 Other 34,266 22,154 - ------------------------------------------------------------------------------------------------------------------------------------ Total Borrowed Funds (Note 7) 134,316 86,339 Company - obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust holding solely junior Subordinated Debentures of the Company (Note 8) 11,500 -- Other liabilities 6,181 4,531 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities $ 574,941 $ 455,315 - ------------------------------------------------------------------------------------------------------------------------------------ Commitments and Contingent Liabilities (Notes 10 and 13) Stockholders' equity (Notes 10 and 11) Preferred stock: no par value Authorized 1,000,000 shares, none issued Common stock: no par value Authorized 12,000,000 shares Issued and outstanding 4,958,098 shares in 1997 and 4,860,828 shares in 1996 17,703 17,246 Surplus 2,205 2,205 Undivided profits (Note 14) 19,713 15,940 Unrealized gain (loss) - securities available for sale 124 (161) - ------------------------------------------------------------------------------------------------------------------------------------ Total Stockholders' Equity 39,745 35,230 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $ 614,686 $ 490,545 ====================================================================================================================================
Shares and related amounts adjusted for two-for-one stock split declared December 23, 1997. See Accompanying Notes to Consolidated Financial Statements. 36 Yardville National Bancorp and Subsidiaries Consolidated Statements of Income
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Income: Interest and fees on loans (Note 4) $ 31,511 $ 25,731 $ 21,080 Interest on deposits with banks 107 98 36 Interest on securities available for sale 7,093 6,262 3,592 Interest on investment securities: Taxable 1,277 1,536 1,792 Exempt from Federal income tax 400 396 372 Interest on Federal funds sold 380 228 464 - ------------------------------------------------------------------------------------------------------------------------------------ Total Interest Income 40,768 34,251 27,336 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Expense: Interest on savings account deposits 5,083 4,014 4,107 Interest on certificates of deposit of $100,000 or more 1,273 922 883 Interest on other time deposits 9,759 7,138 5,792 Interest on borrowed funds (Note 7) 4,761 4,967 2,059 Interest on trust preferred securities (Note 8) 224 - ------------------------------------------------------------------------------------------------------------------------------------ Total Interest Expense 21,100 17,041 12,841 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Income 19,668 17,210 14,495 Less provision for loan losses (Note 4) 1,125 1,640 865 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Loan Losses 18,543 15,570 13,630 - ------------------------------------------------------------------------------------------------------------------------------------ Non-Interest Income: Service charges on deposit accounts 1,174 1,153 1,069 Gains on sales of mortgages, net 30 21 19 Security gains (losses), net 24 (136) (91) Other non-interest income 1,316 1,075 858 - ------------------------------------------------------------------------------------------------------------------------------------ Total Non-Interest Income 2,544 2,113 1,855 - ------------------------------------------------------------------------------------------------------------------------------------ Non-Interest Expense: Salaries and employee benefits (Note 10) 7,446 6,629 5,693 Occupancy expense, net (Notes 5 and 13) 977 920 726 Equipment (Note 5) 1,107 695 513 Other non-interest expense (Note 12) 3,811 3,235 3,328 - ------------------------------------------------------------------------------------------------------------------------------------ Total Non-Interest Expense 13,341 11,479 10,260 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income tax expense 7,746 6,204 5,225 Income tax expense (Note 9) 2,740 2,178 1,822 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 5,006 $ 4,026 $ 3,403 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share: Basic $ 1.02 $ 0.84 $ 0.87 Diluted $ 1.00 $ 0.82 $ 0.84 ===================================================================================================================================
Shares and related amounts adjusted for two-for-one stock split declared December 23, 1997. See Accompanying Notes to Consolidated Financial Statements. 37 Yardville National Bancorp and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized gain Common Common Undivided (loss)- securities (in thousands, except share amounts) shares stock Surplus profits available for sale Total - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, December 31, 1994 3,096,160 $ 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 55,326 202 202 Exercise of warrants 167,698 1,283 1,283 Proceeds from issuance of common stock, net of related expense 1,380,000 7,918 7,918 Unrealized gain - securities available for sale, net of tax 1,198 1,198 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, December 31, 1995 4,699,184 $ 16,409 $ 2,205 $ 12,997 $ 106 $ 31,717 Net income 4,026 4,026 Cash dividends (1,083) (1,083) Common stock issued: Exercise of stock options 127,764 562 562 Exercise of warrants 33,880 275 275 Unrealized loss - securities available for sale, net of tax (267) (267) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, December 31, 1996 4,860,828 $ 17,246 $ 2,205 $ 15,940 $ (161) $ 35,230 Net income 5,006 5,006 Cash dividends (1,233) (1,233) Common stock issued: Exercise of stock options 97,270 457 457 Unrealized gain - securities available for sale, net of tax 285 285 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, December 31, 1997 4,958,098 $ 17,703 $ 2,205 $ 19,713 $ 124 $ 39,745 ====================================================================================================================================
Shares and related amounts adjusted for two-for-one stock split declared December 23, 1997. See Accompanying Notes to Consolidated Financial Statements. 38 Yardville National Bancorp and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net Income $ 5,006 $ 4,026 $ 3,403 Adjustments: Provision for loan losses 1,125 1,640 865 Depreciation 832 666 474 Amortization and accretion 467 555 368 (Gain) Loss on sales of securities available for sale (24) 136 91 Writedown of other real estate 532 69 66 Increase in other assets (2,076) (5,434) (3,289) Increase in other liabilities 1,650 1,326 1,617 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 7,512 2,984 3,595 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Net (increase) decrease in interest bearing deposits (862) (324) 61 Purchase of securities available for sale (123,534) (65,492) (100,065) Maturities, calls and paydowns of securities available for sale 45,928 23,475 17,000 Proceeds from sales of securities available for sale 11,740 45,864 10,481 Proceeds from maturities and paydowns of investment securities 4,757 4,355 4,148 Purchase of investment securities (528) (452) (646) Net increase in loans (57,984) (86,915) (48,962) Expenditures for bank premises and equipment (606) (2,058) (565) Proceeds from sale of other real estate - 533 353 Capital improvements to other real estate (350) - (12) - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used by Investing Activities (121,439) (81,014) (118,207) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Net increase in non-interest bearing demand, money market, and savings deposits 36,188 15,704 19,044 Net increase in certificates of deposit 22,311 45,769 24,632 Net increase in borrowed funds 47,977 21,118 64,006 Proceeds from issuance of common stock 457 837 9,403 Proceeds from issuance of trust preferred securities 11,500 Dividends paid (1,233) (1,083) (738) - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Financing Activities 117,200 82,345 116,347 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 3,273 4,315 1,735 Cash and cash equivalents as of beginning of year 17,150 12,835 11,100 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents as of End of Year $ 20,423 $ 17,150 $ 12,835 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest $ 19,239 $ 16,338 $ 11,432 Income taxes 3,642 2,324 1,908 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental Schedule of Non-cash Investing and Financing Activities: The Corporation transferred from loans to other real estate, net of charge offs, $2,958, $372, and $454 in 1997, 1996, and 1995, respectively. ====================================================================================================================================
See Accompanying Notes to Consolidated Financial Statements. 39 Notes to Consolidated Financial Statements Years ended December 31, 1997, 1996, and 1995 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 subsidiaries, Yardville Capital Trust and the Bank and the Bank's wholly owned subsidiaries, the Yardville National Investment Corporation, Brendan, Nancy Beth and Yardville Real Estate Corporation (collectively, the Corporation). All significant inter-company accounts and transactions have been eliminated. B. Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. Generally, Federal funds are purchased or sold for one day periods. C. Securities. The Corporation's securities portfolio is classified into three separate portfolios: held to maturity, available for sale and trading. 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 based upon the principal amount outstanding. Loans are stated at face value, less unearned income and net deferred fees. Generally, commercial loans are placed on a nonaccrual status when they are 90 days past due unless they are well secured and in the process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal and interest is in doubt. Consumer loans are generally charged off after they become 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. Loan origination and commitment fees less certain costs are deferred and the net amount amortized as an adjustment to the related loan's yield. Loans held for sale are recorded at the lower of aggregate cost or market. E. Allowance for Loan Losses. The provision for loan losses charged to operating expense is determined by management and is based upon a periodic review of the loan portfolio, past experience, the economy, and other factors that may affect a borrower's ability to repay the loan. This provision is based on management's estimates, and actual losses may vary from these estimates. These estimates are reviewed and adjustments, as they become necessary, are reported in the periods in which they become known. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the 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 40 losses and the valuation of other real estate. Such agencies may require the Corporation to recognize additions to the allowance or adjustments to the carrying value of other real estate based on their judgments about information available to them at the time of their examination. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or fair value of the collateral. Impairment losses are included in the allowance for loan losses through provisions charged to operations. 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 i ncluded in other non-interest income, while losses are included in non-interest expense. H. Federal Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period of the enactment date. I. Stock Based Compensation. The Corporation adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for transactions entered into after December 15, 1995. The Corporation elected to continue to apply Accounting Principles Board (APB) Opinion 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Pro forma disclosures, as required by SFAS 123, have been included for awards granted after January 1, 1995 (see note 10). J. Earnings Per Share. On December 23, 1997, the Board of Directors of the Corporation approved a two-for-one stock split effected in the form of a stock dividend payable on January 20, 1998 to shareholders of record January 5, 1998. All share data has been retroactively adjusted to reflect the common stock split. The Corporation adopted SFAS No. 128, "Earnings Per Share" on December 31, 1997. SFAS No. 128 establishes the new standard for computation and presentation of net income per share. Under the new requirements both basic and diluted net income per share are presented. All prior period net income per common share data has been restated. Basic net income per common share is calculated by dividing net income, less the dividends on preferred stock, if any, by the weighted average common shares outstanding during the period. Diluted net income per common share is computed similar to that of basic net income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period. Weighted average shares for the basic net income per share computation for the year ended December 31, 1997, 1996, and 1995 were 4,929,000, 4,817,000, and 3,928,000, respectively. For the diluted net income per share computation common stock equivalents of 65,000, 102,000, and 125,000 are included for the year ended December 31, 1997, 1996, and 1995, respectively. 2. Cash and Due From Banks The Corporation maintains various deposits with other banks. As of December 31, 1997 and 1996, the Corporation maintained sufficient cash on hand to satisfy Federal regulatory requirements. 41 3. Securities The amortized cost and estimated market value of securities available for sale are as follows:
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market (in thousands) Cost Gains Losses Value Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury securities and obligations of other U.S. government agencies and corporations $ 62,465 $ 117 $ (42) $ 62,540 $ 31,951 $ 27 $ (36) $ 31,942 Mortgage-backed securities 91,193 329 (206) 91,316 59,441 339 (598) 59,182 Corporate obligations 3,297 15 (6) 3,306 -- -- -- -- Federal Reserve Bank Stock 587 -- -- 587 572 -- -- 572 Federal Home Loan Bank Stock 1,975 -- -- 1,975 1,975 -- -- 1,975 - ------------------------------------------------------------------------------------------------------------------------------------ Total $159,517 $ 461 $ (254) $159,724 $ 93,939 $ 366 $ (634) $ 93,671 ====================================================================================================================================
The amortized cost and estimated market value of investment securities are as follows:
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market (in thousands) Cost Gains Losses Value Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------------ Obligations of state and political subdivisions $ 8,819 $ 138 $ -- $ 8,957 $ 9,070 $ 62 $ (24) $ 9,108 Mortgage-backed securities 18,093 -- (202) 17,891 22,226 -- (456) 21,770 - ------------------------------------------------------------------------------------------------------------------------------------ Total $26,912 $ 138 $ (202) $26,848 $31,296 $ 62 $ (480) $30,878 ====================================================================================================================================
