-----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, M0j/mmDsgElE8n2TTQIDNspTU7Jn7HCKPCpydhU0JS4e2s+krTX5x3qMFGSms6Ou z0DVkOmB4D2GVQLS3FUCIA== /in/edgar/work/0000950116-00-002761/0000950116-00-002761.txt : 20001116 0000950116-00-002761.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950116-00-002761 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 768535 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 September 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 November 8, 2000, the following class and number of shares were outstanding: Common Stock, no par value 7,442,534 - -------------------------- ---------------------------- Class Number of shares outstanding 1 INDEX YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES PART 1 FINANCIAL INFORMATION PAGE NO. - ------------------------------------------------------------------------------- Item 1. Financial Statements Consolidated Statements of Condition September 30, 2000 and December 31, 1999 Consolidated Statements of Income Three months ended September 30, 2000 and 1999 Consolidated Statements of Income Nine months ended September 30, 2000 and 1999 Consolidated Statements of Cash Flows Nine months ended September 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)
September 30, December 31, - --------------------------------------------------------------------------------------------------------- (in thousands, except share data) 2000 1999 - --------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $ 18,568 $ 17,582 Federal funds sold 37,125 8,035 - --------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents 55,693 25,617 - --------------------------------------------------------------------------------------------------------- Interest bearing deposits with banks 1,324 955 Securities available for sale 422,476 309,298 Investment securities (market value of $102,426 in 2000 and $100,121 in 1999) 108,720 108,167 Loans 766,667 646,737 Less: Allowance for loan losses (10,297) (8,965) - --------------------------------------------------------------------------------------------------------- Loans, net 756,370 637,772 Bank premises and equipment, net 9,192 9,400 Other real estate 2,253 2,585 Other assets 36,230 29,804 - --------------------------------------------------------------------------------------------------------- Total Assets $1,392,258 $1,123,598 - --------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Deposits Non-interest bearing $ 92,129 $ 90,219 Interest bearing 791,290 653,588 - --------------------------------------------------------------------------------------------------------- Total Deposits 883,419 743,807 - --------------------------------------------------------------------------------------------------------- Borrowed funds Securities sold under agreements to repurchase 24,658 45,000 Federal Home Loan Bank advances 365,774 250,293 Obligation for Employee Stock Ownership Plan (ESOP) 1,300 1,600 Other 1,234 1,796 - --------------------------------------------------------------------------------------------------------- Total Borrowed Funds 392,966 298,689 Company - obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust holding solely junior Subordinated Debentures of the Company 26,500 11,500 Other liabilities 17,441 10,777 - --------------------------------------------------------------------------------------------------------- Total Liabilities $1,320,326 $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 46,872 40,052 Surplus 2,205 2,205 Undivided profits 33,083 27,462 Treasury stock, at cost, 172,000 shares in 2000 and 1999 (3,030) (3,030) Unallocated ESOP shares (1,300) (1,600) Accumulated other comprehensive loss (5,898) (6,264) - --------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 71,932 58,825 - --------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $1,392,258 $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 September 30, - --------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) 2000 1999 - --------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $16,684 $12,126 Interest on deposits with banks 18 9 Interest on securities available for sale 7,444 4,359 Interest on investment securities: Taxable 1,150 1,310 Exempt from Federal income tax 421 351 Interest on Federal funds sold 790 218 - --------------------------------------------------------------------------------------------------------- Total Interest Income 26,507 18,373 - --------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on savings account deposits 2,064 1,286 Interest on certificates of deposit of $100,000 or more 2,032 671 Interest on other time deposits 6,436 4,387 Interest on borrowed funds 5,372 3,868 Interest on trust preferred securities 622 266 - --------------------------------------------------------------------------------------------------------- Total Interest Expense 16,526 10,478 - --------------------------------------------------------------------------------------------------------- Net Interest Income 9,981 7,895 Less provision for loan losses 1,200 1,000 - --------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 8,781 6,895 - --------------------------------------------------------------------------------------------------------- NON-INTEREST INCOME: Service charges on deposit accounts 380 349 Gains on sales of mortgages, net -- 5 Securities gains, net 9 -- Other non-interest income 477 427 - --------------------------------------------------------------------------------------------------------- Total Non-Interest Income 866 781 - --------------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 2,969 2,602 Occupancy expense, net 644 333 Equipment expense 471 396 Other non-interest expense 1,761 1,263 - --------------------------------------------------------------------------------------------------------- Total Non-Interest Expense 5,845 4,594 - --------------------------------------------------------------------------------------------------------- Income before income tax expense 3,802 3,082 Income tax expense 1,110 882 - --------------------------------------------------------------------------------------------------------- Net Income $ 2,692 $ 2,200 - --------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Basic $ 0.37 $ 0.33 Diluted $ 0.37 $ 0.33 - --------------------------------------------------------------------------------------------------------- Weighted average shares outstanding: Basic 7,349 6,621 Diluted 7,366 6,648 - ---------------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 4 Yardville National Bancorp and Subsidiaries Consolidated Statements of Income (Unaudited)
Nine Months Ended September 30, - ---------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) 2000 1999 - ---------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $46,667 $34,201 Interest on deposits with banks 54 37 Interest on securities available for sale 18,902 10,830 Interest on investment securities: Taxable 3,518 2,925 Exempt from Federal income tax 1,194 936 Interest on Federal funds sold 1,552 612 - ---------------------------------------------------------------------------------------------------- Total Interest Income 71,887 49,541 - ---------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on savings account deposits 5,502 3,568 Interest on certificates of deposit of $100,000 or more 4,704 1,785 Interest on other time deposits 17,831 12,426 Interest on borrowed funds 14,492 9,552 Interest on trust preferred securities 1,186 798 - ---------------------------------------------------------------------------------------------------- Total Interest Expense 43,715 28,129 - ---------------------------------------------------------------------------------------------------- Net Interest Income 28,172 21,412 Less provision for loan losses 2,900 2,400 - ---------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 25,272 19,012 - ---------------------------------------------------------------------------------------------------- NON-INTEREST INCOME: Service charges on deposit accounts 1,141 974 (Losses) gains on sales of mortgages, net (10) 35 Securities gains, net 4 18 Other non-interest income 1,356 1,237 - ---------------------------------------------------------------------------------------------------- Total Non-Interest Income 2,491 2,264 - ---------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 8,625 7,330 Occupancy expense, net 1,876 967 Equipment expense 1,415 1,125 Other non-interest expense 4,960 3,845 - ---------------------------------------------------------------------------------------------------- Total Non-Interest Expense 16,876 13,267 - ---------------------------------------------------------------------------------------------------- Income before income tax expense 10,887 8,009 Income tax expense 3,170 2,265 - ---------------------------------------------------------------------------------------------------- Net Income $ 7,717 $ 5,744 - ---------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Basic $ 1.12 $ 0.99 Diluted $ 1.11 $ 0.98 - ---------------------------------------------------------------------------------------------------- Weighted average shares outstanding: Basic 6,912 5,810 Diluted 6,929 5,837 - ----------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 5 Yardville National Bancorp and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, - ------------------------------------------------------------------------------------------------------------------ (in thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net Income $ 7,717 $ 5,744 Adjustments: Provision for loan losses 2,900 2,400 Depreciation 1,122 822 ESOP fair value adjustment (67) -- Amortization and accretion 205 444 Gains on sales of securities available for sale (4) (18) Loss on sales of other real estate 16 1 Write down of other real estate 599 304 Increase in other assets (6,623) (2,688) Increase in other liabilities 6,665 576 - ------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 12,530 7,585 - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities: Net increase in interest bearing deposits with banks (369) (73) Purchase of securities available for sale (188,280) (138,075) Maturities, calls, and paydowns of securities available for sale 28,160 25,519 Proceeds from sales of securities available for sale 47,342 11,014 Proceeds from maturities and paydowns of investment securities 4,886 2,664 Purchase of investment securities (5,478) (77,810) Net increase in loans (122,045) (109,952) Expenditures for bank premises and equipment (914) (2,768) Proceeds from sale of other real estate 265 908 - ------------------------------------------------------------------------------------------------------------------ Net Cash Used by Investing Activities (236,433) (288,573) - ------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Net increase in non-interest bearing demand, money market, and savings deposits 61,373 29,164 Net increase in certificates of deposit 78,239 125,078 Net increase in borrowed funds 94,276 125,511 Proceeds from issuance of trust preferred securities 15,000 -- Proceeds from issuance of common stock 6,887 19,688 Decrease (increase) in unallocated ESOP shares 300 (1,700) Treasury shares acquired -- (22) Dividends paid (2,096) (1,396) - ------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Financing Activities 253,979 296,323 - ------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 30,076 15,335 Cash and cash equivalents as of beginning of period 25,617 16,526 - ------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents as of End of Period $ 55,693 $ 31,861 - ------------------------------------------------------------------------------------------------------------------ Supplemental Disclosure of Cash Flow Information: Cash paid during period for: Interest expense 39,642 27,227 Income taxes 3,912 2,938 - ------------------------------------------------------------------------------------------------------------------ Supplemental Schedule of Non-cash Investing and Financing Activities: Transfers to other real estate from loans, net of charge offs 547 951 - ------------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements. 6 Yardville National Bancorp and Subsidiaries Notes to Consolidated Financial Statements Three and Nine Months Ended September 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 nine months ended September 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, Inc. is utilized for nontraditional lending opportunities. 7 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 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 9.50% 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 September 30, 2000 and 1999 were 7,349,000 and 6,621,000 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 September 30, 2000 and 1999, respectively. Weighted average shares for the basic net income per share calculation for the nine months ended September 30, 2000 and 1999 were 6,912,000 and 5,810,000 respectively. For the diluted net income per share computation, potential common stock of 17,000 and 27,000 are included for the nine months ended September 30, 2000 and 1999, respectively. 8 3. Comprehensive Income Listed below is the statement of comprehensive income for three and nine months ended September 30, 2000 and 1999.
Comprehensive Income Three Months Ended September 30, 2000 - -------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 - -------------------------------------------------------------------------------------------------------------- Net Income $ 2,692 $ 2,200 - -------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Net change in unrealized loss for the period, net of tax 1,653 (1,106) Reclassification of realized net gain on sale of Securities available for sale, net of tax 6 -- - -------------------------------------------------------------------------------------------------------------- Holding gain (loss) arising during the period, net of tax and reclassification 1,659 (1,106) - -------------------------------------------------------------------------------------------------------------- Reclassification adjustment for realized net gain, net of tax (6) -- - -------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) for the period, net of tax 1,653 (1,106) - -------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 4,345 $ 1,094 ==============================================================================================================
Comprehensive Income Nine Months Ended September 30, 2000 - -------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 - -------------------------------------------------------------------------------------------------------------- Net Income $ 7,717 $ 5,744 - -------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Net change in unrealized loss for the period, net of tax 366 (4,667) Reclassification of realized net gain on sale of Securities available for sale, net of tax 3 12 - -------------------------------------------------------------------------------------------------------------- Holding gain (loss) arising during the period, net of tax and reclassification 369 (4,655) - -------------------------------------------------------------------------------------------------------------- Reclassification adjustment for realized net gain, net of tax (3) (12) - -------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) for the period, net of tax 366 (4,667) - -------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 8,083 $ 1,077 ==============================================================================================================
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 $76,000 and $87,000 for the three months and approximately $196,000 and $262,000 for the nine months ended September 30, 2000 and 1999 respectively. The fair value of unearned shares at September 30, 2000 is $1,522,332. 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. 5. Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 140 (SFAS 140), "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, an Amendment of FASB Statement No. 125", provides guidance on the following topics: sales of financial assets such as receivables, loans and securities, servicing assets and extinguishments of liabilities. This statement becomes effective for transactions entered into after March 31,2001. The adoption of SFAS is not expected to have a material impact on the financial position or results of operations of YNB. 10 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 September 30, 2000 were $1,392,258,000, an increase of $268,660,000 or 23.9% compared to $1,123,598,000 at December 31, 1999. The growth in YNB's asset base during the nine 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 $284,000,000 purchased utilizing primarily Federal Home Loan Bank advances (Investment Growth Strategy). The Investment Growth Strategy securities at September 30, 2000 increased approximately $55,600,000 or 24.3% 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. 11 Federal funds sold At September 30, 2000 Federal funds sold totaled $37,125,000 compared to $8,035,000 at December 31, 1999. The higher amount of Federal funds sold at September 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 nine months of 2000 was $32,386,000 compared to $16,793,000 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 September 30, 2000 and December 31, 1999.
Available For Sale Securities September 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 $ 138,345 $ 134,331 $ 117,496 $ 112,731 Mortgage-backed securities 251,984 247,866 170,775 166,164 Corporate obligations 21,310 20,368 5,783 5,522 All other securities 19,911 19,911 24,881 24,881 - ----------------------------------------------- ---------------- ---------------- --------------- ---------------- Total $ 431,550 $ 422,476 $ 318,935 $ 309,298 ==================================================================================================================
Investment Securities September 30, 2000 December 31, 1999 - ------------------------------------------------------------------------------------------------------------------ Amortized Market Amortized Market (in thousands) Cost Value Cost Value - ----------------------------------------------- ---------------- ---------------- --------------- ---------------- Obligations of other U.S. government agencies $ 68,186 $ 63,724 $ 69,184 $ 63,992 Obligations of state and Political subdivisions 36,296 34,603 31,892 29,281 Mortgage-backed securities 4,238 4,099 7,091 6,848 - ----------------------------------------------- ---------------- ---------------- --------------- ---------------- Total $ 108,720 $ 102,426 $ 108,167 $ 100,121 ==================================================================================================================
Securities represented 38.2% of total assets at September 30, 2000 and 37.2% at December 31, 1999. Total securities increased $113,731,000 or 27.2% at September 30, 2000 to $531,196,000 compared to $417,465,000 at year-end 1999. The available for sale portfolio represented 79.5% of the total security holdings of YNB at September 30, 2000, compared to 74.1% at year-end 1999. The net unrealized loss on available for sale securities was $9,074,000 as of September 30, 2000 and was $9,637,000 at December 31, 1999. Net unrealized loss, net of tax effect, was $5,898,000 as reported in Accumulated other comprehensive loss in Stockholders' Equity at September 30, 2000, and $6,264,000 reported at December 31, 1999. The decrease in the net unrealized loss on available for sale securities is primarily due to the changes in interest rates from December 31, 1999 to September 30, 2000. 12 Securities available for sale increased $113,178,000 or 36.6% at September 30, 2000 when compared to the December 31, 1999 balance of $309,298,000. The largest increase was in mortgage-backed securities, which increased $81,702,000. Mortgage-backed securities purchased were primarily comprised of floating rate CMO's that increased by $52,923,000, and fixed 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 $21,600,000 or 19.2%. The growth was primarily in shorter-term callable bonds purchased to enhance YNB's liquidity profile. Corporate obligations increased $14,846,000 or 268.9% to $20,368,000 at September 30, 2000 from $5,522,000 at December 31, 1999. This increase resulted primarily from the purchases of bank trust preferred securities. These securities were primarily purchased to offset the increased interest expense associated with YNB's trust preferred securities issued in June 2000. Investment securities increased $553,000 to $108,720,000 at September 30, 2000 from $108,167,000 at December 31, 1999. The increase was primarily due to an increase in obligations of state and political subdivisions offset by principal paydowns on mortgage backed securities. The Investment Growth Strategy securities increased $55,600,000 over the year-end 1999 level. The largest increase was in floating rate US agency collateralized mortgage obligations, which increased $34,510,000. The next largest growth was in US agency fixed rate mortgage backed securities, which increased $18,837,000. Reductions were recorded in adjustable rate mortgage backed securities due to principal paydowns. At September 30, 2000, the Investment Growth Strategy portfolio was comprised of 72.0% of fixed rate securities and 28.0% 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 $119,930,000 or 18.5% at September 30, 2000 to $766,667,000 from $646,737,000 at December 31, 1999. This growth exceeded the $108,190,000 experienced in the first nine months of 1999. YNB's loan portfolio represented 55.1% of total assets at September 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. . The table below lists loan growth by type for the period of December 31, 1999 to September 30, 2000. 13
Loan Portfolio Composition - -------------------------------------------------------------------------------------------------------------------- (in thousands) 9/30/00 12/31/99 Change % change - --------------------------------------------- ---------------------------------------------------------------------- Commercial real estate $ 326,275 $ 294,413 $ 31,862 10.8% Real estate - mortgage Residential 157,394 120,556 36,838 30.6 Home equity 23,702 23,581 121 0.5 Commercial and industrial 141,544 114,388 27,156 23.7 Real Estate - construction 85,928 59,457 26,471 44.5 Consumer 24,510 22,879 1,631 7.1 Other loans 7,314 11,463 (4,149) 36.1 - --------------------------------------------- ---------------------------------------------------------------------- Total loans $ 766,667 $ 646,737 $ 119,930 18.5% ====================================================================================================================
Commercial real estate loans had the strongest dollar growth increasing $31,862,000 or 10.8%. Commercial and industrial loans increased $27,156,000 or 23.7% and Real estate construction loans increased $26,471,000 or 44.5%. These three loan categories increased $85,489,000 and accounted for 71.3% of the total loan growth for the period. YNB's 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, 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 nine months of 2000 with an increase in the outstanding balance of $36,838,000 or 30.6% from the December 31, 1999 balance. Residential mortgage loans represented $70,288,000 or 44.7% of the total at September 30, 2000 compared to $60,942,000 or 50.6% of the total at year-end 1999. Growth in residential mortgages was $9,346,000 and accounted for 25.4% of the total increase for the period. Home equity loans increased $121,000 or 0.5% and consumer loans increased $1,631,000 or 7.1%. Management believes that there continues to be opportunities to increase the consumer and home equity loan portfolios. However, competition for quality loan relationships remains strong. 14 Deposit liabilities The following table provides information concerning YNB's deposit base at September 30, 2000 and December 31, 1999.
