-----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, Mpe7g1aw2yW4+HnotevDAbL+/CBm6AQgvKbkFKE+v1fr2qMFQYnQINpg9M2jYzXT c2FIohpNdgNYM5fX0TGlIQ== /in/edgar/work/20000814/0000950116-00-001959/0000950116-00-001959.txt : 20000921 0000950116-00-001959.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950116-00-001959 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YARDVILLE NATIONAL BANCORP CENTRAL INDEX KEY: 0000787849 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 222670267 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26086 FILM NUMBER: 699989 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-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934 For transition period from Commission File Number: 0-26086 YARDVILLE NATIONAL BANCORP -------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2670267 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2465 Kuser Road, Hamilton, New Jersey 08690 ------------------------------------------- (Address of principal executive offices) (609) 585-5100 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed from last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 10, 2000, the following class and number of shares were outstanding: Common Stock, no par value 7,442,534 - -------------------------- ---------------------------- Class Number of shares outstanding INDEX YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES PART 1 FINANCIAL INFORMATION PAGE NO. - -------------------------------------------------------------------------------- Item 1. Financial Statements Consolidated Statements of Condition June 30, 2000 and December 31, 1999 Consolidated Statements of Income Three months ended June 30, 2000 and 1999 Consolidated Statements of Income Six months ended June 30, 2000 and 1999 Consolidated Statements of Cash Flows Six months ended June 30, 2000 and 1999 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART 2 OTHER INFORMATION - ----------------------------------- Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES Exhibit 27.1 Financial Data Schedule 2 Item 1. Financial Statements Yardville National Bancorp and Subsidiaries Consolidated Statements of Condition (Unaudited)
June 30, December 31, - ------------------------------------------------------------------------------------------------------- (in thousands, except share data) 2000 1999 - ------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks 19,359 $ 17,582 Federal funds sold 82,625 8,035 - ------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents 101,984 25,617 - ------------------------------------------------------------------------------------------------------- Interest bearing deposits with banks 1,131 955 Securities available for sale 343,793 309,298 Investment securities (market value of $100,422 in 2000 and $100,121 in 1999) 108,087 108,167 Loans 724,906 646,737 Less: Allowance for loan losses (9,776) (8,965) - ------------------------------------------------------------------------------------------------------- Loans, net 715,130 637,772 Bank premises and equipment, net 9,228 9,400 Other real estate 2,330 2,585 Other assets 31,570 29,804 - ------------------------------------------------------------------------------------------------------- Total Assets $1,313,253 $1,123,598 - ------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Deposits Non-interest bearing $ 101,620 $ 90,219 Interest bearing 762,830 653,588 - ------------------------------------------------------------------------------------------------------- Total Deposits 864,450 743,807 - ------------------------------------------------------------------------------------------------------- Borrowed funds Securities sold under agreements to repurchase 15,000 45,000 Federal Home Loan Bank advances 320,281 250,293 Obligation for Employee Stock Ownership Plan (ESOP) 1,400 1,600 Other 1,241 1,796 - ------------------------------------------------------------------------------------------------------- Total Borrowed Funds 337,922 298,689 Company - obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust holding solely junior Subordinated Debentures of the Company 26,500 11,500 Other liabilities 15,190 10,777 - ------------------------------------------------------------------------------------------------------- Total Liabilities $1,244,062 $1,064,773 - ------------------------------------------------------------------------------------------------------- Stockholders' equity Preferred stock: no par value Authorized 1,000,000 shares, none issued Common Stock: no par value Authorized 12,000,000 shares Issued 7,614,534 in 2000 and 6,917,794 shares in 1999 46,884 40,052 Surplus 2,205 2,205 Undivided profits 31,136 27,462 Treasury stock, at cost, 172,000 shares in 2000 and 1999 (3,030) (3,030) Unallocated ESOP shares (1,400) (1,600) Accumulated other comprehensive loss (6,604) (6,264) - ------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 69,191 58,825 - ------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $1,313,253 $1,123,598 - -------------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 3 Yardville National Bancorp and Subsidiaries Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, - ---------------------------------------------------------------------------------------------- (in thousands, except per share amounts) 2000 1999 - ---------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $15,629 $11,364 Interest on deposits with banks 21 9 Interest on securities available for sale 6,012 3,618 Interest on investment securities: Taxable 1,178 1,018 Exempt from Federal income tax 389 327 Interest on Federal funds sold 549 234 - ---------------------------------------------------------------------------------------------- Total Interest Income 23,778 16,570 - ---------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on savings account deposits 1,850 1,187 Interest on certificates of deposit of $100,000 or more 1,461 623 Interest on other time deposits 5,933 4,238 Interest on borrowed funds 4,790 3,156 Interest on trust preferred securities 298 266 - ---------------------------------------------------------------------------------------------- Total Interest Expense 14,332 9,470 - ---------------------------------------------------------------------------------------------- Net Interest Income 9,446 7,100 Less provision for loan losses 900 750 - ---------------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 8,546 6,350 - ---------------------------------------------------------------------------------------------- NON-INTEREST INCOME: Service charges on deposit accounts 384 317 Gains on sales of mortgages, net 11 15 Securities gains, net 40 3 Other non-interest income 457 420 - ---------------------------------------------------------------------------------------------- Total Non-Interest Income 892 755 - ---------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 2,848 2,437 Occupancy expense, net 610 321 Equipment expense 476 367 Other non-interest expense 1,775 1,203 - ---------------------------------------------------------------------------------------------- Total Non-Interest Expense 5,709 4,328 - ---------------------------------------------------------------------------------------------- Income before income tax expense 3,729 2,777 Income tax expense 1,100 787 - ---------------------------------------------------------------------------------------------- Net Income $ 2,629 $ 1,990 - ---------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Basic $ 0.39 $ 0.34 Diluted $ 0.39 $ 0.34 - ---------------------------------------------------------------------------------------------- Weighted average shares outstanding: Basic 6,723 5,788 Diluted 6,740 5,815 - ----------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 4 Yardville National Bancorp and Subsidiaries Consolidated Statements of Income (Unaudited)
Six Months Ended June 30, - ----------------------------------------------------------------------------------------------- (in thousands, except per share amounts) 2000 1999 - ----------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $29,983 $22,075 Interest on deposits with banks 36 28 Interest on securities available for sale 11,458 6,471 Interest on investment securities: Taxable 2,368 1,615 Exempt from Federal income tax 773 585 Interest on Federal funds sold 762 394 - ----------------------------------------------------------------------------------------------- Total Interest Income 45,380 31,168 - ----------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on savings account deposits 3,438 2,282 Interest on certificates of deposit of $100,000 or more 2,672 1,114 Interest on other time deposits 11,395 8,039 Interest on borrowed funds 9,120 5,684 Interest on trust preferred securities 564 532 - ----------------------------------------------------------------------------------------------- Total Interest Expense 27,189 17,651 - ----------------------------------------------------------------------------------------------- Net Interest Income 18,191 13,517 Less provision for loan losses 1,700 1,400 - ----------------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 16,491 12,117 - ----------------------------------------------------------------------------------------------- NON-INTEREST INCOME: Service charges on deposit accounts 761 625 (Losses) gains on sales of mortgages, net (10) 30 Securities (losses) gains, net (5) 18 Other non-interest income 879 810 - ----------------------------------------------------------------------------------------------- Total Non-Interest Income 1,625 1,483 - ----------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 5,656 4,728 Occupancy expense, net 1,232 634 Equipment expense 944 729 Other non-interest expense 3,199 2,582 - ----------------------------------------------------------------------------------------------- Total Non-Interest Expense 11,031 8,673 - ----------------------------------------------------------------------------------------------- Income before income tax expense 7,085 4,927 Income tax expense 2,060 1,383 - ----------------------------------------------------------------------------------------------- Net Income $ 5,025 $ 3,544 - ----------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Basic $ 0.75 $ 0.66 Diluted $ 0.75 $ 0.65 - ----------------------------------------------------------------------------------------------- Weighted average shares outstanding: Basic 6,691 5,398 Diluted 6,708 5,425 - -----------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 5 Yardville National Bancorp and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, - --------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income $ 5,025 $ 3,544 Adjustments: Provision for loan losses 1,700 1,400 Depreciation 758 554 ESOP fair value adjustment (55) -- Amortization and accretion 126 345 Losses (gains) on sales of securities available for sale 5 (18) Loss on sales of other real estate 15 1 Write down of other real estate 179 278 Increase in other assets (1,583) (2,610) Increase in other liabilities 4,415 1,577 - --------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 10,585 5,071 - --------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Net (increase) decrease in interest bearing deposits with banks (176) (97) Purchase of securities available for sale (92,366) (122,685) Maturities, calls, and paydowns of securities available for sale 15,782 20,374 Proceeds from sales of securities available for sale 41,460 9,019 Proceeds from maturities and paydowns of investment securities 2,123 1,786 Purchase of investment securities (2,070) (66,743) Net increase in loans (79,262) (62,850) Expenditures for bank premises and equipment (586) (1,313) Proceeds from sale of other real estate 265 702 - --------------------------------------------------------------------------------------------------------- Net Cash Used by Investing Activities (114,830) (221,807) - --------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net increase in non-interest bearing demand, money market, and savings deposits 41,732 14,650 Net increase in certificates of deposit 78,911 92,618 Net increase in borrowed funds 39,233 97,989 Proceeds from issuance of trust preferred securities 15,000 -- Proceeds from issuance of common stock 6,887 19,686 Decrease (increase) in unallocated ESOP shares 200 (1,800) Treasury shares acquired -- (22) Dividends paid (1,351) (821) - --------------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 180,612 222,300 - --------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 76,367 5,564 Cash and cash equivalents as of beginning of period 25,617 16,526 - --------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents as of End of Period $ 101,984 $ 22,090 - --------------------------------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: Cash paid during period for: Interest expense 24,429 16,919 Income taxes 1,162 982 - --------------------------------------------------------------------------------------------------------- Supplemental Schedule of Non-cash Investing and Financing Activities: Transfers to other real estate from loans, net of charge offs 204 700 - ---------------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 6 Yardville National Bancorp and Subsidiaries Notes to Consolidated Financial Statements Three and Six Months Ended June 30, 2000 (Unaudited) 1. Summary of Significant Accounting Policies Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and other real estate, management obtains independent appraisals for significant properties. The consolidated financial data as of and for the three and six months ended June 30, 2000 includes, in the opinion of management, all adjustments, consisting of only normal recurring accruals necessary for a fair presentation of such periods. The consolidated financial data for the interim periods presented is not necessarily indicative of the result of operations that might be expected for the entire year ending December 31, 2000. Consolidation The consolidated financial statements include the accounts of Yardville National Bancorp (the "Holding Company") and its subsidiaries, Yardville Capital Trust (the "Trust"), Yardville Capital Trust II (the "Trust II") and The Yardville National Bank (the "Bank"), and the Bank's wholly owned subsidiaries, Yardville National Investment Corporation, Brendan, Inc., Nancy Beth, Inc., Jim Mary, Inc., Yardville Real Estate Corporation, YNB Financial Services, Inc., YNB Realty Inc., and Capital Development, Inc., (collectively, "YNB"). All significant inter-company accounts and transactions have been eliminated. Brendan, Inc., Nancy Beth, Inc. and Jim Mary, Inc. are utilized for the control and disposal of other real estate properties. Yardville Real Estate Corporation is utilized to hold Bank branch properties, YNB Financial Services, Inc., provides alternative investment services, and YNB Realty, Inc., a real estate investment trust, is utilized to more effectively manage a portion of the Bank's real estate related loans. Capital Development is utilized for nontraditional lending opportunities. Allowance for Loan Losses The provision for loan losses charged to operating expense is determined by management and based upon a periodic review of the loan portfolio, past experience, the economy, and other factors that may affect a borrower's ability 7 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 Bank's allowance for loan losses and the valuation of other real estate. Such agencies may require the Bank to recognize additions to the allowance or adjustments to the carrying value of other real estate based on their judgement about information available at the time of their examination. Company - Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company (Trust Preferred Securities) On June 23, 2000, Yardville Capital Trust II, a statutory business trust and a wholly owned subsidiary of the Holding Company, issued $15,000,000 of 9.50% Trust Preferred Securities to one nonaffiliated financial institution and $464,000 of Common Securities to the Holding Company. Proceeds from the issuance of the Trust Preferred Securities were immediately used by the Trust to purchase $15,464,000 of 9.50% Subordinated Debentures due June 22, 2030 from the Holding Company. The Trust exists for the sole purpose of issuing Trust Preferred Securities and investing the proceeds in Subordinated Debentures of the Holding Company. These Subordinated Debentures constitute the sole assets of the Trust. On October 16, 1997, Yardville Capital Trust, a statutory business trust and a wholly owned subsidiary of the Holding Company, issued $11,500,000 of 9.25% Trust Preferred Securities to the public and $356,000 of 9.25% Common Securities to the Holding Company. Proceeds from the issuance of the Trust Preferred Securities were immediately used by the Trust to purchase $11,856,000 of 9.25% Subordinated Debentures maturing November 1, 2027 from the Holding Company. The Trust exists for the sole purpose of issuing Trust Preferred Securities and investing the proceeds in Subordinated Debentures of the Holding Company. These Subordinated Debentures constitute the sole assets of the Trust. 2. Earnings Per Share Weighted average shares for the basic net income per share calculation for the three months ended June 30, 2000 and 1999 were 6,723,000 and 5,788,000 respectively. For the diluted net income per share computation, potential common stock of 17,000 and 27,000 are included for the three months ended June 30, 2000 and 1999, respectively. Weighted average shares for the basic net income per share calculation for the six months ended June 30, 2000 and 1999 were 6,691,000 and 5,398,000 respectively. For the diluted net income per share computation, potential common stock of 17,000 and 27,000 are included for the six months ended June 30, 2000 and 1999, respectively. 8 3. Comprehensive Income Listed below is the statement of comprehensive income for three and six months ended June 30, 2000 and 1999.