The amortized cost and estimated market value of securities available for sale and investment securities as of December 31, 1997 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. - -------------------------------------------------------------------------------- SECURITIES AVAILABLE FOR SALE Estimated Amortized Market (in thousands) Cost Value - -------------------------------------------------------------------------------- Due in 1 year or less $ 8,482 $ 8,502 Due after 1 year through 5 years 16,983 17,005 Due after 5 years through 10 years 12,000 12,019 Due after 10 years 30,859 30,882 - -------------------------------------------------------------------------------- Subtotal 68,324 68,408 Mortgage-backed securities 91,193 91,316 - -------------------------------------------------------------------------------- Total $159,517 $159,724 ================================================================================ - -------------------------------------------------------------------------------- INVESTMENT SECURITIES Estimated Amortized Market (in thousands) Cost Value - -------------------------------------------------------------------------------- Due in 1 year or less $ 302 $ 303 Due after 1 year through 5 years 4,387 4,413 Due after 5 years through 10 years 3,397 3,488 Due after 10 years 733 753 - -------------------------------------------------------------------------------- Subtotal 8,819 8,957 Mortgage-backed securities 18,093 17,891 - -------------------------------------------------------------------------------- Total $26,912 $26,848 ================================================================================ Proceeds from sales of securities available for sale during 1997, 1996, and 1995 were $11,740,000, $45,864,000 and $10,481,000 respectively. Gross gains of $24,000, $43,000 and $27,000 were realized on those sales in 1997, 1996, and 1995, respectively. There were no losses in 1997. Gross losses of $179,000 and $118,000 were realized on those sales in 1996 and 1995, respectively. 42 Securities with a carrying value of approximately $111,898,000 as of December 31, 1997 were pledged to secure public deposits and for other purposes as required or permitted by law. As of December 31, 1997, Federal Home Loan Bank (FHLB) stock with a carrying value of $1,975,000 was held by the Corporation as required by the FHLB. 4. LOANS AND ALLOWANCE FOR LOAN LOSSES The following table shows comparative year-end detail of the loan portfolio: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Commercial and agricultural loans $ 88,228 $ 63,426 Real estate loans mortgage 244,058 219,554 Real estate loans construction28,182 25,958 Consumer loans 18,519 15,034 Other loans 6,764 7,265 - -------------------------------------------------------------------------------- Total loans $385,751 $331,237 ================================================================================ Residential mortgage loans held for sale amounted to $2,773,000 and $2,921,000 as of December 31, 1997 and 1996, respectively. These loans are accounted for at the lower of aggregate cost or market value and are included in the table above. The Corporation originates and sells mortgage loans to Freddie Mac and FNMA. Generally, servicing on such loans is retained by the Corporation. As of December 31, 1997 and 1996, loans serviced for Freddie Mac were $39,025,000 and $44,637,000, respectively. Loans serviced for FNMA were $5,114,000 and $2,682,000, respectively, as of December 31, 1997 and 1996. The Corporation has extended credit in the ordinary course of business to directors, officers, and their associates on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other customers of the Corporation. The following table summarizes activity with respect to such loans: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Balance at beginning of year $3,330 $3,581 Additions 5,399 752 Repayments and resignations 2,342 1,003 - -------------------------------------------------------------------------------- Balance as of end of year $6,387 $3,330 ================================================================================ 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 are as follows: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Balance as of beginning of year $ 4,957 $ 3,677 $ 2,912 Loans charged off (574) (399) (209) Recoveries of loans charged off 62 39 109 - -------------------------------------------------------------------------------- Net charge offs (512) (360) (100) Provision charged to operations 1,125 1,640 865 - -------------------------------------------------------------------------------- Balance as of end of year $ 5,570 $ 4,957 $ 3,677 ================================================================================ The detail of loans charged off is as follows: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Commercial and agricultural $212 $-- $-- Real estate loans mortgage 161 72 26 Real estate loans construction -- 75 30 Consumer loans 201 252 153 - -------------------------------------------------------------------------------- Total $574 $399 $209 ================================================================================ 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 1.38% as of December 31, 1997 and 2.46% as of December 31, 1996. 43 A summary of nonperforming assets follows: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Nonaccruing loans: Commercial and agricultural loans $ 515 $ 961 Real estate loans - mortgage 384 1,451 Real estate loans - construction 2,106 4,659 Consumer loans 38 12 Other loans 312 -- - -------------------------------------------------------------------------------- Total nonaccruing loans $3,355 $7,083 - -------------------------------------------------------------------------------- Restructured loans $ 969 $ -- - -------------------------------------------------------------------------------- Past due 90 days or more: Real estate loans - mortgage $ 886 $1,014 Consumer loans 105 43 - -------------------------------------------------------------------------------- Total past due 90 days or more 991 1,057 - -------------------------------------------------------------------------------- Total nonperforming loans 5,315 8,140 Other real estate 3,171 395 - -------------------------------------------------------------------------------- Total nonperforming assets $8,486 $8,535 ================================================================================ The Corporation has defined the population of impaired loans to be all nonaccrual commercial loans. Impaired loans are individually assessed to determine that the loan's carrying value is not in excess of the fair value of the collateral or the present value of the loan's expected cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment, including residential mortgage and consumer loans, are specifically excluded from the impaired loan portfolio. The recorded investment in loans receivable for which an impairment has been recognized as of December 31, 1997 and 1996 was $4,213,000 and $6,827,000, respectively. The related allowance for loan losses on these loans as of December 31, 1997 and 1996 was $716,000 and $861,000, respectively. The average recorded investment in impaired loans during 1997 and 1996 was $5,485,000 and $2,548,000, respectively. There was no interest income recognized on impaired loans in 1997 or 1996. Additional income before income taxes amounting to approximately $254,000 in 1997, $351,000 in 1996, and $143,000 in 1995 would have been recognized if interest on all loans had been recorded based upon original contract terms. There were two restructured loans as of December 31, 1997 totaling $969,000. There were no restructured loans at December 31, 1996. 