10-K 1 0001.txt 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ---------------- Commission file number 0-26086 YARDVILLE NATIONAL BANCORP -------------------------- (Exact Name of Registrant as specified in its Charter) New Jersey 22-2670267 -------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2465 Kuser Road, Hamilton, New Jersey 08690 ---------------------------------------- -------- (Address of principal executive offices) (Zip Code) (609) 585-5100 -------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Indicate by checkmark whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No __ Indicate by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K[ ] Aggregate market value of voting stock held by non-affiliates (computed by using the average of the closing bid and asked prices on March 23, 2001, in the NASDAQ National Market System: $71,383,722. Number of shares of common stock, no par value, outstanding as of March 23, 2001: 7,445,814. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Part of Form 10-K into DOCUMENT which Document is Incorporated ------------------------------ The following portions of the Annual Report to Stockholders for fiscal year ended December 31, 2000: Selected Historical Consolidated Financial Data II Management's discussion and analysis of Consolidated Financial Condition and results of Operations II Quarterly financial data (unaudited) II Consolidated financial statements and notes to Consolidated Financial Statements II Independent Auditors' Report II Definitive proxy statement for the 2001 Annual Meeting of Stockholders to be held on May 1, 2001 III 2 FORM 10-K INDEX PART I PAGE Item 1. Business 1 Item 2. Properties 16 Item 3 Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security Holders 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 17 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 PART III Item 10. Directors and Executive Officers of the Registrant 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18 Signatures 19 Index to Exhibits E-1 3 YARDVILLE NATIONAL BANCORP FORM 10-K PART I ITEM 1. BUSINESS General Yardville National Bancorp (the "Company") is a bank holding company registered with the Board of Governors of the Federal Reserve System (the "FRB") under the Bank Holding Company Act of 1956 (the "Bank Holding Company Act"). The Company's business is the ownership and management of The Yardville National Bank, a national banking association and the Company's sole banking subsidiary (the "Bank"). The Company was incorporated under the laws of New Jersey and became the holding company of the Bank in 1985. At December 31, 2000, the Company had total assets of approximately $1.6 billion, deposits of approximately $950.3 million and stockholders' equity of approximately $78.2 million. The Bank The Bank received its charter from The Office of the Comptroller of the Currency (the "OCC") in 1924 and commenced operations as a commercial bank in 1925. The Bank currently operates fifteen full-service banking offices. The Bank operates thirteen branch offices in Mercer County, New Jersey; six in Hamilton Township, three in Ewing Township, one in East Windsor Township, one in Hopewell Township, one in Trenton and one in Lawrence Township. The Bank operates one branch office in Flemington, Hunterdon County, New Jersey, and one branch office in Newtown, Bucks County, Pennsylvania. In addition, the Bank leases a 45,000 square foot building located in Hamilton Township. This location serves as the headquarters for the Company and the Bank and includes a full service bank branch and Telephone Help Center which serves as a centralized sales and information center for all of the banking offices. The Bank's principal executive offices are located at 2465 Kuser Road, Hamilton, New Jersey. The Bank conducts a general commercial and retail banking business. The principal focus of the Bank has been to provide a full range of traditional commercial and retail banking services, including savings and time deposits, letters of credit, checking accounts and commercial, real estate and consumer loans, for individuals and small to medium size businesses in each of the local communities that it serves. The Bank also markets non-deposit financial products and services. 4 The Bank has eight wholly-owned non-bank subsidiaries. Yardville National Investment Corporation, which was incorporated in 1985, was formed to separate a portion of the Bank's investment portfolio functions and responsibilities from its regular banking operations and to increase the net yield of the investment portfolio. YNB Real Estate Holding Company, Inc. is utilized to hold Bank branch properties. YNB Realty, Inc. is utilized to more effectively manage certain commercial mortgage loans originated by the Bank. Brendan, Inc., Nancy-Beth, Inc. and Jim Mary, Inc. are utilized for the control and disposal of other real estate properties. YNB Financial Services, Inc. markets a comprehensive array of financial planning, investment, and insurance products. YNB Capital Development, Inc. provides innovative financing solutions for real estate and commercial transactions that do not fall within the boundaries of traditional financing. Yardville Capital Trust, Yardville Capital Trust II and Yardville Capital Trust III These entities are wholly-owned subsidiaries of the Company and were formed for the exclusive purposes of (i) issuing and selling trust preferred securities, (ii) using the proceeds from the sale of the trust preferred securities to acquire subordinated debentures issued by the Company and (iii) engaging in only those other activities necessary, advisable or incidental thereto. Supervision and Regulation General Bank holding companies and banks are extensively regulated under both Federal and state laws. Because the Company is a "bank holding company" under the Bank Holding Company Act, the FRB, acting through the Federal Reserve Bank of Philadelphia ("FRBP") is the primary supervisory authority for, and examines, the Company and any non-bank subsidiaries which are not subsidiaries of the Bank. Because the Bank is a national bank, the primary supervisory authority for the Bank and its subsidiaries is the OCC, which regularly examines the Bank. The FDIC and the FRB (because the Bank is a member of the Federal Reserve System) also regulate, supervise and have power to examine the Bank and its subsidiaries. The regulation and supervision of the Company and the Bank are designed primarily for the protection of depositors and the FDIC, and not the Company or its stockholders. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance on deposits, the imposition of civil money penalties and removal and prohibition orders. If any enforcement action is taken by a banking regulator, the value of an equity investment in the Company could be substantially reduced or eliminated. Bank Holding Company Act The Bank Holding Company Act requires a "bank holding company" such as the Company to secure the prior approval of the FRB before it owns or controls, directly or indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of any bank. Applications under the Bank Holding 5 Company Act and the Change in Control Act (see discussion below) are subject to review based upon the record of compliance of the applicant with the Community Reinvestment Act of 1977 ("CRA) as discussed below. In addition, a bank holding company is generally prohibited from engaging in or acquiring direct or indirect control of more than five percent (5%) of the voting shares of any company engaged in non-banking activities unless the FRB, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. As further discussed below, the Gramm-Lech-Bliley Act of 1999 has established a new kind of bank holding company, called a financial holding company. Bank holding companies that are eligible and make an effective election to be a financial holding company then have substantially broader powers, particularly in the areas of securities and insurance activities. Effective March 13, 2000, the Company has made an effective election to be a financial holding company. The Company is required to file an annual report with the FRB and any additional information that the FRB may require pursuant to the Bank Holding Company Act. The FRB may also make examinations of the Company and any or all of its subsidiaries. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of credit or provision of any property or services. The so-called 'anti-tie-in' provisions state generally that a bank may not condition the pricing or provision of certain products and services on a requirement that the customer provide certain products or services to the bank holding company or bank, or any other subsidiary of the bank holding company, or that the customer not obtain certain products or services from competitors, or that the customer also obtain certain other products or services from the bank, its bank holding company or any other subsidiary of the bank holding company. There is an exception to the tie-in prohibition for "traditional" banking products and services. FRB regulations require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. The FRB has, in some cases, entered orders for bank holding companies to take affirmative action to strengthen the finances or management of subsidiary banks. Change in Bank Control Act Under the Change in Bank Control Act of 1978 ("Change in Control Act"), no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire "control" of any federally insured depository institution unless the appropriate Federal banking agency has been given 60 days' prior written notice of the proposed acquisition and within that period has not issued a notice disapproving of the proposed acquisition or has issued written notice of its intent not to disapprove the action. For this purpose, "control" is generally defined as the power, directly, or indirectly, to direct the management or policies of an institution or to vote 25% or more of any class of its voting securities. Under applicable regulations, control is presumed to exist in certain circumstances, including ownership of more than 10% of any class of voting shares of a public company such as the Company. The period for the agency's disapproval may be extended by the agency. Upon receiving such notice, the Federal agency is required to provide a copy to the appropriate state regulatory agency if the institution of which control is to be acquired is state chartered, and the Federal agency is obligated to give due consideration 6 to the views and recommendations of the state agency. Upon receiving a notice, the Federal agency is also required to conduct an investigation of each person involved in the proposed acquisition. Notice of such proposal is to be published and public comment solicited thereon. A proposal may be disapproved by the Federal agency if the proposal would have anti-competitive effects, if the proposal would jeopardize the financial stability of the institution to be acquired or prejudice the interests of its depositors, if the competence, experience or integrity of any acquiring person or proposed management personnel indicates that it would not be in the interest of depositors or the public to permit such person to control the institution, if any acquiring person fails to furnish the Federal agency with all information required by the agency, or if the Federal agency determines that the proposed transaction would result in an adverse effect on a deposit insurance fund. In addition, the Change in Control Act requires that, whenever any federally insured depository institution makes a loan or loans secured, or to be secured, by 25% or more of the outstanding voting stock of a federally insured depository institution, the president or chief executive officer of the lending bank must promptly report such fact to the appropriate Federal banking agency regulating the institution whose stock secures the loan or loans. Supervision and Regulation of the Bank The operations of the Bank are subject to Federal and state statutes and regulations applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System and to banks whose deposits are insured by the FDIC. The primary supervisory authority of the Bank is the OCC (also its primary Federal regulator), which regularly examines the Bank. The OCC has the authority to prevent a national bank from engaging in an unsafe or unsound practice in conducting its business. Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, the investments a bank may make, the reserves against deposits a bank must maintain, loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. All nationally and state-chartered banks in New Jersey are permitted to maintain branch offices in any county of the state. Branching outside of New Jersey is also permitted under certain circumstances. See "Interstate banking." National bank branches may be established only after approval by the OCC. It is the general policy of the OCC to approve applications to establish and operate domestic branches provided that approval would not violate applicable Federal or state laws regarding the establishment of such branches. The OCC reserves the right to deny an application or grant approval subject to conditions if (1) there are significant supervisory concerns with respect to the application or affiliated organizations, (2) in accordance with CRA, the applicant's record of helping meet the credit needs of its entire community, including low and moderate income neighborhoods, consistent with safe and sound operation, is less than satisfactory, or (3) any financial or other business arrangement, direct or indirect, involving the proposed branch or device and bank "insiders" (directors, officers, employees and 10%-or-greater stockholders) involves terms and conditions more favorable to the insiders than would be available in a comparable transaction with unrelated parties. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC's prior 7 approval is also required for any new branch application of a bank which is ranked in any of the three "undercapitalized" categories established by FDICIA. See "Prompt Corrective Action." Under the Federal Deposit Insurance Act, the OCC possesses the power to prohibit institutions regulated by it (such as the Bank) from engaging in any activity that would be an unsafe and unsound banking practice and in violation of the law. Moreover, Federal law enactment's have expanded the circumstances under which officers or directors of a bank may be removed by the institution's Federal supervisory agency, restricted and further regulated lending by a bank to its executive officers, directors, principal stockholders or related interests thereof and restricted management personnel of a bank from serving as directors or in other management positions with certain depository institutions whose assets exceed a specified amount or which have an office within a specified geographic area, and restricts management personnel from borrowing from another institution that has a correspondent relationship with their bank. The Bank, as a member of the Federal Reserve System, is subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or its subsidiaries, on investments in the stock or other securities of the bank holding company or its subsidiaries and on taking such stock or securities as collateral for loans. The Federal Reserve Act and FRB regulations also place certain limitations and reporting requirements on extensions of credit by the Bank to principal stockholders of its parent holding company, among others, and to related interests of such principal stockholders. Such legislation and regulations may affect the terms upon which any person becoming a principal stockholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship. In addition, as a bank whose deposits are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default of any assessment due to the FDIC. The Bank is not in default under any of its obligations to the FDIC. The FDIC also has authority under the Federal Deposit Insurance Act to prohibit an insured bank from engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or unsound practice in conducting its business. It is possible, depending upon the financial condition of the Bank and other factors, that the FDIC could claim that the payment of dividends or other payments might, under some circumstances, be an unsafe or unsound banking practice. Under CRA, the record of a bank holding company and its subsidiary banks must be considered by the appropriate Federal banking agencies in reviewing and approving or disapproving a variety of regulatory applications including approval of a branch or other deposit facility, office relocation, a merger and certain acquisitions of bank shares. Regulators are required to assess the record of the Company and the Bank to determine if they are meeting the credit needs of the community (including low and moderate neighborhoods) they serve. Regulators make publicly available an evaluation of banks' records in meeting credit needs in their communities, including a descriptive rating and a statement describing the basis for the rating. In addition, the Bank is subject to a variety of banking laws and regulations governing consumer protection (including the Truth in Lending Act ("TILA"), the Truth in Savings Act, the Equal Credit Opportunity Act, the Home 8 Mortgage Disclosure Act, the Electronic Funds Transfer Act, and the Real Estate Settlement Procedures Act ("RESPA"), FDIC deposit insurance regulations, and FRB regulations governing such matters as reserve requirements for deposits, securities margin lending, collection of checks and other items and availability of deposits for withdrawal by customers, security procedures, and prohibitions of payment of interest on demand deposits. Under the Americans With Disabilities Act ("ADA"), certain bank facilities are identified as "public accommodations" and are subject to regulation to promote accessibility of their facilities for disabled persons. Capital Rules Under risk-based capital requirements for bank holding companies, the Company is required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) of eight percent. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less goodwill ("tier 1 capital" and together with tier 2 capital "total capital"). The remainder may consist of subordinated debt, nonqualifying preferred stock and a limited amount of the loan loss allowance ("tier 2 capital"). At December 31, 2000, the Company's tier 1 capital and total capital ratios were 10.6 percent and 11.6 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets ("leverage ratio") equal to three percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of from at least four to five percent. The Company's leverage ratio at December 31, 2000, was 8.1 percent. The requirements also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the requirements indicate that the Federal Reserve Board will continue to consider a "tangible tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised the Company of any specific minimum tier 1 leverage ratio applicable to it. The Bank is subject to similar capital requirements adopted by the OCC. The OCC has not advised the Bank of any specific minimum leverage ratios applicable to it. The capital ratios of the Bank are set forth below under the discussion of Prompt Corrective Action. Banking regulators continue to indicate their desire to raise capital requirements applicable to banking organizations, including a proposal to add an interest rate risk component to risk-based capital requirements. Prompt Corrective Action In addition to the required minimum capital levels described above, federal law establishes a system of "prompt corrective actions" which Federal banking agencies are required to take, and certain actions which they have 9 discretion to take, based upon the capital category into which a federally regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution which is not adequately capitalized. Under the rules, an institution will be deemed to be "adequately capitalized" or better if it exceeds the minimum Federal regulatory capital requirements. However, it will be deemed "undercapitalized" if it fails to meet the minimum capital requirements, "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0 percent, a Tier 1 risk-based capital ratio that is less than 3.0 percent, or a leverage ratio that is less than 3.0 percent, and "critically undercapitalized" if the institution has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent. The following table sets forth the minimum capital ratios that a bank must satisfy in order to be considered adequately capitalized or well capitalized under the prompt corrective action regulations, and the Bank's capital ratios at December 31, 2000:
Adequately Well Bank ratios at Capitalized Capitalized December 31, 2000 ----------- ----------- ----------------- Total Risk-Based Capital Ratio 8.00% 10.00% 11.5% Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 10.4% Leverage Ratio 4.00% 5.00% 8.0%
The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain "management fees" to any "controlling person". Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution's ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be "critically undercapitalized" and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership. Deposit Insurance Assessments Deposits of the Bank are insured by the FDIC through the Bank Insurance Fund ("BIF"). Deposits of certain savings associations are insured by the FDIC through the Savings Association Insurance Fund ("SAIF"). The FDIC sets deposit insurance assessment rates on a semiannual basis and will increase deposit insurance assessments whenever the ratio of reserves to insured deposits in a fund is less than 1.25. The insurance assessments paid by an institution are to 10 be based on the probability that the fund will incur a loss with respect to the institution. The FDIC has adopted deposit insurance regulations under which insured institutions are assigned to one of the following three capital groups based on their capital levels: "well-capitalized," "adequately capitalized" and "undercapitalized." Banks in each of these three groups are further classified into three subgroups based upon the level of supervisory concern with respect to each bank. The resulting matrix creates nine assessment risk classifications to which are assigned deposit insurance premiums ranging from 0.00% for the best capitalized, healthiest institutions, to 0.27% for undercapitalized institutions with substantial supervisory concerns. In addition, the Bank is subject to quarterly assessments relating to interest payments on Financing Corporation (FICO) bonds issued in connection with the resolution of the thrift industry crisis. The FICO assessment rate is adjusted quarterly to reflect changes in the assessment bases of the BIF and SAIF. The FICO assessments on BIF-insured deposits are set at an annual rate of 0.0196% of assessable deposits. Limitations on Payment of Dividends Under applicable New Jersey law, the Company is not permitted to pay dividends on its capital stock if, following the payment of the dividend, (i) the corporation would be unable to pay its