Comprehensive Income Three Months Ended June 30, 2000 ----------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 ----------------------------------------------------------------------------------------------------- Net Income $2,629 $ 1,990 ----------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Net change in unrealized loss for the period, net of tax 1,628 (2,921) Reclassification of realized net gain on sale of securities available for sale, net of tax 26 2 ----------------------------------------------------------------------------------------------------- Holding gain (loss) arising during the period, net of tax and reclassification 1,654 (2,919) ----------------------------------------------------------------------------------------------------- Reclassification adjustment for realized net gain, net of tax (26) (2) ----------------------------------------------------------------------------------------------------- Other comprehensive income (loss) for the period, net of tax 1,628 (2,921) ----------------------------------------------------------------------------------------------------- Total comprehensive income (loss) $4,257 $ (931) ===================================================================================================== Comprehensive Income Six Months Ended June 30, 2000 ----------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 ----------------------------------------------------------------------------------------------------- Net Income $5,025 $ 3,544 ----------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Net change in unrealized loss for the period, net of tax (340) (3,561) Reclassification of realized net (loss) gain on sale of securities available for sale, net of tax (3) 12 ----------------------------------------------------------------------------------------------------- Holding loss arising during the period, net of tax and reclassification (343) (3,549) ----------------------------------------------------------------------------------------------------- Reclassification adjustment for realized net loss (gain), net of tax 3 (12) ----------------------------------------------------------------------------------------------------- Other comprehensive loss for the period, net of tax (340) (3,561) ----------------------------------------------------------------------------------------------------- Total comprehensive income (loss) $4,685 $ (17) =====================================================================================================
4. Employee Stock Ownership Plan The Bank established an Employee Stock Ownership Plan and related trust ("ESOP") for eligible employees. The ESOP is a tax-qualified plan subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). Employees with twelve months of employment with the Bank and who have worked at least 1,000 hours are eligible to participate. The ESOP borrowed $2,000,000 from an unaffiliated financial institution and purchased 155,340 shares of common stock, no par value, of the Holding Company. Shares purchased by the ESOP are held in a suspense account pending allocation among participants as the loan is repaid. 9 Compensation expense is recognized based on the fair value of the stock when it is committed to be released. Compensation expense amounted to approximately $66,000 and $88,000 for the three months and approximately $120,000 and $175,000 for the six months ended June 30, 2000 and 1999 respectively. The fair value of unearned shares at June 30, 2000 is $1,320,390. Unallocated shares are deducted from common shares outstanding for earnings per share purposes with shares which are committed to be released during the year added back into weighted average shares outstanding. YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES (YNB) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This financial review presents management's discussion and analysis of the financial condition and results of operations. It should be read in conjunction with the 1999 Annual Report to stockholders and Form 10-K for the fiscal year ended December 31, 1999 as well as with the unaudited consolidated financial statements and the accompanying notes in this Form 10-Q. This Form 10-Q report contains express and implied statements relating to the future financial condition, results of operations, plans, objectives, performance, and business of YNB, which are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements that relate to, among other things, profitability, liquidity, loan loss reserve adequacy, plans for growth, interest rate sensitivity, market risk, and financial and other goals. Actual results may differ materially from those expected or implied as a result of certain risks and uncertainties, including, but not limited to, changes in economic conditions, interest rate fluctuations, continued levels of loan quality and origination volume, competitive product and pricing pressures within YNB's markets, continued relationships with major customers including sources for loans and deposits, personal and corporate customers' bankruptcies, legal and regulatory barriers and structure, inflation, and technological changes, as well as other risks and uncertainties detailed from time to time in the filings of YNB with the U.S. Securities and Exchange Commission. Financial Condition Assets Total consolidated assets at June 30, 2000 were $1,313,253,000 an increase of $189,655,000 or 16.9% compared to $1,123,598,000 at December 31, 1999. The growth in YNB's asset base during the six months of 2000 was primarily due to increases in loans, Federal funds sold, and available for sale securities. The increase in the loan portfolio was the product of an ongoing consistent strategy to improve the profitability of the organization through relationship banking. With consolidation in its markets YNB has established its niche as the preeminent business community bank in Mercer County specializing in commercial lending. YNB's asset base includes US agency securities of approximately $242,000,000 purchased utilizing primarily Federal Home Loan Bank advances 10 (Investment Growth Strategy). The Investment Growth Strategy securities at June 30, 2000 increased approximately $14,200,000 or 6.2% from the reported total of $228,400,000 at December 31, 1999. The primary goals of the Investment Growth Strategy, improving return on average equity and earnings per share, continue to be achieved. Federal funds sold At June 30, 2000 Federal funds sold totaled $82,625,000 compared to $8,035,000 at December 31, 1999. The higher amount of Federal funds sold at June 30, 2000 was primarily due to increased certificate of deposit (CD) balances, private trust preferred and private equity capital offering proceeds and borrowed funds raised to fund loan growth and effectively manage liquidity. The average Federal funds sold balance for the first six months of 2000 was $24,820,000 compared to $16,824,000 for the same period in 1999. Management remains focused on maintaining adequate liquidity to fund loan growth and to enhance the liquidity profile of YNB. Securities The following tables present the amortized cost and market value of YNB's securities portfolios as of June 30, 2000 and December 31, 1999.
Available For Sale Securities June 30, 2000 December 31, 1999 - ------------------------------------------------------------------------------------------------------------------ Amortized Market Amortized Market (in thousands) Cost Value Cost Value - ------------------------------------------------------------------------------------------------------------------ U.S. Treasury securities and obligations of other U.S. government agencies $129,336 $124,544 $117,496 $112,731 Mortgage-backed securities 197,508 191,968 170,775 166,164 Corporate obligations 8,849 9,020 5,783 5,522 All other securities 18,261 18,261 24,881 24,881 - ------------------------------------------------------------------------------------------------------------------ Total $353,954 $343,793 $318,935 $309,298 ================================================================================================================== Investment Securities June 30, 2000 December 31, 1999 - ------------------------------------------------------------------------------------------------------------------ Amortized Market Amortized Market (in thousands) Cost Value Cost Value - ------------------------------------------------------------------------------------------------------------------ Obligations of other U.S. government agencies $ 69,184 $ 63,893 $ 69,184 $ 63,992 Obligations of state and political subdivisions 33,243 31,143 31,892 29,281 Mortgage-backed securities 5,660 5,386 7,091 6,848 - ------------------------------------------------------------------------------------------------------------------ Total $108,087 $100,422 $108,167 $100,121 ==================================================================================================================
Securities represented 34.4% of total assets at June 30, 2000 and 37.2% at December 31, 1999. Total securities increased $34,415,000 or 8.2% at June 30, 11 2000 to $451,880,000, compared to $417,465,000 at year-end 1999. The available for sale portfolio represents 76.1% of the total security holdings of YNB at June 30, 2000, compared to 74.1% at year-end 1999. The net unrealized loss on available for sale securities was $10,161,000 as of June 30, 2000 and was $9,637,000 at December 31, 1999. Net unrealized loss, net of tax effect, was $6,604,000 as reported in Accumulated other comprehensive loss in Stockholders' Equity at June 30, 2000, and $6,264,000 reported at December 31, 1999. The increase in the net unrealized loss on available for sale securities is primarily due to the changes in interest rates from December 31, 1999 to June 30, 2000 and the increased size of the available for sale securities portfolio. Securities available for sale increased $34,495,000 or 11.2% at June 30, 2000 when compared to the December 31, 1999 balance of $309,298,000. The largest increase was in mortgage-backed securities, which increased $25,804,000. Mortgage-backed securities purchased were primarily comprised of floating rate CMO's which increased by $31,059,000 and that increase was offset by paydowns in fixed and adjustable rate mortgage backed securities. Floating rate CMO's have been purchased to improve the performance of the investment portfolio in a rising rate environment. U.S. Treasury and other U.S. agency obligations increased $11,813,000 or 10.5%. The growth was primarily in shorter term callable bonds purchased to enhance YNB's liquidity profile. Investment securities decreased $80,000 to $108,087,000 at June 30, 2000 from $108,167,000 at December 31, 1999. The decrease was due to a modest increase in obligations of state and political subdivisions offset by principal paydowns on mortgage backed securities. The Investment Growth Strategy securities increased $14,206,000 over the year-end 1999 level. The largest increase was in floating rate US agency collateralized mortgage obligations, which increased $14,955,000. The next largest growth was in US agency callable bonds that increased $5,000,000. Reductions were recorded in fixed rate mortgage backed securities, which decreased by $3,989,000 as a result of paydowns and floating rate mortgage backed securities, which decreased, by $1,760,000 as a result of paydowns. At June 30, 2000, the Investment Growth Strategy portfolio was comprised of 73.7% of fixed rate securities and 26.3% of adjustable or floating rate securities compared to 77.8% fixed rate securities and 22.2% adjustable rate securities at year end 1999. Loans Total loans, net of unearned income, increased $78,169,000 or 12.1% at June 30, 2000 to $724,906,000 from $646,737,000 at December 31, 1999. This growth exceeded the growth experienced in the first six months of 1999 of $61,604,000. YNB's loan portfolio represented 55.2% of total assets at June 30, 2000 compared to 57.6% at December 31, 1999. YNB's lending focus continues to be on commercial and industrial loans, and commercial real estate loans. The ability of YNB to enter into larger loan relationships and management's philosophy of relationship banking are key factors in continued strong loan growth. Strong competition from both bank and nonbank competitors could result in comparatively lower yields on new and established lending relationships. In addition, borrowers' concerns over the economy, real estate prices and interest rates could all be factors in slowing future loan growth. Management anticipates continued loan growth for the 12 second half of 2000 but at a lower rate than the first half of 2000. Continued profitable loan growth is a key factor in meeting earnings growth goals.
Loan Portfolio Composition - -------------------------------------------------------------------------------------------------------- (in thousands) 6/30/00 12/31/99 Change % change - -------------------------------------------------------------------------------------------------------- Commercial real estate $310,390 $294,413 $15,977 5.4% Real estate - mortgage Residential 141,317 120,556 1 17.2 Home equity 24,196 23,581 615 2.6 Commercial and industrial 136,807 114,388 22,419 19.6 Real Estate - construction 79,934 59,457 20,477 34.4 Consumer 22,403 22,879 (476) 2.1 Other loans 9,859 11,463 (1,604) 14.0 - ------------------------------------------------------------------------------------------------------- Total loans $724,906 $646,737 $78,169 12.1% =======================================================================================================
The table above lists loan growth by type for the period of December 31, 1999 to June 30, 2000. In June of 2000, management completed a review of the collateral related to loans on the commercial loan system and reclassified loans to more accurately reflect portfolio classifications. This resulted in commercial and industrial, real estate construction and consumer loans decreasing and real estate residential and commercial real estate loans increasing. The December 31, 1999 numbers have been reclassified to reflect the new classifications at June 30, 2000. Commercial and industrial loans had the greatest growth increasing $22,419,000 or 19.6%. Commercial real estate loans increased $15,977,000 or 5.4% and Real estate construction loans increased $20,477,000 or 34.4%. These three loan categories increased $58,893,000 and accounted for 75.3% of the total loan growth for the period. YNB continued success in generating these types of loans is based on several factors. First, management's focus on commercial related lending has resulted in YNB's growing reputation as a business lender in our market place. Second, the consolidation in YNB's market continues to generate new loan business and YNB's increased legal lending limit allows for larger loans to both new and existing customers. Real estate residential loans are primarily composed of 1-4 family residential loans, multi family residential loans, fixed rate home equity loans and business loans secured by residential real estate. Growth in this portfolio remained strong in the first six months of 2000 with an increase in the outstanding balance of $20,761,000 or 17.2% for the period June 30, 2000 from year end 1999. Residential mortgage loans represented $68,633,000 or 48.6% of the total at June 30, 2000 compared to $60,942,000 or 50.6% of the total at year-end 1999. Growth in residential mortgages was $7,691,000 and accounted for 37.0% of the total increase for the period. All other loan types in this category had positive loan growth. Home equity loans increased $615,000 or 2.6%. Consumer loans and other loans were the only loan types to decrease. The total decrease was $2,080,000 for the period. Strong competition for quality consumer loans is a key factor in the modest reduction in outstanding consumer loans. 13 Deposit liabilities The following table provides information concerning YNB's deposit base at June 30, 2000 and December 31, 1999.
Deposits - --------------------------------------------------------------------------------------------------------- (in thousands) 6/30/00 12/31/99 Change % Change - --------------------------------------------------------------------------------------------------------- Non-interest bearing demand deposits $101,620 $ 90,219 $ 11,401 12.6% Interest bearing demand deposits 67,383 61,483 5,900 9.6 Money market deposits 85,589 57,143 28,446 49.8 Savings deposits 76,279 80,300 (4,021) 5.0 Certificates of deposit of $100,000 or over 112,399 72,528 39,871 55.0 Other time deposits 421,180 382,134 39,046 10.2 - --------------------------------------------------------------------------------------------------------- Total $864,450 $743,807 $120,643 16.2% =========================================================================================================