Deposits - --------------------------------------------- ---------------------------------------------------------------------- (in thousands) 9/30/00 12/31/99 Change % Change - --------------------------------------------- ---------------------------------------------------------------------- Non-interest bearing demand deposits $ 92,129 $ 90,219 $ 1,910 2.1% Interest bearing demand deposits 66,765 61,483 5,282 8.6 Money market deposits 116,243 57,143 59,100 103.4 Savings deposits 75,380 80,300 (4,920) 6.1 Certificates of deposit of $100,000 or over 121,573 72,528 49,045 67.6 Other time deposits 411,329 382,134 29,195 7.6 - --------------------------------------------- ---------------------------------------------------------------------- Total $ 883,419 $ 743,807 $ 139,612 18.8% ============================================= ======================================================================
YNB's deposit base is the principal source of funds supporting interest-earning assets. Total deposits increased $139,612,000 or 18.8% to $883,419,000 at September 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. This campaign has resulted in strong growth in money market deposits with the total increasing $59,100,000 or 103.4% to $116,243,000 at September 30, 2000 from $57,143,000 at December 31, 1999. Certificates of deposit were also competitively priced in the in 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 $49,045,000 or 67.6% to $121,573,000 from $72,528,000 at December 31, 1999 and accounted for 35.1% of the total deposit growth for the period. Other time deposits increased $29,195,000 or 7.6% to $411,329,000 from $382,134,000 at December 31, 1999. Growth in time deposits accounted for 56.0% of the total increase in deposits for the first nine months of 2000. Certificates of deposit accounted for 60.3% of total deposits at September 30, 2000 compared to 61.1% at year-end 1999. 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 September 30, 2000, YNB had approximately $139,210,000 in outstanding certificates of deposit raised through this service. This reflects a net increase of $38,580,000 in 2000. Management anticipates that this market will continue to play an important role in funding future asset growth. However, as new branches open and if the efforts to generate lower cost core deposits continue to be successful, it is anticipated that these new lower costing deposits will replace higher costing certificates of deposit. Non-interest bearing demand deposits increased $1,910,000 or 2.1% to $92,129,000 at September 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. 15 Interest bearing demand deposits increased $5,282,000 or 8.6% to $66,765,000 at September 30, 2000 from $61,483,000 at year-end 1999. In addition, money market balances increased $59,100,000 or 103.4% to $116,243,000 at September 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 $4,920,000 or 6.1% to $75,380,000 at September 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. 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. Management anticipates opening this branch in December 2000. 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. This branch should open in the first quarter of 2001. The Hunterdon County branch will be located in Flemington, New Jersey. Management expects this branch to open in November 2000. Management believes Hunterdon County represents a strong market opportunity for both loans and deposits. To better service this market a local business development board was established to promote the bank. 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. 16 Borrowed Funds Borrowed funds totaled $392,966,000 at September 30, 2000, an increase of $94,277,000 or 31.5% when compared to $298,689,000 at December 31, 1999. The growth in Federal Home Loan Bank advances (FHLB) was 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 $292,158,000 or 74.6% of borrowed funds at September 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 September 30, 2000, $282,500,000 or 96.7% 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 $24,658,000 at September 30, 2000 compared to $45,000,000 at December 31, 1999. $10,000,000 or 40.6% of the repurchase agreements outstanding at September 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 $365,774,000 at September 30, 2000, an increase of $115,481,000 or 46.1% 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 2000, as advances were called or matured, management has followed a strategy of extending call dates when the rates appear attractive. At September 30, 2000 callable advances totaled $348,000,000 or 95.1% of advances outstanding compared to $239,500,000 or 95.7% at December 31, 1999. Callable FHLB advances have terms of two to ten years and are callable after periods ranging from three months to five years. There is $142,000,000 in callable advances with call dates in 2000 outstanding as of September 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 $1,300,000 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 $37,485,000 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. 17 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. 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. As of September 30, 2000, $25,943,000 or 97.9% of the $26,500,000 in trust preferred securities outstanding qualify as Tier I capital. The remaining $557,000 is treated as Tier II capital. Management anticipates that all Trust Preferred outstanding at September 30, 2000 will qualify for Tier I capital within the next 12 months. Equity 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 accredited 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 in 2000, by the trust preferred and equity offerings was contributed to the Bank to support future asset growth. Stockholders' equity at September 30, 2000 totaled $71,932,000, an increase of $13,107,000 or 22.3%, compared to $58,825,000 at December 31, 1999. This net increase resulted from the following factors: (i) YNB earned net income of $7,717,000 for the nine months ended September 30, 2000 and paid cash dividends of $2,096,000. (ii) The unrealized loss on available for sale securities was $5,898,000 at September 30, 2000 compared to an unrealized loss of $6,264,000 at December 31, 1999. This decrease in the unrealized loss resulted in a $67,000 increase 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 $67,000 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 $300,000 to $1,300,000 at September 30, 2000 from $1,600,000 resulted in an increase of $300,000 in Stockholders' equity. 18 While total Stockholders' equity increased $13,107,000, Tier one regulatory capital increased $27,184,000 or 35.5% and total regulatory capital increased $29,073,000 or 34.0%. The following table sets forth regulatory capital ratios for the Holding Company and the Bank as of September 30, 2000 and December 31, 1999.
Amount Ratios - -------------------------------------------------------------------------------------------------------------------- dollars in thousands 09/30/00 12/31/99 09/30/00 12/31/99 - -------------------------------------------------- ---------------- ------------- ---------------- ----------------- Risk-based capital: Tier 1: Holding Company 103,766 $ 76,579 11.4% 10.3% Bank 102,897 76,279 11.3 10.2 - -------------------------------------------------- ---------------- ------------- ---------------- ----------------- Total: Holding Company 114,620 85,544 12.5 11.5 Bank 113,194 85,244 12.4 11.4 - -------------------------------------------------- ---------------- ------------- ---------------- ----------------- Tier 1 leverage: Holding Company 103,766 76,579 8.3 7.9 Bank 102,897 $ 76,279 8.2% 7.8% - --------------------------------------------------------------------------------------------------------------------
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 September 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. 19 Credit Quality The following table sets forth nonperforming assets and risk elements in YNB's loan portfolio by type as of September 30, 2000 and December 31, 1999. In the third quarter of 2000, management of YNB became aware of a fraudulent loan situation committed by an employee in the consumer loan department of the bank. After a careful review of the consumer loan portfolio management believes that $413,000 of consumer loans represent all of the fraudulent transactions entered into by this individual. In the third quarter of 2000, $100,000 of these loans was charged off to the loan loss reserve with the remaining $313,000 listed as nonaccrual loans. Management is currently working with its insurance carrier and the amount of recovery, if any, cannot be determined at this time.
Nonperforming Assets - -------------------------------------------------------------------------------------------------- (in thousands) 09/30/00 12/31/99 - -------------------------------------------------------------------------------------------------- Nonaccrual loans: Commercial and industrial $ 993 $ 676 Real estate - mortgage 4,754 1,189 Consumer 275 12 Other -- 312 - -------------------------------------------------------------------------------------------------- Total 6,022 2,189 - -------------------------------------------------------------------------------------------------- Restructured loans 751 540 - -------------------------------------------------------------------------------------------------- Loans 90 days or more past due: Commercial and industrial 616 46 Real estate - mortgage 710 277 Consumer 21 26 - -------------------------------------------------------------------------------------------------- Total 1,347 349 - -------------------------------------------------------------------------------------------------- Total nonperforming loans 8,120 3,078 - -------------------------------------------------------------------------------------------------- Other real estate 2,253 2,585 - -------------------------------------------------------------------------------------------------- Total nonperforming assets $ 10,373 $ 5,663 - -------------------------------------------------------------------------------------------------- Allowance for loan losses to total loans, end of period 1.34% 1.39% Allowance for loan losses to nonperforming loans, end of period 126.81% 291.26% ==================================================================================================
At September 30, 2000, nonperforming loans, which are loans 90 days and more past due, restructured loans and nonaccrual loans, totaled $8,120,000, a $5,042,000 or 163.8% increase from the $3,078,000 at December 31, 1999. The increase in nonperforming loans was primarily due to four individual loan relationships totaling $4,903,000 that were classified as nonaccrual during 2000. These loans primarily consist of commercial and industrial loans secured by commercial real estate and commercial real estate related loans. Other real estate at September 30, 2000 totaled $2,253,000, a $332,000 or 12.8% decrease when compared to $2,585,000 at December 31, 1999. 20 Nonperforming assets at September 30, 2000 totaled $10,373,000 a $4,710,000 or 83.2% increase from the $5,663,000 level at December 31, 1999. Total nonperforming assets as a percentage of total assets were 0.75% at September 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 $10,297,000 at September 30, 2000, an increase of $1,332,000 from the $8,965,000 at year-end 1999. The provision for loan losses for the nine months of 2000 was $2,900,000 compared to $2,400,000 for the same period of 1999. Gross chargeoffs were $1,681,000 for the nine months of 2000 compared to $879,000 for the same period in 1999. Gross recoveries were $113,000 for the nine months of 2000 compared to $68,000 for the same period in 1999. Annualized net chargeoffs as a percentage of average loans were 0.30% for the nine 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 1.34% at September 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 126.81% at September 30, 2000 compared to 291.26% at December 31, 1999. The decrease in this ratio was due to an increase in nonperforming loans. Results of Operations Net Income YNB reported net income of $7,717,000 for the nine months ended September 30, 2000, an increase of $1,973,000 or 34.3% over the $5,744,000 for the same period in 1999. The increase in net income for the nine 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 nine months ended September 30, 2000 increased $0.13 or 13.1% to $1.12 compared to $0.99 for the same period in 1999. Diluted earnings per share for the nine months ended September 30, 2000 was $1.11, an increase of $0.13 or 13.3% when compared to $0.98 for the same period of 1999. On a quarterly basis, net income for the third quarter of 2000 was $2,692,000 and represented a $492,000 or 22.4% increase over net income for the same period in 1999. On a per share basis, basic and diluted earnings per share for the third quarter of 2000 were $0.37, an increase of $0.04 or 12.1% when compared to the second quarter of 1999. The reasons for the increase are the same as discussed above. 21 Net Interest Income YNB's net interest income for the nine months of 2000 was $28,172,000, an increase of $6,760,000 or 31.6% from the same period in 1999. The principal factor contributing to this increase was an increase in interest income of $22,346,000 resulting primarily from increased loan and securities balances and higher yields offset by an increase of $15,586,000 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 nine months of 2000, was 3.21% a 9 basis point or 2.7% 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 64 basis points as compared to a 52 basis point increase in the yield on interest earning assets. Interest income on securities for the nine months ended September 30, 2000 included a one-time FHLB stock dividend in the amount of $412,000. This payment increased the reported net interest margin by 5 basis points for the year. On a quarterly basis, net interest income was $9,981,000 an increase of $2,086,000 or 26.4% when compared to the third quarter of 1999. The net interest margin (tax equivalent basis) for the three months ended September 30, 2000 was 3.17% a 14 basis point or 4.2% decrease from the same period in 1999. As mentioned above the $412,000 FHLB stock dividend increased the reported net interest margin for the quarter ended September 30, 2000 by 13 basis points. 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 September 30, 2000, were approximately $284,000,000 compared to $236,800,000 at September 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 nine months of 2000 total interest income was $71,887,000, an increase of $22,346,000 or 45.1% when compared to interest income of $49,541,000 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 $155,821,000 or 28.5% and the yield increased 51 basis points to 8.86% from 8.35%. The increased loan yields reflected the higher prime rate of interest as well as higher overall interest rates in the nine months of 2000 compared to the same period in 1999. Interest and fees on loans for the nine months ended September 30, 2000 increased $12,466,000 or 36.4% to $46,667,000 from $34,201,000 for the same period in 1999. Average securities outstanding for the nine months ended September 30, 2000 increased $143,569,000 or 44.7% to $464,446,000 when compared to the $320,877,000 for the same period of 1999. Over the same period, the yield on the security portfolio increased 68 basis points to 6.78% from 6.10%. The yield on the security portfolio includes a $412,000 one-time dividend from the FHLB. This payment increased the yield on the investment portfolio by 12 basis points. Without the one time dividend payment the yield on the investment portfolio would have been 6.66%. The increase in average balance and yield resulted in interest on securities increasing $8,923,000 or 60.7% to $23,614,000 for the nine months ended September 30, 2000 compared to $14,691,000 for the same period in 1999. Overall, the yield on YNB's interest earning asset portfolio increased 52 basis points to 7.99% for the nine months ended September 30, 2000 from the 7.47% for the same period in 1999. 22 For the third quarter of 2000, total interest income was $26,507,000, an increase of $8,134,000 or 44.3% when compared to $18,373,000 for the third 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 third quarter of 2000 was 8.22% a 70 basis point increase from the 7.52% 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 $15,586,000 or 55.4% to $43,715,000 for the nine months of 2000 compared to $28,129,000 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 nine months ended September 30, 2000 increased 64 basis points to 5.39% from 4.75% for the same period of 1999. Interest on other time deposits under $100,000 increased $5,405,000 to $17,831,000 for the nine months ended September 30, 2000 from $12,426,000 for the same period in 1999. This increase was caused by both an increase of $95,107,000 in the average outstanding balance to $401,225,000 for the nine months ended September 30, 2000, when compared to the outstanding average balance of $306,118,000 for the nine months ended September 30, 1999, and an increase of 52 basis points in the cost to 5.93% from 5.41% for the same periods as described above. Interest expense on certificates of deposit under $100,000 accounted for 40.8% of total interest expense for the nine months ended September 30, 2000 and 44.2% of the total increase in interest expense for the same period last year. During the nine 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 $2,919,000 or 163.5% to $4,704,000 for the nine months ended September 30, 2000 from $1,785,000 for the same period in 1999. The increase was caused by an increase in the average outstanding balance of $53,211,000 or 114.6% to $99,627,000 for the nine months ended September 30, 2000 when compared to the outstanding average balance of $46,416,000 for the nine months ended September 30, 1999. The cost of certificates of deposit of $100,000 or more increased 117 basis points to 6.30% for the nine months of 2000 from 5.13% for the same period in 1999. 23 Interest expense on borrowed funds increased $4,940,000 or 51.7% to $14,492,000 for the nine months of 2000 when compared to $9,552,000 for the same period in 1999. The increased expense was caused by a $95,073,000 increase in the average balance outstanding in the first nine months of 2000 to $339,289,000 when compared to the $244,216,000 for the same period in 1999. The rate paid on borrowed funds increased 48 basis points for the nine months ended September 30, 2000 to 5.70% from the 5.22% 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 $1,934,000 or 54.2% to $5,502,000 for the nine months of 2000 when compared to the $3,568,000 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 65 basis points to 3.28% for the nine months of 2000 when compared to 2.63% for the same period in 1999. At the same time, the average balance of these deposit types increased $42,500,000 or 23.5% to $223,605,000 for the nine months of 2000 from $181,105,000 for the same period in 1999. Total interest expense for the third quarter of 2000 increased $6,048,000 or 57.7% to $16,526,000 from $10,478,000 for the same period in 1999. The overall cost of interest bearing liabilities increased 86 basis points to 5.68% from 4.82% for the third quarter of 1999. The reasons for the increase in interest expense for the second quarter are the same as discussed above and the impact of the Trust preferred securities completed in June 2000. The trust preferred issue resulted in interest expense increasing $356,000 and increased the quarterly cost of funds by 14 basis points. 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. 24 Provision for Loan Losses YNB provides for possible loan losses by a charge to current operations. The provision for loan losses for the nine months ended September 30, 2000 was $2,900,000, a $500,000 or 20.8% increase over the $2,400,000 provision recorded for the same period of 1999. For the three months ended September 30, 2000 the provision for loan losses was $1,200,000, a $200,000 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 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 nine months of 2000 was $2,491,000, an increase of $227,000 or 10.0% over non-interest income of $2,264,000 for the same period in 1999. The increase was due principally to increased service charges on deposit accounts. Service charges on deposit accounts increased $167,000 or 17.1% to $1,141,000 for the nine months ended September 30, 2000 compared to $974,000 for the same period in 1999. This increase accounted for 73.6% 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 $119,000 or 9.6% to $1,356,000 for the nine months ended September 30, 2000 from $1,237,000 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 $614,000 for the nine months of 2000 as compared to $573,000 for the same period in 1999. This income represented 24.6% and 25.3% of total other non-interest income for the nine 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 September 30, 2000 total non-interest income increased $85,000 or 10.9% to $866,000 from $781,000 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 $31,000 and accounting for 36.5% of the total increase in non-interest income. Non-interest income represented 3.3% of YNB's total revenue in the nine months of 2000 and 3.2% of total revenue for the third quarter of 2000 compared to 4.4% and 4.1% 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 views this low level of non-interest income as an opportunity to increase overall revenue. 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. 25 Non-interest Expense Total non-interest expense increased $3,609,000 or 27.2% to $16,876,000 for the nine months of 2000 compared to $13,267,000 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 1.80% for the nine months of 2000 compared to 1.91% 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 nine months of 2000 was 55.04%, a decrease from the 56.04% 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 $1,295,000 or 17.7% to $8,625,000 for the nine months of 2000 compared to $7,330,000 for the same period in 1999. Salary and benefits expense accounted for 51.1% of total non-interest expenses for the nine months of 2000. Salary expense increased $1,153,000 or 20.3% reflecting increased staffing levels throughout YNB as the organization continues to grow and normal salary increases. Benefit expense increased $142,000 or 8.3%. The increase in salary and benefit expense in the nine months of 2000 accounted for 35.9% of the total increase in non-interest expense when the nine months of 2000 is compared to the same period in 1999. Occupancy expense for the nine months of 2000 was $1,876,000, an increase of $909,000 or 94.0% compared to $967,000 for the same period in 1999. Total rent expense on leased properties increased $483,000 and accounted for 53.1% 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 $290,000 or 25.8% to $1,415,000 for the nine months of 2000 from $1,125,000 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 $855,000 for the nine months of 2000 reflecting an increase of $194,000 or 29.3% from the $661,000 for the same period in 1999. The increase in depreciation accounted for 66.9% 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. 26 Other non-interest expenses increased $1,115,000 or 29.0% to $4,960,000 for the nine months of 2000 when compared to the $3,845,000 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 36.9% of the total increase in other non-interest expense and 11.4% of the increase in total non-interest expense. While most expense categories in other non-interest expenses increased, two expense categories, other real estate expense and marketing expense accounted for 30.0% of the total increase. Other real estate expenses totaled $657,000 for the nine months ended September 30, 2000 an increase of $208,000 or 46.3% when compared to the $449,000 for the same period in 1999. Marketing expense for the nine months ended September 30, 2000 increased $127,000 or 22.8% to $685,000 from $558,000 for the same period in 1999. This increase resulted from increased efforts to promote lower cost deposit products. Management closely monitors 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 September 30, 2000 total non-interest expense increased $1,251,000 or 27.2% to $5,845,000 from $4,594,000 for the same period in 1999. Total non-interest expense on an annualized basis, as a percentage of average assets was 1.74% for the three months ended September 30, 2000 and is below the 1.80% for the same period in 1999. YNB's efficiency ratio for the three months ended September 30, 2000 was 53.89% and in over the 52.95% for the same period in 1999. Salary and benefit expense increased $367,000 or 14.1% to $2,969,000 from $2,602,000 for the same period in 1999. Occupancy expense increased $311,000 or 93.4% to $644,000 from $333,000 for the same period in 1999. Equipment expense increased $75,000 or 18.9% to $471,000 from $396,000 for the same period in 1999. Occupancy and equipment cost increases are primarily due to the costs associated with the new corporate headquarters building. Other non-interest expense increased $498,000 or 39.4% to $1,761,000 from $1,263,000 for the same period in 1999. Other real estate expense increased $305,000 or 317.7% to $401,000 for the three months ended September 30, 2000 as compared to $96,000 for the same period in 1999. This increase accounted for 61.2% of the total increase in other non-interest expense for the period. 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 nine months ended September 30, 2000 was 29.1% compared to 28.3% 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 nine months ended September 30, 2000 was $3,170,000, an increase of $905,000 from the $2,265,000 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 September 30, 2000 was 29.2% compared to 28.6% for the same period in 1999. Total income tax expense for the three months ended September 30, 2000 was $1,110,000, an increase of $228,000 from the $882,000 for the same period in 1999. The reasons for the increase are the same as these discussed above. 27 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 September 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 -5.3% 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 0.3% change in net interest income compared to a 1.5% change at year-end 1999. The cumulative one-year gap remained a negative $53,240,000 or -3.8% of total assets at September 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 $99,040,000. 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 September 30, 2000, the EVPE changes by -3.86% for rate shifts of +200 and - -2.26% 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 - -4.02% and -0.21% at September 30, 1999. The primary causes for this change in risk to rising rates since year-end 1999 are primarily due to the increased holding of floating rate cmos with life time interest rate caps, a large investment portfolio and the addition of fixed rate loans. Management has initiated strategies designed to bring this measurement back within policy guidelines. PART II: OTHER INFORMATION Item 1: Legal Proceedings Not Applicable. Item 2: Changes in Securities and Use of Proceeds (a) Not Applicable. (b) Not Applicable. (c) On June 23, 2000, the Registrant issued and sold 68,500 units for an aggregate purchase price of $6,850,000. Each unit comprises one share of the Registrant's common stock, no par value per share (the "Common Stock") and one common stock purchase warrant (a "Warrant"). The units were issued in a private placement to a limited number of accredited investors, and the offering was exempt from registration under the Securities Act of 1933 pursuant to section 4(2) thereof and Rule 506 of Regulation D thereunder. Each Warrant entitles its holder to purchase one share of Common Stock at a purchase price of $12.00 per share, subject to antidilution provisions, for a period of ten years from the date of issuance, subject to earlier termination in certain circumstances. (d) Not Applicable. 28 Item 3: Defaults Upon Senior Securities Not Applicable. Item 4: Submission of Matters to a Vote of Securities Holders Not Applicable. 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. 29 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 4.3 The Registrant hereby agrees to furnish to the Commission, upon request, a copy of each instrument defining the rights of the holders of the Registrant's 9.25% Subordinated Debentures due 2027 and the Registrant's 9.50% Series A Junior Subordinated Deferrable Interest Debentures due 2030 relating to Company-obligated Mandatorily Redeemable Trust Preferred Securities of subsidiary trusts. (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
30 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 Carduner's 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.