debts as they become due in the usual course of business or (ii) the corporation's total assets would be less than its total liabilities. Determinations under clause (ii) above may be based upon (i) financial statements prepared on the basis of generally accepted accounting principles, (ii) financial statements prepared on the basis of other accounting principles that are reasonable under the circumstances, or (iii) a fair valuation or other method that is reasonable in the circumstances. Since it has no significant independent sources of income, the ability of the Company to pay dividends is dependent on its ability to receive dividends from the Bank. Under national banking laws, a national bank must obtain the approval of the OCC before declaring any dividend which, together with all other dividends declared by the national bank in the same calendar year will exceed the total of the bank's net profits of that year combined with its retained net profits of the preceding 2 years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Net profits are to be calculated without adding back any provision to the bank's allowance for loan and lease losses. These restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time. FDICIA prohibits FDIC-insured institutions from paying dividends or making capital distributions that would cause the institution to fail to meet minimum capital requirements. The FDICIA restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time. New Jersey Banking Laws Provisions of the New Jersey Banking Act of 1948 with supplements (the "New Jersey Banking Act") may apply to national banking associations with their principal offices in New Jersey, subject to pre-emption by applicable Federal laws. The merger of a national bank into a state bank requires approval of the 11 New Jersey Commissioner of Banking; however, a state bank may merge into a national bank without such prior approval. The New Jersey Banking Act also purports to regulate certain aspects of bank business, including small loans and certain deposit accounts. New Jersey law permits interstate banking and branching, subject to certain limitations. See the discussion under "Interstate Banking", below. Interstate Banking Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), beginning on September 29, 1995, bank holding companies are now permitted to acquire banks in any state without regard to state law, except that state laws which require the acquiror to have been in existence for a specified minimum period of time are preserved, up to a maximum existence requirement of 5 years. Except for initial entry into a state, after an acquisition the acquiror may not control more than 10% of total insured deposits in the U. S. or more than 30% of insured deposits in the acquiror's home state. Stricter state deposit concentration caps apply if they are nondiscriminatory. In addition, effective June 1, 1997, banks in different states may be merged into a single bank with interstate branches, subject to any necessary regulatory approvals and provided the banks are adequately capitalized, unless the state in which such branches would be located has enacted legislation prohibiting such transactions. Once a bank has established branches in a host state through an interstate merger transaction, it may establish and acquire additional branches anywhere in the host state where the acquiree could have branched. The establishment of de novo branches or acquisition of one or more branches in another state without acquisition of the entire bank are only permitted if the other state has enacted legislation authorizing such branching in that state. On April 17, 1996, New Jersey enacted legislation authorizing interstate mergers and acquisitions of branches. The New Jersey legislation does not authorize de novo branching into the state. Because of reciprocity rules adopted by other states (such as Pennsylvania) the lack of authorization for de novo branching into New Jersey may also affect the ability of the Bank to branch into other states. Bank management anticipates that the Interstate Banking Act will increase competitive pressures in the Bank's market by permitting entry of additional competitors. Recent Banking Legislation On November 12, 1999, the Gramm-Leach-Bliley Act (the "Financial Modernization Act" or the "Act") was signed into law. The centerpiece of the Financial Modernization Law are provisions allowing for affiliations among banking, insurance and securities firms under a "financial holding company." The Act establishes certain principles of functional regulation applicable to such affiliated operations, and certain historic exemptions available to banks under various Federal securities laws are significantly scaled back effective in May, 2001. The Act also establishes significant new consumer privacy protections, which are scheduled to come into effect in July, 2001. All financial institutions are required to develop a written privacy policy, and to disclose it to their customers at the time of establishment of the customer relationship and annually thereafter. In addition, the Act imposes stringent restrictions on the disclosure of non-public consumer financial information to third parties. The Act includes a broad range of regulatory changes, including various provisions designed to reduce the regulatory burden on small banks and provisions requiring disclosures of certain types of agreements entered into relating to CRA compliance. The Financial Modernization Act is sweeping 12 legislation that the Company believes will affect the financial services industry for years to come. It is too early to determine the effect the Act will have on the Company or its financial performance. Other Laws and Regulations The Company and the Bank are subject to a variety of laws and regulations which are