YNB's deposit base is the principal source of funds supporting interest-earning assets. Total deposits increased $120,643,000 or 16.2% to $864,450,000 at June 30, 2000 compared to $743,807,000 at December 31, 1999. In January 2000, YNB increased the rates on its Premier Money Market Accounts for both business and personal customers and launched an aggressive advertising and calling campaign to promote the higher rates. Management's goal is to fund asset growth with lower costing and more stable money market account balances instead of higher costing certificates of deposit. Certificates of deposit were also competitively priced in the first and second quarter of 2000 to fund new loan growth and improve liquidity. Certificates of deposits continue to be an important source of funding for YNB in 2000. Certificates of deposit of $100,000 or over increased $39,871,000 or 55.0% to $112,399,000 from $72,528,000 at December 31, 1999 and accounted for 33.0% of the total deposit growth for the period. Other time deposits increased $39,046,000 or 10.2% to $421,180,000 from $382,134,000 at December 31, 1999. Growth in time deposits accounted for 65.4% of the total increase in deposits for the first six months of 2000. Certificates of deposit accounted for 61.7% of total deposits at June 30, 2000 compared to 61.1% at year-end 1999. Management continues to initiate marketing strategies designed to attract lower cost deposits. YNB also markets its certificates of deposit through a nationwide computer based service. This service allows YNB to have access to a wider market to raise needed funding. At June 30, 2000, YNB had approximately $153,000,000 in outstanding certificates of deposit raised through this service. This includes $52,400,000 raised in the first six months of 2000. Management anticipates that this market will continue to play an important role in funding future asset growth. Non-interest bearing demand deposits increased $11,401,000 or 12.6% to $101,620,000 at June 30, 2000 when compared to $90,219,000 at December 31, 1999. This increase is primarily due to management's ongoing efforts to capture and expand the deposit relationships of both new and existing consumer and business customers. YNB recently introduced and is aggressively marketing a totally free checking account for personal depositors. This account has been well received and its growth accounts for a portion of the increased non-interest bearing deposit balances and provides YNB with increased opportunities to cross sell other products. 14 Interest bearing demand deposits increased $5,900,000 or 9.6% to $67,383,000 at June 30, 2000 from $61,483,000 at year-end 1999. In addition, money market balances increased $28,446,000 or 49.8% to $85,589,000 at June 30, 2000 from $57,143,000 at December 31, 1999. This increase resulted from higher rates paid and the aggressive marketing campaign of the Premier Money Market Account conducted by YNB. Savings deposits decreased $4,021,000 or 5.0% to $76,279,000 at June 30, 2000 from $80,300,000 at December 31, 1999. A key factor for this decline was the migration of accounts from lower yielding savings to higher yielding money market accounts. While it is management's intention to fund earning asset growth with the lowest cost deposits, core deposit growth levels, excluding certificates of deposit, are not adequate to meet current or projected loan demand. YNB's ability to generate lower cost deposits could affect achieving earnings targets. The continuing reliance on higher cost certificates of deposit to fund asset growth is a major factor in the continued pressure on YNB's net interest margin. YNB continues to seek lower cost funding sources. In January 2000, YNB introduced YNB Online, PC based home and business banking service. This service will allow customers to have greater access to their accounts and should help to make YNB's deposit products more competitive in the market place. Another source of low cost funds is the opening of new branches to serve a wider market area. In April 2000, YNB opened its first supermarket branch located in Ewing Township, New Jersey. Management believes that this branch should be a strong source of both core deposits and consumer loans. In addition, management continues to seek additional branch sites. YNB currently has regulatory approval to open three additional branches by the end of 2000. One of these branches will be located in Lawrence Township, Mercer County, New Jersey and will fill a gap in YNB's existing market coverage. The other two branches will expand YNB into the neighboring counties of Burlington and Hunterdon. The Burlington County branch will be located in Bordentown, New Jersey and allow YNB to better serve a market where it already does business. The Hunterdon County branch will be located in Flemington, New Jersey. Management intends to continue to seek and evaluate opportunities for additional branches both inside and outside of its core Mercer County market place. Management believes that expanding the branch network to tap new deposit markets is the best solution for generating lower cost funds to support asset growth. Borrowed Funds Borrowed funds totaled $337,922,000 at June 30, 2000, an increase of $39,233,000 or 13.1% when compared to $298,689,000 at December 31, 1999. The growth in Federal Home Loan Bank advances (FHLB) used to fund the investment growth strategy and to replace called or matured securities sold under agreements to repurchase accounted for the increase in borrowed funds. Approximately $239,000,000 or 70.7% of borrowed funds at June 30, 2000 are related to the Investment Growth Strategy. In determining funding, as Investment Growth Strategy funding matures or is called, management evaluates several factors: the future outlook for interest rates, interest rate risk, the trade off between maximizing current income or preserving longer term earnings and other relevant factors. Management anticipates that funding costs associated with borrowed funds will increase as shorter term repurchase agreements mature and callable funding at below market rates is called. At June 30, 2000, $222,000,000 or 15 93.7% of the Investment Growth Strategy funding was in callable funding compared to $220,000,000 or 97.8% at December 31, 1999. Securities sold under agreements to repurchase totaled $15,000,000 at June 30, 2000 compared to $45,000,000 at December 31, 1999. $10,000,000 or 66.7% of the repurchase agreements outstanding at June 30, 2000 were callable compared to $40,000,000 or 88.9% at December 31, 1999. Management has been shifting funding from repurchase agreements to callable FHLB advances due to lower funding costs available at the FHLB. With the increase in interest rates since the end of 1999, management anticipates that repurchase agreement costs will rise as shorter-term repurchase agreements mature and below market rate callable repurchase agreements are called and are replaced at higher market rates. YNB had FHLB advances outstanding of $320,281,000 at June 30, 2000, an increase of $69,988,000 or 28.0% when compared to $250,293,000 at December 31, 1999. YNB continues to utilize callable FHLB advances to fund both Investment Growth Strategy purchases as well as other earning assets. In the first half of 2000, as advances were called or matured, management replaced this funding with callable funding having relatively shorter call periods. This has helped to reduce the impact of higher rates on borrowing costs. At June 30, 2000 callable advances totaled $292,500,000 or 91.3% of advances outstanding compared to $239,500,000 or 95.7% at December 31, 1999. Callable FHLB advances have terms of ten years and are callable after periods ranging from three months to five years. There is $114,500,000 in callable advances with call dates in 2000 outstanding as of June 30, 2000. Management anticipates that, if rates continue to rise, some or all of these advances will be called and will have to be replaced with higher costing advances. Borrowed funds included $1,400,000 related to the ESOP. The ESOP purchased 155,340 shares of the common stock, no par value, of the Holding Company with a loan from a nonaffiliated financial institution. The financing is for a term of five years with an interest rate of 7.00% and a maturity date in 2004. The interest rate is fixed for the period of the loan, and the loan will be repaid in equal monthly installments over the term of the loan. The shares purchased by the ESOP were used as collateral for the loan. The Holding Company guarantees the repayment of the loan. YNB has the ability to borrow up to $37,845,000 from the FHLB through its line of credit program, subject to collateral requirements. In addition, YNB is eligible to borrow up to 30% of assets under the FHLB advance program subject to FHLB stock requirements, collateral requirements and other restrictions. YNB also maintains unsecured federal funds lines with four commercial banks totaling $25,000,000 for daily funding needs. YNB's funding strategy is to rely on deposits to fund new loan growth whenever possible and to rely on borrowed funds as a secondary funding source for loans. 16 Company - Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company (Trust Preferred Securities) On June 23, 2000, the Holding Company through the Trust II, completed the sale of $15,000,000 of 9.50% Trust Preferred Securities to a nonaffiliated financial institution. As of June 30, 2000, $25,265,000 or 95.3% of the $26,500,000 in trust preferred securities outstanding qualify as Tier I capital. The remaining $1,235,000 is treated as Tier II capital. Management anticipates that all Trust Preferred outstanding at June 30, 2000 will qualify for Tier I capital within the next 12 months. On October 16, 1997, the Holding Company through the Trust, completed the sale of $11,500,000, of 9.25% Trust Preferred Securities to the public. For regulatory capital purposes the entire amount of the issue is treated as Tier 1 capital at the Holding Company level. 17 Capital On June 23, 2000, the Holding Company completed the private placement of 68,500 units, each unit consisting of 10 shares of common stock and 1 common stock purchase warrant. The units were sold to a limited number of investors and generated gross proceeds of $6,850,000. Net proceeds after offering costs was $6,835,000. $21,300,000 of the total proceeds raised by the trust preferred and equity offerings was contributed to the Bank to support future asset growth. Stockholders' equity at June 30, 2000 totaled $69,191,000, an increase of $10,366,000 or 17.6%, compared to $58,825,000 at December 31, 1999. This net increase resulted from the following factors: (i) YNB earned net income of $5,025,000 for the period and paid cash dividends of $1,351,000. (ii) The unrealized loss on available for sale securities was $6,604,000 at June 30, 2000 compared to an unrealized loss of $6,264,000 at December 31, 1999. This increase in the unrealized loss resulted in a $340,000 reduction in stockholders' equity. (iii) YNB received $52,000 in proceeds from exercised options and $6,835,000 from the equity capital offering. Offsetting these increases was a $55,000 decrease associated with the fair market value adjustment related to the allocation of shares from the employee stock option plan. (iv) A reduction in commitment to ESOP of $200,000 to $1,400,000 at June 30, 2000 from $1,600,000 resulted in an increase of $200,000 in Stockholders' equity. While total Stockholders' equity increased $10,366,000, Tier one regulatory capital increased $24,471,000 or 32.0% and total regulatory capital increased $26,517,000 or 31.0%. The following table sets forth regulatory capital ratios for the Holding Company and the Bank as of June 30, 2000 and December 31, 1999.
Amount Ratios - -------------------------------------------------------------------------------------------------------- dollars in thousands 06/30/00 12/31/99 06/30/00 12/31/99 - -------------------------------------------------------------------------------------------------------- Risk-based capital: Tier 1: Holding Company $101,060 $76,579 11.9% 10.3% Bank 101,153 76,279 11.9 10.2 - -------------------------------------------------------------------------------------------------------- Total: Holding Company 112,071 85,544 13.2 11.5 Bank 110,929 85,244 13.1 11.4 - -------------------------------------------------------------------------------------------------------- Tier 1 leverage: Holding Company 101,060 76,579 8.4 7.9 Bank $101,153 $76,279 8.3% 7.8% - --------------------------------------------------------------------------------------------------------
18 The minimum regulatory capital requirements for financial institutions require institutions to have a Tier 1 leverage ratio of 4.0%; a Tier 1 risk-based capital ratio of 4.0% and a total risked based capital ratio of 8.0%. To be considered "well capitalized" an institution must have a minimum Tier 1 capital and total risk-based capital ratio of 6.0% and 10.0%, respectively, and a minimum Tier 1 leverage ratio of 5.0%. At June 30, 2000, the ratios of the Holding Company and the Bank exceeded the ratios required to be considered well capitalized. It is management's goal to provide YNB with adequate capital to continue to support asset growth and maintain both the Bank and Holding Company as well capitalized institutions. Credit Quality The following table sets forth nonperforming assets and risk elements in YNB's loan portfolio by type as of June 30, 2000 and December 31, 1999.
Nonperforming Assets - --------------------------------------------------------------------------------------------------- (in thousands) 06/30/00 12/31/99 - --------------------------------------------------------------------------------------------------- Nonaccrual loans: Commercial and industrial $ 993 $ 676 Real estate - mortgage 2,321 1,189 Consumer 9 12 Other -- 312 - --------------------------------------------------------------------------------------------------- Total 3,323 2,189 - --------------------------------------------------------------------------------------------------- Restructured loans 723 540 - --------------------------------------------------------------------------------------------------- Loans 90 days or more past due: Commercial and industrial 539 46 Real estate - mortgage 669 277 Consumer 26 26 - --------------------------------------------------------------------------------------------------- Total 1,234 349 - --------------------------------------------------------------------------------------------------- Total nonperforming loans 5,280 3,078 - --------------------------------------------------------------------------------------------------- Other real estate 2,330 2,585 - --------------------------------------------------------------------------------------------------- Total nonperforming assets $ 7,610 $` 5,663 - --------------------------------------------------------------------------------------------------- Allowance for loan losses to total loans, end of period 1.35% 1.39% Allowance for loan losses to nonperforming loans, end of period 185.15% 291.26% ===================================================================================================
At June 30, 2000, nonperforming loans, which are loans 90 days and more past due, restructured loans and nonaccrual loans, totaled $5,280,000, a $2,202,000 or 71.6% increase from the $3,078,000 at December 31, 1999. The increase in nonperforming loans was primarily due to a $1,132,000 increase in nonaccrual Real Estate loans and a $885,000 increase in loans 90 days or more past due since year end 1999. One loan relationship totaling $1,775,000 accounted for 80.6% of the increase in nonperforming loans since year-end 1999. Nonperforming loans as a percentage of total loans at June 30, 2000 was 0.73% an increase from the 0.48% ratio at December 31, 1999 but in line with the 0.66% at June 30, 1999. 19 Other real estate at June 30, 2000 totaled $2,330,000, a $255,000 or 9.9% decrease when compared to $2,585,000 at December 31, 1999. Nonperforming assets at June 30, 2000 totaled $7,610,000 a $1,947,000 or 34.4% increase from the $5,663,000 level at December 31, 1999. Total nonperforming assets as a percentage of total assets were 0.58% at June 30, 2000 compared to 0.50% at December 31, 1999. The increase in nonperforming assets resulted from the higher level of nonperforming loans partially offset by a reduction in other real estate. Allowance for Loan Losses The allowance for loan losses totaled $9,776,000 at June 30, 2000, an increase of $811,000 from the $8,965,000 at year-end 1999. The provision for loan losses for the first six months of 2000 was $1,700,000 compared to $1,400,000 for the same period of 1999. Gross chargeoffs were $975,000 for the first six months of 2000 compared to $590,000 for the same period in 1999. Gross recoveries were $86,000 for the first six months of 2000 compared to $45,000 for the same period in 1999. Annualized net chargeoffs as a percentage of average loans were 0.26% for the first six months of 2000 and 0.17% for the year ended December 31, 1999. Management maintains the allowance for loan losses at a level determined in accordance with management's documented allowance adequacy methodology. It is management's assessment, based on management's estimates, that the allowance is adequate in relation to the credit risk exposure levels. One measure of the adequacy of the allowance for loan losses is the ratio of allowance for loan losses to total loans. This ratio was 1.35% at June 30, 2000 compared to 1.39% at December 31, 1999. Another measure of the adequacy of the allowance for loan losses is the ratio of the allowance for loan losses to total nonperforming loans. This ratio was 185.15% at June 30, 2000 compared to 291.26% at December 31, 1999. Results of Operations Net Income YNB reported net income of $5,025,000 for the six months ended June 30, 2000, an increase of $1,481,000 or 41.8% over the $3,544,000 for the same period in 1999. The increase in net income for the first six months of 2000 compared to the same period in 1999 is attributable to higher net interest income and increased non-interest income offset by increased non-interest expenses and, to a lesser extent, a higher provision for loan losses. Basic earnings per share for the six months ended June 30, 2000 increased $0.09 or 13.6% to $0.75 compared to $0.66 for the same period in 1999. Diluted earnings per share for the six months ended June 30, 2000 was $0.75, an increase of $0.10 or 15.4% when compared to $0.65 for the same period of 1999. On a quarterly basis, net income for the second quarter of 2000 was $2,629,000 and represented a $639,000 or 32.1% increase over net income for the same period in 1999. On a per share basis, basic and diluted earnings per share for the second quarter of 2000 were $0.39, an increase of $0.05 or 14.7% when compared to the second quarter of 1999. The reasons for the increase are the same as discussed above. 