31 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 (O) 10.33 Lease agreement between Samuel and Margaret Marrazzo and the Bank dated April 1, 2000 10.34 Lease agreement between AAA Central-West Jersey, Inc. and the Bank dated August 23, 2000 10.35 Lease agreement between Union Properties, LLC and the Bank dated July 5, 2000 as revised September 5, 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
32
(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 (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 (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. (O) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000.
33 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: November 14, 2000 By: /s/ Stephen F. Carman -------------------- ------------------------------ Stephen F. Carman Executive Vice President and Chief Financial Officer 34 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) 35 EX-27.1 3 0003.txt FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-2000 SEP-30-2000 55,693 1,324 37,125 0 422,476 108,720 102,426 766,667 10,297 1,392,258 883,419 367,008 17,441 27,800 0 0 46,872 25,060 71,932 46,667 23,614 1,606 71,887 28,037 43,715 28,172 2,900 4 16,876 10,887 0 0 0 7,717 1.12 1.11 7.47 6,022 1,347 751 0 8,965 1,681 113 10,297 10,297 0 0
EX-10.34 4 0004.txt EXHIBIT 10.34 Sublease Agreement Between: AAA CENTRAL-WEST JERSEY, INC. And YARDVILLE NATIONAL BANK August 23, 2000 REFERENCE PAGE Landlord/Sublessor: AAA Central-West Jersey, Inc. 3 AAA Drive Hamilton, New Jersey 08691 Tenant/Sublessee: Yardville National Bank Tenant's Address: 2465 Kuser Road Hamilton, New Jersey 08690 Building: The Point 245 U.S. Route 202 South Flemington, New Jersey 08822 Premises: +/- 1,200 square feet being a portion of the Building known as Suite 2 Rentable Area: 1,200 square feet Proportionate Share: 22% Use: Bank branch office Commencement Date: Upon issuance of a temporary Certificate of Occupancy for the Premises, no later than September 1, 2000 Termination Date: November 30, 2002 Term of Lease: Two (2) years, three (3) months Base Rent: Year 1 $18.50 per square foot per year Year 2 $18.50 per square foot per year Common Area Maintenance Fee: Approximately $3.55 per square foot, subject to adjustment as provided for herein Utilities: Tenant shall pay its Proportionate Share of Utilities to Landlord on a quarterly basis Leasehold Improvements: N/A Security Deposit: None Renewal Option: None Real Estate Broker Due Commission: None
The Reference Page information is incorporated into and made a part of the Lease. In the event of any conflict between any Reference Page information and the Lease, the Lease shall control. Landlord: Tenant: AAA Central-West Jersey Inc. Yardville National Bank By: /s/ Xxxxxxxxxxxxxxx By: /s/ Xxxxxxxxxxxxxxx ------------------- ------------------- Title: President/CEO Title: President/CEO Date: 9/6/00 Date: 9/1/00 TABLE OF CONTENTS Article ...................................................................Page TITLE PAGE REFERENCE PAGE TABLE OF CONTENTS 1 USE AND RESTRICTIONS ON USE ................................................1 2 TERM .......................................................................2 3 RENT .......................................................................2 4 ADDITIONAL RENT ............................................................2 5 SECURITY DEPOSIT ...........................................................3 6 LEASEHOLD IMPROVEMENTS AND ALTERATIONS .....................................3 7 MAINTENANCE AND REPAIRS ....................................................4 8 ACCESS TO THE PREMISES .....................................................4 9 SIGNS ......................................................................4 10 LIENS .....................................................................4 11 ASSIGNMENT AND SUBLETTING .................................................5 12 INDEMNIFICATION ...........................................................5 13 INSURANCE .................................................................6 14 WAIVER OF SUBROGATION .....................................................7 15 SERVICES AND UTILITIES ....................................................7 16 HOLDING OVER ..............................................................7 17 SUBORDINATION .............................................................7 18 RULES AND REGULATIONS .....................................................8 19 REENTRY BY LANDLORD .......................................................8 20 DEFAULT ...................................................................8 21 REMEDIES ..................................................................9 22 QUIET ENJOYMENT ..........................................................10 23 DAMAGE BY FIRE ETC .......................................................11 24 EMINENT DOMAIN ...........................................................12 25 SALE BY LANDLORD .........................................................12 26 ESTOPPEL CERTIFICATE .....................................................12 27 SURRENDER OF PREMISES ....................................................13 28 NOTICES ..................................................................13 29 TAXES PAYABLE BY TENANT ..................................................13 30 DEFINED TERMS AND HEADINGS ...............................................14 31 HAZARDOUS SUBSTANCES .....................................................14 32 ENFORCEABILITY ...........................................................15 33 COMMISSIONS ..............................................................15 34 TIME AND APPLICABLE LAW ..................................................15 35 PARKING ..................................................................15 36 SUCCESSORS AND ASSIGNS ...................................................15 37 ENTIRE AGREEMENT .........................................................15 38 EXAMINATION ..............................................................15 39 RECORDATION ..............................................................16 40 LIMITATION OF LANDLORD'S LIABILITY .......................................16 Exhibit A - Leased Premises SUBLEASE Whereas, AAA Central-West Jersey, Inc. (referred to herein as the "Landlord") is presently the Lessee under a certain Lease Agreement and Rider to Lease dated September 1, 1994, between ABC Associates as Lessor (hereinafter designated as Prime Lessor) and said AAA Central-West Jersey, Inc. as Lessee, which was extended by a Lease Renewal Agreement dated November 30, 1999 and a Lease Renewal Agreement dated March 24, 2000 (collectively the Lease Agreement, the Rider to Lease and the Lease Renewal Agreements are the "Prime Lease"); Now therefore, Landlord hereby leases to Yardville National Bank (referred to herein as the "Tenant") and Tenant hereby subleases from Landlord the Premises set forth and described on the Reference Page. The Reference Page, including all terms defined thereon, is hereby incorporated as part of this Lease. 1. USE AND RESTRICTIONS ON USE (A) Landlord and Tenant agree that the terms and conditions of the Prime Lease are incorporated into this Agreement in their entirety by reference except as hereafter modified or amended, and specifically agree that (a) the term of this Sublease shall not extend beyond the expiration date of the Prime Lease; and (b) neither the Tenant nor his heirs, executors, administrators, legal representatives, trustees or assigns, without prior consent of Landlord in each instance, which consent shall not be unreasonably withheld or delayed, shall (1) assign, mortgage or encumber his interest in any sublease, in whole or in part, (2) sublease, or permit the sublease of, any part of the Premises affected by such subleasing or any portion thereof, or (3) permit such part of the Premises affected by such subleasing or any part thereof to be occupied or used by any person other than such Tenant. (B) The Premises shall be used and occupied by Tenant for the Use listed on Reference Page and for no other use except as permitted and approved by Landlord in writing and not prohibited by applicable zoning regulations. Tenant shall at its own cost and expense, with Landlord's assistance if required, obtain any and all licenses and permits necessary for such Use. The parking of automobiles, trucks or other vehicles in the areas not specifically designated by Landlord and the outside storage of any property are prohibited without Landlord's prior written consent. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the premises and its occupancy thereof, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of any violations or nuisances in or upon, or connected with, the Premises, all at Tenant's sole expense. If, as a result of any change in the governmental laws, ordinances and regulations, the Premises must be altered to lawfully accommodate Tenant's use and occupancy thereof, such alterations shall be made only with the consent of Landlord, which consent will not be unreasonably withheld, but the entire cost thereof shall be borne by Tenant; provided, that, the necessity of Landlord's consent shall in no way create any liability against Landlord for failure of Tenant to comply, or alter the Premises to comply, with such laws, ordinances and regulations. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants or occupants of the Building, or unreasonably interfere with such tenants' or occupants' use of their respective premises. Tenant shall not permit any use which would adversely affect the reputation of the Building. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly flammable. Tenant will not permit the Premises to be used for any purpose (including, without limitation, the storage of merchandise) in any manner which would render the insurance on the Premises void or increase the insurance rate, thereof, and Tenant shall immediately cease and desist from such use, paying all cost and expense resulting from such improper use. (C) Landlord hereby acknowledges that Tenant is subject to regulation by the Office of the Comptroller of the Currency ("OCC") and agrees that Tenant shall be relieved of any obligation provided for under the terms and conditions of this Lease, which obligation is found objectionable by the OCC; provided that the remainder of this Lease or the application of such term or provision to persons, property or circumstances other than those as to which it is objectionable, shall remain in full force and effect. (D) During the Term of this Lease, Landlord shall not let any portion of the Facility (as defined herein) to a lending institution other than Tenant. 2. TERM The term of this Lease shall be as indicated on the Reference Page (unless sooner terminated as herein provided). Landlord's failure to complete construction of Leasehold Improvements and/or Tenant's failure to occupy the Premises shall in no way effect Tenant's obligations under the Lease, except when such failure is caused by Landlord and is not remedied within fifteen (15) days of written notice from Tenant. Tenant agrees that in the event of the inability of Landlord to deliver possession of the Premises on the Commencement Date, Landlord shall not be liable for any damage thereby, but Tenant shall be not liable for any Rent until the time when Landlord can, after notice to Tenant, deliver possession of the Premises to Tenant. No such failure to give possession on the Commencement Date shall affect the other obligations of Tenant hereunder, nor shall such failure be construed in any way to extend the Term. If Landlord is unable to deliver possession of the Premises within thirty (30) days of the Commencement Date (other than as a result of matters beyond the reasonable control of Landlord and Tenant is notified by Landlord in writing as to such delay), Tenant shall have the option to terminate this Lease. In the event Landlord shall permit Tenant to occupy the Premises prior to the Commencement Date, such occupancy shall be subject to all the provisions of this Lease. Said early possession shall not advance the Termination Date. 3. RENT Tenant agrees to pay to Landlord the Base Rent and the Common Area Maintenance Fee (the Common Area Maintenance Fee, together with other charges provided for herein are referred to as "Additional Rent." Collectively, Base Rent and Additional Rent are referred to as "Rent") by paying monthly installments in advance, on or before the first day of each full calendar month during the Term, except that the first month's Base Rent and Common Area Maintenance Fee shall be paid upon the execution hereof. Rent for any period during the Term which is less than one full month shall be a prorated portion of the monthly installment of Rent based upon a thirty (30) day month. Said Rent shall be paid to Landlord, without deduction or offset and without notice or demand at the Landlord's address, as set forth on the Reference Page, or to such other person or at such other place as Landlord may from time to time designate in writing. Payment of Rent shall commence on the earlier of the Commencement Date and the date Tenant first occupies the Premises. Tenant recognizes that late payment of any Rent or other sum due hereunder will result in administrative expense to Landlord, the extent of which additional expense is extremely difficult and economically impractical to ascertain. Tenant therefore agrees that if Rent or any other sum is due and payable pursuant to this Lease; and when such amount remains due and unpaid ten (10) days after said amount is due, such amount shall be increased by a late charge in an amount equal to the greater of (a) $250.00, or (b) a sum equal to 5% of the unpaid Rent or other payment. The amount of the late charge to be paid by Tenant shall be reassessed and added to Tenant's obligation for each successive monthly period until paid. The provisions of this Article in no way relieve Tenant of the obligation to pay Rent or other payments on or before the date on which they are due, nor do the terms of this Article in any way affect Landlord's remedies pursuant to Article 21 of this Lease in the event said rent or other payment is unpaid after the date due. No security or guarantee which may now be or hereafter be furnished to Landlord for the payment of Rent or the performance of Tenant's other obligations under this Lease shall in any way constitute a bar to the recovery of the Premises or defense to any action in unlawful detainer or to any other action which Landlord may bring for a breach or any of the terms, covenants or conditions of this Lease. 4. ADDITIONAL RENT In addition to the Base Rent, Tenant shall pay its Proportionate Share, as indicated on the Reference Page, of the Operating Expenses for the Facility. "Operating Expenses" include all operating expenses necessary to maintain and operate the, Building, Premises and the property on which the Building and Premises are located (the "Facility"), including but not limited to, Real Estate Taxes, insurance, management, professional and administrative fees, repairs, maintenance, snow removal, landscaping and lawn maintenance, security, fire 2 protection, water and sewer charges, common area electric, garbage removal and any other expenses or costs associated with the maintenance or operation of the Facility. In the event the Operating Expenses for the Facility exceed the Common Area Maintenance Fee indicated on the Reference Page, as calculated at the end of any year during the Term, Tenant will pay the appropriate increase or additional amount due for Operating Expenses with the next installment of Rent. The Common Area Maintenance Fee for the subsequent year will be adjusted in accordance with prior year's actual Operating Expenses. In no event, however, will the Common Area Maintenance Fee be reduced below the Common Area Maintenance Fee indicated on the Reference Page. "Real Estate Taxes" shall mean the taxes and assessments imposed upon the Facility or upon the Rent payable to Landlord, including, but not limited to, real estate, city, county, village, school and transit taxes, or taxes, assessments or charges levied, imposed or assessed against the Facility by any other taxing authority, whether general or specific, ordinary or extraordinary, foreseen or unforeseen. If, due to a future change in the method of taxation, any franchise, income or profit tax shall be levied against Landlord in substitution for, or in lieu of, or in addition to, any tax which would otherwise constitute a Real Estate Tax for the purposes hereof, such franchise, income or profit tax shall be deemed to be Real Estate Tax for purposes hereof; conversely, any additional real estate tax hereafter imposed in substitution for, or in lieu of, any franchise, income or profit tax (which is not in substitution for, or in lieu of, or in addition to, a Real Estate Tax as hereinbefore provided) shall not be deemed a Real Estate Tax for the purposes hereof. Tenant shall also be responsible for paying any excise, sales, use, gross receipts or other taxes which may be imposed on Landlord or on account of the letting or which Landlord may be required to pay or collect under any law now in effect or hereafter enacted. Tenant shall have the right, at Tenant's sole expense, to initiate or prosecute real estate tax appeals for the Facility. Landlord shall fully cooperate with Tenant in any such appeal. Any abatements or refunds of Real Estate Taxes shall be paid to Tenant. 5. SECURITY DEPOSIT [Intentionally Omitted] 6. LEASEHOLD IMPROVEMENTS AND ALTERATIONS (A) Tenant shall submit to Landlord for approval, which approval will not be unreasonably withheld or delayed, full definitive plans and specifications for all leasehold improvements indicated on the Reference Page (the "Leasehold Improvements") to be constructed or installed or other work to be performed by Tenant in the Premises, including but not limited to, duct work, all architectural, electrical and mechanical plans, room finish schedules, railwork detail, layout drawings, facades, painting or other improvements. Tenant shall have the responsibility for completing all Leasehold Improvements at Tenant's sole cost and expense. (B) Tenant shall not make or suffer to be made any alterations, additions, or improvements, including, but not limited to, the attachment of any fixtures or equipment in, on, or to the Premises or any part thereof or the making of any improvements required by Article 7 without the prior written consent of Landlord. Any alterations, additions, or improvements in, on, or to the Premises including carpeting, but excepting movable furniture, personal property and inventory of Tenant removable without material damage to the property or the Premises, shall be and remain the property of Tenant during the Term but shall, unless Landlord elects otherwise, in writing, become a part of the realty and belong to Landlord without compensation to Tenant upon the expiration or sooner termination of the Lease as herein provided and title shall pass to Landlord under this Lease as by a bill of sale. When applying for such consent, Tenant shall, if requested by Landlord, furnish complete plans and specifications for such alterations, additions and improvements. The responsibility of the parties relative to removal of any alteration, improvement or addition shall be determined prior to the construction or installation of same. All alterations, additions or improvements proposed by Tenant shall be constructed in accordance with all government laws, ordinances, rules and regulations and Tenant shall, prior to construction, provide such assurances to Landlord, including but not limited to, waivers of lien, surety company performance bonds and personal guaranties of individuals of substance, as Landlord shall require to assure payment of the costs thereof and to protect Landlord against any loss from any construction, artisans', mechanics', materialmen's or other liens. Tenant shall provide Landlord with certificates of insurance 3 against general liability and builders' risk prior to construction of Tenant's improvements, which insurance shall list Landlord as an additional insured under such policies. Tenant shall indemnify, deliver and hold Landlord harmless against any losses, damages or claims whatsoever arising out of Tenant's improvements and alternations to the Premises. Tenant shall pay any increase in real estate taxes attributable to any such alteration, addition, or improvement. Upon the expiration or termination of the Lease as herein provided, Tenant shall upon demand by Landlord, at Tenant's sole cost and expense, forthwith and with all due diligence remove any such alterations, additions or improvements which are designated by Landlord to be removed, (and which are not part of Tenant's initial Leasehold Improvements) and Tenant shall forthwith and with all due diligence, at its sole cost and expense, repair and restore the Premises to their original condition, reasonable wear and tear and loss casualty covered by Article 23 excepted. 