not limited to banking organizations. In lending to commercial and consumer borrowers, and in owning and operating its own property, the Bank is subject to regulations and risks under state and Federal environmental laws. Legislation and Regulatory Changes Legislation and regulations may be enacted which increase the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions are frequently made in Congress and before various bank regulatory agencies. No prediction can be made as to the likelihood of any major changes or the impact such changes might have on the Company and the Bank. Effect of Government Monetary Policies The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The FRB has had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The FRB has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks' deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. Competition The Bank faces significant competition both in generating loans and in attracting deposits. The central New Jersey area is a highly competitive market. The Bank is subject to vigorous competition in all aspects of its business from other financial institutions such as commercial banks, savings banks, savings and loan associations, credit unions, insurance companies and finance and mortgage companies. Within the direct market area of the Bank there are a significant number of offices of competing financial institutions. The Bank competes in its market area with a number of larger commercial banks that have substantially greater resources, higher lending limits, larger branch systems and provide a wider array of banking services. The effect of liberalized branching and acquisition laws has been to lower barriers to entry into the banking business and increase competition for banking business, as well as to 13 increase both competition for and opportunities to acquire other financial institutions. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans. In its lending business, the Bank is subject to increasing competition from consumer finance companies and mortgage companies, which are not subject to the same kind of regulatory restrictions as banks and can often offer lower loan rates than banks. Financial institutions are intensely competitive in the interest rates they offer on deposits. In addition, the Bank faces competition for deposits from non-bank institutions such as brokerage firms and insurance companies in such instruments as short-term money market funds, corporate and government securities funds, mutual funds and annuities. Finally, a number of the Bank's competitors provide a wider array of services (such as trust and international services, which the Bank does not provide) and, by virtue of their greater financial resources, have higher lending limits and larger branch systems. Employees At December 31, 2000, the Company employed 248 full-time employees and 28 part-time employees. Statistical Disclosure Statistical disclosure information regarding the Company is included in "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations," which is incorporated by reference to the Company's 2000 Annual Report to Stockholders. ITEM 2. PROPERTIES Principal Office The principal executive offices of the Company and the Bank are located at 2465 Kuser Road, Hamilton, New Jersey. The Bank leases the offices pursuant to a lease that commenced in October, 1999, has an initial term of 14 years ending in 2013, and is renewable for two additional five-year periods thereafter. The monthly rental payments under the lease are $54,750 during the first five years of the lease. Thereafter, the monthly rental will be adjusted every five years in accordance with a formula based on the Consumer Price Index, provided that the monthly rental payment for any lease period may not vary by more than 3% from the monthly rental payment in the immediately preceding lease period. The Bank has the option to purchase the property at any time after the fifth year of the lease at a purchase price equal to the fair market value of the property at the time the option is exercised. The Bank also maintains a full-service branch office and the Bank's Telephone Help Center in the building. The management and staff of the Company utilize the facilities and equipment of the Bank at these offices. In addition, Yardville National Investment Corporation leases office space in the building from the Bank. 14 Branch Offices The Bank presently maintains 15 branch offices. The Bank owns four banking offices in Hamilton Township, New Jersey, and one banking office in Ewing Township, New Jersey. In addition to the banking branch located in its principal executive offices, the Bank leases the following eight additional banking offices in New Jersey and one additional branch office in Newtown, Pennsylvania: o West Trenton Office: The lease provides for a term of five years ending in 2004 (renewable for two additional five-year periods thereafter) and base monthly rental payments of $2,530.00 during the current term. o East Windsor Office: As a result of negotiations in April, 1998, the lease provides for a remaining term of six years and seven months ending in 2004 (renewable for two additional five-year periods thereafter) and base monthly rental payments of $5,416.66 during the current term. o Trenton Office: The lease provides for a term of five years ending in 2004 (renewable for two additional five-year periods thereafter) and base monthly rental payments of $2,105.00 during the current term. o Nottingham Pointe Office: Effective April 1, 1996, the Bank assumed a lease with a remaining term ending on September 20, 2011 (renewable for six five-year periods thereafter) and base monthly rental payments of $5,573.53 during the current term. o Pennington Office: The lease provides for an initial term of five years ending in 2003 (renewable for three additional five-year periods thereafter) and base monthly rental payments of 1,730.33 during the initial term. o Newtown Office: The lease provides for an initial term of five years ending in 2003 (renewable for three additional five-year periods thereafter) and base monthly rental payments of $4,670.83 during the initial term. o Parkway Office: The Bank opened its first supermarket branch office in Ewing Township in April, 2000. The lease provides for an initial term of five years ending in 2005 (renewable for three additional five-year periods thereafter), no rental payments during the first year of the initial term, and base monthly payments of $1,666.67 during the remainder of the initial term. 15 o Flemington Office: The Bank opened this branch office in November 2000. The lease provides for an initial term of 2 years and 3 months ending in 2002 (with no renewable periods) and base monthly payments of $1,850.00 during the term. o Lawrence Office: The Bank opened this branch office in January 2001 under a lease that became effective in 2000. The lease provides for an initial term of ten years ending in 2010 (renewable for 4 additional 5 year periods thereafter) and base monthly payments of $5,848.33 during the current term. The Bank expects to open its first branch in Bordentown, Burlington County in the second quarter of 2001. The lease for this branch has not been finalized. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal actions as of December 31, 2000, arising out of the ordinary course of business. Management of the Company does not deem any of the claims against the Company in such matters are material in relation to the Company's financial condition, results of operations or liquidity based on information currently available to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2000, through the solicitation of proxies or otherwise. 16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information The Common Stock is traded in the Nasdaq National Market System. The following table shows the range of high and low closing bid prices of the Common Stock in the Nasdaq National Market System during 1999 and 2000. The price quotations reflect inter-dealer quotations without adjustment for retail markup, markdown or commission, and may not represent actual transactions. Bid Price High Low Year Ended December 31, 1999: ----------------------------- First Quarter $13.88 $12.31 Second Quarter 13.75 11.63 Third Quarter 13.75 10.63 Fourth Quarter 12.63 10.31 Year Ended December 31, 2000: ----------------------------- First Quarter $11.13 $ 8.81 Second Quarter 10.75 8.56 Third Quarter 12.19 10.31 Fourth Quarter 12.25 10.88 Holders As of December 31, 2000, the Company had approximately 615 holders of record of the Common Stock. 17 Dividends In 1999, the Company paid four quarterly cash dividends on the Common Stock in the aggregate amount of $2.0 million. In 2000, the Company paid four quarterly cash dividends on the Common Stock in the aggregate amount of $2.8 million. Dividends paid per share in 2000 totaled $0.40. Cash dividends are generally paid quarterly or four times a year. In the first quarter of 2001, the Company paid a cash dividend in the amount of $0.11 per share on the Common Stock. Because substantially all of the funds available for the payment of cash dividends are derived from the Bank, future cash dividends will depend primarily upon the Bank's earnings, financial condition, need for funds, and government policies and regulations applicable to both the Bank and the Company. As of December 31, 2000, the net profits of the Bank available for distribution to the Company as dividends without regulatory approval were approximately $12.9 million. The Company expects to pay quarterly cash dividends for the remaining three quarters in 2001 to holders of Common Stock, subject to the Company's financial condition. ITEMS 6, 7, 7A AND 8 Information required by items 6, 7, 7A and 8 is provided in the Company's 2000 Annual Report to Stockholders under the captions and on the pages indicated below, and is incorporated by reference: PAGES IN 2000 CAPTION IN 2000 ANNUAL REPORT ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA 11-12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-36 QUARTERLY FINANCIAL DATA (UNAUDITED) 36 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37-52 INDEPENDENT AUDITORS' REPORT 53 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS 10 THROUGH 13 Information required by Items 10 through 13 is provided in the Company's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held May 1, 2001. Such information is incorporated by reference. The information contained in the Company's definitive proxy statement under the captions "Organization and Compensation Committee Report" and "Audit Committee Report" shall not be deemed to be incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits and Financial Statement Schedules 1. Financial Statements The following financial statements are incorporated herein by reference to the Company's 2000 Annual Report to Stockholders: o Consolidated Statements of Condition o Consolidated Statements of Income o Consolidated Statements of changes in Stockholders' Equity o Consolidated Statements of Cash Flows o Notes to Consolidated Financial Statements o Independent Auditors' Report 2. Financial Statement Schedules None 19 3. Exhibits The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page E-1. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended December 31, 2000. 