20 Net Interest Income YNB's net interest income for the first six months of 2000 was $18,191,000, an increase of $4,674,000 or 34.6% from the same period in 1999. The principal factor contributing to this increase was an increase in interest income of $14,212,000 resulting from increased loan and securities balances and higher yields offset by an increase of $9,538,000 in interest expense. This increase in interest expense was primarily due to both higher average balances of time deposits and borrowed funds and higher interest rates on all deposit types and borrowed funds. The net interest margin (tax equivalent basis) which is net interest income divided by average interest earning assets, for the first six months of 2000, was 3.23% a 7 basis point or 2.1% decline compared to 3.30% for the same period in 1999. The principal factors causing the narrowing of the net interest margin were the more rapid increase in the cost of interest bearing liabilities as compared to the increased yield on interest earning assets. Total interest bearing liability costs increased 52 basis points as compared to a 42 basis point increase in the yield on interest earning assets. On a quarterly basis, net interest income was $9,446,000 an increase of $2,346,000 or 33.0% when compared to the second quarter of 1999. The net interest margin (tax equivalent basis) for the three months ended June 30, 2000 was 3.24% a 2 basis point or 0.6% decrease from the same period in 1999. The reasons for the decline are the same as discussed above. The net interest margin for the 2000 and 1999 comparative periods was also negatively impacted by the Investment Growth Strategy. The securities in the Investment Growth Strategy at June 30, 2000, were approximately $242,600,000 compared to $236,400,000 at June 30, 1999. The targeted spread on this strategy is 75 basis points after tax. Because of the targeted spread on this strategy, there is a negative impact to the net interest margin and return on average assets. Conversely, this strategy is designed to increase both return on average equity and earnings per share, the primary goals of the strategy. The goals of this strategy continue to be achieved. Interest Income For the first six months of 2000 total interest income was $45,380,000, an increase of $14,212,000 or 45.6% when compared to interest income of $31,168,000 for the same period in 1999. This increase is due to higher average balances in both loans and securities and higher yields on both earning asset types. Average loans increased $146,566,000 or 27.5% and the yield increased 54 basis points to 8.82% from 8.28%. The increased loan yields reflected the higher prime rate of interest as well as higher overall interest rates in the first half of 2000 compared to the same period in 1999. Interest and fees on loans for the six months ended June 30, 2000 increased $7,908,000 or 35.8% to $29,983,000 from $22,075,000 for the same period in 1999. Average securities outstanding for the six months ended June 30, 2000 increased $161,887,000 or 56.4% to $448,943,000 when compared to the $287,056,000 for the same period of 1999. Over the same period, the yield on the securities portfolio increased 46 basis points to 6.50% from 6.04%. These factors resulted in interest on securities increasing $5,928,000 or 68.4% to $14,599,000 for the six months ended June 30, 2000 21 compared to $8,671,000 for the same period in 1999. Overall, the yield on YNB's interest earning asset portfolio increased 42 basis points to 7.86% for the six months ended June 30, 2000 from the 7.44% for the same period in 1999. For the second quarter of 2000, total interest income was $23,778,000, an increase of $7,208,000 or 43.5% when compared to $16,570,000 for the second quarter of 1999. The increase was due to both higher average balances of both loans and securities and higher yields on both asset types. The overall yield on earning assets for the second quarter of 2000 was 7.96% a 55 basis point increase from the 7.41% for the same period of 1999. The increase in yield was primarily due to the higher prime rate of interest and higher yields on the securities portfolio. Interest Expense Total interest expense increased $9,538,000 or 54.0% to $27,189,000 for the first six months of 2000 compared to $17,651,000 for the same period in 1999. The increase in interest expense for the comparable time periods is primarily from higher levels of time deposits and borrowed funds. In addition to the higher balances, the rates paid on both deposits and borrowed funds increased due to the higher rates experienced in 2000 when compared to 1999. The average rate paid on interest bearing liabilities for the six months ended June 30, 2000 increased 52 basis points to 5.23% from 4.71% for the same period of 1999. Interest on other time deposits under $100,000 increased $3,356,000 to $11,395,000 for the six months ended June 30, 2000 from $8,039,000 for the same period in 1999. This increase was caused by both an increase of $99,645,000 in the average outstanding balance to $395,972,000 for the six months ended June 30, 2000, when compared to the outstanding average balance of $296,327,000 for the six months ended June 30, 1999 and an increase of 33 basis points in the cost to 5.76% from 5.43% for the same period as described above. Interest expense on certificates of deposit under $100,000 accounted for 41.9% of total interest expense for the six months ended June 30, 2000 and 35.2% of the total increase in interest expense for that period. During the first six months of 2000, YNB offered attractive rates on CDs locally and nationwide to fund loan growth and enhance the liquidity profile of YNB. Interest on certificates of deposit (CDs) of $100,000 or more increased $1,558,000 or 139.9% to $2,672,000 for the six months ended June 30, 2000 from $1,114,000 for the same period in 1999. The increase was caused by an increase in the average outstanding balance of $45,005,000 or 102.8% to $88,805,000 for the six months ended June 30, 2000 when compared to the outstanding average balance of $43,800,000 for the six months ended June 30, 1999. The cost of certificates of deposit of $100,000 or more increased 93 basis points to 6.02% for the first six months of 2000 from 5.09% for the same period in 1999. Besides attracting CDs of $100,000 or more in its markets, YNB also utilizes a software program which allows YNB to market its CDs nationwide. YNB anticipates that attracting CDs of $100,000 or more will continue to play an important part in funding future earning asset growth. Interest expense on borrowed funds increased $3,436,000 or 60.5% to $9,120,000 for the first six months of 2000 when compared to $5,684,000 for the same period 22 in 1999. The increased expense was caused by a $104,302,000 increase in the average balance outstanding in the first six months of 2000 to $325,344,000 when compared to the $221,042,000 for the same period in 1999. The rate paid on borrowed funds increased 47 basis points for the six months ended June 30, 2000 to 5.61% from the 5.14% for the same period last year. The primary causes for the increase in interest expense on borrowed funds are higher rates and the higher level of borrowings used to fund both the Investment Growth Strategy and other earning asset growth. The higher interest rate environment in 2000 has resulted in increased costs as existing below market callable FHLB advances and repurchase agreements are called and are replaced at current market level rates. Management anticipates that if interest rates continue to rise the cost of borrowed funds will also increase. Interest expense on savings, money markets and interest bearing demand accounts increased $1,156,000 or 50.7% to $3,438,000 for the first six months of 2000 when compared to the $2,282,000 for the same period in 1999. Early in January 2000, YNB redesigned its Premier Money Market Account for both personal and business customers. The most significant change was an increase, on a tiered basis, in the rate paid to be more competitive in the market place. This had the immediate impact of increasing the cost of existing money market balances and was a key factor in the increased cost on these deposit types. Money market accounts are historically less expensive than CDs and present more opportunities to cross sell other bank products and services. YNB has already experienced substantial growth in Premier Money Market balances due to the higher rate and aggressive marketing campaign conducted to promote the product. The cost of savings, money markets and interest bearing demand deposits increased 59 basis points to 3.17% for the first six months of 2000 when compared to 2.58% for the same period in 1999. At the same time, the average balance of these deposit types increased $40,059,000 or 22.6% to $217,070,000 for the first six months of 2000 from $177,011,000 for the same period in 1999. Total interest expense for the second quarter of 2000 increased $4,862,000 or 51.3% to $14,332,000 from $9,470,000 for the same period in 1999. The overall cost of interest bearing liabilities increased 58 basis points to 5.33% from 4.75% for the second quarter of 1999. The reasons for the increase in interest expense for the second quarter are the same as discussed above. While YNB seeks to fund asset growth with lower cost savings, money market, interest bearing checking and non-interest bearing demand deposits, this is not always possible, as asset growth rates continue to exceed the growth rate in these deposit types. To attract lower cost deposits to fund asset growth, management has launched several new products including YNB Online, an improved Premier Money Market account and a new free checking product. Management anticipates that over time, these new products, along with additional branches in new markets should result in lower cost core deposits providing a higher percentage of the new funding than has been experienced recently. This anticipated improvement in the deposit mix will help to control interest expense going forward. However, the ability of YNB to lower the cost of interest bearing liabilities is dependent on market conditions. If interest rates should continue to rise, YNB's interest expense will also increase. 23 Provision for Loan Losses YNB provides for possible loan losses by a charge to current operations. The provision for loan losses for the six months ended June 30, 2000 was $1,700,000, a $300,000 or 21.4% increase over the $1,400,000 provision recorded for the same period of 1999. For the three months ended June 30, 2000 the provision for loan losses was $900,000, a $150,000 or 20.0% increase from the same period in 1999. The increase in the provision for both the quarter and year to date comparisons was primarily due to strong loan growth and to a lesser extent, increased net charge offs. Management believes that the reserve for loan losses is adequate in relation to the credit risk exposure levels. Non-interest Income Total non-interest income for the first six months of 2000 was $1,625,000, an increase of $142,000 or 9.6% over non-interest income of $1,483,000 for the same period in 1999. The increase was due principally to increased service charges on deposit accounts. Service charges on deposit accounts increased $136,000 or 21.8% to $761,000 for the six months ended June 30, 2000 compared to $625,000 for the same period in 1999. This increase accounted for 95.8% of the total increase in non-interest income for the period. This increase reflects the continuing growth in core deposits as well as better collection efforts. Other non-interest income increased $69,000 or 8.5% to $879,000 for the six months ended June 30, 2000 from $810,000 for the same period in 1999. Increases in ATM fees and income on Bank owned life insurance assets accounted for the increase. The single largest component of other non-interest income was income derived from bank owned life insurance assets, which totaled $411,000 for the first six months of 2000 as compared to $380,000 for the same period in 1999. This income represented 46.8% and 46.9% of total other non-interest income for the first six months of 2000 and 1999 respectively. The income earned on these assets is used to offset expenses on deferred compensation programs. For the three months ended June 30, 2000 total non-interest income increased $137,000 or 18.1% to $892,000 from $755,000 for the same period in 1999. The key factors for the increase are the same as discussed above with service charges on deposit accounts increasing $67,000 and accounting for 48.9% of the total increase in non-interest income. Non-interest income represented 3.5% of YNB's total revenue in the first six months of 2000 and 3.6% of total revenue for the second quarter of 2000 compared to 4.5% and 4.4% for the same periods in 1999. The reduction in these ratios was caused by the growth rate of interest income exceeding the growth rate of non-interest income. Management continues to closely evaluate both traditional and non-traditional sources of new non-interest income as part of a longer-term strategy to increase earnings. 24 Non-interest Expense Total non-interest expense increased $2,358,000 or 27.2% to $11,031,000 for the first six months of 2000 compared to $8,673,000 for the same period in 1999. The increase in non-interest expense was primarily due to increases in salaries and employee benefits, occupancy, and other non-interest expenses. Total non-interest expenses, on an annualized basis, as a percentage of average assets were 1.83% for the first six months of 2000 compared to 1.97% for the same period of 1999. The improvement in this ratio is due to the strong asset growth experienced by YNB. YNB's efficiency ratio for the first six months of 2000 was 55.7%, a decrease from the 57.8% for the same period in 1999. The efficiency ratio is computed by dividing total operating expenses by net interest income and other income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same or greater volume of income while a decrease would indicate a more efficient allocation of resources. Salary and employee benefits increased $928,000 or 19.6% to $5,656,000 for the first six months of 2000 compared to $4,728,000 for the same period in 1999. Salary and benefits expense accounted for 51.3% of total non-interest expenses for the first six months of 2000. Salary expense increased $813,000 or 22.2% reflecting increased staffing levels throughout YNB as the organization continues to grow and normal salary increases. Benefit expense increased $115,000 or 10.8%. The increase in salary and benefit expense in the first six months of 2000 accounted for 39.4% of the total increase in non-interest expense when the first six months of 2000 is compared to the same period in 1999. Occupancy expense for the first six months of 2000 was $1,232,000, an increase of $598,000 or 94.3% compared to $634,000 for the same period in 1999. Total rent expense on leased properties increased $311,000 and accounted for 52.0% of the total increase for the period. The primary cause for the increase in rent expense, as well as the total increase in occupancy expense, were the expenses associated with YNB's corporate headquarters building. YNB first occupied the building in October of 1999. Equipment expense increased $215,000 or 29.5% to $944,000 for the first six months of 2000 from $729,000 for the same period in 1999. The increase in equipment costs reflects the continuing efforts of YNB to maintain and upgrade technology in order to provide the highest quality products and service and increase productivity. Equipment costs included depreciation on equipment, which totaled $571,000 for the first six months of 2000 reflecting an increase of $129,000 or 29.2% from the $442,000 for the same period in 1999. The increase in depreciation accounted for 60.0% of the total increase in equipment expense. A significant portion of the increased equipment expense related to the equipment costs associated with YNB's new corporate headquarters. Other non-interest expenses increased $617,000 or 23.9% to $3,199,000 for the first six months of 2000 when compared to the $2,582,000 for the same period in 1999. A key factor for the increase in other non-interest expenses related to $411,000 in costs associated with the restructuring of one commercial loan relationship. This expense accounted for 66.6% of the total increase in other non-interest expense and 17.4% of the increase in total non-interest expense. While most expense categories that are included in other non-interest expenses increased the total increase was reduced by a $98,000 decline in expenses related to other real estate owned to $256,000 in the first six months of 2000 compared to $354,000 for the same period in 1999. Management closely monitors 25 non-interest expenses and seeks to control the growth of these expenses. However, as YNB continues to grow, the costs associated with properly managing the organization will also continue to increase. For the three months ended June 30, 2000 total non-interest expense increased $1,381,000 or 31.9% to $5,709,000 from 4,328,000 for the same period in 1999. A key factor in the increase was the aforementioned loan restructuring charge which totaled $311,000 for the quarter which accounted for 22.5% of the total increase for the period. Total non-interest expense on an annualized basis, as a percentage of average assets was 1.83% for the three months ended June 30, 2000 and in line with the 1.84% for the same period in 1999. YNB's efficiency ratio for the three months ended June 30, 2000 was 55.2% and in line with the 55.1% for the same period in 1999. Salary and benefit expense increased $411,000 or 16.9% to $2,848,000 from $2,437,000 for the same period in 1999. Occupancy expense increased $289,000 or 90.0% to $610,000 from $321,000 for the same period in 1999. Equipment expense increased $109,000 or 29.7% to $467,200 from $367,000 for the same period in 1999. Other non-interest expense increased $572,000 or 47.5% to $1,775,000 from $1,203,000 for the same period in 1999. The above mentioned loan restructuring of $311,000 accounted for 54.4% of the total increase in other non-interest expense. The other reasons for the increase in non-interest expense for the quarter are the same as discussed above. Income Tax Expense The effective income tax rate for the six months ended June 30, 2000 was 29.1% compared to 28.1% for the same period in 1999. The modest increase in the tax rate resulted from the growth in tax-free income not keeping pace with the growth in overall income. Total income tax expense for the six months ended June 30, 2000 was $2,060,000, an increase of $677,000 from the $1,383,000 for the same period in 1999. The increase in tax expense resulted from higher taxable income and a higher effective tax rate. The effective income tax rate for the three months ended June 30, 2000 was 29.5% compared to 28.3% for the same period in 1999. Total income tax expense for the three months ended June 30, 2000 was $1,100,000, an increase of $313,000 from the $787,000 for the same period in 1999. The reasons for the increase are the same as these discussed above. 26 Item 3: Quantitative and Qualitative Disclosure about Market Risk There have been no material changes in YNB's market risk from December 31, 1999 except as discussed below. For information regarding YNB's market risk refer to the Company's 1999 Annual Report to stockholders. Changes in Earnings Risk Net interest income over the next twelve-month period indicates an increased risk to lower rates (-200 basis points) at June 30, 2000 than reported at December 31, 1999. Comparing the simulation results of this low rate scenario to the flat rate interest rate scenario indicates a change in net interest income of -5.1% compared to -2.5% at year end 1999. At the same time, YNB's exposure to higher rates (+200 basis points) increased modestly to a 2.6% change in net interest income compared to a 1.5% change at year-end 1999. The cumulative one-year gap remained a negative $57,364,000 or -4.4% of total assets at June 30, 2000 compared to a negative $152,280,000 or 13.6% of assets at year-end 1999. The dollar change in the gap was $94,916,000. Changes in Market risk Management measures longer-term market risk through the Economic Value of Portfolio Equity ("EVPE"). The present value of asset and liability cash flows are subjected to rate shocks of plus or 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. At June 30, 2000, the EVPE changes by -3.51% for rate shifts of +200 and -1.01% for rate shifts of -200 basis points. The non-symmetry of the results is indicative of the callable funding utilized to fund earning asset growth. This compares to changes of -3.67% and -0.01% respectively at December 31, 1999 and - -4.26% and -0.14% at June 30, 1999. The primary causes for this change in risk to rising rates since year-end 1999 are discussed below: Asset duration decreased to 2.11 years at June 30, 2000 from 2.39 years at December 31, 1999. The primary cause for this decrease in duration was a reduction in the duration of the investment portfolio to 3.43 years at June 30, 2000 from 3.79 years at December 31, 1999. Liability duration also decreased to 1.21 years at June 30, 2000 from 1.37 years at December 31, 1999. This decline was caused by the shortening of the duration of both total deposits and borrowed funds since the end of 1999. Management has initiated strategies designed to bring this measurement back within policy guidelines. 