7. MAINTENANCE AND REPAIRS (A) Tenant shall take good care of the Premises and not commit waste. Tenant at its sole expense, shall promptly make all repairs, ordinary or extraordinary, in and about the interior of the Premises. Tenant at its sole expense, shall replace during the Term of the Lease all damaged or broken doors or other glass in or about the Premises and shall be responsible for all repairs, maintenance and replacement of wall and floor coverings in or on the Premises, and for the repair, replacement and maintenance of all lighting fixtures therein. (B) Tenant shall keep and maintain the Premises and its fixtures, appurtenances, systems and facilities serving the Premises, in good working order, condition and repair and shall make all repairs, as and when needed in or about the Premises, except for those repairs for which Tenant is responsible pursuant to any other provisions of this Lease. Under no circumstances shall Tenant be entitled to an offset against Rent due hereunder. (C) Landlord shall have no liability to Tenant by reason of any inconvenience, annoyance, interruption or injury to Tenant's business arising from any repairs or changes required or permitted by this Lease, or required by law, to make in or to any portion of the Premises, or in or to the fixtures, equipment or appurtenances of the Premises; provided that Landlord shall not be exculpated from liability if Landlord shall fail to make a required repair within a commercially reasonable period of time or if the repair of prevents Tenant from using a material portion of the Premises for more than sixty (60) days. (D) Tenant shall, at its own cost and expense, repair any damage to the Premises resulting from and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents, servants, employees, patrons, customers, or any other person entering the Facility as a result of Tenant's business activities or caused by Tenant's default hereunder. (E) Tenant acknowledges it has had the opportunity to inspect the Premises and accepts the Premises "AS IS," "WHERE AS," and with all faults. 8. ACCESS TO THE PREMISES Tenant shall have access to the Premises twenty-four (24) hours a day and three hundred sixty-five (365) days each year. 9. SIGNS Tenant shall not install any signs upon the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. If Landlord shall consent to any sign, upon termination of the Lease Tenant shall remove said sign and restore the Premises to its original condition. 10. LIENS Tenant shall keep the Premises and Tenant's leasehold interest in the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and 4 all expenses incurred by it in connection therewith shall be considered Additional Rent and shall be payable to Landlord by Tenant on demand with interest at the rate of eighteen percent (18%) per year or the highest rate permitted by law, whichever is lower. 11. ASSIGNMENT AND SUBLETTING (A) Tenant shall not have right to assign or pledge this Lease or to sublet the whole or any part of the Premises, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, or assign this Lease for security purposes, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, and such restrictions shall be binding upon any assignee or subtenant to which Landlord has consented. Notwithstanding the foregoing, (i) Tenant shall have the right to assign the Lease to an affiliate or subsidiary, and (ii) the sale of all of the equity of Tenant shall be considered a permissible assignment, in each case subject to all of the terms of this Lease, including without limitation, the continuing obligation of Tenant as provided below. In the event Tenant desires to sublet the Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord at least sixty (60) days prior to the proposed commencement date of such subletting, which notice shall set forth the name of the proposed subtenant. Notwithstanding any permitted subletting, Tenant shall at all times remain directly and primarily responsible and liable for the payment of the Rent herein specified and for compliance with and performance of all of its other obligations under this Lease. Upon the occurrence of an Event of Default (as hereinafter defined), if the Premises or any part thereof are then sublet, Landlord, in addition to any other remedies provided herein or by law, may collect directly from such subtenant all Rent due and becoming due to Tenant under such sublease and apply such Rent against and sums due Landlord from Tenant hereunder. No such collection directly from an assignee or subtenant shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. (B) In addition to Landlord's right to approve of any subtenant or assignee, Landlord shall have the option, in its sole discretion, in the event of any proposed subletting or assignment, (1) to terminate the Lease, or in the case of a proposed subletting of less than the entire Premises, (2) to recapture the portion of the Premises to be sublet, as of the date of subletting or assignment is to be effective. The option shall be exercised by Landlord's giving Tenant written notice thereof within fifteen (15) days following Landlord's receipt of Tenant's written notice as required above. If this Lease shall be terminated with respect to the entire Premises the Term shall end on the date stated in Tenant's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this Lease for the expiration of the Term. If Landlord recaptures only a portion of the Premises, the rent during the unexpired Term shall abate, proportionately, based on the Rent as of the date immediately prior to such recapture. Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission obligation on the part of Landlord with respect to the Lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are recaptured pursuant hereto and rented by Landlord to the proposed tenant or any other tenant. (C) Consent by Landlord to any assignment or subletting shall not include consent to the assignment or transferring of any renewal option rights or space option rights of the Premises granted to Tenant by this Lease, or addendum or amendment thereto or letter of agreement (and such options, right, privileges or services shall terminate upon such assignment), unless Landlord specifically grants in writing such options, rights, privileges or services to assignee or subtenant. Any sale, assignment, mortgage or transfer of this Lease, subletting of the Property which does not comply with the provisions of this Article shall be void. (D) Should Landlord agree to authorize and execute an assignment or sublease agreement, Tenant will pay to Landlord on demand a sum equal to all of Landlord's reasonable costs, including attorney's fees, incurred in connection with such assignment or transfer. 12. INDEMNIFICATION (A) Landlord shall not be liable and Tenant hereby waives all claims against Landlord for any damage to any property or any injury to any person in or about the Premises by or from any cause whatsoever, (including without limiting the foregoing, rain or water leakage of any 5 character from the roof, windows, walls, basement, pipes, plumbing works or appliances, the Premises not being in good condition or repair, gas, fire, oil, electricity or theft) unless caused by the gross negligence of Landlord, its employees or agents. (B) Tenant shall hold Landlord harmless from and defend Landlord against any and all claims, liability or costs (including court costs and attorney's fees) for any damage to any property or any injury to any person occurring in, on or about the Premises when such injury or damage shall be caused by or arise from, in part or in whole, (a) the act, neglect, fault or omission to meet the standards imposed by an duty with respect to the injury or damage, by Tenant, its agents, servants, employees or invitees; (b) the conduct or management of any work or thing whatsoever done by the Tenant in the Premises or from transactions of the Tenant concerning the Premises; or (c) any breach or default on the part of the Tenant in the performance of any covenant or agreement in the part of the Tenant to be performed pursuant to this Lease, unless caused by the gross negligence of Landlord, its employees or agents. (C) The provisions of the Article shall survive the termination of this Lease with respect to any claims or liability occurring prior to such termination. 13. INSURANCE (A) Tenant covenants and represents, said representation being designed to induce Landlord to execute this Lease, that during the entire Term hereof, Tenant, at its sole cost and expense, shall obtain, maintain and keep in full force and effect the following insurance: (i) All Risk property insurance against fire, theft, vandalism, malicious mischief, sprinkler leakage and such additional perils as are now, or hereafter may be, included in a standard extended coverage endorsement from time to time in general use in the State of New Jersey, and flood insurance, as applicable, such insurance to cover all property of every description and kind whether owned by Landlord or Tenant or under Tenant's care, custody or control and located on the Premises or for which Tenant is legally liable or installed by or on behalf of Tenant, including by way of example and not by way of limitation, furniture, fixtures, fittings, installations and any other property, in an amount equal to the full replacement cost thereof and naming Landlord and any holder of a mortgage or trust deed secured by the Premises, and ground lessors (if any) as loss payee. (ii) Comprehensive General Liability Insurance coverage to include personal injury, bodily injury, broad form property damage, operations hazard, owner's protective coverage, contractual liability and products and completed operations liability and naming Landlord and any holder of a mortgage or trust deed secured by the Premises, and ground lessors (if any) as additional insureds in limits of not less than one million and 00/100 dollars ($1,000,000.00), combined single limit. (iii) Workers' Compensation insurance in form and amount required by law. (iv) Any other form or forms of insurance or any increase in the limits of any of the aforesaid enumerated coverages or other forms of insurance as Landlord or the mortgagees holding mortgages secured by the Premises or the ground lessors (if any) of the Premises may reasonably require from time to time if in the reasonable opinion of Landlord or said mortgagees or ground lessors said coverage and/or limits become inadequate. (B) At least fifteen (15) days prior to Tenant's occupancy of the Premises, Tenant shall deliver to Landlord a copy of all policy provisions intended to be included in the coverage to be provided by Tenant, and a valid certificate of insurance issued to Landlord, effective as of the dates applicable under the terms of this Lease, which certificate of insurance shall include, without limitation: (a) provisions requiring notice by the insurer to Landlord at least thirty (30) days in advance of any contemplated, intended or effective cancellation, nonrenewal, or material change or modification of coverage provisions or limits; and (b) a Waiver of Subrogation in favor of Landlord and agents, employees, servants, officers, directors, contractors, and subcontractors of Landlord, with respect to the insurance coverage and claims of Tenant. (C) All insurance policies required pursuant to this Article 13 shall be taken out with insurers rated at least A+ XV by A. M. Best Company, Oldwick, New Jersey, who are licensed 6 to do business in the State of New Jersey, and shall be in form satisfactory from time to time to Landlord. A policy or certificate evidencing such insurance together with a paid bill shall be delivered to Landlord simultaneously with the execution of this Lease. No such insurance may be materially changed, reduced in coverage, cancelled or otherwise terminated unless the insurers notify Landlord and any mortgagees or ground lessors (if any) of same in writing, not less than thirty (30) days prior to such planned change, reduction or cancellation/termination. Should a certificate of insurance initially be provided, a policy shall be furnished by Tenant within thirty (30) days of the delivery of Landlord's written request for same. The aforesaid insurance shall be written with such reasonable deductibles as Tenant shall determine in its reasonable discretion and Tenant shall be deemed self-insured for such deductible amounts. (D) In the event of damage to or destruction of the Premises, entitling Landlord or Tenant to terminate this Lease pursuant to Article 23, and if this Lease be so terminated, Tenant will immediately pay Landlord all of its insurance proceeds, relating to the building and leasehold improvements and alterations (but not Tenant's trade fixtures, equipment, furniture or other personal property of Tenant in the Premises) which have become Landlord's property on installation or would have become Landlord's property at the expiration or sooner termination of this Lease. (E) Tenant agrees that it will not keep or use or offer for sale in or upon the Premises, any article which may be prohibited by any insurance policy in force from time to time covering the Premises. Tenant shall promptly comply with all reasonable requirements of the insurance authority or of any insurer now or hereafter in effect relating to the Premises. (F) If any insurance policy carried by Tenant shall be cancelled or cancellation shall be threatened or the coverage thereunder reduced or threatened to be reduced in any way by reason of the use or occupation of the Premises, or any part thereof by Tenant or any sublessee of Tenant, or anyone permitted by Tenant to be upon the Premises, and if Tenant fails to remedy the conditions giving rise to said cancellation or threatened cancellation or reduction in coverage or threatened reduction in coverage prior to said cancellation or reduction becoming effective, such shall constitute an Event of Default and Landlord shall have all of the remedies available to Landlord pursuant to this Lease. 14. WAIVER OF SUBROGATION So long as their respective insurers so permit, Tenant and Landlord hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage or all risk insurance now or hereafter existing for the benefit of the respective party. Each party shall obtain any special endorsements required by their insurer to evidence compliance with the aforementioned waiver. 15. SERVICES AND UTILITIES Tenant shall pay for its Proportionate Share of all gas, heat, light, power, telephone, sprinkler system charges, meters and other utilities and services used on or from the Building. Tenant shall furnish all electric light bulbs, tubes and ballasts. Landlord shall in no event be liable for any interruption or failure of utility services on or to the Premises. 16. HOLDING OVER Tenant shall pay Landlord for each day Tenant retains possession of the Premises or part thereof after termination hereof by lapse of time or otherwise one hundred fifty percent (150%) of the amount of the Rent for the last period prior to the date of such termination prorated on a daily basis, and also pay all damages sustained by Landlord by reason of such retention, and shall indemnify and hold Landlord harmless from any loss or liability resulting from such holding over and delay in surrender. 17. SUBORDINATION Without the necessity of any additional document being executed by Tenant for the purpose of affecting a subordination, this Lease shall be subject and subordinate at all times to the lien of any mortgages or deeds of trust now or hereafter placed on, against or affecting 7 the Premises, Landlord's interest or estate therein, provided, however, that if the lessor, mortgage, trustee, or holder of any such mortgage or deed of trustee elects to have Tenant's interest in this Lease be superior to any such instrument, then by notice to Tenant this Lease shall be deemed superior, whether this Lease was executed before or after said instrument. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver upon demand such further instruments evidencing such subordination or superiority of this Lease as may be required by Landlord. 18. RULES AND REGULATIONS Tenant shall faithfully observe and comply with all the reasonable rules and regulations and all reasonable modifications additions thereto from time to time put into effect by Landlord as well as all covenants, conditions and restrictions of record. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building or any such rules and regulations. 19. REENTRY BY LANDLORD Landlord reserves and shall at all times have the right to reenter the Premises upon prior reasonable notice to inspect the same, to supply any service to be provided by Landlord to Tenant hereunder, to show said Premises to prospective purchasers, mortgagees (or tenants, within nine (9) months prior to the Termination Date) and to alter, improve, or repair the Premises and any portion of the Facility, without abatement of Rent, and may for that purpose erect, use, and maintain scaffolding, pipes conduits, and other necessary structures in and through the Facility and Premises where reasonably required by the character of the work to be performed, provided entrance to the Premises shall not be blocked thereby, and further provide that the business of Tenant shall not be interfered with unreasonably. In the event that Landlord requires access to any under-floor areas, Landlord's liability for carpet (or other floor covering) replacement shall be limited to replacement of the piece removed. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby; provided that Tenant does not waive claims which may arise against Landlord for any problem with the Premises for which Tenant has provided Landlord with written notice and Landlord has failed to commence corrective action within a commercially reasonably period of time. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in the Premises, excluding Tenant's vaults and safes, or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency to obtain entry to any portion of the Premises 20. DEFAULT The following events shall be deemed to be "Events of Default" under this Lease: (A) Tenant shall fail to pay when due any sum of money becoming due to be paid to Landlord hereunder, whether such sum be any installment of the Rent herein reserved, any other amount treated as Additional Rent hereunder, or any other payment or reimbursement to Landlord required herein, whether or not treated as Additional Rent hereunder, and such failure shall continue for a period of ten (10) days from the date such payment was due; or (B) The Events of Default specified in Article 5, Paragraph 13(F) and Article 31; or (C) Tenant shall fail to comply with any term, provision or covenant of this Lease other than provided for in Paragraphs 20(A) and (B) above, and shall not cure such failure within twenty (20) days (forthwith, if the defaults involve a hazardous condition) after written notice thereof to Tenant; or (D) Tenant shall abandon any substantial portion of the Premises; or (E) Tenant shall fail to vacate the Premises immediately upon termination of the Lease, by lapse of time or otherwise, or upon termination of Tenant's right to possession only without termination of the Lease; or 8 (F) The leasehold interest of Tenant shall be levied upon under execution or be attached by process of law or Tenant shall fail to contest diligently the validity of any lien or claimed lien and give sufficient security to Landlord to insure payment thereof or shall fail to satisfy any judgment rendered thereon and have same released, and such default shall continue, without Tenant diligently proceeding to cure such default for ten (10) days after written notice thereof to Tenant; or (G) Tenant shall become insolvent, admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make an assignment for the benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the United States or any state thereof; or (H) A court of competent jurisdiction shall enter an order judgment or decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or of the whole of any substantial part of its property, without the consent of Tenant, or approving a petition filed against Tenant seeking reorganization of arrangement of Tenant under the bankruptcy laws of the United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within thirty (30) days from the date of entry thereof. 