5. BANK PREMISES AND EQUIPMENT The following table represents comparative information for premises and equipment: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Land and improvements $ 528 $ 528 Buildings and improvements 4,308 4,296 Furniture and equipment 5,722 5,128 - -------------------------------------------------------------------------------- Total 10,558 9,952 Less accumulated depreciation 5,366 4,534 - -------------------------------------------------------------------------------- Bank premises and equipment, net $ 5,192 $ 5,418 ================================================================================ 6. DEPOSITS Total deposits consist of the following: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Non-interest bearing demand deposits $ 66,560 $ 55,519 Interest bearing demand deposits 44,520 24,435 Money market deposits 39,937 38,348 Savings deposits 75,047 71,574 Certificates of deposit of $100,000 and over 21,556 22,162 Other time deposits 175,324 152,407 - -------------------------------------------------------------------------------- Total $422,944 $364,445 ================================================================================ A summary of certificates of deposit by maturity is as follows: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Within one year $141,183 $ 84,529 One to two years 34,522 50,357 Two to three years 13,327 27,731 Three to four years 5,366 9,942 Four to five years 2,482 2,010 - -------------------------------------------------------------------------------- Total $196,880 $174,569 ================================================================================ 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. 44 The following table presents comparative data related to borrowed funds of the Corporation at and for the years ended December 31, 1997, 1996, and 1995. December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase $100,050 $ 64,185 $ 54,830 FHLB advances 29,338 20,813 10,000 Other 4,928 1,341 391 - -------------------------------------------------------------------------------- Total $134,316 $ 86,339 $ 65,221 - -------------------------------------------------------------------------------- Maximum amount outstanding at any month end $134,316 $105,577 $ 65,221 Average interest rate on year end balance 5.94% 5.72% 6.01% Average amount outstanding during the year $ 84,492 $ 87,065 $ 33,339 Average interest rate for the year 5.63% 5.70% 6.18% ================================================================================ The following is a summary of securities sold under agreements to repurchase and their maturities as of December 31, 1997: - ----------------------------------------------------- (in thousands) - ----------------------------------------------------- Up to 30 days $ 12,340 30 to 90 days 44,530 Over 90 days 43,180 - ----------------------------------------------------- Total $100,050 ===================================================== The FHLB advances as of December 31, 1997, mature as follows: - ----------------------------------------------------- (in thousands) - ----------------------------------------------------- Within one year $18,500 Over three to four years 799 Over four to five years 39 Over five years 10,000 - ----------------------------------------------------- Total $29,338 ===================================================== Expected maturities of FHLB Advances could differ from contractual maturities because FHLB has the right to call obligations. Interest expense on borrowed funds is comprised of the following: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase $3,627 $3,792 $1,429 FHLBadvances 1,081 1,116 576 Other 53 59 54 - -------------------------------------------------------------------------------- Total $4,761 $4,967 $2,059 ================================================================================ 8. COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (TRUST PREFERRED SECURITIES) On October 16, 1997, Yardville Capital Trust (the Trust) a statutory business trust, and a wholly owned subsidiary of Yardville National Bancorp, issued $11,500,000 of 9.25% Company Obligated Mandatorily Redeemable Trust Preferred Securities (Trust Preferred Securities) to investors maturing on November 1, 2027. Proceeds from the issuance of the Trust Preferred Securities were immediately used by the Trust to purchase $11,500,000 of 9.25% Subordinated Debentures due November 1, 2027, of Yardville National Bancorp, said Subordinated Debentures constituting the sole assets of the Trust. The Subordinated Debentures are redeemable in whole or part prior to maturity after November 1, 2002 at par. The Subordinated Debentures are also redeemable in whole in the event that the tax or capital treatment of the issue changes from the treatment at time of issuance and in the event that the Trust were to be considered an investment company under the Investment Company Act of 1940, as amended. The Trust is obligated to distribute all proceeds of a redemption, whether voluntary or upon maturity, to the holders of Trust Preferred Securities. Yardville National Bancorp's obligation with respect to the Trust Preferred Securities and the Subordinated Debentures, when taken together, provide a full and unconditional guarantee on a subordinated basis by Yardville National Bancorp of the Trust's obligation to pay amounts when due on the Trust Preferred Securities. 9. INCOME TAXES Income taxes reflected in the consolidated financial statements for 1997, 1996, and 1995 are as follows: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Statements of Income: Federal: Current $ 2,440 $ 2,281 $ 1,881 Deferred (294) (521) (400) State: Current 675 $ 560 $ 253 Deferred (81) (142) 88 - -------------------------------------------------------------------------------- Total tax expense $ 2,740 $ 2,178 $ 1,822 - -------------------------------------------------------------------------------- Statements of Condition: Deferred tax on securities available for sale $ 190 $ (178) $ 798 ================================================================================ 45 Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Temporary differences which give rise to a significant portion of deferred tax assets and liabilities for 1997 and 1996 are as follows: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Deferred tax assets: Deferred loan fees $ 38 $ 170 Allowance for loan losses 1,965 1,686 Writedown of basis of O.R.E. properties 22 36 Deferred income 21 Nonaccrual loans 40 40 Unrealized loss on securities available for sale 107 Deferred compensation 458 223 - -------------------------------------------------------------------------------- Total deferred tax assets$ 2,525 $ 2,263 - -------------------------------------------------------------------------------- Valuation allowance (78) (78) - -------------------------------------------------------------------------------- Deferred tax liabilities: Unrealized gain on securities available for sale (83) Unamortized discount accretion (71) (94) Depreciation (195) (207) - -------------------------------------------------------------------------------- Net deferred tax assets $ 2,098 $ 1,884 ================================================================================ The Corporation has established the valuation allowance against certain temporary differences. The Corporation is not aware of any factors which would generate significant differences between taxable income and pre-tax accounting income in future years except for the effects of the reversal of current or future net deductible temporary differences. Management believes, based upon current information, that it is more likely than not that there will be sufficient taxable income through carryback to prior years to realize the net deferred tax asset. However, there can be no assurance regarding the level of earnings in the future. A reconciliation of the tax expense computed by multiplying pre-tax accounting income by the statutory Federal income tax rate of 34% is as follows: Year Ended December 31, - ------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------- Income tax expense at statutory rate $ 2,634 $ 2,105 $ 1,776 State income taxes, net of Federal benefit, before change in valuation reserve 392 276 226 Changes in taxes resulting from: Tax exempt interest (155) (122) (117) Tax exempt income(184) (142) (93) Non-deductible expenses 53 61 30 - ------------------------------------------------------------------------------- Total $ 2,740 $ 2,178 $ 1,822 ================================================================================ 10. BENEFIT PLANS Retirement Savings Plan. The Corporation has a 401(K) plan which covers substantially all employees with one or more years of service. The plan permits all eligible employees to make basic contributions to the plan up to 12% of base compensation. Under the plan, the Corporation provided a matching contribution of 50% in 1997 and 1996 and 25% in 1995, up to 6% of base compensation. Employer contributions to the plan amounted to $93,000 in 1997, $83,000 in 1996, and $36,000 in 1995. Postretirement Benefits. The Corporation provides additional postretirement benefits, namely life and health insurance, to retired employees over the age of 62 who have completed 15 years of service. The plan calls for retirees to contribute a portion of the cost of providing these benefits in relation to years of service. The cost of retiree health and life insurance benefits is recognized over the employees' period of service. 46 The periodic postretirement benefit cost under SFAS 106 was as follows: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost $ 32 $ 79 $ 50 Interest cost 34 83 68 Amortization of transition obligation - 30 30 Amortization of actuarial loss - 13 - Amortization of prior service cost (2) - - - -------------------------------------------------------------------------------- Net postretirement cost $ 64 $205 $148 ================================================================================ The actuarial present value of benefit obligations was as follows: December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Retirees $ 178 $ 316 Fully eligible active plan participants 79 320 Other active plan participants 281 701 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 538 1,337 Unrecognized transition obligation -- (480) Unrecognized actuarial loss (3) (337) Unrecognized prior service cost 33 -- - -------------------------------------------------------------------------------- Accrued postretirement benefit obligation $ 568 $ 520 ================================================================================ The assumed annual rate of future increases in per capita cost of health care benefits was 9% for 1997 and 10% for 1996. 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 $100,000 and $349,000 and the service, interest and amortization costs by $15,000 and $49,000 in 1997 and 1996, respectively. The weighted average discount rate used in determining the accumulated benefit obligation was 7% in 1997 and 1996. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement standardizes the disclosure requirements for pensions and other postretirement benefits by requiring additional information that will facilitate financial analysis, and eliminating certain disclosures that are considered no longer useful. SFAS 132 supersedes the disclosure requirements in FASB Statements No. 87, 88 and 106. This Statement is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required unless the information is readily available. Stock Option Plan. In March 1988, the Stockholders approved an incentive stock option plan (employee 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 88,000 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 328,000. In April 1997 the stockholders amended the 1988 plan. The amendment extended from six months to twelve months the time in which legal representative, designated beneficiary or executor can exercise options granted under the plan in the event that an option holder becomes permanently disabled or dies while in the employ of the Corporation or the Bank. After February 28, 1998 no incentive stock options may be granted under the 1988 plan. Stock options vest during a period of up to five years after the date of grant. The status of the plan for the years ended December 31, 1997, 1996, and 1995 is as follows: - ----------------------------------------------------------------------- Options Outstanding: Price Shares Per Share - ----------------------------------------------------------------------- Balance, December 31, 1994 320,460 $1.550 - $4.375 - ----------------------------------------------------------------------- Shares: Granted 7,040 $ 7.375 Exercised 33,440 $1.550 - $7.375 Expired 4,700 $4.00 - $4.375 - ----------------------------------------------------------------------- Balance, December 31, 1995 289,360 $4.00 - $7.375 - ----------------------------------------------------------------------- Shares: Exercised 114,678 $4.375 - $7.375 Expired 5,622 $4.375 - $7.375 - ----------------------------------------------------------------------- Balance, December 31, 1996 169,060 $4.00 - $7.375 - ----------------------------------------------------------------------- Shares: Exercised 76,242 $4.00 - $7.375 Expired 1,290 $4.375 - $7.375 - ----------------------------------------------------------------------- Balance, December 31, 1997 91,528 $4.00 - $7.375 - ----------------------------------------------------------------------- Shares exercisable as of December 31, 1997 91,528 $4.00 - $7.375 ======================================================================= 1994 Stock Option Plan. In April 1994, the Board of Directors approved a non-qualified stock option plan (director 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 47 the business of the Corporation. In general, the plan allows for the granting of up to 80,000 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. The shares granted in 1994 under this plan vested immediately. The status of the plan for the years ended December 31, 1997, 1996, and 1995 is as follows: - -------------------------------------------------------------------------------- Options Outstanding: Price Shares Per Share - -------------------------------------------------------------------------------- Balance, December 31, 1995 35,714 $ 4.375 - -------------------------------------------------------------------------------- Shares: Granted 6,400 $ 7.875 