27 PART II: OTHER INFORMATION Item 1: Legal Proceedings Not Applicable. Item 2: Changes in Securities and Use of Proceeds Not Applicable. Item 3: Defaults Upon Senior Securities Not Applicable. Item 4: Submission of Matters to a Vote of Securities Holders The annual stockholders meeting of Yardville National Bancorp was held May 2, 2000. The matters voted at that meeting were reported in the 1st quarter 10Q. Item 5: Other Information Not Applicable Item 6: Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K. There were no Form 8-K reports filed during the quarter for which this report is filed. 28 INDEX TO EXHIBITS Exhibit Number Description Page - -------------------------------------------------------------------------------- (G) 3.1 Restated Certificate of Incorporation of the Company, as amended by the Certificate of Amendment thereto filed on March 6, 1998. (B) 3.2 By-Laws of the Company (B) 4.1 Specimen Share of Common Stock (I) 4.2 See Exhibits 3.1 and 3.2 for the Registrant's Certificate of Incorporation and By-Laws, which contain provisions defining the rights of stockholders of the Registrant. (I) 4.3 Amended and Restated Trust Agreement dated October 16, 1997, among the Registrant, as depositor, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust. (I) 4.4 Indenture dated October 16, 1997, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant's 9.25% Subordinated Debentures due 2027. (I) 4.5 Preferred Securities Guarantee Agreement dated as of October 16, 1997, between the Registrant and Wilmington Trust Company, as trustee, relating to the Preferred Securities of Yardville Capital Trust. (L) 10.1 Employment Contract between Registrant and Patrick M. Ryan. (L) 10.2 Employment Contract between Registrant and Jay G. Destribats (L) 10.3 Employment Contract between Registrant and Stephen F. Carman (M) 10.4 Employment Contract between Registrant and James F. Doran (M) 10.5 Employment Contract between Registrant and Richard A. Kauffman (M) 10.6 Employment Contract between Registrant and Mary C. O'Donnell (M) 10.7 Employment Contract between Registrant and Frank Durand III (D) 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan 29 INDEX TO EXHIBITS (continued) Exhibit Number Description Page - -------------------------------------------------------------------------------- (D) 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats (E) 10.10 1988 Stock Option Plan (M) 10.11 Employment Contract between Registrant and Thomas L. Nash (A) 10.12 Directors' Deferred Compensation Plan (B) 10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993 (L) 10.14 Lease between Gardeners Property Partnership and the Bank (A) 10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated October, 1994 (C) 10.16 Survivor Income Plan for the Benefit of Stephen F. Carman (C) 10.17 Lease Agreement between Devon Inc. and the Bank dated as of February 9, 1996 (N) 10.18 1997 Stock Option Plan, as amended effective May 2, 2000. (M) 10.19 Employment Contract between Registrant and Howard N. Hall (M) 10.20 Employment Contract between Registrant and Sarah J. Strout (M) 10.21 Employment Contract between Registrant and Nina D. Melker (L) 10.22 Employment Contract between Registrant and Timothy J. Losch (G) 10.23 Survivor Income Plan for the Benefit of Timothy J. Losch (G) 10.24 Lease Agreement between the Ibis Group and the Bank dated July 1997 (H) 10.25 Lease Agreement between Hilton Realty Co. of Princeton and the bank dated March 31, 1998. 30 INDEX TO EXHIBITS (continued) Exhibit Number Description Page - -------------------------------------------------------------------------------- (H) 10.26 1994 Stock Option Plan. (J) 10.27 Lease agreement between Crestwood Construction and the Bank dated May 25, 1998 (K) 10.29 Yardville National Bank Employee Stock Ownership Plan, As amended (L) 10.30 Lease Agreement between Sycamore Street Associates and the Bank dated October 30, 1998 10.31 List of Subsidiaries of the Registrant (M) 10.32 Employment Contract between Registrant and Kathleen A. Fone 10.33 Lease agreement between Samuel and Margaret Marrazzo and the Bank dated April 1, 2000 27.1 Financial Data Schedule - ------------------------------------------------------------------------- (A) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB/A filed on July 25, 1995 (B) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (Registration No. 33-78050) (C) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for fiscal year ended December 31, 1995 (D) Incorporate by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (E) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, as amended by Form 10-Q/A filed on August 15, 1997 (F) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 333-28193) (G) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 31 (H) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998, as amended by Form 10-Q/A filed June 9, 1998 (I) Incorporated by reference to the Registrant's Registration Statement on Form S-2 (Registration Nos. 333-35061 and 333-35061-01) (J) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998. (K) Incorporated by reference to the Registration Statement on Form S-8 (Registration No. 333-71741). (L) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 as amended by Form 10-K/A filed on April 20, 1999. (M) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (N) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. YARDVILLE NATIONAL BANCORP ------------------------------------ (Registrant) Date: August 14, 2000 By: /s/ Stephen F. Carman ---------------------------- ------------------------------------ Stephen F. Carman Executive Vice President and Chief Financial Officer 33 EX-10.31 2 0002.txt EXHIBIT 10.31 Yardville National Bancorp Subsidiaries Exhibit 10.31 1. Yardville National Bank 2. Yardville Capital Trust 3. Yardville Capital Trust II 4. Yardville National Investment Corporation (wholly-owned subsidiary of Bank) 5. YNB Real Estate Corporation (wholly-owned subsidiary of Bank) 6. Brendan, Inc. (wholly-owned subsidiary of Bank) 7. YNB Financial, Inc. (wholly-owned subsidiary of Bank) 8. Nancy-Beth, Inc. (wholly-owned subsidiary of Bank) 9. YNB Realty, Inc. (wholly-owned subsidiary of Bank) 10. Jim Mary, Inc. (wholly-owned subsidiary of Bank) 11. YNB Capital Development, Inc. (wholly-owned subsidiary of Bank) EX-10.33 3 0003.txt EXHIBIT 10.33 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT is made and entered into this day of April, 2000 between SAMUEL MARRAZZO and MARGARET MARRAZZO, husband and wife, (hereinafter "Landlord") and YARDVILLE NATIONAL BANK, organized and existing under the laws of United States of America (hereinafter "Tenant") for a portion of the premises, as hereinafter defined, located at 1400 Parkway Avenue, Trenton, New Jersey. In consideration of the rents, covenants and conditions hereinafter reserved and contained, Landlord hereby agrees to lease to Tenant, and Tenant hereby agrees to hire from Landlord, the Leased Premises described herein. Landlord and Tenant agree that the terms and conditions of this sublease are as set forth in this Sublease Agreement and the attached General Terms of Lease including, without limitation, the exhibits or riders referred to in the General Terms of Lease, all of which are incorporated herein and are hereinafter referred to collectively as the "Lease." 1. BACKGROUND. On December 21, 1973, Ewing Associates (hereinafter "Lessor") executed a Lease Agreement (hereinafter "Ewing Lease") with The Grand Union Company (hereinafter "Lessee") for the premises known as 1400 Parkway Avenue, Ewing Township, Mercer County, New Jersey (hereinafter "Premises"). A true and correct copy of the Ewing Lease is attached hereto, incorporated herein and marked as Exhibit A. On July 9, 1979, The Grand Union Company (hereinafter "Sublessor") executed a Sublease Agreement (hereinafter "Grand Union Lease") with Frankford Quaker Grocery Company (hereinafter "Frankford"). Fleming Companies, Inc., an Oklahoma corporation, (hereinafter "Sublessee") is successor in interest by merger to Frankford. A true and correct copy of the Grand Union Lease is attached hereto, incorporated herein and marked as Exhibit B. On October 22, 1999, Fleming Companies, Inc., (hereinafter "Fleming") entered into a Sub-Sublease Agreement (hereinafter "Fleming Lease") with Marrazzo's Market at Ewing, L.L.C., a New Jersey Limited Liability Company, (hereafter "Marrazzo's Market"). A copy of the Fleming Lease is attached hereto as Exhibit C. By Agreement of Assignment dated March 30, 2000, Marrazzo's Market 1 assigned the Fleming Lease to Samuel Marrazzo and Margaret Marrazzo, husband and wife. A true and correct copy of the Agreement of Assignment is attached hereto and marked as Exhibit D. Landlord herein has now agreed to Sublease a portion of the Premises to Tenant herein to be used a full service banking facility. Fleming has consented to this Sublease Agreement. The terms of the Ewing Associates Lease, Grand Union Lease and Fleming Lease, hereinabove referred, are herein incorporated by reference with like force and effect as if the same had been fully set out, and Tenant herein acknowledges receipt of true and correct copies of all of said Leases. 2. CONSTRUCTION; PREPARATION FOR OCCUPANCY; PLANS AND SPECIFICATIONS. Tenant agrees to be singularly responsible for and to construct or cause to be constructed the facility which Tenant will require to operate a full service banking facility, namely, the Leased Premises. This banking facility shall be constructed in strict accordance with plans and specifications approved by Landlord. Said plans and specifications are attached hereto and incorporated herein, marked as Exhibit E. All said improvements are to be made in strict compliance with any governmental or quasigovernmental body having jurisdiction over such construction and use. All construction is to be carried out in a manner that is compatible with ongoing construction that is taking place simultaneously therewith. Tenant shall obtain or cause its contractors, agents, servants, workmen or any person used in the construction of the facility described above to provide insurance naming Landlord as an additional insured or protecting Landlord from any loss or liability whatsoever caused by or resulting from the construction of the Leased Premises as set forth in this paragraph. Tenant further agrees to indemnify and hold harmless Landlord from any action, cause of action, claim or loss resulting from any and all of said activity. All work shall be done in a good and workmanlike manner and in strict compliance with all applicable laws and lawful ordinances, by-laws, regulations and orders of governmental authority and of the insurers of the Demised Premises, and Tenant shall be responsible for payment of any and all utilities used in the construction thereof. 2 3. DEFINITIONS. For purposes of this Sublease, and any supplement(s), amendment(s), or modification(s) thereof, the terms listed below shall have the following meanings: "LANDLORD": SAMUEL MARRAZZO and MARGARET MARRAZZO husband and wife ADDRESS: c/o Marrazzo's Thriftway 1091 Washington Boulevard Robbinsville, New Jersey 08691 "TENANT": YARDVILLE NATIONAL BANK ADDRESS: 2465 Kuser Road Trenton, New Jersey 08690 "ADDITIONAL RENT" shall mean Tenant's Pro Rata Share of all of the common area expenses and other charges for which Sub-Subtenant is responsible under the terms of the Ewing Lease, Grand Union Lease or Fleming Lease as provided in Article 4 of the General Terms of Lease. "BASE RENT" shall mean, for the initial term of this Sublease, the sum of $ [See attached Exhibit 1] per year which will be payable at the monthly rate of $ [See attached Exhibit 1] as provided in Article 4 of the General Terms of Lease. "BILLING ADDRESS" shall mean the address at which Tenant will be billed which is the Leased Premises. "BUILDING" shall mean the structure in which the Demised Premises and Leased Premises are contained. "COMMENCEMENT DATE" shall mean April 1, 2000. "COMMON FACILITIES" shall mean the land surrounding the Building, the parking area and all drives and walkways, all generally as shown on Exhibit F to the General Terms of Lease. "DEMISED PREMISES" shall mean the space leased by Landlord pursuant to the Fleming Lease. "EWING LEASE" shall mean the Lease Agreement including amendments, if any, by and between Ewing Associates ("Lessor") and The Grand 3 Union Company ("Lessee"), a copy of which is attached hereto and marked as Exhibit A. "FLEMING" shall mean Fleming Companies, Inc., the Sub-Sublandlord from time to time, under the Sub-Sublease Agreement. "FLEMING LEASE" shall mean the Sub-Sublease Agreement, including amendments, if any, by and between Fleming Companies, Inc., ("Fleming") and Marrazzo's Market at Ewing, L.L.C., ("Marrazzo's Market") a copy of which is attached hereto and marked as Exhibit C. "GRAND UNION LEASE" shall mean the Sublease, including amendments, if any, by and between Grand Union Company ("Sublessor") and Fleming Companies, Inc. ("Sublessee") a copy of which is attached hereto and marked as Exhibit B. "HOURS OF OPERATION" shall mean Monday through Friday from 10:00 a.m. to 7:00 p.m. and Saturdays and Sundays from 10:00 a.m. to 4:00 p.m., excluding all banking holidays. The hours of operation set forth herein may be modified by the Tenant at its sole discretion provided the modified hours of operation are reasonable hours of operation as compared to other banking facilities in Mercer County. "LEASED PREMISES" shall mean the space leased by Tenant from Landlord pursuant to this Sublease Agreement and as more particularly described in Exhibit E. "LEASE YEAR" shall mean a period of twelve (12) consecutive calendar months, the first of which will begin on the Commencement Date. "LESSEE" shall mean The Grand Union Company, the Lessee from time to time under the Ewing Lease. "LESSOR" shall mean Ewing Associates, the Lessor from time to time, under the Ewing Lease. "MARRAZZO'S MARKET" shall mean Marrazzo's Market at Ewing, L.L.C., the Sub-Subtenant from time to time, under the Sub-Sublease Agreement. "MORTGAGEE" shall mean the holder of any mortgage or security interest now or hereafter encumbering the Building, improvements, appurtenances or personal property of Landlord. 4 "OPERATING EXPENSES" shall mean real estate taxes, payments "in lieu of real estate taxes," insurance premiums and other expenses as referred to in Article 4 of, and as more particularly described in Exhibit G to the General Terms of Lease. "STANDARD INDUSTRIAL CLASSIFICATION (SIC) NUMBER" shall mean the SIC number applicable to Tenant's primary business and referred to in Article 2 of the General Terms of Lease which Tenant represents and warrants is 6021. "SUBLESSEE" shall mean Fleming Companies, Inc., the Sublessee from time to time, under the Grand Union Lease. "SUBLESSOR" shall mean The Grand Union Company, the Sublessor from time to time, under the Grand Union Lease. "SUB-SUBLANDLORD" shall mean Fleming Companies, Inc., the Sub-Sublandlord from time to time, under the Sub-Sublease Agreement. "SUB-SUBTENANT" shall mean Marrazzo's Market at Ewing, L.L.C., the Sub-Subtenant from time to time, under the Sub-Sublease Agreement. "TENANT IMPROVEMENTS" shall mean the improvements to the Leased Premises constructed for by Tenant for Tenant's use and occupancy. "TENANT PLANS" shall mean the final plans, specifications and working drawings required to be supplied by Tenant and approved in writing by Landlord for the construction of the Leased Premises and the Tenant Improvements as herein defined. "TENANT PLANS DEADLINE" shall mean the date on or before which Landlord must deliver written approval or disapproval of the Tenant Plans, which Landlord and Tenant agree will be five (5) business days after receipt of same by Landlord. "TENANT'S PRO RATA SHARE," shall mean the ratio of (x) the rentable square feet in the Leased Premises, over (y) the total rentable square feet in the Demised Premises, which Landlord and Tenant agree is .981 percent as of the date hereof which is subject to change upon a recalculation of the total rentable building size. If any of the operating expense is related to any item entirely within the Leased Premises and for the sole use and benefit of the Tenant, then Tenant shall pay 100% of such cost. Otherwise, Tenant shall pay his pro rata share. 