21. REMEDIES Upon the occurrence of any such events of default described in Article 20 or elsewhere in this Lease, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever. (A) Landlord may, at its election, terminate this Lease or terminate Tenant's right to possession only, without terminating the Lease; (B) Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant's right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free right to enter into and upon the Premises in such event with or without process of law to repossess Landlord of the Premises as of Landlord's former estate and to expel or remove Tenant and any others who may be occupying or within the Premises and to remove any and all property therefrom, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant hereby waiving any right to claim damage for such reentry and expulsion, and without relinquishing Landlord's right to Rent or any other right given to Landlord hereunder or by operation of law; (C) Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all Rent, including any amounts treated as Additional Rent hereunder, and other sums due and payable by Tenant on the date of termination, plus the sum of (i) an amount equal to the then present value of the Rent, including any amounts treated as Additional Rent hereunder, and other sums provided herein to be paid by Tenant for the residue of the Term hereof, less the fair rental value of the Premises for such residue (taking into account the time and expense necessary to obtain a replacement tenant or tenants, including expenses hereinafter described in Paragraph 21 (D) relating to recovery of the Premises, preparation for reletting and for reletting itself) and (ii) the cost of performing any other covenants which would have otherwise been performed by Tenant; (D) (i) Upon any termination of Tenant's right to possession only, without termination of the Lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof as provided in Paragraph 21 (B) above, without such entry and possession terminating the Lease or releasing Tenant, in whole or in part, from any obligation, including Tenant's obligation to pay the Rent, including any amounts treated as Additional Rent, hereunder for the full Term. In any such case Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal to 9 the entire amount of the Rent, including any amounts treated as Additional Rent hereunder, for the residue of the Term plus any other sums provided herein to be paid by Tenant for the remainder of the Term; (ii) Landlord must attempt to relet the Premises or any part thereof for such Rent and upon such terms as Landlord in its sole discretion shall determine (including the right to relet the Premises for a greater or lesser term than that remaining under this Lease, the right to relet the Premises as a part of a larger area, and the right to change the character or use made of the Premises) and Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. In any such case, Landlord may make repairs, alterations and additions in or to the Premises, and redecorate the same to the extend Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with Landlord's expenses of reletting including, without limitation, any broker's commission incurred by Landlord. If the consideration collected by Landlord upon any such reletting plus any sums previously collected from Tenant are not sufficient to pay the full amount of all Rent, including any amounts treated as Additional Rent hereunder and other sums reserved in this Lease for the remaining Term hereof, together with the costs of repairs, alterations, additions, redecorating, and Lessor's expense of reletting and the collection of the Rent accruing therefrom (including attorney's fees and brokers commissions), Tenant shall pay to Landlord the amount of such deficiency upon demand and Tenant agrees that Landlord may file suit to recover any sums falling due under this Subparagraph 21 (D)(ii) from time to time; (E) Landlord may, at Landlord's option, enter into and upon the Premises, with or without process of law, if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible hereunder and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage resulting therefrom and Tenant agrees to reimburse Landlord, on demand, as Additional Rent, for any expenses which Landlord may incur, in thus effecting compliance with Tenant's obligations under this Lease; (F) Any and all property which may be removed from the Premises by Landlord pursuant to the authority of the Lease, to which Tenant is or may be entitled, may be handled, removed and stored, as the case may be, by or at the direction of Landlord at the risk, cost and expense of Tenant. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further payment or credit by Landlord or Tenant. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law or at equity (all such remedies being cumulative), nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any Rent due to Landlord hereunder or of any damages accruing to Landlord be reason of the violation of any terms, provisions and covenants herein contained. No act or thing done by Landlord or its agents during the Term shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of said Premises shall be valid unless in writing signed by Landlord. Landlord's acceptance of the payment of Rent or other payments hereunder after the occurrence of an Event of Default shall not be construed as an accorded satisfaction, compromise or waiver of such Event of Default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord in enforcing one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. If, on account of any breach or default by Tenant under the Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies, Tenant agrees to pay all reasonable attorney's fees incurred by Landlord. 22. QUIET ENJOYMENT Landlord represents and warrants that is has full right and authority to enter into this Lease and that Tenant, while paying the Rent and performing its other covenants and 10 agreements herein set forth, shall peaceably and quietly have, hold and enjoy the Premises for the Term without hindrance from Landlord subject to the terms and provisions of this Lease. In the event this Lease is a sublease, then Tenant agrees to take the Premises subject to the provisions of the prior leases. Landlord shall not be liable for any interference or disturbance by other tenants or third persons, nor shall Tenant be released from any of the obligations of this Lease because of such interference or disturbance. 23. DAMAGE BY FIRE, ETC (A) Landlord agrees to maintain sufficient insurance on the Building and loss of rents against such causes of loss and in such amounts as Landlord shall deem commercially reasonable, amount all such coverages and endorsements to be defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the state in which the property is situated for use by insurance companies admitted in such state for the writing of such insurance on risks located within such state. Subject to the provisions of Paragraphs 23(C), 23(D) and 23(F), such insurance shall be for the sole benefit of Landlord and under its sole control. Tenant agrees to pay Landlord, as Additional Rental, Tenant's Proportionate Share of Landlord's cost of maintaining such insurance. Any payment to be made pursuant to this Paragraph with respect to the year in which the Lease commences or terminates shall be prorated. Tenant shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained by Landlord hereunder unless Landlord is included as an additional insured thereon. Tenant shall immediately notify Landlord whenever any such separate insurance is taken out and shall promptly deliver to Landlord the policy or policies of such insurance. (B) If the Premises should be damaged or destroyed by fire, tornado or other casualty, Tenant shall give immediate written notice thereof to Landlord. (C) If the Premises should be damaged by any peril covered by the insurance to be provided by Landlord under Paragraph 23(A), but only to such extent that the Premises can in Landlord's estimation be materially restored within one hundred twenty (120) days after the date upon which Landlord is notified by Tenant of such damage (except that Landlord may elect not to rebuild if such damage occurs during the last year of the Term), this Lease shall not terminate, and Landlord shall at its sole cost thereupon proceed with reasonable diligence to rebuild and repair such Premises and substantially restore the condition in which it existed prior to such damage, except Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which the Premises are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. In the event that Landlord shall fail to materially restore the Premises within one hundred twenty (120) days after the date upon which Landlord is notified by Tenant of such damage, Tenant may (if it has given Landlord at least thirty (30) days notice of its need and intent to do so) at its option terminate this Lease by delivering written notice of termination to Landlord as Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall cease and terminate; provided, however, that if construction is delayed because of changes, deletions, or additions in construction requested by Tenant, strikes, lockouts, casualties, acts of God, war, material or labor shortages, Governmental regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed, but in no event for more than sixty (60) days. For purposes hereof, the Premises shall be deemed "materially restored" upon the issuance of a temporary certificate of occupancy. If the Premises are untenantable in whole following such damage, no Rent shall be payable by Tenant during this period, provided that Tenant has maintained its rental interruption insurance and such insurance proceeds are being paid to Landlord. (D) If the Premises should be damaged or destroyed by fire, tornado or other casualty and Landlord is not required to rebuild pursuant to the provisions of Paragraph 23(C), this Lease shall at the option of Landlord or Tenant, upon notice to Tenant or Landlord, given within thirty (30) days after Landlord is notified by Tenant of such damage, terminate and the 11 Rent shall be abated during the unexpired portion of the Lease, effective upon the date of the occurrence of such damage. (E) Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied so such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon this Lease shall end on the date of such notice to Tenant as if the date of such notice were the date originally fixed in the Lease for the expiration of the Term. (F) In the event of any damage or destruction to the Premises by any peril covered by the provisions of this Article, Tenant shall, upon notice from Landlord, forthwith remove, at its sole cost and expense, such portion or all of Tenant's shelves, bins, machinery and other trade fixtures and all other property belonging to Tenant or his licensees from such portion or all of the Premises as Landlord shall request and Tenant hereby indemnifies and holds Landlord (including without limitation the trustee and beneficiaries if Landlord is a trust), Landlord's agents and employees harmless from any loss, liability, claims, suits, costs, expenses, including attorney's fees and damages, both real and alleged, arising out of any damage or injury as a result of the failure to properly secure the Premises prior to such removal and/or as a result of such removal. 24. EMINENT DOMAIN (A) If the whole or any substantial part of the Premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking would prevent the use of the Premises for the use provided for herein, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall occur. (B) If part of the Premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this Lease is not terminated as provided in Paragraph 23(A), this Lease shall not terminate but the Rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent, if at all, as may be fair and reasonable under all of the circumstances and Landlord shall undertake to restore the Premises to a condition suitable for Tenant's Use, as near to the condition thereof immediately prior to such taking as is reasonably feasible under all the circumstances. (C) In the event of any such taking or private purchase in lieu thereof, Landlord and Tenant shall each be entitled to receive and retain such separate awards and/or portion of lump sum awards as may be allocated to their respective interests in the Premises in any condemnation proceedings. 25. SALE BY LANDLORD In the event of a sale or conveyance by Landlord of the Premises, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, expressed or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. Except as set forth in the Article, this Lease shall not be affected by any such sale, and Tenant agrees to attorn to the purchaser or assignee. If any security has been given by Tenant to secure the faithful performance of any of the covenants of this Lease, Landlord may transfer or deliver said security, as such, to Landlord's successor in interest and thereupon and upon notice to Tenant of the transfer, Landlord shall be discharged from any further liability with regard to said security, provided that any successor shall not be liable for such security unless such successor receives the same. 26. ESTOPPEL CERTIFICATES Within ten (10) days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord or any prospective Landlord or mortgagee 12 or prospective mortgagee a sworn statement certifying: (a) the date of commencement of this Lease, (b) the fact that this Lease is unmodified and in full force and effect, (or, if there have been modifications hereto, that this Lease is in full force and effect, as modified, and stating the date and nature of such modifications), (c) the date to which the Rent and other sums payable under this Lease have been paid, (d) the fact that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement, and (e) such other matters requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Article may be relied upon by any mortgagee, beneficiary or purchaser and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such estoppel certificate. Tenant's failure to execute an estoppel certificate in accordance with this Article shall constitute an Event of Default under this Lease. 27. SURRENDER OF PREMISES Tenant shall, upon the written request of Landlord, at least ninety (90) days before the last day of the Term arrange to meet Landlord for a joint inspection of the Premises. In the event of Tenant's failure to arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. At the end of the Term or any renewal thereof or other sooner termination of this Lease, Tenant will peaceably deliver up to Landlord possession of the Premises, together with all improvements or additions upon or belonging to the same, by whomsoever made, in the same condition as received or first installed, broom clean and free of all debris, ordinary wear and tear and damage by fire, earthquake, Act of God, or the elements alone excepted. Tenant shall, upon termination of this Lease, remove all non-fixture items, including without limitation, movable partitions of less than full height previously installed by Tenant, at Tenant's sole cost and expense. Tenant is responsible for any damage caused by such removal. Property not removed shall be deemed abandoned by the Tenant and title to the same shall thereupon pass to Landlord under this Lease as by a bill of sale. Upon request by Landlord, Tenant shall remove any or all permanent improvements or additions to the Premises installed by Tenant which were not approved by Landlord. Tenant shall indemnify Landlord against any loss or liability resulting from delay by Tenant in so surrendering the Premises, including without termination any claims made by any succeeding tenant founded on such delay. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of this Lease shall survive the expiration or earlier termination of the Lease. Upon the expiration or earlier termination of the Lease, Tenant shall pay to Landlord the amount, as estimated by Landlord, necessary: (i) to repair and restore the Premises as provided herein; and (ii) to discharge Tenant's obligation for unpaid amounts due Landlord. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional incurred costs upon demand by Landlord, and any excess shall be returned to Tenant after all such obligations have been determined and satisfied. Any Security Deposit shall be credited against Tenant's obligations hereunder. 28. NOTICES Any notice or document required or permitted to be delivered hereunder (a) shall be in writing; (b) shall be personally delivered, sent by overnight delivery company or sent by United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set forth opposite their respective signatures on the Reference Page, or at such other address as they have therefore specified by written notice delivered in accordance herewith and (c) shall be effective upon delivery, if personally delivered or sent by commercial overnight delivery company, or two (2) days after mailing, if mailed. 29. TAXES PAYABLE BY TENANT In addition to Rent and other charges to be paid by Tenant hereunder, Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within the contemplation of the parties 13 hereto: (a) upon, allocable to, or measured by or on the gross or net rent payable hereunder, including without limitation any sales tax or excise tax levied by the state, political subdivision thereof, or the federal government with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of the Premises or any portion thereof, including any sales, use or service tax imposed as a result thereof; or (c) upon or measured by the Tenant's gross receipt or payroll or the value of Tenant's equipment, furniture, fixtures, and other personal property of Tenant or leasehold improvements, alterations, additions, located in the Premises; or (d) upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. In addition to the foregoing, Tenant agrees to pay, before delinquency, any and all taxes levied or assessed against Tenant and which become payable during the term hereof upon Tenant's equipment, furniture, fixtures, and other personal property of Tenant located in the Premises. 30. DEFINED TERMS AND HEADINGS The Article headings herein are for convenience of reference and shall in no way define, increase, limit, or describe the scope or intent of any provision of this Lease. Any indemnification of, insurance of, or option granted to Landlord shall also include or be exercisable by Landlord's trustee, beneficiary, agents and employees, as the case may be. In any case, where this Lease is signed by more than one person, the obligations hereunder shall be joint and several. The terms "Tenant" and "Landlord" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, marital communities, firms, or corporations, and each of their respective successors, executors, administrators, and permitted assigns, according to the context hereof. Tenant agrees to furnish promptly upon demand appropriate documentation evidencing the due authorization of Tenant to enter into this Lease. The term "rentable area" shall mean the rentable area of the Premises as calculated by the Landlord on the basis of the plans and specifications (which were available for inspection by Tenant at the time the Lease was executed) of the Premises and not including any proportion of any common areas. Tenant hereby consents and agrees that the calculation of rentable area on the Reference Page shall be controlling. 31. HAZARDOUS SUBSTANCES Tenant acknowledges and agrees that it shall not introduce, place, use, store or dispose of hazardous, poisonous or toxic substance, material or waste of any kind at the Premises as such substances are identified from time to time by any Environmental Law, as hereinafter defined. In the event there is a breach of the requirements of this Article at any time during the Term of this Lease, or as extended, such breach shall be an Event of Default hereunder, and, in addition to all rights and remedies granted to Landlord, Tenant shall be liable for and shall indemnify, defend, protect and hold Landlord harmless from and against all costs incurred by Landlord or its authorized agents, managers, employees or contractors to the extent resulting from such introduction, placement, use, storage or disposition; (1) in cleaning, decontaminating or otherwise correcting the effects of any such introduction, placement, use, storage or disposition of a hazardous, poisonous or toxic substance, material or waste in or about the Premises; (2) in complying with all applicable laws and environmental rules, regulations and requirements applicable thereto, including the payment of any fines and penalties levied to the extent such fines or penalties are on account or arise from Tenant's introduction, placement, use, storage or disposition; and (3) in discharging any lien on the Premises securing the foregoing costs of correction. As used herein, "Environmental Law" shall mean all federal, state or local law, statute, ordinance or regulation pertaining to health, industrial hygiene, or the environmental conditions on, under or about the Premises, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C. ss.9601 et. seq. and the Resource Conservation and Recovery Act of 1976 ("RCRA") as amended, 42 U.S.C. ss.6901 et. seq. As used herein "Hazardous Substance" shall include, without limitation: (i) those substances included within the definitions of any more or one or the term "hazardous substances", "hazardous materials", or "toxic substances", and "solid waste" in CERCLA, RCRA, and the Hazardous Materials Corporation Act, as amended, 49 U.S.C. ss.1801 et. seq., and in the regulations promulgated pursuant to said laws under applicable state law; (ii) those substances listed in the United 14 State Department of Transportation Table (49 CFR ss.172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); (iii) such other substances, materials and wastes which are or become regulated under applicable local, state or federal laws, or which are classified as hazardous or toxic under federal, state or local laws or regulations; and (ix) any material, waste or substance which is (a) petroleum; (b) asbestos (c) polochlorinated biphenyls; (d) designated as a "Hazardous Substance" pursuant to Section 311 or the Clean Water Act, 13 U.S.C. ss. 1321 (33 U.S.C. ss.1321), or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss.1317); (e) flammable explosives; or (f) radioactive materials. 32. ENFORCEABILITY If for any reason whatsoever any of the provisions hereof shall be void, unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. 33. COMMISSIONS Each of the parties (i) represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease, except as described on the Reference Page and (ii) indemnifies and holds the other harmless from any and all losses, liability, costs or expenses (including attorneys' fees) incurred as a result of any breach of the foregoing warranty. 34. TIME AND APPLICABLE LAW TIME IS OF THE ESSENCE with respect to this Lease and all of its provisions. This Lease shall in all respects be governed by the laws of the state in which the Premises is located. 35. PARKING Tenant shall have the right to use, in common with the other tenants or occupants of the Building, the parking facilities as designated from time to time by Landlord. Tenant shall not at any time park or permit the parking of Tenant's vehicles, or the vehicles of others, adjacent to loading areas or so as to interfere in any way with the use of such areas. Tenant shall not park or permit to be parked any inoperative vehicles or equipment on any portion of the parking or loading areas. Notwithstanding the foregoing, Tenant shall be permitted to use and park in the loading areas for deliveries to the Premises by armored vehicles. 36. SUCCESSORS AND ASSIGNS Subject to the provisions of Article 11 (Assignment and Subletting) and Article 25 (Sale by Landlord), the terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators, marital communities, if any, and assigns of the parties hereto. 37. ENTIRE AGREEMENT This Lease, together with its exhibits, contains all agreements of the parties hereto and supersedes any previous negotiations and correspondence, including without limitation, the term sheet, if any. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by written instrument duly executed by the parties hereto. 38. EXAMINATION NOT OPTION Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound hereby until its delivery to Tenant of an executed copy hereof signed by Landlord, already having been signed by Tenant, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants. Notwithstanding anything contained herein to the contrary, Landlord may withhold delivery of possession of the Premises from Tenant until such time as Tenant has paid to Landlord the 15 first and last month's rent as set forth in Article 3 and any sum owed prior to the Occupancy Date pursuant hereto. 39. RECORDATION Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without consent of the other party, and the party offering the same for recording shall pay all charges and taxes incident thereto. 40. LIMITATION OF LANDLORD'S LIABILITY The obligations of Landlord herein are intended to be binding only on the property of the entity acting as Landlord and shall not be personally binding, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof or any employees or agents of Landlord, or the investment manager. IN WITNESS WHEREOF, this Lease has been duly executed by the parties hereto as of the date first written above. Landlord: Tenant: By: /s/ Xxxxxxxxxxxxxx By: /s/ Xxxxxxxxxxxxxx ------------------ ------------------ Title: President/CEO Title: President/CEO 16 EXHIBIT A LEASED PREMISES 17 EX-10.35 5 0005.txt EXHIBIT 10.35 OFFICE LEASE Between Union Properties, LLC, Landlord And Yardville National Bank, Tenant Premises: 1575 Brunswick Avenue Lawrence, NJ 08648 Date: July 5, 2000 - Revised September 5, 2000 INDEX To Lease Between Union Properties, LLC, as Landlord, and Yardville National Bank, a National Bank, as Tenant Dated: July 5, 2000