Exercised 13,086 $ 4.375 Expired 1,600 $ 4.375 - -------------------------------------------------------------------------------- Balance, December 31, 1996 27,428 $ 4.375 - $ 7.875 - -------------------------------------------------------------------------------- Shares: Granted 19,200 $10.313 - $10.750 Exercised 21,028 $ 4.375 - $ 7.875 - -------------------------------------------------------------------------------- Balance, December 31, 1997 25,600 $ 4.375 - $10.750 - -------------------------------------------------------------------------------- Shares exercisable as of December 31, 1997 25,600 $ 4.375 - $10.750 ================================================================================ As of December 31, 1997, there were 5,812 additional shares available for grant under the employee plan and no shares available for grant under the director plan. 1997 Stock Option Plan. In April 1997 the stockholders approved the 1997 Stock Option Plan (The 1997 Plan). The 1997 Plan is designed to assist the Corporation in attracting and retaining highly qualified persons as employees of the Corporation and its Subsidiaries and to provide such key employees with incentives to contribute to the growth and development of the business and the Corporation. In general, the plan allows for the granting of up to 400,000 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. There were 10,000 options granted at $11.50 under this plan in 1997. No options were exercisable under this plan in 1997. As discussed above, there were 19,200 options granted under the director plan in 1997 and there were no grants under the employee plan in 1996. The per share weighted average fair value of stock options granted during 1997 and 1996 was $1.61 and $1.23, respectively, on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions in 1997 and 1996: (1)an expected annual dividend of $0.28 and $0.225, respectively, (2)risk free interest rate of 5.5% and 5.2%, respectively, and expected life of approximately one year. The Corporation applies APBOpinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for stock options in the consolidated financial statements. Had the Corporation determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Corporation's 1997 and 1996 net income would have been reduced to the pro forma amounts indicated below: - -------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------- Net income: As reported $5,006 $4,026 $3,403 Pro forma 4,976 4,021 3,398 - -------------------------------------------------------------------- Earnings per share: Basic: As reported $ 1.02 $ 0.84 $ 0.87 Pro forma 1.01 0.84 0.87 Diluted: As reported $ 1.00 $ 0.82 $ 0.84 Pro forma 1.00 0.82 0.84 ===================================================================== Benefit Plans. The Corporation has a salary continuation plan for key executives and a director deferred compensation plan for board members. The plans provide for yearly retirement benefits to be paid over a specified period. The present value of the benefits accrued under these plans as of December 31, 1997 and 1996 is approximately $342,000 and $226,000, respectively, and is included in other liabilities in the accompanying consolidated statements of condition. Compensation expense of approximately $120,000 is included in the accompanying consolidated statements of income for each of the years ended December 31, 1997 and 1996. In connection with the benefit plans, the Corporation has purchased life insurance policies on the lives of the executives and directors. The Corporation is the owner and beneficiary of the policies. The cash surrender values of the policies are approximately $5,797,000 and $5,560,000 as of December 31, 1997 and 1996, respectively, and are included in other assets in the accompanying consolidated statements of condition. The Corporation implemented an officer group term replacement plan for certain executives in 1996. This plan replaces group term life insurance for these executives. This plan is funded through life insurance policies purchased by the Corporation. This plan is a split dollar plan; therefore, the policy interests are divided between the bank and the employee. The death benefits over and above the cash surrender of the life insurance policy, if any, are endorsed to the beneficiary of the executive. The cash surrender value of the policies is approximately $3,441,000 and $2,990,000 as of December 31, 1997 and 48 1996, and is included in other assets in the accompanying consolidated statements of condition. 11. COMMON STOCK During 1996, warrants associated with prior capital offerings totaling 33,880 were exercised with proceeds of $275,000. On June 13, 1996 all outstanding warrants expired. On June 14, 1995 the Corporation completed its underwritten public offering by issuing 1,380,000 shares of common stock. The proceeds from this offering were $7,918,000, net of offering expenses. 12. OTHER NON-INTEREST EXPENSE Other non-interest expense included the following: Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Audit & Examination Fees $ 227 $ 216 $ 176 Attorney's Fees 373 153 162 Outside Services & Processing332 325 289 O.R.E. expenses 378 163 166 Stationery and supplies 347 388 300 Communication & Postage 373 354 322 Insurance (other) 127 102 93 Marketing 575 522 479 Other 1,079 1,012 1,341 - -------------------------------------------------------------------------------- Total $3,811 $3,235 $3,328 ================================================================================ 13. OTHER COMMITMENTS AND CONTINGENT LIABILITIES The Corporation enters into a variety of financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and letters of credit, both of which involve, to varying degrees, elements of risk in excess of the amount recognized in the consolidated financial statements. Credit risk, the risk that a counterparty of a particular financial instrument will fail to perform, is the contract amount of the commitments to extend credit and letters of credit. The credit risk associated with these financial instruments is essentially the same as that involved in extending loans to customers. Credit risk is managed by limiting the total amount of arrangements outstanding and by applying normal credit policies to all activities with credit risk. Collateral is obtained based on management's credit assessment of the customer. The contract amounts of off-balance sheet financial instruments as of December 31, 1997 and 1996 for commitments to extend credit were $77,943,000 and $56,071,000, respectively. For standby letters of credit, the contract amounts were $6,501,000 and $6,831,000, respectively. Many such commitments to extend credit may expire without being drawn upon, and therefore, the total commitment amounts do not necessarily represent future cash flow requirements. The Corporation maintains lines of credit with the FHLB and two of its correspondent banks. There were approximately $31,500,000 in lines of credit available as of December 31, 1997. The Corporation maintains repurchase agreement lines of credit with two brokerage firms. There was approximately $104,850,000 in lines available at December 31, 1997. The Corporation leases its banking offices in Ewing Township, East Windsor Township, Trenton, Hamilton Square, and its Telephone Help Center. Total lease rental expense was $236,912, $186,305, and $103,002 for the years ended December 31, 1997, 1996, and 1995, respectively. Minimum rentals under the terms of these leases for years 1998 through 2002 are $263,301, $264,981, $252,541, $241,965, and $241,965, 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 or results of operations will not be affected materially by the final outcome of any pending legal proceedings. 14. REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier Icapital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category. 49 The Bank's actual capital amounts and ratios are presented in this table:
- ----------------------------------------------------------------------------------------------------------------------------------- REGULATORY MATTERS To be well For capital capitalized under adequacy prompt corrective Actual purposes action provision - ----------------------------------------------------------------------------------------------------------------------------------- (amounts in thousands) Amount Ratio Amount Ratio Amount Ratio - ----------------------------------------------------------------------------------------------------------------------------------- As of December 31, 1997: Total capital (to risk-weighted assets) $51,675 12.5% $33,114 8.0% $41,393 10.0% Tier I capital (to risk-weighted assets) 46,496 11.2 16,557 4.0 24,836 6.0 Tier Icapital (to average assets) 46,496 8.7 21,279 4.0 26,598 5.0 As of December 31, 1996: Total capital (to risk-weighted assets) $39,304 11.4% $27,521 8.0% $34,401 10.0% Tier I capital (to risk-weighted assets) 34,996 10.2 13,761 4.0 20,641 6.0 Tier Icapital (to average assets) 34,996 7.8 17,940 4.0 22,425 5.0 ===================================================================================================================================
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 $6,512,000 as of December 31, 1997. 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. 15. Fair Value of Financial Instruments The following fair value estimates, methods and assumptions were used to measure the fair value of each class of financial instruments for which it is practical to estimate that value: Cash and Cash Equivalents. For such short-term investments, the carrying amount was considered to be a reasonable estimate of fair value. Securities and Mortgage-backed Securities. The 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 50 checking accounts, is considered to be equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Borrowed Funds. For securities sold under agreements to repurchase fair value was based on rates currently available to the Corporation for agreements with similar terms and remaining maturities. For other borrowed funds, the carrying amount was considered to be a reasonable estimate of fair values. The estimated fair values of the Corporation's financial instruments are as follows: December 31, 1997 - -------------------------------------------------------------------------------- Carrying Fair (in thousands) Value Value - -------------------------------------------------------------------------------- Financial Assets: Cash and cash equivalents $ 20,423 $ 20,423 Interest bearing deposits 2,219 2,219 Securities available for sale 159,724 159,724 Investment securities 26,912 26,848 Loans, net 380,181 383,200 Financial Liabilities: Deposits 422,944 423,082 Borrowed funds 134,316 134,248 Trust preferred securities 11,500 12,075 ================================================================================ December 31, 1996 - -------------------------------------------------------------------------------- Carrying Fair (in thousands) Value Value - -------------------------------------------------------------------------------- Financial Assets: Cash and cash equivalents $ 17,150 $ 17,150 Interest bearing deposits 1,357 1,357 Securities available for sale 93,671 93,671 Investment securities 31,296 30,878 Loans, net 326,280 333,502 Financial Liabilities: Deposits 364,445 365,976 Borrowed funds 86,339 86,042 ================================================================================ The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, and as the fair value for these financial instruments was not material, these disclosures are not included above. Limitations. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include the deferred tax assets and bank premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. 51 16. PARENT CORPORATION INFORMATION The condensed financial statements of the parent company only are presented below: YARDVILLE NATIONAL BANCORP (Parent Corporation) Condensed Statements of Condition December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Assets: Cash $ 815 $ 316 Securities available for sale 3,297 Investment in subsidiaries 46,971 34,835 Other assets 527 79 - -------------------------------------------------------------------------------- Total Assets $51,610 $35,230 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Other liabilities $ 9 $ -- Subordinated debentures 11,856 -- Stockholders' equity 39,745 35,230 - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $51,610 $35,230 ================================================================================ Condensed Statements of Income Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Operating Income: Dividends from subsidiary$ 1,765 $ 1,083 $ 843 - -------------------------------------------------------------------------------- Total Operating Income 1,765 1,083 843 - -------------------------------------------------------------------------------- Operating Expense: Interest expense 224 -- -- Other expense 144 114 115 - -------------------------------------------------------------------------------- Total Operating Expense 368 114 115 - -------------------------------------------------------------------------------- Income before income taxes and equity in undistributed income of subsidiaries 1,397 969 728 Federal income tax benefit (114) (40) (41) - -------------------------------------------------------------------------------- Income before equity in undistributed income of subsidiaries 1,511 1,009 769 Equity in undistributed income of subsidiaries 3,495 3,017 2,634 - -------------------------------------------------------------------------------- Net Income $ 5,006 $ 4,026 $ 3,403 ================================================================================ Condensed Statements of Cash Flows Year Ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income $ 5,006 $ 4,026 $ 3,403 Adjustments: Increase in other assets (448) (40) (36) Equity in undistributed income of subsidiaries (3,495) (3,017) (2,634) Increase (decrease) in other liabilities 9 -- (1) - -------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 1,072 969 732 - -------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of securities available for sale (3,297) Investing in subsidiaries (8,356) (749) (9,650) - -------------------------------------------------------------------------------- Net Cash Used by Investing Activities (11,653) (749) (9,650) - -------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of subordinated debentures 11,856 -- -- Proceeds from shares issued 457 837 9,403 Dividends paid (1,233) (1,083) (738) - -------------------------------------------------------------------------------- Net Cash Provided (Used) by Financing Activities 11,080 (246) 8,665 - -------------------------------------------------------------------------------- Net increase (decrease) in cash 499 (26) (253) Cash as of beginning of year 316 342 595 - -------------------------------------------------------------------------------- Cash as of end of year $ 815 $ 316 $ 342 ================================================================================ 52 Independent Auditors' Report THE BOARD OF DIRECTORS AND STOCKHOLDERS YARDVILLE NATIONAL BANCORP: We have audited the accompanying consolidated statements of condition of Yardville National Bancorp and subsidiaries as of December 31, 1997 and 1996, 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, 1997. 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 overal l financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Yardville National Bancorp and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. insert signature PMS 315 Princeton, New Jersey January 30, 1998 53 Officers