5 "TERM" shall mean a period of 5 years and 0 months from the Commencement Date referred to in Article 3 of the General Terms of Lease and will, if the context requires, include any extension(s) of the initial Term and be subject to earlier termination as provided in the General Terms of Lease. "USE" shall mean Tenant's occupancy of the Leased Premises as referred to in Article 2 of the General Terms of Lease for the purpose of a full-service bank only. IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands and seals, or caused this Sublease to be signed by their duly authorized general partners, officers or agents, as of the date and year first above written. WITNESS: SAMUEL MARRAZZO XXXXXXXXXXXXXXXX /s/ Samuel Marrazzo - ---------------------- ----------------------------- MARGARET MARRAZZO XXXXXXXXXXXXXXXX /s/ Margaret Marrazzo - ---------------------- ----------------------------- ATTEST: YARDVILLE NATIONAL BANK XXXXXXXXXXXXXXXX /s/ XXXXXXXXXXXXXXXX - ---------------------- ----------------------------- 6 GENERAL TERMS OF LEASE ---------------------- ARTICLE 1. LEASED PREMISES. Section 1.1 Tenant will have the right to use and occupy its leasehold interest and, with respect to the Leased Premises, the right to use in common with other tenants of the Shopping Center and their invitees, customers and employees, those public areas of the Common Facilities, all subject to the terms, conditions and limitations set forth in the Ewing Lease, Grand Union and/or Fleming Lease. ARTICLE 2. USE. Section 2.1 Landlord hereby leases to Tenant, and Tenant hires from Landlord, only for the operation of a full-service banking facility, a portion of the Demised Premises consisting of approximately 346 sq. ft. as more specifically described in Exhibit E attached hereto and incorporated herein. Tenant agrees, except as to those provisions relating to the payment of rent by the Tenant and as otherwise specifically set forth in this Sublease Agreement to be bound by all of the covenants and obligations of the Sub-Subtenant as set forth in the Fleming Lease. Section 2.2 Tenant will use and occupy the Leased Premises for the use specified only and for no other use. Notwithstanding the foregoing, Tenant's use of the Leased Premises will, at all times, be lawful and will not constitute waste, nuisance or unreasonable annoyance to Landlord or other tenants of the Shopping Center. Section 2.3 Tenant warrants that it will not do or allow anything which will cause its SIC, as hereinafter set forth in this Agreement, to change and/or fall within any of the SIC number(s) to which the Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA") is now or may hereafter be applicable. Tenant further warrants that it will not use the Leased Premises or any part thereof to refine, produce, store, handle, transfer, process, or transport "hazardous waste" or "hazardous substances" as such terms are now or may hereafter be defined under any federal, state or local law or regulation. In the event Tenant shall breach this warranty, Landlord will have, in addition to any other remedies available, the right to immediately terminate this lease. ARTICLE 3. TERM OF LEASE. Section 3.1 The initial Term of this Lease shall be for the period beginning April 1, 2000, and ending at 11:59 p.m. on March 31, 2005 ("Initial Term"). Thereafter, the term of this Lease shall be automatically renewed for three (3) successive 1 additional terms of five (5) years ("Renewal Term") each unless Tenant terminates this Lease by giving written notice to Landlord Tenant at least ninety (90) days prior to the end of the Initial Term or Renewal Term, as applicable. The Initial Term and Renewal Term are referred to herein as the "Term." Notwithstanding any provision herein to the contrary, this Lease shall automatically terminate upon the expiration or termination of the Fleming Lease for any reason. In no event shall Tenant have the right to exercise any options to extend the term of the Fleming Lease that may be available to Landlord under the Fleming Lease. ARTICLE 4. RENT AND ADDITIONAL RENT. Section 4.1 In addition to the Base Rent, and as Additional Rent, Tenant shall pay .981 percent (sublease square footage [346 sq. ft.] divided by total square footage (35,280 sq. ft.]) of all of the common area expenses and other charges for which Sub-Subtenant is responsible under the terms of the Ewing Lease, Grand Union Lease or Fleming Lease as well as .981 percent of Landlord's Operating Expenses, including, but not limited to, electricity, steam, utility taxes, water (including sewer rentals), casualty and liability repairs and maintenance, building and cleaning supplies, window cleaning, service contracts, independent contractors and all other expenses providing that provided that nothing herein shall obligate Tenant to be responsible for salaries, wages, medical, surgical, general welfare benefits, and pension payments of employees of Landlord. However, with respect to "repairs and maintenance" only, Tenant shall not be responsible for any prorate share of repairs and maintenance to a portion of the building that has no effect on Tenant's Leased Premises. Section 4.2 Tenant will pay Base Rent and Additional Rent without any setoff, deduction or demand whatsoever. Base Rent will be paid in monthly installments, in advance, on the first day of each month during the Term in the amount set forth in this Sublease Agreement. Section 4.3 Any and all charges and costs which Tenant is required to pay pursuant to this Sublease, together with all interest and penalties that may accrue thereon in the event of Tenant's failure to pay such amounts, and all damages, costs, and expenses which Landlord may incur by reason of any default or failure on Tenant's part to comply with the terms of this Sublease, will be deemed to be Additional Rent. In the event of non-payment by Tenant of any Additional Rent, Landlord will have all the rights and remedies with respect thereto which Landlord has for non-payment of Base Rent. Section 4.4 In addition to any other remedies provided for herein, in the event of any installment of Base Rent or payment of 2 Additional Rent remains unpaid for more than seven (7) calendar days after receipt of written notice thereof, then a late charge of four percent (4%) of the amount(s) so overdue may be charged by Landlord for each month or part thereof that the same remains overdue. This charge will be deemed compensation to Landlord for the inconvenience and expense of policing and processing the late payment(s) and will be in addition to and not in lieu of any other remedy the Landlord may have under the circumstances and in addition to any reasonable fees and charges of any agents or attorney Landlord may employ in the event of any default hereunder, whether authorized herein or by law. ARTICLE 5. COMPLIANCE WITH LAWS. Section 5.1 Tenant will, at its expense, promptly observe and comply or cause compliance with all laws and ordinances, orders, rules, regulations, and requirements of all federal, state, county or municipal governments and appropriate departments, agencies, commissions, boards and offices thereof, and the board of fire underwriters and/or any other body exercising similar functions and all insurance companies writing policies covering the building and/or Leased Premises, or any part thereof, foreseen or unforeseen, ordinary as well as extraordinary, which relate or pertain to Tenant's use and occupancy of the Leased Premises, including the conduct of Tenant's business therein, whether or not the same: a) involve any change of governmental policy; b) are now in force or hereafter passed, enacted or directed, or c) require extraordinary repairs, alterations, equipment or additions of any work (or changes of such work) or any other requirements incidental thereto, of any kind which may be applicable to, or in or about, the Leased Premises including, without limitation, the fixtures, equipment thereof, or the purposes to which the Leased Premises are put, or manner or use of the Leased Premises at the commencement or during the term of this Sublease. Tenant's obligations as set forth in this paragraph will include, but not be limited to, compliance with any and all laws, orders, rules, regulations and requirements relating to life safety and environmental control, conservation or protection, including, without limitation, the Occupational Safety and Health Act (OSHA), the Spill Compensation and Control Act, and the Industrial Site Recovery Act (ISRA) with respect to the use of and operation of the Leased Premises. In the event of Tenant's failure to comply with the conditions of this paragraph, Landlord may, but will not be required to, perform any of the Tenant's obligations as stated herein. It is specifically understood that Tenant will defend, indemnify and hold harmless Landlord, its agents, successors and assigns from and against, and be responsible for, payment of any and all costs, expenses, claims, fines, penalties, and damages that may in any manner arise out of or be imposed because of the failure of Tenant to comply with the provisions of this paragraph, including expenses incurred by 3 Landlord in the exercise of its rights pursuant to this paragraph, and all of the foregoing shall be deemed Additional Rent. ARTICLE 6. EVENTS OF DEFAULT; REMEDIES. Section 6.1 It will be a default hereunder if, at any time after the date hereof, any of the following events (hereinafter called "Events of Default") occurs: (a) Tenant fails to pay any installment of Base Rent or Operating Expenses, or any part thereof, when same is due and payable and such failure continues for seven (7) days after receipt of written notice thereof; (b) Tenant fails to pay any item of Additional Rent or any other charges required to be paid by Tenant hereunder and such failure continues for ten (10) days after receipt of written notice thereof from Landlord to Tenant; or (c) Tenant fails to perform any of the requirements of this Sublease (other than the payment of money) on the part of Tenant to be performed or observed and such failure continues for thirty (30) days after receipt of written notice thereof from Landlord to Tenant; or (d) Tenant allows the Leased Premises to become vacant, deserted, or abandoned for a period of forty-five (45) days (the fact that any Tenant property remains in the Leased Premises shall not be evidence that Tenant has not vacated or abandoned the Leased Premises) or if Tenant fails to keep the Leased Premises occupied to the extent necessary to maintain fire insurance coverage; or (e) Tenant assigns, mortgages or encumbers this Sublease, Tenant's Leased Premises or any part thereof, other than as expressly permitted hereunder; or (f) Tenant makes an assignment for the benefit of its creditors; or (g) Any petitions filed by or against Tenant in any court, whether or not pursuant to any statute of the United States or any state in any bankruptcy, reorganization, extension, arrangement or any insolvency proceeding and, with regard any petition filed against Tenant, the same is not dismissed within forty-five (45) days, provided that during such period, Tenant continues to pay all Base Rent and all Additional Rent in performance of all of its obligations under this Sublease; or (h) A receiver or trustee is appointed for all or any substantial portion of Tenant's property and, with regard to a proceeding 4 brought against Tenant, the same is not dismissed in forty-five (45) days, provided that during such period Tenant continues to pay all Base Rent and all Additional Rent in performance of all of its obligations under this Sublease; or (i) If a petition or proceeding is filed or commenced by against Tenant for its dissolution or liquidation, other than in connection with any merger permitted hereunder, or if Tenant's property is taken by any governmental authority in connection with a dissolution or liquidation and, with regard to a petition filed or commenced against Tenant, the same is not dismissed within forty-five (45) days, provided that during such time Tenant continues to pay all Base Rent and all Additional Rent and performs all of its obligations under this Sublease; or (j) If a levy under judgment against Tenant is not satisfied or bonded within thirty (30) days. Section 6.2 Upon occurrence of any one or more of the aforementioned Events of Default and the expiration of the period of time for curing the same, if any, Landlord may give Tenant a notice (hereinafter called "Notice of Termination") of its intention to end the term of this Sublease at the expiration of five (5) days from date of service of such Notice of Termination. At the expiration of five (5) days, the term hereof, as well as all of the right, title and interest of Tenant hereunder, will wholly cease and expire in the same manner and with the same force and effect as if the date of expiration of such five (5) day period were the date originally specifically herein for expiration of the term, and Tenant will then quit and surrender the Leased Premises to Landlord, but Tenant will be liable to Landlord as hereinafter provided. Notwithstanding the foregoing provision of this paragraph, Landlord will not be required to give any Notice of Default and no cure period shall be applicable for the failure of Tenant to observe or perform any of its agreements or obligations hereunder if, within any one hundred eighty (180) day period, Tenant has committed two or more defaults hereunder and Landlord has transmitted to Tenant two or more Default Notices. Section 6.3 If this Sublease is terminated as provided hereinabove, Landlord or Landlord's agent and servants may, at any time thereafter, re-enter the Leased Premises and remove Tenant, its agents, employees, servants, licensees, permittees and any subtenants or assignees, and all of its or their property, either by summary dispossess proceeding or by any suitable action or proceeding at law, without being liable to indictment charges of any nature, and recover and enjoy the Leased Premises together with all additions, alterations, and improvements thereto. 5 Section 6.4 If default occurs during the original Term, then all Rent and Additional Rent shall be paid monthly for the remainder of the Term, and the Leased Premises shall be restored at Tenant's sole expense within seventy-five (75) days after default. Section 6.5 If default occurs during any Option Period, then all Rent and Additional Rent shall be paid monthly for the twelve (12) months following such date of default, and the Leased Premises shall be restored at Tenant's sole expense within seventy-five (75) days after default. Section 6.7 In case of any such termination by summary proceeding or otherwise, Tenant agrees that: (a) The Base Rent and all Additional Rent required to be paid by Tenant hereunder will thereupon become due and be paid up to the time of such termination or dispossess. Tenant will also pay to Landlord, as Additional Rent, all of Landlord's reasonable expenses for attorneys' fees, brokerage commissions, all costs paid or incurred by Landlord for retaking and repossessing the Leased Premises (including the removal of personal and property therefrom), restoring the Leased Premises to good order and condition, altering and otherwise preparing the same for reletting (without regard to whether such alterations may be characterized as capital improvements), the unamortized portion of any rental concessions, Tenant fit-out or abatement (treated as if amortized over the initial Term hereof) and for all other reasonable costs and expenses incurred in securing a new tenant or tenants (all of the foregoing collectively referred to as the "Early Termination Damages"). (b) Landlord may, at any time and from time to time, relet the Leased Premises, in whole or in part, in its own name, for a term or terms which, at Landlord's option, may be for the remainder of the then current Term of this Sublease, or for any longer or shorter period. Landlord undertakes to use reasonable efforts to relet the Leased Premises so as to mitigate damages but will not be required to prefer such reletting to any letting of other vacant space in the Building. (c) Tenant will be obligated and agrees to pay to Landlord, upon demand, and Landlord will be entitled to recover from Tenant, the Early Termination Damages plus damages in an amount equal to the excess, if any, of (i) all Base Rent and all Additional Rent as would have been required to be paid by Tenant under this Sublease for each calendar month had this Sublease and the Term not been so terminated, over (ii) the rents, if any, collected by Landlord in respect of such calendar month pursuant to any reletting. In no event will Tenant be entitled to receive any excess of such rents over the sums payable by Tenant to Landlord hereunder. Said 6 damages will be payable by Tenant to Landlord in monthly installments in the same manner as Base Rent hereunder, and no suit or action brought to collect the amount of the deficiency for any month will in any way prejudice Landlord's right to collect the deficiency for any subsequent month by a similar proceeding. (d) Suit or suits for the recovery of any and all such damages, or for any installments thereof, may be brought by Landlord from time to time at its election, and nothing herein contained will be deemed to require Landlord to postpone suit until the date the Term would have expired had the Lease not been terminated as provided herein or under any provision of law or had landlord not re-entered into or upon the Leased Premises. (e) If any statute or rule of law governing Landlord's claim for damages will limit the amount of such claim capable of being so proved and allowed, Landlord will be entitled to prove as and for liquidated damages and have allowed an amount equal to the maximum allowed by or under any such statute or rule of law. SECTION 7. CUMULATIVE REMEDIES; WAIVER Section 7.1 Every term, condition, agreement or provision contained in this Sublease will also be deemed to be a covenant. Section 7.2 In addition to the other remedies provided in this Sublease, Landlord will be entitled to the restraint by injunction of any violation or attempted to threatened violation of any of the terms or covenants of this Sublease. Landlord's remedies under the terms of this Sublease are cumulative and are not intended to be exclusive of any other remedies to which Landlord may be lawfully entitled, at law or in equity, in case of any breach by Tenant of any provision of this Sublease. Section 7.3 The failure of the Landlord to insist in any one or more cases upon the strict performance of any of the terms of covenants of this Sublease, or to exercise any option herein contained, will not be construed as a waiver or a relinquishment for the future of any such term or covenant. No waiver by Landlord of any term or covenant of this Sublease will be deemed to have been made unless made in a writing signed by Landlord. Section 7.4 Neither the payment by Tenant nor acceptance by Landlord of rent or any other payment, nor the acceptance by Landlord of performance of anything required by this Sublease to be performed, with the knowledge of the breach of any term or covenant of this Sublease, will be deemed a waiver of such breach or of any of Landlord's rights hereunder. Landlord's acceptance of rent or any other payment in a lesser amount than is due (regardless of any endorsement on any check, or any statement in any letter 7 accompanying any such rent or payment) will not operate or be construed either as an accord and satisfaction or in any manner other than as payment on account of the earliest rent or other sums then unpaid. Section 7.5 Tenant and Landlord waive all right to trial by jury in any proceeding instituted with respect to this Sublease. ARTICLE 8. SURRENDER OF PREMISES. Section 8.1 Tenant will, upon the expiration or earlier termination of this Sublease, quit and surrender the Leased Premises to Landlord, together with all Tenant Improvements and other alterations (unless Landlord elects otherwise as hereinafter provided) and replacements thereof then on the Leased Premises, in good order, condition and repair, except for reasonable wear and tear. Prior to the expiration or earlier termination of this Sublease, the Tenant will remove all of its property, equipment and trade fixtures from the Leased Premises without damage, leaving the Leased Premises in broom-clean condition. All property not removed by Tenant will be deemed abandoned by Tenant and Landlord reserves the right to charge the cost of removal, storage and/or disposal of same to Tenant. Section 8.2 If the Leased Premises is not surrendered at the end of the Term, including a failure to surrender by virtue of failure to comply with ISRA as referred to hereinabove, or if the Leased Premises is damaged or is not in broom-clean condition upon surrender, Tenant will indemnify Landlord against any loss or liability resulting, including, without limitation and in