Article Caption Page No. ------- ------- -------- 1 Premises - Term of Lease and Use 1 2 Basic Rent 1 3 Repair Obligation of Tenant 1 4 Compliance with Statutes, Ordinances, etc. 1 5 Landlord's Right to Perform Tenant's Covenants 1 6 Assignment or Subletting 2 7 Alterations or Improvements by Tenant 2 8 Damage or Destruction 2 9 Landlord's Right of Entry 3 10 Vacancy or Eviction 3 11 Replacement of Glass and Damage Due to Tenant's Negligence 3 12 Obstruction of Premises 3 13 Signs 3 14 Landlord's Non-Liability for Damages 4 15 Subordination 4 16 Security Deposit 4 17 Impossibility of Insurance Coverage 5 17B Tenant's Insurance 5 18 Default 6 19 Abatement of Trade Fixtures 9 20 Strict Performance 9 21 Re-Entry of Landlord 9 22 Condemnation 9 23 Delay in Performance 9 24 Limitation of Liability 10 25 Delivery of Possession 10
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Article Caption Page No. ------- ------- -------- 26 Real Estate Broker 10 27 Indemnification of Landlord 10 28 Termination of Landlord's Liability 10 29 Triple Net - Additional Rent 10 30 Tenant's Additional Obligation 11 30A Tenant's Services 12 31 Notices 12 32 Right to Lock Premises on Default 12 33 Proration of Rent 12 34 Quiet Enjoyment 12 35 Covenants to Bind Parties 13 36 Notification of Default to Mortgage 13 37 Waiver of Subrogation 13 38 Mechanic's Liens 13 39 Certificates by Tenant and Landlord 14 40 Cumulative Remedies - No Waiver - No Oral Change 14 41 Change of Terms 14 42 Attornment 14 43 Applicable Law 14 44 Holding Over 15 45 Memorandum and Recording 15 46 Utility Easements 15 47 Rules and Regulations 15 48 Building Improvements 15 49 Renewal Option 15 50 Notice Requirement 16 51 Management and Operation of Common Areas 16
-ii- Exhibits -------- A Location - Project Description B Basic Rent -iii- THIS AGREEMENT, dated the 5th day of July , 2000, between Union Properties, LLC as Landlord and Yardville National Bank, a National Bank, as Tenant. WITNESSETH: ARTICLE 1 Premises - Term of Lease and Use The said Landlord has let unto the said Tenant and the said Tenant has hired from said Landlord the following premises: 1575 Brunswick Avenue, Alternate Route 1, Lawrence, New Jersey 08648, for the term of Ten (10) years to commence from the 1st day of August, 2000, and to end on the 30th day of July, 2010, to be used and occupied only for lawful purposes, more specifically office use, only. RENT SHALL COMMENCE ON AUGUST 1, 2000. TENANT IS NOT OBLIGATED TO PAY RENT FOR THE MONTH OF JULY. Upon the conditions and covenants following: ARTICLE 2 Basic Rent That the Tenant shall pay the basic rent in the total amount of $70,180.00 at the annual rate of ($15.50/sq. ft. FOR THE UPPER FLOOR AND $5.00/sq. ft. FOR THE LOWER LEVEL). The square footage for the upper floor is 3,560 sq. ft. and the lower level is 3,000 sq. ft. Said rent to be paid in equal monthly payments in advance on the lst day of each and every month during the term aforesaid in the amount of $5,848.33 per month (year 1), said rent to be paid without benefit of offset or deduction. This is a triple net lease, and Tenant will pay additional rent as set forth in Paragraph 29 and is in addition to the basic rent. The rental Schedule is set forth in Exhibit "B". All rent not received by the 10th of the month will incur a late charge of five (5%) percent. ARTICLE 3 Repair Obligations of Tenant That the Tenant shall take good care of the premises and shall at the Tenants own cost and expense make all repairs, that Tenant is required to make under this lease, and at the end or other expiration of the term shall deliver up the demised premises in good order or condition, damages caused by the elements and ordinary wear and tear excepted. Tenant shall provide chair pads under all movable chairs in the demises premises, or otherwise be responsible for all damage to flooring and carpet resulting from the absence of the use of chair pads. Tenant will not overload the electrical wiring serving the leased premises or within the leased premises, and will install at its own expense, but only after obtaining Landlord's approval, any additional electrical wiring which may be required in connection with Tenant's apparatus. ARTICLE 4 Compliance with Statutes, Ordinances, Etc. That the Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances, violations or other grievances, in, upon or connected with said premises during said term, and which are directly related to Tenant's use of the said premises; shall also promptly comply with and execute all rules, orders, and regulations of the Board of Fire Underwriters, or any other similar body, for the prevention of fires, at the Tenant's own cost and expense. ARTICLE 5 Landlord's Right to Perform Tenant's Covenants That in case the Tenant shall fail or neglect to comply with the aforesaid statutes, ordinances, rules, orders, regulations and requirements or any of 1 of them, or in case the Tenant shall fail or neglect to make any necessary repairs, then if Tenant fails to remediate within thirty (30) days after Landlord's written notice to remediate, the Landlord or the Landlord's Agency may enter said premises and make said repairs and comply with any and all of the said statutes, ordinances, rules, orders, regulations or requirements, at the cost and expense of the Tenant and in case of the Tenant's failure to pay therefore, the said cost and expense shall be added to the next month's rent and be due and payable as such, or the Landlord may deduct the same from the balance of any sum remaining in the Landlord's hands. This provision is in addition to the right of the Landlord to terminate this lease by reason of any default on the part of the Tenant. ARTICLE 6 Assignment or Subletting That should the Tenant desire to assign this agreement or underlet said premises, it shall first offer same to Landlord at the rental set forth herein. Should Landlord not accept the assignment or underletting offered or not respond within twenty (20) days of receipt of Tenant's written offer, then Tenant shall be allowed to assign this agreement or underlet the premises provided that the Tenant shall not (a) assign this agreement, or underlet or underlease the premises or any part thereof without the prior written consent of Landlord, which consent will not be unreasonably withheld or delayed; provided, however, that notwithstanding such assignment, Tenant shall not thereby be relieved from responsibility hereunder, or (b) permit or suffer the premises or any part thereof to be occupied for any business or purpose deemed disreputable or extra-hazardous on account of fire, under penalty of damages and forfeiture. Tenant shall be permitted to assign this lease or sublet the premises without Landlord's consent and without first offering the premises to Landlord if the proposed sublease or assignee is an entity owned by, controlled by, affiliated with, or is the Parent Company of the Tenant. In the event that the Tenant enters into an agreement to sell all of its stock of Yardville National Bank, it is permissible under the Lease Agreement. ARTICLE 7 Alterations or Improvements by Tenant That except for the planned improvements made in accordance with plans and specifications no alterations, additions or improvements, painting or decorating shall be made in or to the premises without the consent of the Landlord in writing, which consent shall not be unreasonably withheld or delayed, under penalty of damages and forfeiture, and all additions and improvements made by the Tenant shall become the property of the Landlord and shall remain on and be surrendered with the demised premises. Landlord hereby consents to the installation of paint and carpet throughout the premises and of sheetrock or glass on the cubicles contained in the premises. At Landlord's request all such alterations and improvements shall be restored to their original condition at Tenant's expense at the termination of the Lease, provided Landlord notifies Tenant, in writing, prior to the end of the term of its desire to have the premises restored. ARTICLE 8 Damage or Destruction In case of damage, by fire or other cause, to the building in which the leased premises are located, without the fault of the Tenant or of Tenant's agent or employees, if the damage is so extensive as to amount practically to the total destruction of the leased premises or of the building, or if the Landlord shall within a reasonable time decide not to rebuild, the lease shall cease and come to an end, and the rent shall be apportioned to the time of the damage. In all other cases where the leased premises are damaged by fire without the fault of the Tenant or of Tenant's agents or employees the Landlord shall repair the damage with reasonable dispatch after notice of damage, and if the damage has rendered the premises untenantable, in whole or 2 ARTICLE 9 Landlord's Right of Entry (a) That said Tenant agrees that the said Landlord and Landlord's Agents, and other representatives, shall have the right to enter into and upon said premises, or any part thereof, at all reasonable hours upon prior written notice to the Tenant except where an emergency exists and the Landlord is obligated to take immediate action for the purpose of examining the same, or making such repairs or alterations therein as may be necessary for the safety and preservation thereof provided such entry shall not unreasonably interfere with Tenant's business. (b) The Tenant also agrees to permit the Landlord or Landlord's Agents to show the premises at all reasonable hours, upon prior written notice to Tenant, to persons wishing to hire or purchase the same; and the Tenant further agrees that during the six months next prior to the expiration of the term, the Landlord or Landlord's Agents shall have the right to place notices on the front of said premises, or any part thereof, offering the premises "to Let" or "For Sale", and the Tenant hereby agrees to permit the same to remain thereon without hindrance or molestation. ARTICLE 10 Vacancy or Eviction That if the said premises, or any part thereof, shall become vacant during the said term, or should Tenant be evicted by summary proceedings or otherwise, the Landlord or Landlord's representatives may re-enter the same, either by force or otherwise, without being liable to prosecution therefor; and re-let the said premises as the Agent of the said Tenant and receive the rent thereof; applying the same, first to the payment of such expenses as the Landlord may be put to in re-entering and then to the payment of the rent due by these presents; it being understood that the Tenant shall remain liable for any deficiencies. ARTICLE 11 Replacement of Glass and Damage Due to Tenant's Negligence Tenant shall replace any and all broken glass in and about the demised premises. Landlord may insure, and keep insured, all plate glass in the demised premises for and in the name of Landlord. Damage and injury to the said premises, caused by the carelessness or improper conduct on the part of the said Tenant or the Tenant's agents or employees shall be repaired as speedily as possible by the Tenant at the Tenant's own cost and expense. ARTICLE 12 Obstruction of Premises That the Tenant shall neither encumber, nor obstruct the sidewalk in front of, entrance to or hall and stairs of said building, other common areas, parking areas or driveways, nor allow the same to be obstructed or encumbered in any manner without Landlord's written consent. ARTICLE 13 Signs The Tenant shall neither place, nor cause, nor allow to be placed, any sign or signs of any kind whatsoever at, in or about the entrance to said premises nor any other part of same except in or at such place or places as may be indicated by the said Landlord and consented to by Landlord in writing. Landlord hereby consents to the placement of a sign on the outside door of the premises which sign shall be of the same type as those signs used by other Tenants. And in case the Landlord or Landlord's representatives shall deem it necessary to remove any such sign or signs in order to paint or to make any other repairs, alterations or improvements in or upon said premises or the building wherein same is situated or any part thereof, the Landlord shall have the right to do so, providing the same be removed and replaced at the Landlord's expense 3 whenever the said repairs, alterations or improvements shall have been completed. Landlord will provide a Directory of Tenants in an appropriate place on the property which the demised premises are located. ARTICLE 14 Landlord's Non-Liability for Damages It is expressly agreed and understood by and between the parties to this agreement, that the Landlord shall not be liable for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said building, except as may be caused by the negligence of Landlord or its Agents or Employees. Landlord shall not be liable for any damage or injury resulting or arising from any other cause or happening whatsoever that is not caused by the negligence or other acts or omissions of Landlord or its Agents or Employees. ARTICLE 15 Subordination That this lease shall not be a lien against said premises in respect to any mortgages that are now on or that hereafter may be placed against said premises, and that the recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien of this lease irrespective of the date of recording and the Tenant agrees to execute any instrument without cost, which may be deemed necessary or desirable to further effect the subordination of this lease to any such mortgage or mortgages, and a refusal to execute such instruments shall entitle the Landlord, or the Landlord's assigns and legal representatives to the option of cancelling this lease without incurring any expense or damage, and the term hereby granted is expressly limited accordingly. In the event that Landlord procures mortgage loans or recasts the existing mortgage loan on said premises, Tenant agrees to furnish to Landlord on request, copies of its most recent financial statements prepared by the Certified Public Accountant regularly retained by it. ARTICLE 16 Security Deposit 16.1 The Landlord hereby acknowledges receipt of $0.00 which it is to be placed in an interest bearing account and is to be retained as security for the faithful performance of all of the covenants, conditions and agreements to this lease, but in no event shall Landlord be obliged to apply same on rents or other charges in arrears or damages for the Tenant's failure to perform said covenants, conditions and agreements; the Landlord may so apply the security at its option; and the Landlord's right to the possession of the premises for non-payment of rent or for any other reason shall not in any event be affected by reason of the fact that Landlord holds this security. The said sum if not applied toward the payment of rent in arrears or toward the payment of damages suffered by Landlord by reason of the Tenant's breach of the covenants, conditions and agreements of this lease is to be returned to the tenant when this lease is terminated, according to these terms, and in no event is the said security to be returned until the Tenant has vacated the premises and delivered possession to the Landlord. 16.2 In the event that the Landlord repossesses itself of said premises because of the Tenant's default or because of the Tenant's failure to carry out the covenants, conditions and agreements of this lease, the Landlord may apply the said security on all damages suffered to the date of repossession and may retain the said security to apply on such damages as may be suffered or shall accrue thereafter by reason of the Tenant's default or breach. The Landlord shall keep the said security as a separate fund. The security deposited under this lease shall not be mortgaged, assigned, pledged, or encumbered by Tenant without the written consent of Landlord. In the event of filing by or against Tenant of a petition in bankruptcy or assignment for the benefit of creditors, or upon the insolvency of Tenant, title to the monies paid over to Landlord as security shall vest in the Landlord free and clear of any claims of the Trustees in bankruptcy, assignee for the benefit of creditors or Receiver that may be appointed for the insolvent Tenant. 