YARDVILLE NATIONAL BANK YARDVILLE NATIONAL BANCORP President/Chief Executive Officer Assistant Vice Presidents President/Chief Executive Officer Patrick M. Ryan Shawn Chase-Merritt Patrick M. Ryan Retail Administration Executive Vice Presidents Secretary/Treasurer Stephen F. Carman Scott W. Civil Stephen F. Carman Cashier/Chief Financial Officer Commercial Lending Assistant Secretary and Treasurer Timothy J. Losch Nancy J. Collar Diane H. Polyak Chief Operating Officer Consumer Lending First Senior Vice Presidents Sandra A. Gray James F. Doran Commercial Lending Senior Lending Officer Peggy A. Iucolino Mary C. O'Donnell Purchasing Chief Credit Officer Linda A. Kelly Senior Vice Presidents Data Services Frank Durand III Bank Administrator Anne S. Marsilio Residential Mortgages Howard N. Hall Controller William V. Radlinsky Loan Review Officer Richard A. Kauffman Chief Technology Officer Joseph H. Robotin Residential Mortgages Nina D. Melker Retail Administration Christine A. Secrist Retail Business Development Sarah J. Strout Commercial Lending Joan M. Tarr Retail Administration Vice Presidents James T. Brotherton Assistant Cashiers Lending Business Development Sharon L. Bokma Retail Business Development Carol A. Budd Commercial Lending Barbara A. Brehaut Retail Administration Vincent P. Ditta Commercial Lending Andre Caldini Lending Business Development Kathleen A. Fone Human Resources Doreen A. Favata Commercial Mortgages Nancy C. German Deposit Operations John T. Gaffney Alternative Investments Dale K. Inman Consumer Lending Fay Horrocks Human Resources Thomas A. McBain Audit Kathleen M. Kirkham Retail Administration Debra L. Mincarelli Help Center Patricia D. Majeski Retail Administration Thomas L. Nash Commercial Mortgages Dawn L. Melker Retail Administration Diane H. Polyak Financial Services Barbara Morgan Commercial Lending Leslie Rita Credit Administration Michael J. Pelosci Retail Administration Jane M. Trout Marketing Elizabeth A. Salvatore Consumer Lending Susan M. Valentino Retail Administration Flora B. Shiarappa Deposit Operations 54
Board of Directors YARDVILLE NATIONAL BANK YARDVILLE NATIONAL BANCORP Jay G. Destribats, Jay G. Destribats, Chairman of the Board Chairman of the Board Weldon J. McDaniel, Jr., Weldon J. McDaniel, Jr., Vice Chairman Vice Chairman Patrick M. Ryan, Patrick M. Ryan, President and C.E.O. President and C.E.O. C. West Ayres C. West Ayres Elbert G. Basolis, Jr. Elbert G. Basolis, Jr. Lorraine Buklad Lorraine Buklad Anthony M. Giampetro, Anthony M. Giampetro, M.D., F.C.C.P. M.D., F.C.C.P. Sidney L. Hofing Sidney L. Hofing James J. Kelly James J. Kelly Gilbert W. Lugossy Gilbert W. Lugossy Louis R. Matlack, Ph.D. Louis R. Matlack, Ph.D. F. Kevin Tylus F. Kevin Tylus John C. Stewart, John C. Stewart, Director Emeritus Director Emeritus Advisory Board W. Michael Bryant William J. Matisa, Jr. Nancy S. Ellis Robert E. Mule William G. Engel Joyce H. Rainear Gary Dean Gray Marvin A. Rosen Daniel J. Graziano, Esq. N. Gerald Sapnar+ John J. Klein III Ronald K. Vernon Richard J. Klockner Robert L. Workman Nancy J. Knight Harold N. Zeltt Eugene P. Marfuggi George S. Martin + Deceased as of December 26, 1997 55 Stockholder Information Corporate Headquarters Financial Information Yardville National Bancorp Investors, security 3111 Quakerbridge Road analysts and others Mercerville, NJ 08619 desiring financial (609) 585-5100 information should contact: Annual Meeting Diane H. Polyak The Annual Meeting Assistant Secretary/ of Stockholders will Assistant Treasurer be held at: or La Villa Ristorante Stephen F. Carman 2275 Kuser Road, Secretary/Treasurer Hamilton, NJ 08690 Tuesday, April 28, 1998 Form 10-K Availability Doors open 9:00 a.m. Copies of Yardville Meeting begins National Bancorp's Forms at 10:00 a.m. 10-K and 10-Q filed with the Securities and Registrar and Stock Exchange Commission Transfer Agent are available to stockholders First City Transfer Company upon written request P.O. Box 170 to the Company. Iselin, NJ 08830-0170 (732) 906-9227 Subsidiary Bank is a Member of the FDIC. - -------------------------------------------------------------------------------- 56 Design and production: Photo of Kuser Mansion The SOSCOMM Group, exterior (p.4) courtesy of Allentown, NJ Kuser Family Mansion, Hamilton, NJ Management photograph and product photography: Large photos pages 8, 10: (pgs. 4, 7, 8, 10) (C)Photo/Cliff Moore Allan Hunter Shoemake Large photos pages 2, 7: Cover and Page 1 photograph Yardville National Bank courtesy of the Trentoniana: Archives Local History and Genealogy Collection, Trenton Free Public Library Offices The Yardville National Bank Ewing Office P.O. Box 8487 1450 Parkside Avenue Trenton, New Jersey 08650 Ewing Township, New Jersey 08638 Yardville Office East Windsor Office 4556 South Broad Street 18 Princeton-Hightstown Road Yardville, New Jersey 08620 East Windsor, New Jersey 08520 Center City Office Trenton Office 1099 Whitehorse-Mercerville Road 410 Lalor Plaza Trenton, New Jersey 08610 Trenton, New Jersey 08611 Broad Street Park Office Nottingham Pointe Office 2025 South Broad Street 4631 Nottingham Way Trenton, New Jersey 08610 Hamilton Square, New Jersey 08690 Quakerbridge Office West Trenton Office 3111 Quakerbridge Road 40 Scotch Road Mercerville, New Jersey 08619 West Trenton, New Jersey 08628 YNB Help Center: 2-8884-HELPLINE YNB Your Neighborhood Bank(R) - --------------------------- YARDVILLE NATIONAL BANK EX-21 15 EXHIBIT 21 Exhibit 21 Yardville National Bancorp Subsidiaries 1. Yardville National Bank 2. Yardville Capital Trust 3. Yardville National Investment Corporation (wholly-owned subsidiary of Bank) 4. YNB Real Estate Holding Company (wholly-owned subsidiary of Bank) S. Brendan, Inc. (wholly-owned subsidiary of Bank) 6. Nancy-Beth, Inc. (wholly-owned subsidiary of Bank) EX-23.1 16 EXHIBIT 23.1 Exhibit 23.1 Independent Auditors' Consent The Board of Directors Yardville National Bancorp: We consent to incorporation by reference in the registration statements (Nos. 33-98076 and 333-28193) on Form S-8 of Yardville National Bancorp of our report dated January 30, 1998 relating to the consolidated statements of condition of Yardville National Bancorp and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, which report is incorporated by reference in the December 31, 1997 annual report on Form 10-K of Yardville National Bancorp. /s/ KPMG Peat Marwick LLP ------------------------------- KPMG Peat Marwick LLP Princeton, New Jersey March 25, 1998 EX-27 17 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1997 DEC-31-1997 18,923 2,219 1,500 0 159,724 26,912 26,848 385,751 5,570 614,686 422,944 134,316 6,181 11,500 0 0 17,703 22,042 614,686 31,511 8,770 487 40,768 16,115 21,100 19,668 1,125 24 13,341 7,746 7,746 0 0 4,026 1.02 1.00 8.06 3,355 991 969 0 4,957 574 62 5,570 5,570 0 0
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