addition to any other remedy or claim of Landlord's, any claims made or damages sustained by any succeeding tenant founded on the delay, condition and/or damage. Section 8.3 Tenant's obligations under this Article 8 will survive the expiration or earlier termination of this Sublease and surrender of the Leased Premises. ARTICLE 9. ASSIGNMENT OR SUBLETTING. Section 9.1 Tenant will neither assign this Sublease, sublet the Leased Premises or any part thereof, nor encumber its interest in this Sublease unless it receives the written consent of the Landlord which shall not be unreasonably withheld. Section 9.2 Tenant, without Landlord's consent, may sublet or assign its interest in this Sublease to any affiliate or subsidiary corporation of Tenant or to any corporation resulting from a merger or consolidation with Tenant or to any person or entity which acquires all of the assets of Tenant's business as a going concern 8 without violating this provision, provided, however, that Tenant remains liable under the terms of this Sublease. ARTICLE 10. MAINTENANCE AND REPAIRS; COVENANT AGAINST WASTE; RIGHT OF INSPECTION. Section 10.1 Tenant will, at its sole cost and expense, maintain the Leased Premises and all of its fixtures, systems, equipment and improvements, in clean, safe, orderly and sanitary condition free of accumulation of dirt and rubbish. Tenant will not permit or suffer any overloading of the floors of the Leased Premises and will not do or suffer any waste or injury with respect thereto. In case of any destruction or damage of any kind whatsoever to the Leased Premises, or any part thereof or system therein, including, without limitation, any glass and the Tenant Improvements in or at the Leased Premises, Tenant shall repair said damage or destruction as speedily as possible at Tenant's own cost and expense, provided, however, that if any such damage or destruction results solely from the act, fault or negligence of Landlord, or anyone acting under Landlord, when making replacements pursuant to this Sublease Agreement, then it will be the responsibility of Landlord to make the repairs at its expense. Tenant will also be responsible, at its own cost and expense, to (i) repair HVAC, electrical or plumbing system(s), if any, ("Tenant System") which service only the Leased Premises, and (ii) maintain throughout the Term an HVAC maintenance contract and, if required by Landlord, a maintenance contract on any other Tenant System(s), covering any such Tenant System(s). When used in this Article, the term "repair(s)" includes replacement(s), restoration(s), addition(s), improvement(s), alteration(s) and/or renewal(s) when necessary. Prior to making any repairs, Tenant will notify Landlord of the nature of the damage or destruction and contractors Tenant intends to employ to effect the repairs. The provisions and conditions of Article 12 applicable to changes or alterations (including the condition that Landlord may require that the repairs be performed by its agents, servants, employees or contractors) will similarly apply to repairs required to be done by Tenant under this Article. to the extent that there are any warranties or guaranties applicable to the Leased Premises, including the fixtures, equipment and systems therein, which could be applicable to the obligations of Tenant under this Article, Landlord will assign said warranties or guaranties to Tenant. ARTICLE 11. MECHANIC'S LIENS. Section 11.1 Tenant will not suffer or permit any Mechanics Notice of Intention or Mechanic's Lien ("Lien") against the Leased Premises and/or Property or any part thereof, by reason of any work, labor, services or materials done or supplied, or claimed to have been done or supplied, for or to Tenant or any contractor or 9 subcontractor employed by Tenant or anyone holding the Leased Premises or any part thereof through or under Tenant ("Lien"). If at any time a Lien is filed against the Leased Premises and/or Property, Tenant will cause the same to be discharged of record or bonded within thirty (30) days after notice to Tenant of the filing of same. If Tenant fails to discharge or bond any such Lien within such period, then, in addition to any other right or remedy of Landlord, Landlord may elect, but shall not be obligated, either to procure the discharge of the Lien by bonding or by payment or deposit into court of the amount claimed to be due, or to compel the prosecution of an action for the foreclosure of such Lien by the lienor and to pay the amount of the judgment, if any, in favor of the lienor within interest, costs and allowances. Any amounts paid or deposited by Landlord for any of the aforesaid purposes, and all legal and other expenses and disbursements of Landlord, including reasonable counsel fees, in defending any action or in or about procuring the discharge of such Lien, together with interest thereon at the rate which is the Prime Rate as published in the Wall Street Journal, from time to time, plus five percent (5%), from the date of payment or deposit, will become due and payable forthwith by Tenant to Landlord, as Additional Rent. ARTICLE 12. ALTERATIONS. Section 12.1 Tenant will not make, cause or permit any alterations, additions, improvements ("alterations") in or to the Leased Premises without in each instance obtaining Landlord's prior written consent thereto. By way of illustration but not limitation, Landlord will be entitled to withhold its consent if the proposed alterations (i) impair or affect the structural soundness or integrity of the Leased Premises, Building, or any of the systems or equipment therein, (ii) lessen the present or future value of the Demised Premises or Building, (iii) change the type of use of the Leased Premises; or (iv) increase the risk of damage or injury to the Leased Premises, the Building or the occupants of the Building. Any such consent by Landlord may be upon condition that the work be performed by Landlord's agents, servants, employees or contractors and that Tenant furnish to Landlord such evidence of Tenant's financial ability to assure payment and/or completion as Landlord may reasonably require. If Landlord so elects and notifies Tenant at the time of Tenant's request to make such alterations, Tenant will, at its sole cost and expense, remove any alterations (structural or non-structural) at the expiration or other termination of this Sublease, repair all damage caused by such removal and restore the Leased Premises to the condition in which they were prior to the installation of any such alterations. Nothing herein contained will be construed to restrict Tenant's right to install or to make any changes in Tenant's own movable trade fixtures or to qualify Landlord's obligation to make structural replacements as provided in this Sublease. The 10 provisions of this Article are subject to the terms and conditions of any mortgage to which this Sublease is subordinate, and if the consent of any such mortgagee is required for such work, such consent will be obtained by Tenant before any such work is commenced. In that regard, Landlord agrees to reasonably cooperate with Tenant in obtaining the consent of such mortgagee. Plans and specification for any proposed alterations will be submitted to Landlord for approval upon the request for its consent together with a reputable contractor's (which may include a contractor in Tenant's employ) estimate of the cost thereof. Upon completion of the alterations, Landlord is to receive one print and one reproducible copy of the "as-built" construction plans. Section 12.2 In making any alteration contemplated by this Article, or any repair or restoration contemplated by other items and conditions of this Sublease, the parties will comply with all applicable laws, regulations, ordinances and orders and procure all requisite permits, all at Tenant's expense. Copies of all such approvals, authorizations and permits will be delivered to and retained by Landlord. Each party will, on written request from the other, execute any documents necessary to be signed on its part in order to obtain any such permit. All alterations made hereunder will be performed in a first-class, good and workmanlike manner using new materials at least equivalent in quality to those used in the construction of the Building. Section 12.3 Tenant will maintain, or cause Tenant's contractors to maintain, worker's compensation and comprehensive general liability insurance and property damage insurance, all in amounts, and with companies and on forms reasonably satisfactory to Landlord and on an occurrence basis. Such insurance will be in effect at all times during any period of such contractor's entry upon the Leased Premises and certificates of insurance will be delivered to Landlord prior to any such entry by Tenant or Tenant's contractors. If required by Landlord, such insurance will name Landlord as additional insured(s), and in all cases will be primary insurance not contributing with other insurance Landlord or its contractors and/or construction manager may carry. Landlord will not in any way be liable for any injury, loss, theft or damage which may occur to any supplies or equipment of, or any decorations or installations made by, Tenant or Tenant's contractors, the same being at the sole risk of Tenant and Tenant's contractors. ARTICLE 13. INSURANCE. Section 13.1 During the term of this Sublease, Tenant will, at its own cost and expense, provide and keep in force the following insurance: 11 (a) Comprehensive general liability insurance written on an occurrence basis, naming Landlord as additional insured, against claims for bodily injury, death or property damage occurring in or about the Leased Premises, the Demised Premises and the Common Facilities (including, without limitation, bodily injury, death or property damage resulting directly or indirectly from or in connection with any alteration, improvement or repair thereof made by and on behalf on the Tenant) with limits on an occurrence basis of not less than $1,000,000.00/$2,000,000.00 for bodily injury or death and $500,000.00 for property damage or $5,000,000.00 combined single. Tenant's coverage must include (i) premises/operations, (ii) excess owner's, contractor's protective, and (iii) blanket contractual liability. (b) Workman's Compensation in statutory amounts and employer's liability of at least $100,000.00. (c) Insurance covering its contents and all Tenant Improvements from loss or damage from fire or casualty and, as to Tenant Improvements, such coverage shall be written on an all-risk special form commercial property insurance (or its equivalent) and shall include a replacement cost valuation, and shall name Landlord as loss payee and mortgagee as their interests may appear. (d) Such other insurance as Landlord or any mortgagee may reasonably require from time to time. Section 13.2 All policies will be obtained by Tenant and copies of same, or at Landlord's option, certificates evidencing coverage will be delivered to Landlord at or before the Commencement Date. All insurance will be written by companies satisfactory to the Landlord and Mortgagee and authorized to do business in the State of New Jersey. All policies will be for periods that are consistent with the term of this Lease and shall contain a provision whereby the same cannot be canceled or materially altered unless Landlord is given at least thirty (30) days prior written notice of such cancellation. All policies of insurance to be obtained which relate or pertain to the Leased Premises, the Building, the Common Facilities or any of the Tenant's contents, Tenant's improvements, fixtures and property, must include a waiver by the insurer of all rights of subrogation. ARTICLE 14. QUIET ENJOYMENT. Section 14.1 Landlord covenants that so long as Tenant pays the rents and performs the covenants and conditions in this Sublease, Tenant may peacefully hold and enjoy the Leased Premises during the Term subject, however, to the terms of this Sublease. 12 ARTICLE 15. DAMAGE OR DESTRUCTION. Section 15.1 In case of any damage to or destruction of the Leased Premises, or any part thereof, Tenant will promptly give written notice thereof to Landlord. Section 15.2 If the Building or the Leased Premises is partially or totally damaged or destroyed by fire or other cause, then, whether or not the damage or destruction resulted from the fault or neglect of Tenant (and if this Sublease has not been terminated as hereinafter provided in this Article), Landlord will repair the damage and restore and rebuild the Building and/or Leased Premises (which for purposes of this Article shall not include any Tenant Improvements). Section 15.3 If the Building or the Leased Premises is partially damaged or partially destroyed by fire or other cause, the rents payable hereunder will be abated to the extent that the Leased Premises has been rendered unusable to Tenant in the conduct of its business and for the period from the date of such damage or destruction to the date the damage was repaired or restored. If the Leased Premises or a major part thereof has been totally (which shall be deemed to include substantially) damaged or destroyed or rendered completely unusable to Tenant in the conduct of its business on account of fire or other cause, the rents shall completely abate as of the date of the damage or destruction and until Landlord repairs, restores and rebuilds the Leased Premises provided, however, that if Tenant reoccupies a portion of the Leased Premises for the conduct of Tenant's business during the time that the restoration work is taking place and prior to the date that the same are made completely tenantable, rents allocable to such portion will be payable by Tenant from the date of such occupancy. Section 15.4 In case of any damage or destruction mentioned in this Article, Landlord may terminate this Sublease, by notice to the Tenant, if the Leased Premises and/or Building are not reasonably capable of restoration within ninety (90) days. Within thirty (30) days after such fire or casualty, Landlord will advise Tenant in writing as to whether or not it can restore the Premises within the ninety (90) day period referred to above, and whether or not it elects to terminate this Sublease as provided in this Section. If Landlord elects not to terminate the Sublease, then Landlord will have one hundred eighty (180) days from receipt of Tenant's notice of such damages to restore the Leased Premises. In the event Landlord is not able to restore the Leased Premises within 180 days, then Tenant shall have the option to terminate this Sublease by providing written notice of termination to Landlord. 13 Section 15.5 Provided that Landlord diligently prosecutes such repair and restoration, Landlord will have no liability if the term for repair or restoration extends beyond the two hundred ten (210) day period. During any period of restoration, Tenant will be responsible for the security of its goods, fixtures and equipment and will be responsible at its costs and expense to remove same from the damaged Leased Premises pending restoration if necessary, it being understood and agreed that Landlord will have no responsibility or liability with respect thereto if the same remain in the damaged area. Section 15.6 Notwithstanding anything to the contrary contained herein, Landlord's obligation to repair will not extend to the Tenant Improvements unless Tenant makes available to Landlord the funds to pay for the cost of such repairs and Landlord's repairs will not exceed the scope of the work required to be done at the outset of this Sublease as set forth in Exhibit E and any additional improvements made by the Tenant consistent with the terms of this Lease. Furthermore, should the damage or destruction occur during the last year of the Term, then notwithstanding any contrary provision contained herein, Landlord will have the option of not repairing the Leased Premises. Landlord must give Tenant notice of its election not to repair within thirty (30) days of receipt of Tenant's notice of the damage or destruction or such option will be deemed terminated. Section 15.7 No damages, compensation or claim will be payable by Landlord for inconvenience, loss of business or otherwise arising from any repair or restoration of any portion of the Leased Premises or of the Building pursuant to this Article. Landlord will use reasonable and diligent efforts to effect such repair or restoration promptly and in such manner as not to unreasonably interfere with Tenant's use and occupancy. Section 15.8 Notwithstanding anything to the contrary contained herein, Landlord's obligations to repair the damage and restore and rebuild the Building and/or the Leased Premises pursuant to this Article will be contingent upon its obtaining all necessary approvals from the applicable governmental authorities. ARTICLE 16. EMINENT DOMAIN. Section 16.1 The Tenant agrees that, in the event of taking of the premises by eminent domain, it will make no claim for the value of the unexpired term of this lease, except to the extent as may be necessary to recover the reasonable value of its leasehold improvements and trade fixtures. 14 ARTICLE 17. INDEMNIFICATION. Section 17.1 Tenant covenants and agrees, at its sole cost and expense and in addition to any other right or remedy of Landlord hereunder, to indemnify and save harmless Landlord from and against any and all loss, costs, expense and liability from claims by any third party(ies) (but excluding any liability arising solely out of the negligence of Landlord or its agents, employees or contractors), including, without limitation, reasonable attorneys' fees and court costs, arising from or in connection with (a) Tenant's use, occupancy, operation and control of the Leased Premises or Common Facilities, (b) the conduct or management of any work, or any act or omission whatsoever, done in or on the Leased Premises by or under the direction or at the request of Tenant, (c) any breach or default on the part of Tenant in the payment of any rent or performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Sublease, or (d) any act or negligence of Tenant or any of its agents, contractors, servants, employees, licensees or invitees. Section 17.2 In the event that any action or proceeding is brought against Landlord by reason of any claims covered by the foregoing indemnity, Tenant will, upon notice from Landlord, resist or defend such action or proceeding. Landlord will not defend such action or proceeding so long as Tenant is diligently doing so. Landlord will give prompt notice to Tenant of any action or proceeding brought against Landlord by reason of any claims covered by the foregoing indemnity together with copies of any documents served on Landlord in connection therewith, and Landlord will not settle any claim without Tenant's written consent. ARTICLE 18. SELF-HELP. Section 18.1 Tenant covenants and agrees that if it, at any time, fails to make any payments or perform any act which it is obligated to make or perform under this Sublease, then Landlord may, but will not be obligated to, after Tenant's time to make any such payment or perform any such act as provided in this Sublease has expired and any required notice has been given, and without waiving or releasing Tenant from any of its obligations under this Sublease, make any such payment or perform any such act in such manner and to such extent as is necessary and consistent with Tenant's obligations hereunder. In exercising any such rights, Landlord may pay or incur costs and expenses, including, without limitation, reasonably attorneys' fees. Notwithstanding the foregoing, Landlord may make any such payment or perform any such act before Tenant's time to do so (as provided in Article 6) has expired only if payment or performance of the same is necessary or required prior to the expiration of the applicable grace period for the preservation or protection of the Building and/or Leased Premises. 