20 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized on March 28, 2001. YARDVILLE NATIONAL BANCORP By: /s/ Patrick M. Ryan ----------------------------------- Patrick M. Ryan, President and Chief Executive Officer Signatures Title ---------- ----- /s/ Jay G. Destribats Chairman of the Board and Director --------------------------- Jay G. Destribats /s/ Patrick M. Ryan Director, President and --------------------------- Chief Executive Officer Patrick M. Ryan /s/ Stephen F. Carman Treasurer, Secretary, --------------------------- Principal Financial Officer Stephen F. Carman and Principal Accounting Officer /s/ C. West Ayres Director --------------------------- C. West Ayres /s/ Elbert G. Basolis, Jr. Director --------------------------- Elbert G. Basolis, Jr. /s/ Lorraine Buklad Director --------------------------- Lorraine Buklad /s/ Anthony M. Giampetro Director --------------------------- Anthony M. Giampetro /s/ Sidney L. Hofing Director --------------------------- Sidney L. Hofing /s/ James J. Kelly Director --------------------------- James J. Kelly 21 Signatures Title ---------- ----- /s/ Gilbert W. Lugossy Director --------------------------- Gilbert W. Lugossy /s/ Louis R. Matlack Director --------------------------- Louis R. Matlack /s/ Weldon J. McDaniel, Jr. Director --------------------------- Weldon J. McDaniel, Jr. /s/ Martin Tuchman Director --------------------------- Martin Tuchman /s/ F. Kevin Tylus Director --------------------------- F. Kevin Tylus 22 INDEX TO EXHIBITS
Exhibit Number Description Page ------------------------------------------------------------------------------------------------------------------ (A) 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 4.2 See Exhibits 3.1 and 3.2 for the Registrant's Certificate of Incorporation and By-Laws, which contain provisions defining the rights of stockholders of the Registrant. (C) 4.3 Amended and Restated Trust Agreement dated October 16, 1997, among the Registrant, as depositor, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust. (C) 4.4 Indenture dated October 16, 1997, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant's 9.25% Subordinated Debentures due 2027. (C) 4.5 Preferred Securities Guarantee Agreement dated as of October 16, 1997, between the Registrant and Wilmington Trust Company, as trustee, relating to the Preferred Securities of Yardville Capital Trust. 4.6 The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant's Series A 9.50% Junior Subordinated Deferrable Interest Debentures due June 22, 2030: (i) Amended and Restated Declaration of Trust dated June 23, 2000, among the Registrant, The Bank of New York, as property trustee, and the Administrative Trustees of Yardville Capital Trust II; (ii) Indenture dated as of June 23, 2000, between the Registrant and The Bank of New York, as trustee, relating to the Registrant's Series A 9.50% Junior Subordinated Deferrable Interest Debentures due June 22, 2030; and (iii) Series A Capital Securities Guarantee Agreement dated as of June 23, 2000, between the Registrant and The Bank of New York, as trustee, relating to the Series A Capital Securities of Yardville Capital Trust II. 4.7 The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant's Series A 10.18% Junior Subordinated Deferrable Interest Debentures due June 8, 2031: (i) Amended and Restated Declaration of Trust dated March 28, 2001, among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust III; (ii) Indenture dated as of March 28, 2001, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant's Series A 10.18% Junior Subordinated Deferrable Interest Debentures due June 8, 2031; and (iii) Series A Capital Securities Guarantee Agreement dated as of March 28, 2001, between the Registrant and Wilmington Trust Company, as trustee, relating to the Series A Capital Securities of Yardville Capital Trust III. 10.1 Employment Contract between Registrant and Patrick M. Ryan. 10.2 Employment Contract between Registrant and Jay G. Destribats 10.3 Employment Contract between Registrant and Stephen F. Carman 10.4 Employment Contract between Registrant and James F. Doran 10.6 Employment Contract between Registrant and Mary C. O'Donnell 10.7 Employment Contract between Registrant and Frank Durand III (D) 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan (D) 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats (E) 10.10 1988 Stock Option Plan (F) 10.12 Directors' Deferred Compensation Plan
23 INDEX TO EXHIBITS (continued)
Exhibit Number Description Page ------------------------------------------------------------------------------------------------------------------ (G) 10.13 Survivor Income Plan for the Benefit of Stephen F. Carman (H) 10.14 1997 Stock Option Plan 10.15 Employment Contract between Registrant and Howard N. Hall 10.16 Employment Contract between Registrant and Timothy J. Losch (A) 10.17 Survivor Income Plan for the Benefit of Timothy J. Losch (I) 10.18 1994 Stock Option Plan. (J) 10.19 Lease agreement between Crestwood Construction and the Bank dated May 25, 1998 (K) 10.20 Yardville National Bank Employee Stock Ownership Plan, As amended 13.1 2000 Annual Report to Stockholders 21 List of Subsidiaries of the Registrant 23.1 Consent of KPMG, LLP
24 INDEX TO EXHIBITS (continued)
Exhibit Number Description Page ------------------------------------------------------------------------------------------------------------------ (A) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (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 Registration Statement on Form S-2 (Registration Nos. 333-35061 and 333-35061-01) (D) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (E) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, as amended by Form 10-Q/A filed on August 15, 1997 (F) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB/A filed on July 25, 1995 (G) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for fiscal year ended December 31, 1995 (H) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No.333-28193) (I) 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).
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