4 16.3 In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant upon such transfer and Landlord shall be considered released by the Tenant of all liability for the return of said security, and it is agreed that this shall apply to every transfer or assignment made of the security to the new Landlord. ARTICLE 17 Impossibility of Insurance Coverage 17.1 It is expressly understood and agreed that if for any reason it shall be impossible to obtain fire insurance and extended coverage on the buildings and improvements on the demised premises in an amount, and in the form, and in fire insurance companies acceptable to the Landlord the Landlord may, if the Landlord so elects, at any time thereafter terminate this lease and the term thereof, on giving to the Tenant three days' notice in writing of Landlord's intention so to do and upon the giving of such notice, this lease and the term thereof shall terminate and come to an end. In the event that Tenant's occupancy causes any increase in premium for the fire and extended coverage insurance rates on the demised premises or the balance of the building in which Tenant's demised premises are located, Tenant shall pay, as additional rent, the additional premium on said fire and extended coverage insurance. Bills for such additional premiums, if any, shall be rendered by Landlord to Tenant at such time as Landlord shall elect, and shall be due and payable by Tenant when rendered; and the amount thereof shall be deemed to be and paid as additional rent. 17.2 That the Tenant will not nor will the Tenant permit other tenants or other persons to do anything in said premises or bring anything into said premises, or permit anything to be brought into said premises or to be kept therein, which will in any way increase the rate of fire insurance on said demised premises, nor use the demised premises or Any part thereof, nor suffer or permit their use for any business or purpose which would cause an increase in the rate of fire insurance on said building, and the Tenant agrees to pay on demand any such increase. ARTICLE 17B Tenant's Insurance At all times after the execution of this lease, Tenant shall take out and keep in force, at its expense: 17B.1. Tenant's Insurance A. Public liability insurance, including insurance against assumed or contractual liability with respect to the premises, to afford protection to the limit, for each occurrence, of not less than one million dollars ($1,000,000) with respect to personal injury or death, and five hundred thousand dollars ($500,000) with respect to property damages; and B. All-risk casualty insurance, written at replacement cost value and with replacement cost endorsement, covering all of Tenant's personal property in the premises (including, without limitation, inventory, trade fixtures, floor coverings, furniture and other property removable by Tenant under the provisions of this lease) and all leasehold improvements installed in the premises by Tenant; and C. If and to the extent required by law, worker's compensation or similar insurance in form and amounts required by law. 17B.2. Tenant's Contractor's Insurance A. Comprehensive general liability insurance, including contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement and contractor's protective liability coverage, to afford protection to the limit, of each occurrence, with respect to property damage; and 5 B. Worker's compensation or similar insurance in form and amounts required by law. 17.B.3. Policy Requirements A. The company or companies writing any insurance which Tenant is required to take out and maintain shall be licensed to do business in New Jersey. Each policy evidencing such insurance shall name Landlord or its designee as additional insured and shall also contain a provision by which the insurer agrees that such policy shall not be cancelled except after thirty (30) days written notice to Landlord or its designee. Each such policy, or a certificate thereof, shall be deposited with Landlord by Tenant promptly upon commencement of Tenant's obligation to procure the same. If Tenant shall fail to perform any of its obligations under this Article, Landlord may perform the same and the cost of same shall be deemed additional rental and shall be payable by Tenant upon Landlord's demand. ARTICLE 18 Conditional Limitations and Default 18.1 If at any time during the term of this Lease: (a) If Tenant shall file a petition in bankruptcy or insolvency or for reorganization or arrangement or for the appointment of a receiver of all or a portion of Tenant's property or, such filing shall continue for a period of ten days. (b) Any involuntary petition of the kind referred to in subdivision (a) of this section shall be filed against Tenant and such petition shall not be calcite or withdrawn within ninety (90) days after the date of filing thereof, or (c) Tenant shall be adjudicated a bankrupt by any court, or (d) Tenant shall make an assignment for the benefit of creditors, or (e) A permanent receiver shall be appointed for the property of Tenant by order of a court of competent jurisdiction by reason of the insolvency of Tenant (except where such receiver shall be appointed in an involuntary proceeding, if he shall not be withdrawn within ninety (90) days after the date of his appointment), or (f) The operation of Tenant's business shall be suspended by any authority having jurisdiction thereover or the conduct and operation of Tenant's business shall be taken over by (i) a receiver appointed by order of a court of competent jurisdiction or (ii) an agency or governmental authority having jurisdiction thereover, then Landlord, at Landlord's option may terminate this Lease on ten (10) days' notice to Tenant, and upon such termination, Tenant shall quit and surrender the Leased Premises to Landlord. The word "Tenant" as used in this section shall be deemed to mean the Tenant herein named, or in the event of an assignment of this Lease in accordance with the provisions of Article VIII, such word shall be deemed to also mean the ten assignee. 18.2 If this Lease shall terminate pursuant to the provisions of Section 18.1: (a) Landlord shall be entitled to receive from Tenant arrears in Basic Annual Rent and Additional Rent and, in addition thereto as liquidated damages, an amount equal to the balance of rentals due under the remaining term of the Lease, the remaining rentals shall be accelerated hereby plus any other damages to which Landlord may be entitled including, but not limited to, reasonable legal fees. Tenant shall receive a credit for any monies including, but not limited to, all rents received by Landlord in mitigation of such default and Landlord shall make best efforts to re-let the premises. All funds received shall first go to pay Landlord's costs and expenses of mitigating the damages, then towards Tenant's credit. 6 18.3 (a) If Tenant shall fail to pay any Basic Annual Rent or Additional Rent when due and payable hereunder, and any such default shall continue for a period of ten (10) days after such payment is due; or (b) If Tenant shall be in default in the performance of any of the other terms, covenants, and conditions of this Lease: (i) and such default shall not have been remedied within ten (10) days after notice by Landlord to Tenant specifying such default and requiring it to be remedied; or (ii) where such default reasonably cannot be remedied within such period of ten (10) days, if Tenant shall not have commenced the remedying thereof with such period of time and shall not be proceeding with due diligence to remedy it; Then Landlord, at its election, may terminate this Lease on ten (10) days' notice to Tenant, and upon such termination Tenant shall quit and surrender the Leased Premises to Landlord. 18.4 If this Lease shall terminate as provided in Section 18.3, or if Tenant shall be in default in the payment of Basic Annual Rent or Additional Rent when due and payable and such default shall continue for a period of ten (10) days after such payment is due: (a) Landlord may re-enter and resume possession of the Leased Premises and remove all persons and property therefrom either by summary dispossess proceedings or by a suitable action or proceeding at law or in equity or by peaceable self-help or otherwise, without being liable for any damages therefor; and (b) Landlord may relet the whole or any part of the Leased Premises for a period equal to, greater or less than the remainder of the then term of this Lease at such rental and upon such terms and conditions as Landlord shall deem reasonable to any tenant it may deem suitable and for any use and purpose it may deem appropriate. Landlord shall use its best efforts in re-letting the premises, and, provided Landlord uses such best efforts. Landlord shall not be liable in any respect for failure to relet the Leased Premises or, in the event of such reletting, for failure to collect the rent thereunder and any sums received by Landlord on a reletting in excess of the rent reserved in this Lease shall belong to Landlord. 18.5 If this Lease shall terminate as provided in this Article or by summary dispossess proceedings (except as to any termination under Section 33.1), Landlord shall be entitled to recover from Tenant as damages in addition to arrears in Basic Annual Rent and Additional Rent, (a) (i) amounts equal to all expenses reasonably incurred by Landlord in recovering possession of the Leased Premises and in connection with the reletting of the Leased Premises including, without limitation, reasonable legal fees, the cost of repairing, renovating or remodeling the Leased Premises, and to the condition they were in at the inception of the Lease, reasonable wear and tear excepted; (ii) broker's commissions incurred by Landlord in reletting the Leased Premises, which amounts set forth in this subsection shall be due and payable by Tenant to Landlord at such time or times as they shall have been incurred; and (b) amounts equal to the deficiency between the Basic Annual Rent and Additional Rent which would have become due and payable had this Lease not 7 terminated and the net amount, if any, of rent and Additional Rent collected by Landlord on reletting the Leased Premises. The amounts specified in this subsection shall be due and payable by Tenant on the several days on which such Basis Annual Rent and Additional Rent would have become due and payable had this Lease not terminated. Tenant consents that Landlord shall be entitled to institute separate suits or actions or proceedings and hereby waives the right to enforce or assert the rule against splitting a cause of an action as a defense thereto. Landlord, at its election, which shall be exercised by the service of a notice on Tenant, may collect from Tenant as damages and Tenant shall pay in lieu of the sums becoming due under the provisions of subsection (b) hereof after the service of such notice, an amount equal to the difference between the Basic Annual Rent and Additional Rent which would become due and payable had this Lease not terminated (from the date of the service of such notice to the end of the term of this Lease which would have been in effect if it had not terminated) and the maximum allowed by statute or rule or law in effect at the time when in governing the proceedings in which such damages are to be proved. Tenant shall be credited with any rental received from a new tenant. 18.6 The words "re-enter" and "re-entry" as used in this Article are not restricted to their technical legal meaning. 18.7 Tenant hereby waives the service of any notice in writing by Landlord of its intention to re-enter except as otherwise provided in this Lease. 18.8 If this Lease shall terminate as provided in this Article or by summary proceedings or otherwise, Landlord, in addition to any other rights under this Article, shall be entitled to recover as damages; (a) the cost of performing any work required to be done by Tenant under this Lease and all damages resulting from Tenant's default in performing such work, and (b) the cost of replacing the Leased Premises in the same condition as that in which Tenant is required to surrender them to Landlord under this lease. 18.9 At any time (a) within fifteen (15) days prior to the expiration of the term of this Lease or (b) after Landlord shall have served any notice of termination of this Lease, as provided in this Lease, but prior to the date of termination, or (c) after Landlord shall have commenced a summary dispossess proceeding or an appropriate action or proceeding to recover possession of the Leased Premises but prior to the termination of this Lease by reason of the issuance of a warrant in the dispossess proceeding or the entry of a judgment in such other action or proceeding, any or all subleases theretofore executed by Tenant and the rent payable thereunder shall, at the option of Landlord (such option to be exercised by notice to Tenant), be assigned by Tenant to Landlord as of the date of the service of such notice. Such assignment shall be deemed to be and shall be effected as of the date of service of such notice without execution by Tenant of any instrument. However, Tenant, at Landlord's request, shall execute, acknowledge and deliver to Landlord an instrument in recordable form, confirming such assignment and, in the event that Tenant shall fail or refuse to execute, acknowledge or deliver such instrument, Landlord in addition to all other rights and remedies it may have by reason of such failure or refusal, may, as the agent or attorney-in-fact of Tenant, execute, acknowledge and deliver it and Tenant hereby irrevocably nominates, constitutes and appoints Landlord as Tenant's proper and legal attorney-in-fact for such purpose, as coupled with an interest, hereby ratifying all that Landlord may do as such attorney-in-fact of Tenant, and such assignment shall recall that it has made pursuant to this article. 8 ARTICLE 19 Abatement of Trade Fixtures If after default in payment of rent or violation of any other provision of this lease, or upon the expiration of this lease or upon abandonment of the premises by Tenant, the Tenant moves out or is dispossessed, Tenant shall not be permitted to remove any trade fixtures or other property from said premises until said default or violation is cured. Should said default or violation not be cured within one month of its occurrence, or upon abandonment of the premises said fixtures shall become the property of Landlord. ARTICLE 20 Strict Performance The failure of the Landlord to insist upon strict performance of any of the covenants or conditions of this lease or to exercise any option herein conferred in any one or more instances, shall not be construed as a waiver or relinquishment for the future of any such covenants, conditions or options, but the same shall be and remain in full force and effect. ARTICLE 21 Re-Entry of Landlord In the event that the relation of the Landlord and Tenant may cease or terminate by reason of the re-entry of the Landlord under the terms and covenants contained in this lease or by the ejectment of the Tenant by summary proceedings or otherwise, or after the abandonment of the premises by the Tenant, it is hereby agreed that the Tenant shall remain liable for all unpaid sums covering the balance of said term and shall pay said amounts promptly. ARTICLE 22 Condemnation In the event that the premises shall be taken for public use by the city, state, federal government, public authority or other corporation having the power of eminent domain, then this lease shall terminate as of the date on which possession thereof shall be taken for such public use, or, at the option of the Tenant, as of the date on which the premises shall become unsuitable for Tenant's regular business by reason of such taking; provided, however, that if only a part of the leased premises shall be so taken, such termination shall be at the option of Tenant only. If such a taking of only a part of the leased premises occurs, and Tenant elects not to terminate the lease, there shall be a proportionate reduction of the Basic Rent and Additional Rent to be paid under this lease from and after the date such possession is taken for public use. Tenant shall have the right to participate, directly or indirectly, in any award for such public taking to the extent that it may have suffered compensable damage as a Tenant on account of such public taking. ARTICLE 23 Delay in Performance This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or implied to be supplied or is unable to make, or is delayed in making any repairs, addition, alterations, or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of governmental preemption in connection with a national Emergency declared by the President of the United States or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. 9 ARTICLE 24 Limitation of Liability Landlord shall be under no personal liability with respect to any of the provisions of this lease, and if it is in breach or default with respect to his obligations or otherwise, under this lease, Tenant shall look solely to the equity of Landlord in the premises for the satisfaction of Tenant's remedies. It is expressly understood and agreed that Landlord's liability under the terms, covenants, conditions, warranties and obligations of this lease shall in no event exceed the loss of its equity in the premises. ARTICLE 25 Delivery of Possession DELETED ARTICLE 26 Real Estate Broker Tenant represents that it has not contacted or dealt with any real estate broker, agent or salesman regarding the within lease other than NOT APPLICABLE and that should any other broker, agent or salesman make claim to a commission in connection with this transaction, Tenant shall save and hold harmless Landlord from any such claim and shall, at Tenant's cost and expense defend against any such claims. ARTICLE 27 Indemnification of Landlord and Tenant Landlord and Tenant agree to protect, defend, indemnify and save harmless each other against and from any and all claims arising from any breach or default on the part of either party in the performance of any covenant or agreement on their part to be performed, pursuant to the terms of this lease, or arising from any act of negligence of either party, or any of its agents, contractors, servants, employees or licensees, or arising from any accident, injury or damage whatsoever caused to any person (other than through the fault of the other party or its agents) occurring during the term of this lease in or about the demised premises or upon or under the sidewalks and the land adjacent thereto, and from and against all costs, expenses and liabilities incurred in or about any such claim or act or proceeding brought thereon, but only to the extent the losses or liabilities are not covered by insurance; and in case any action or proceeding be brought against either party by reason of any such claim, the responsible party upon notice from the responsible party covenants to resist or defend such action or proceeding by counsel reasonably satisfactory at the responsible party's sole cost and expense. ARTICLE 28 Termination of Landlord's Liability If after Landlord delivers possession of the demised premises to Tenant, the Landlord conveys the demised premises during the term hereof, the Landlord shall not thereafter be liable for the covenants and agreements to be observed and performed by the Landlord hereunder, provided that the grantee of Landlord has assumed and become liable for the observance and performance of said covenants and agreements. Nothing herein contained, however, shall relieve Landlord of any liability which may have been incurred or which may have accrued prior to any such conveyance. ARTICLE 29 Triple Net - Additional Rent Tenant shall pay, as additional rent, its "proportionate share", as hereinafter defined, of "triple nets" over the "basic rent", as hereinafter defined; due and payable with respect to the building in which the demised premises are located (hereinafter called "Office Building") and the land underlying said Office Building. 10 Landlord's "operating costs" shall be those of operating and maintaining the Office Building in a manner deemed by Landlord reasonable and appropriate and for the best interests of the tenants in the Office Building, including without limitation, the following: 1. Real estate taxes or any other tax imposed in lieu of real estate taxes assessed on the Office Building and the land underlying same. 2. All costs and expenses directly related to the Office Building of managing, operating, repairing, lighting, cleaning, insurance, removing snow, ice and debris, policing and regulating traffic in the area immediately adjacent to the Office Building Project and depreciation of machinery and equipment used for such operation. 3. All costs and expense of replacing paving, curbs, walkways, landscaping (including replanting and replacing flowers and other planting), drainage and lighting facilities in the Office Building Project and area immediately adjacent thereto. 4. Electricity used in lighting common areas of the Office Building Project, water including water used in fire prevention equipment and sewer. 5. Maintenance, replacement, repair of mechanical and electrical equipment including heating, ventilating and air-conditioning equipment in the Office Building Project. 6. Maintenance of common areas of the Office Building Project. 7. Painting, decoration and carpeting of all common areas in the Office Building Project. 8. All other expenses which would be considered as an expense of maintaining, operating or repairing the Office Building under sound accounting principals. 9. Tenant's proportionate share of operating costs for any fiscal year of Landlord shall be determined as follows: the amount shall be multiplied by a fraction, the numerator of which is the total number of square feet of the leased premises and the denominator of which is the total number of square feet of the leased premises plus Tenant's pro rata share of common areas, and the denominator of which is the total number of square feet of the office building and the result shall the percentage of all operating costs payable by Tenant including electrical and utilities. The Landlord shall bill Tenant for 100% of the real estate taxes, operating costs, insurance and maintenance as well as the electrical and utilities and Tenant shall pay the same to Landlord as part of its monthly rent which shall be billed separately. 10. Irrespective of the language contained in Article 29, the Tenant shall assume the total obligation in connection with the maintenance of the building including the replacement of any and all equipment in connection with the operation of the building. In the event any equipment is required to be replaced including the HVAC, electrical, plumbing, the total obligation shall be that of the Tenant. 