15 Section 18.2 Provided Landlord has given notice to Tenant and Tenant has failed to pay all sums within thirty (30) days of such notice, then all sums so paid or incurred in connection with the performance of any such act by Landlord, together with interest thereon from the date that the Landlord made such expenditure at the rate which Yardville National Bank announces as its so-called "base rate," from time to time for the first month after the making of such expenditure will be deemed Additional Rent hereunder and, except as otherwise in this Sublease expressly provided, will be payable to Landlord on demand or, at the option of Landlord, may be added to any rent then due or thereafter becoming due under this Sublease. ARTICLE 19. ESTOPPEL CERTIFICATE. Section 19.1 Each party agrees that, at any time and from time to time, within ten (10) days of the receipt of written request by the other, it will execute, acknowledge and deliver a statement in writing certifying (i) that this Sublease is unmodified and in full force and effect, or if there have been modifications, that the same is in full force and effect as modified and stating the modification, (ii) the dates to which the Base Rent and other charges have been paid and the amount of same, and (iii) to the best of knowledge of the certifying party whether there are any default or rent abatements or offsets claimed. Notwithstanding the foregoing, it is intended that any such statement delivered pursuant to this Article may be relied upon by any prospective Purchaser of the fee or mortgagee or assignee of any mortgage of the Landlord's interest in the Building and/or Leased Premises and the statement will contain such other information as is requested, and be in the form required by such Purchaser, mortgagee or assignee. ARTICLE 20. SUBORDINATION AND NON-DISTURBANCE. Section 20.1 This Sublease is and will at all times be subject and subordinate to (i) the lien of any mortgage on or affecting the Building or any part thereof, at the date hereof, and (ii) the Ewing Lease, Grand Union and/or Fleming Lease. The provisions of this subordination shall be automatic and no further instrument of subordination will be necessary, but in confirmation of this subordination Tenant will, at Landlord's request, execute and deliver such further instruments as may be required by the holder(s) of said mortgage(s), Ewing Lease, Grand Union and/or Fleming Lease. Where there is a conflict between the obligations of the Landlord to Tenant and Landlord's obligations under the Ewing Lease, Grand Union and/or Fleming Lease, then Landlord's 16 obligation under the Ewing Lease, Grand Union and/or Fleming Lease shall prevail and pass through to Tenant in accordance with this Sublease Agreement. Section 20.2 If any Mortgagee or any other person claiming by or through any Mortgagee, or by or through any foreclosure proceeding or sale in lieu of foreclosure, succeeds to the rights of Landlord under this Sublease, Tenant will, at the request of such successor or at Landlord's request, attorn to and recognize such successor as the landlord of Tenant under this Sublease, and Tenant will promptly execute, acknowledge and deliver at any time any instruments required by such person to evidence such attornment and/or confirm Tenant's agreements to attorn. Upon such attornment, this Sublease will continue as a direct lease from such successor landlord to Tenant, upon and subject to all of the provisions of this Sublease for the remainder of the Term, except that the successor landlord will not be: (a) liable for any previous act or omission of Landlord under this Sublease; (b) subject to any offset not expressly provided for in this Sublease which has theretofore accrued to Tenant against Landlord; (c) bound by (i) any modification of this lease after the date of such mortgage, or (ii) any prepayment of more than one (1) months' Base Rent or Additional Rent, unless same has been expressly approved in writing by the holder of such mortgage through or by reason of which the successor landlord shall have succeeded to the rights of Landlord under this Sublease. (d) bound by any security deposit which Tenant may have paid to any prior landlord, unless such deposit is in an escrow fund available to Mortgagee, or actually received by Mortgagee; (e) bound by any provision in the Lease which obligates the landlord to erect or complete any building or to perform any construction work or to make any improvements to the Premises or to expand or rehabilitate any existing improvements or to restore any improvements following any casualty or taking; (f) bound by any notice of termination given by Landlord to Tenant without Mortgagee's written consent thereto; or (g) personally liable under the Lease and Mortgagee's liability under the Lease shall be limited to the ownership interest of Lender in the Premises. Tenant will further agree with Mortgagee that Tenant will not voluntarily subordinate the Lease to any lien or encumbrance without Mortgagee's prior written consent. 17 Notwithstanding anything to the contrary contained herein, this Sublease shall be contingent upon Landlord's obtaining for Tenant's benefit a recognition agreement satisfactory to Tenant from all Mortgagees having a lien on or affecting the Building or any part thereof at the date hereof and all parties having a prior interest in the Building, Common Facilities and/or Leased Premises prior to execution of this document. ARTICLE 21. NOTICES. Section 21.1 Except as expressly provided in this Sublease to the contrary, all notices, demands and requests (other than invoices for Base Rent or Additional Rent) which are required to be given by either party to the other will be in writing and will be sent by United States first class certified or registered mail, return receipt requested, and addressed to (i) Landlord at the address set forth in the agreement with a copy to Leo R. Zamparelli, Esquire, 1719 Brunswick Pike, Lawrenceville, New Jersey 08648, or (ii) to Tenant at the address set forth in the agreement with a copy to Daniel J. O'Donnell, Esquire, c/o Destribats, Campbell, DeSantis, Magee & O'Donnell, 247 White Horse Avenue, Trenton, New Jersey 08610. Notices for late payments may be send by way of regular mail and/or facsimile transmittal. Section 21.2 Notice is deemed to be given upon receipt, provided, however, that in the event a party refused to accept delivery of said certified mail, the notice will nevertheless be deemed to be given upon the date of refusal to accept delivery. ARTICLE 22. BROKER. Section 22.1 Landlord and Tenant represent to each other that they dealt with no broker in connection with this Sublease. Section 22.2 Tenant agrees that if any claim should be made for commissions by any broker by reason of any act of Tenant or its representatives, Tenant will hold Landlord free and harmless from any and all loss, liabilities, and expenses in connection therewith. Landlord will give prompt notice to Tenant after any such claim is made by any broker. Tenant will have the right to defend such claim and Landlord will not pay or settle such claim as long as Tenant is defending same. Section 22.3 Landlord agrees that if any claims should be made for commissions by any broker by reason of any act of Landlord or its representatives, Landlord will hold Tenant free and harmless from any and all loss, liabilities and expenses in connection therewith. Tenant will give prompt notice to Landlord after any such claim is made by any such broker. Landlord will have the 18 right to defend such claim and Tenant will not pay or settle such claim as long as Landlord is defending same. ARTICLE 23. SIGNS. Section 23.1 Tenant will not place any signs on the land, or the exterior or interior of the Building, or in any window whereby such sign would be visible from the outside of the Building, except as agreed to in writing by Landlord. Tenant will obtain, at its sole cost and expense, any and all permits, licenses or approvals which may be necessary in connection with its sign or signs. Section 23.2 Any and all signs are to be approved by Landlord, whose approval shall not be unreasonably withheld. ARTICLE 24. HOLDOVER. Section 24.1 If Tenant continues in the occupancy of the Leased Premises after the expiration of the Term, Tenant's occupancy will be deemed a month-to-month tenancy subject to the terms of the Sublease and Tenant will pay the Base Rent in effect upon the expiration of the Term together with the Additional Rent provided herein or one and one-half (1.5) times such charges if Landlord has immediate use for such space. The provision of this Article will not be construed (i) to relieve Tenant from liability to Landlord for damages resulting from any such holding over, or (ii) as Landlord's consent for Tenant to hold over. ARTICLE 25. LIMITATION OF LIABILITY. Section 25.1 Notwithstanding any contrary provision contained in this Sublease, neither Landlord, nor any of its officers, directors, principal partners, agents or employees, will be responsible or liable to Tenant: (a) for any damage or injury resulting from acts or omissions of persons occupying or using any other part of the Building or for any injury or damages resulting from acts or omissions of persons occupying or using any other part of the Building or for any injury or damage resulting from bursting, stoppage or leakage of water, sprinkler, gas, sewer or steam pipes; or (b) for any consequential damages or lost profits, under any circumstances whatsoever. Notwithstanding the provisions of this Section, if Landlord is in default with respect to its obligations hereunder and is thereby or otherwise determined to be liable to Tenant (whether as a result of negligence, strict liability, breach of warranty or any other theory or concept of liability), Landlord will be liable for 19 monetary damages only and as of the date such cause of action occurs, following a final judgment establishing such default or liability. ARTICLE 26. MODIFICATIONS REQUESTED BY MORTGAGEE. Section 26.1 Tenant hereby agrees that if any Lender to the Landlord proposing to make a mortgage on Landlord's interests in the Building and/or Leased Premises requires, as a condition to making any loan to be secured by such mortgage, that Tenant agree to modifications to this Sublease, or that Tenant supply corporate financial statements and/or other information, then Tenant agrees that it will enter into an agreement with Landlord making such modifications as are requested by such Lender and will supply such financial statements and other information as are requested by such Lender. Under no circumstances will Tenant be required to agree to any modification which changes the Leased Premises, increases the Base Rent or any Additional Rent, abridges or enlarges the Term, or requires the expenditure of funds by Tenant which Tenant is not obligated to expend pursuant to the existing terms of this Sublease. Tenant will execute such modification or supply such information within ten (10) days after Landlord's request. In the event of Tenant's refusal, Landlord will have the right among other remedies, to cancel and terminate this Sublease. Provided, however, that nothing in this Section 26.1 shall require the Tenant to consent to any modifications that materially adversely affect the Tenant's rights under the Sublease. ARTICLE 27. PARKING. Section 27.1 Employees of Tenant will be required to park in designated areas or spaces. A minimum of three (3) such spaces will be assigned to Tenant. ARTICLE 28. RULES AND REGULATIONS. Section 28.1 Tenant, its agents, employees, contractors, licensees, and invitees, will at all times abide by and observe the Rules and Regulations as may be promulgated from time to time by Landlord for the operation and maintenance of the Building and Common Facilities provided, however, that a copy of the same are sent to Tenant and that the same are in conformity with common practice and usage in similar buildings and are not inconsistent with the provisions of this Sublease; as well as any Rules and Regulations promulgated pursuant to the Ewing Lease, Grand Union Lease or Fleming Lease. Landlord shall provide to Tenant copies of all Rules and Regulations referred to in this Article. 20 ARTICLE 29. REGULATION OF COMMON FACILITIES. Section 29.1 The Common Facilities are at all times subject to the exclusive control and management of Lessor and Landlord. Lessor and Landlord will have the right to change the areas, locations and arrangements of parking areas, lobbies, and other Common Facilities (provided that Tenant and its customers will have reasonable access to the Leased Premises) all of which is set forth in this Sublease or in the Ewing Lease, Grand Union and/or Fleming Lease as the case may be. ARTICLE 30. CAPTIONS. Section 30.1 The captions in this Sublease are for convenience and reference only, in no way define, limit or describe the scope or intent of this Sublease and are in no way to affect the interpretation or construction of this Sublease. ARTICLE 31. APPLICABILITY TO SUCCESSORS AND ASSIGNS. Section 31.1 The provisions of this Sublease will be binding upon and inure to the benefit of Landlord and Tenant, and their respective heirs, successors, legal representatives, and assigns, but nothing herein will grant to Tenant the right to assign this Sublease other than pursuant to the provisions hereof. It is understood that the term "Landlord" as used in this Sublease means only the owner, a mortgagee in possession, or a term lessee of the Demised Premises, so that in the event of any assignment by Landlord of the Lease for the Demised Premises, or if a mortgagee takes possession of the Building and/or Demised Premises, the Landlord named herein will be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing thereafter, and it will be deemed, without further agreement, that the Purchaser, the term lessee of the Building and/or Demised Premises, or the mortgagee in possession has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder accruing from and after the date of transfer, lease or possession, as applicable. ARTICLE 32. ENTIRE AGREEMENT; MODIFICATION. Section 32.1 This Sublease (i) constitutes the entire and only agreement between the parties relating to the subject matter hereof, (ii) cancels and supersedes any prior agreements or discussions between the parties or their representatives, and (iii) may not be modified except by an instrument in writing which is signed by both parties. 21 ARTICLE 33. MISCELLANEOUS. Section 33.1 The terms, covenants, conditions, provisions and agreements of this Sublease are deemed to be severable. If any clause or provision herein contained is adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law or regulation, it will not affect the validity of any other clause or provision herein, but such other clause or provisions will remain in full force and effect. In addition, Landlord may pursue the relief or remedy sought in any invalid clause, by conforming such clause with the provisions of the statute or regulation as if the particular provisions of the applicable statute or regulation were set forth herein at length. Section 33.2 This Sublease is not to be strictly construed against either Landlord or Tenant. No remedy or election given by any provision in this Sublease is deemed exclusive unless so indicated, but each, whenever possible, is cumulative with all other remedies in law or at equity. Section 33.3 All obligations of Tenant which, by their nature, cannot be ascertained to have been fully performed until after the end of the Term, will survive the expiration or sooner termination of this Sublease. Section 33.4 With respect to any provision of this Sublease which provides, or is held to provide, that Landlord may withhold or delay any consent or any approval or exercise its judgment or discretion, Tenant in no event will be entitled to make, and Tenant hereby waives, any claim for damages, directly or by way of setoff, counterclaim or defense, based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed any consent or approval or unreasonably exercised its judgment or discretion. Section 33.5 This Sublease is to be interpreted, governed by and enforced in accordance with the substantive laws of the State of New Jersey. 22 EXHIBIT I Base Rent Schedule Dates Annual Rent Monthly Rent Sq. Ft. Charge ----- ----------- ------------ -------------- 4/01/00 to 3/31/01 $0.00 $0.00 $0.00 4/01/01 to 3/31/02 $20,000.00 $1,666.67 $57.80 4/01/02 to 3/31/03 $20,000.00 $1,666.67 $57.80 4/01/03 to 3/31/04 $20,000.00 $1,666.67 $57.80 4/01/04 to 3/31/05 $20,000.00 $1,666.67 $57.80 Option Renewal Term 1 - --------------------- 4/01/05 to 3/31/06 $21,000.00 $1,750.00 $60.69 4/01/06 to 3/31/07 $21,000.00 $1,750.00 $60.69 4/01/07 to 3/31/08 $21,000.00 $1,750.00 $60.69 4/01/08 to 3/31/09 $21,000.00 $1,750.00 $60.69 4/01/09 to 3/31/10 $21,000.00 $1,750.00 $60.69 Option Renewal Term 2 - --------------------- 4/01/10 to 3/31/11 $22,050.00 $1,837.50 $63.73 4/01/11 to 3/31/12 $22,050.00 $1,837.50 $63.73 4/01/12 to 3/31/13 $22,050.00 $1,837.50 $63.73 4/01/13 to 3/31/14 $22,050.00 $1,837.50 $63.73 4/01/14 to 3/31/15 $22,050.00 $1,837.50 $63.73 Option Renewal Term 3 - --------------------- 4/01/15 to 3/31/16 $23,152.50 $1,929.38 $66.91 4/01/16 to 3/31/17 $23,152.50 $1,929.38 $66.91 4/01/17 to 3/31/18 $23,152.50 $1,929.38 $66.91 4/01/18 to 3/31/19 $23,152.50 $1,929.38 $66.91 4/01/19 to 3/31/20 $23,152.50 $1,929.38 $66.91 In addition to the Base Rent, Tenant shall pay Additional Rent as set forth in the General Terms of Lease. EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-2000 JUN-30-2000 19,359 1,131 82,625 0 343,793 108,087 100,422 724,906 9,776 1,313,253 864,450 336,522 15,190 27,900 0 0 46,884 22,307 69,191 29,983 14,599 798 45,380 17,505 27,189 18,191 1,700 5 11,031 7,085 7,085 0 0 5,025 0.75 0.75 7.86 3,323 1,234 723 0 8,965 975 86 9,776 9,776 0 0
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