11. Tenant shall have the right to audit the operating cost of the Landlord on a yearly basis to determine if they are reasonable and customary. ARTICLE 30 Tenant's Additional Obligation Tenant shall as an incident to the within demise at Tenant's cost and expense, furnish, supply and maintain the following: (a) Water, (b) Sewer, (c) Exterior Building and Common Area Maintenance, (d) Painting and cleaning, stripping, sealing, repairing, replacing and remarking paved and unpaved surfaces, curbs, sidewalks and parking areas and bumpers, (e) sign lighting, maintenance and repair, (f) trash removal, (g) Maintenance, repair and replacement costs of the retention ponds located on the project property, (h) 11 maintenance, repair and replacement of all utilities; pipes, conduit, lines etc. on the project property, (i) public liability insurance, (j) all risk insurance (fire and other hazards) including rental abatement insurance in the amount of one (1) year's minimum rental for the office project, (k) maintenance of HVAC equipment. ARTICLE 30A Tenant's Services Tenant agrees to provide and pay for electric and gas utilities; and maintain temperature at levels to prevent freezing or boiling of any parts of the demised premises. Tenant will pay for and utilize a janitorial service for interior maintenance and removal of trash to Landlord's designated receptacles. Tenant shall provide on a regular basis all interior maintenance and decorating. ARTICLE 31 Notices The receipt by Landlord of a written notice and/or demand and/or request sent by Registered or Certified Mail in a sealed, postpaid envelope, addressed to the Landlord at c/o Hofing Management, 928 West State Street, Trenton, New Jersey 08618, and the receipt by Tenant of a written notice and/or demand and/or request sent by Registered or Certified Mail in a sealed, post paid envelope, addressed to Tenant at Yardville National Bank, Attn: Mr. Frank Durand, Box 8487, Trenton, New Jersey 08650 shall be sufficient notice and/or demand and/or request in any case arising under this lease. The return receipt shall be conclusive evidence of the receipt by Landlord or Tenant, as the case may be, of such notice demand or request. The above addresses may be changed at any time hereafter by giving notice in the manner provided. ARTICLE 32 Right to Lock Premises on Default In the event that the relation of Landlord and Tenant shall cease or terminate by reason of the re-entry of the Landlord under the terms and covenants contained in this lease or by the eviction or ejectment of Tenant on summary proceedings, or otherwise, or after abandonment of the premises by Tenant, Landlord, in addition to his other rights hereunder shall have the right to lock said premises and at Landlord's option may keep same locked until said default is cured and Landlord shall have the right to sell all fixtures, goods and materials of Tenant at said premises and apply the proceeds thereof against unpaid rent. No action under this paragraph shall be deemed to waive Landlord's rights as set forth in other paragraphs of this lease. ARTICLE 33 Proration of Rent In the event that this lease commences on other than the first day of a month, Tenant shall, together with the second month's rent pay to the Landlord the prorated rent for the portion of the month, if any, preceding the first full calendar month of the term of this lease. ARTICLE 34 Quiet Enjoyment And the said Landlord both covenant that the said Tenant on paying the said yearly rent, and performing the covenants aforesaid, shall and may peacefully and quietly have, hold and enjoy the said demised premises for the term aforesaid, provided however, that this covenant shall be conditioned upon the retention of title to the premises by the Landlord. 12 ARTICLE 35 Covenants to Bind Parties And it is further understood and agreed, that the covenants and agreements herein contained are binding on the parties hereto and upon their respective successors, heirs, executors, administrators and assigns. It is further expressly agreed that the words used in the singular shall include words in the plural where the text of this instrument so requires. ARTICLE 36 Notification of Default to Mortgagee In the event of a default by the Lessor hereunder, the Mortgagee will be notified in writing, and it is understood that the Mortgagee will have the right to cure said default within thirty (30) days of notification by the Lessee. ARTICLE 37 Waiver of Subrogation Landlord and Tenant hereby releases the other from any and all liability or responsibility (to the other or anyone claiming through or under them by the way of subrogation or otherwise) under fire and extended coverage or supplementary contract casualties, if such fire or other casualty shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible; provided, however, that, except as otherwise provided in this lease, this release shall be applicable and in force and effect only with respect to loss or damage occurring during such time as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder. Each of Landlord and Tenant agrees that its policies will include such a clause or endorsement so long as the same shall be obtainable without extra cost, or if such cost shall be charged therefore, so long as the other party pays such extra cost, if extra cost shall be chargeable therefore, each party shall notify the other party therefore and of the amount of the extra cost, and the other party shall be obligated to pay the extra cost unless, within ten (10) days after such notice, it elects not to be obligated so to do by written notice to the original party. If such clause or endorsement is not available, or if either party should not desire the coverage at extra cost to it, then the provisions of this Article shall not apply to the policy or policies in question. ARTICLE 38 Mechanic's Liens Tenant shall not suffer or permit any mechanic's liens to be filed against the fee of the demised premises, nor against the Tenant's leasehold interest therein by reason of work, labor services or materials supplied or claimed or have been supplied to Tenant or anyone holding the demised premises or any part thereof through or under Tenant and Tenant agrees to indemnify Landlord against such liens. If any such mechanic's lien shall at any time be filed against the demised premises, Tenant shall with 15 days after notice of the filing thereof, cause the same to be discharged of record; provided, however, that the Tenant shall have the right to contest the amount or validity, in whole or in part, of any such lien by appropriate proceedings but in such event, Tenant shall notify Landlord in writing and if requested by Landlord shall promptly bond such lien with a responsible surety company. Tenant shall prosecute such proceedings with all due diligence and dispatch. Nothing herein contained shall be construed as a consent on the part of Landlord to subject the estate of the Landlord to liability under the Mechanic's Lien Law of the State of New Jersey, it being expressly understood that the Landlord's estate shall not be subject to such liability. 13 ARTICLE 39 Certificates by Tenant and Landlord Tenant agrees at any time and from time to time upon not less than 15 days' notice by Landlord to execute, acknowledge and deliver to Landlord a statement in writing certifying (1) that this lease 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, (2) whether or not there are then existing any offsets or defenses against the enforcement of any of the terms, covenants or conditions hereof upon the part of Tenant to be performed (and is so specifying the same), and (3) the dates to which the basic rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser or mortgagee of the fee of the demised premises or any assignee of any such mortgagee. ARTICLE 40 Cumulative Remedies - No Waiver - No Oral Change The specific remedies to which Landlord or Tenant may resort under the terms of this lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which they may be lawfully entitled in case any breach or threatened breach by either of them of any provision of this lease. The failure of Landlord to insist in any one or more cases upon the strict performance of any of the covenants of this lease, or to exercise any option herein contained, shall not be construed as a waiver or relinquishment for the future of such covenant or option. A receipt by Landlord of basic rent with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver, change, modification or discharge by either party hereto of any provision in this lease shall be deemed to have been made or shall be effective unless expressed in writing and signed by both Landlord and Tenant. In addition to the other remedies in this lease provided, Landlord and Tenant shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation of any of the covenants, conditions or provisions of this lease, or to a decree compelling performance of any of such covenants, conditions or provisions. ARTICLE 41 Change of Terms In the event that a prospective mortgagee of the demised premises shall request a change in the language or terms of the lease, or the execution of any paper in connection therewith, the Tenant shall agree to such change provided the same shall not materially and adversely affect rights of the Tenant under this lease or increase Tenant's cost for Basic Rent or Additional Rent. ARTICLE 42 Attornment Tenant shall, if requested by a first mortgagee of the premises at any time, or in the event of any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Landlord covering the demised premises, attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this lease. ARTICLE 43 Applicable Law This Lease shall be governed by and construed under the laws of the State of New Jersey. 14 ARTICLE 44 Holding Over In the event that the Tenant shall remain in the demised premises after the expiration of the term of this lease without having executed a new written lease with the Landlord, or having exercised its option to renew in accordance with Article 49, such holding over shall not constitute a renewal or extension of this lease. The Landlord may, at its option, elect to treat the Tenant as one who has not removed at the end of its term, and thereupon be entitled to all the remedies against the Tenant provided by law in that situation, or the Landlord may elect, at its option, to construe such holding over as a tenancy from month to month, subject to all the terms and conditions of this lease, except as to duration thereof, and rent shall be due pursuant to statute for such case made and provided that the holdover rent shall not be less than 120% of the last month's rent covered under the base and or option term of the lease. Landlord shall give Tenant six (6) months notice, in writing of its intention to charge Tenant hold over rent on the premises. Should Tenant fail to give Landlord acknowledgement of Tenant's lease termination, within sixty (60) days of receipt of said notice, Tenant shall be liable to Landlord for an additional month's rental or proportionate part thereof for every month or proportionate part thereof that Tenant fails to give the aforesaid notice, at one hundred twenty (120%) percent of it's last month's rent. ARTICLE 45 Memorandum and Recording This lease shall not be recorded under penalty of damages and forfeiture. At the request of either party, the other party shall execute a memorandum of lease setting forth a description of the demised premises and the term. ARTICLE 46 Utility Easements Unless such easements reduce Tenant's useable space, Landlord shall have the right to grant easements and/or utilize areas of the demised premises for the installation of utilities, provided, however, that the use of said easement areas for said purposes does not substantially interfere with the operation of Tenant's business. Tenant shall not be entitled to any compensation or abatement of rent in regard thereto. If the leased property consists of one or more floors, or portions thereof, of a building, and at the time of the making of this lease there are upon any such floors, or portions thereof, hallways, passageways, stairways, elevators, or other means of access, although within the leased property, shall be reserved for the use of the Landlord and all tenants in the building and shall not be considered a portion of the leased property. ARTICLE 47 Rules and Regulations DELETED ARTICLE 48 Building Improvements See Attached Exhibit C ARTICLE 49 Renewal Option The Tenant shall have the right to renew this Lease Agreement for an additional Four (4) five (5) Year Options beyond the initial 10-year term. The option shall commence provided the following conditions have been complied with: 15 1. The Tenant is not then in default with all terms and conditions of this Lease Agreement; and 2. The Tenant shall notify the Landlord in writing not later then six months prior to the expiration of the initial Lease Agreement of its desire to renew, and agrees to sign a new lease upon the same terms and conditions as contained in the original Lease Agreement, except as to the duration dates and the exclusion of any further option to renew. ARTICLE 50 Notice Requirement 1. Sending of Notices Any notice, request, demand, approval or consent given, or required to be given, under this lease shall be in writing and shall be deemed to have been given on the (3rd) day following the day on which the same shall have been mailed by United States registered or certified mail, return receipt requested, with all postal charges prepaid, or if hand delivered shall be deemed given upon delivery. All notices shall be addressed, if intended for Landlord, to c/o Hofing Management, 928 West State St., Trenton, New Jersey 08618 or, if intended for the Tenant, to Yardville National Bank, PO Box 8487, Trenton, New Jersey. Either party may, at any time, change its address for the above purposes by sending a notice to the other party stating the change of and setting forth the new address. 2. Notice to Mortgagees If any mortgagee shall notify Tenant that it is the holder of a mortgage affecting the premises, no notice, request or demand thereafter sent by Tenant to Landlord shall be effective unless and until a copy of the same shall also be sent to such mortgagee at such address as such mortgagee shall designate. ARTICLE 51 Common Areas A. Management and Operation of Common Areas Tenant will operate and maintain or will cause to be operated and maintained the common areas including all parking areas in a manner deemed by Landlord to be reasonable and appropriate and in the best interest of the building. Landlord shall have the right (i) to establish, modify and enforce reasonable rules and regulations with respect to the common areas; (ii) to enter into, modify and terminate easement and other agreements pertaining to the use and maintenance of the parking areas and common areas; (iii) to close temporarily any or all portions of the common areas; (iv) to discourage non-customer parking; and (v) to do and perform such other acts in and to said areas and improvements as, in the exercise of good business judgment, Landlord shall determine to be advisable. Landlord agrees that it shall use its best efforts to make available to Tenant's employees convenient parking facilities in reasonable proximity to the premises. 16 IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals or caused these presents to be signed and sealed by their proper corporate offices the day and year first above written. Witness/Attest: Landlord: Union Properties, LLC /s/ Murlean M. Marshall By: /s/ Sidney L. Hofing - ---------------------------- ----------------------------------- Sidney L. Hofing Managing Member Witness/Attest: Tenant: Yardville National Bank, a National Bank /s/ [Signature unclear] By: /s/ Patrick M. Ryan - ---------------------------- ----------------------------------- Patrick M. Ryan President-CEO 17 ACKNOWLEDGEMENT --------------- State of New Jersey ) ) SS: County of Mercer ) Be It Remembered, that on this 13th day of September, 2000, before me, the subscriber, personally appeared PATRICK M. RYAN, who I am satisfied, is the person named in and who executed the within instrument, and thereupon he acknowledged that he signed, sealed and delivered the same as his act and deed, for the uses and purposes therein expressed. /s/ Cynthia A. Aust ----------------------------- My Commission Expires: CYNTHIA A. AUST NOTARY PUBLIC OF NEW JERSEY MY COMMISSION EXPIRES FEBRUARY 15, 2005 State of New Jersey ) ) SS: County of Mercer ) Be It Remembered, that on this 13th day of September, 2000, before me, the subscriber, personally appeared SIDNEY L. HOFING, who I am satisfied, is the person named in and who executed the within instrument, and thereupon he acknowledged that he signed, sealed and delivered the same as his act and deed, for the uses and purposes therein expressed. /s/ Murlean M. Marshall ----------------------------- My Commission Expires: MURLEAN M. MARSHALL NOTARY PUBLIC OF NEW JERSEY COMMISSION EXPIRES 1/22/2004 State of ) ) SS: County of ) Be It Remembered, that on this ____ day of _________, 2000, before me, the subscriber, personally appeared _______________, who acknowledged hereof to be the ___________________________ of _____________________, and that he as such ________________ of ___________________ being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as _______________________ of ______________________. ----------------------------- My Commission Expires: State of ) ) SS: County of ) Be It Remembered, that on this ____ day of _________, 2000, before me, the subscriber, personally appeared _______________, who acknowledged hereof to be the ___________________________ of _____________________, a corporation, and that he as such ________________ of ___________________ being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as _______________________ of ______________________. ----------------------------- My Commission Expires: EXHIBIT "A" PROJECT DESCRIPTION 1575 BRUNSWICK AVENUE LAWRENCE TOWNSHIP, NEW JERSEY PROPERTY SIZE: 24,121 SF BUILDING SIZE: First Floor 3,560 plus/minus Basement 3,000 plus/minus ------ TOTAL 6,560 DRIVE THRU LANES: 3 ZONING: NC-2, Neighborhood Commercial (See Zoning Regulations) YEAR OF CONSTRUCTION: 1954 (approximate) CONSTRUCTION TYPE: Concrete slab with stone walls (exterior), flat roof, public water and sewer EXHIBIT "B" Basic Rent Rent Based Upon 3,560 + 3,000 Sq. Ft. A. Annual Basic Rental shall be payable in equal monthly installments, in advance, on the first day of each full calendar month during the term, the first such payment to include also any prorated annual basic rental for the period from the date of the commencement of the term to the first day of the first full calendar month in the term. B. From years two (2) to ten (10) there will be a minimum rental increase annually of a minimum 3% or a maximum of 5% based upon the annual CPI index as described herein. The rental increase will be based upon the Index for the New York-Northeastern New Jersey area of the "Consumers Price Index for all Urban Consumers" (revised CPI-U (1982-1984 equal to 100) published by the Bureau of Labor Statistics of the U.S. Department of Labor Statistics of the U.S. Department Labor (hereinafter referred to as the "Index"). The Index figure for the initial month, shall be compared with the Index figure for the anniversary month in each subsequent year during the option period. If the latter figure is more than the Index for the initial month, the latter figure shall be divided by the former figure to determine the new base rent. The new base rent will be divided by 12 to determine the new monthly installment. Provided, however, in no event shall the new monthly base rent be less than the prior years monthly base rent with a minimum increase for each year will be a minimum of three (3%) percent with a maximum of five (5%) percent. Since Index figures for the month of the anniversary month are not available for several weeks after said month of each year, the base rental will continue to be paid on an estimated basis in monthly installments equal to the monthly installments for the preceding year. Upon the availability of the actual month's Index figures, the base rent will be recomputed and Tenant will pay to Landlord, upon demand, the demand, the deficiencies, if any, in each monthly installment of the current year paid prior to the date of such computation. Thereafter, Tenant will pay the base rental on the newly computed monthly installment. C. The Tenant has four 5 year option periods covering the following years: (1) lst Option - Years 11 - 15 (2) 2nd Option - Years 16 - 20 (3) 3rd Option - Years 21 - 25 (4) 4th Option - Years 26 - 30 The basic rent during the option periods will increase annually in accordance with the CPI Index with a minimum of 3% and a maximum of 5%. Lease Addendum -------------- This lease addendum shall supplement the lease agreement by Union Properties L.L.C. and the Yardville National Bank dated July 2000 for the premises located at 1575 Brunswick Ave. in Lawrence Township, New Jersey 08648. In the event of a conflict between this addendum and the lease agreement, the addendum shall prevail. 1. The Landlord shall provide a new roof. After the installation of the roof, the tenant shall be responsible for all future repairs, replacement, and maintenance issues. Tenant shall have right to warranties provided by contractor. 2. Landlord shall provide the HVAC system in good working order. After initial repairs have been completed, tenant shall be responsible for future maintenance and replacement. 3. The Base rental shall increase every five years including but not limited to base term and any subsequent option periods by the lesser of the Consumer Price Index (New York Region) increase over the preceding term or by a fixed rate of 15%. Example of Increase: Consumer Price Index Year I of Lease 120 Consumer Price Index Year 5 of Lease 160 Increase Value 40 Increase % 33.33% 33.33% is greater than 15%, lease addendum specifies lesser would be utilized. The rent would increase by 15% and be fixed for next five years of lease agreement. Landlord: Union Properties LLC Witness/Attest /s/ Sidney L. Hofing /s/ Murlean M. Marshall ----------------------------- ----------------------------- Sidney L. Hofing, Managing Member Tenant: Yardville National Bank /s/ Patrick M. Ryan /s/ [Signature Unclear] ------------------------------ ---------------------------- Patrick M. Ryan, President/CEO -----END PRIVACY-ENHANCED MESSAGE-----