Back to GetFilings.com
1
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, 1999
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 Quakerbridge Road, Trenton, 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 [ ]
2
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 24, 2000, in the NASDAQ
National Market System: $55,030,992.
Number of shares of common stock, no par value, outstanding as of March 24,
2000: 6,755,794.
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, 1999:
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 2000
Annual Meeting of Stockholders to be held on
May 2, 2000 III
3
FORM 10-K
INDEX
PAGE
PART I
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
4
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, 1999, the
Company had total assets of approximately $1,123,598,000, deposits of
approximately $743,807,000 and stockholders' equity of approximately
$58,825,000.
The Bank
The Bank received its charter from The Office of the Comptroller of the
Currency (the "OCC") in 1924 and commenced operations as a commercial bank in
1925. The Bank currently operates twelve full-service banking offices in Mercer
County, New Jersey, six in Hamilton Township, two in Ewing Township, one in East
Windsor Township, one in Hopewell Township, one in Trenton and one in Newtown,
Pennsylvania. In addition, the Bank operates a Telephone Help Center which
serves as a centralized sales and information center for all of the banking
offices. The Bank also 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. The Telephone Help Center is also
located in the corporate headquarters building.
The Bank's principal executive offices are located at 2465 Kuser Road,
Trenton, New Jersey.
The Bank conducts a general commercial and retail banking business. The
principal focus of the Bank has been to provide a full range of traditional
commercial and retail banking services, including savings and time deposits,
letters of credit, checking accounts and commercial, real estate and consumer
loans, for individuals and small and medium size businesses in each of the local
communities that it serves. The Bank also offers mutual funds and annuity
products to its customers.
5
The Bank has seven 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 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, Inc. is engaged in the business of selling
investment products offered by insurance companies.
Yardville Capital Trust
Yardville Capital Trust, a wholly-owned subsidiary of the Company, was
formed on August 28, 1997 for the exclusive purposes of (i) issuing and selling
trust preferred securities, (ii) using the proceeds from the sale of the trust
preferred securities to acquire subordinated debentures issued by the Company
and (iii) engaging in only those other activities necessary, advisable or
incidental thereto.
Supervision and Regulation
General
Bank holding companies and banks are extensively regulated under both
Federal and state laws. Because the Company is a "bank holding company" under
the Bank Holding Company Act, the FRB, acting through the Federal Reserve Bank
of Philadelphia ("FRBP") is the primary supervisory authority for, and examines,
the Company and any non-bank subsidiaries which are not subsidiaries of the
Bank. Because the Bank is a national bank, the primary supervisory authority for
the Bank and its subsidiaries is the OCC, which regularly examines the Bank. The
FDIC and the FRB (because the Bank is a member of the Federal Reserve System)
also regulate, supervise and have power to examine the Bank and its
subsidiaries.
The regulation and supervision of the Company and the Bank are designed
primarily for the protection of depositors and the FDIC, and not the Company or
its stockholders. Enforcement actions may include the imposition of a
conservator or receiver, cease-and-desist orders and written agreements, the
termination of insurance on deposits, the imposition of civil money penalties
and removal and prohibition orders. If any enforcement action is taken by a
banking regulator, the value of an equity investment in the Company could be
substantially reduced or eliminated.
Bank Holding Company Act
The Bank Holding Company Act requires a "bank holding company" such as the
Company to secure the prior approval of the FRB before it owns or controls,
directly or indirectly, more than five percent (5%) of the voting shares or
substantially all of the assets of any bank. Applications under the Bank Holding
Company Act and the Change in Control Act (see discussion below) are subject to
review based upon the record of compliance of the applicant with
6
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
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.
7
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 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."
8
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
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
9
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, 1999, the Company's tier 1 capital and total
capital ratios were 10.3 percent and 11.5 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, 1999, was 7.9 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
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
10
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, 1999:
Adequately Well Bank ratios at
Capitalized Capitalized December 31, 1999
----------- ----------- -----------------
Total Risk-Based Capital Ratio 8.00% 10.00% 11.4%
Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 10.2%
Leverage Ratio 4.00% 5.00% 7.8%
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
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
11
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
0.0212% of assessable deposits.
Limitations on Payment of Dividends; Regulatory Agreement
Under applicable New Jersey law, the Company is not permitted to pay
dividends on its capital stock if, following the payment of the dividend, (i)
the corporation would be unable to pay its debts as they become due in the usual
course of business or (ii) the corporation's total assets would be less than its
total liabilities. Determinations under clause (ii) above may be based upon (i)
financial statements prepared on the basis of generally accepted accounting
principles, (ii) financial statements prepared on the basis of other accounting
principles that are reasonable under the circumstances, or (iii) a fair
valuation or other method that is reasonable in the circumstances.
Since it has no significant independent sources of income, the ability of
the Company to pay dividends is dependent on its ability to receive dividends
from the Bank. Under national banking laws, a national bank must obtain the
approval of the OCC before declaring any dividend which, together with all other
dividends declared by the national bank in the same calendar year will exceed
the total of the bank's net profits of that year combined with its retained net
profits of the preceding 2 years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. Net profits are to be calculated
without adding back any provision to the bank's allowance for loan and lease
losses. These restrictions would not prevent the Bank from paying dividends from
current earnings to the Company at this time. FDICIA prohibits FDIC-insured
institutions from paying dividends or making capital distributions that would
cause the institution to fail to meet minimum capital requirements. The FDICIA
restrictions would not prevent the Bank from paying dividends from current
earnings to the Company at this time. The Bank in 1991 entered into a written
agreement with the OCC (the "Regulatory Agreement") to, among other things,
create a Compliance Committee, implement a plan to correct any compliance
deficiencies, and reduce its classified assets and to maintain the Bank's common
stockholders' equity at 5% of total assets. In 1991, in connection with the
Regulatory Agreement and at the recommendation of the FRBP, the Board of
Directors of the Company adopted a resolution, under which the Board could not
declare a dividend to the Company's stockholders except with 10 days' prior
written notice to the FRBP. The Regulatory Agreement was terminated on October
18, 1993, and on December 21, 1994, the Board of Directors of the Company
rescinded its resolution with the permission of the FRBP, which was granted on
November 30, 1994.
New Jersey Banking Laws
Provisions of the New Jersey Banking Act of 1948 with supplements (the
"New Jersey
12
Banking Act") may apply to national banking associations with their principal
offices in New Jersey, subject to pre-emption by applicable Federal laws. The
merger of a national bank into a state bank requires approval of the New Jersey
Commissioner of Banking; however, a state bank may merge into a national bank
without such prior approval. The New Jersey Banking Act also purports to
regulate certain aspects of bank business, including small loans and certain
deposit accounts. New Jersey law permits interstate banking and branching,
subject to certain limitations. See the discussion under "Interstate Banking",
below.
Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"), beginning on September 29, 1995, bank
holding companies are now permitted to acquire banks in any state without regard
to state law, except that state laws which require the acquiror to have been in
existence for a specified minimum period of time are preserved, up to a maximum
existence requirement of 5 years. Except for initial entry into a state, after
an acquisition the acquiror may not control more than 10% of total insured
deposits in the U. S. or more than 30% of insured deposits in the acquiror's
home state. Stricter state deposit concentration caps apply if they are
nondiscriminatory. In addition, effective June 1, 1997, banks in different
states may be merged into a single bank with interstate branches, subject to any
necessary regulatory approvals and provided the banks are adequately
capitalized, unless the state in which such branches would be located has
enacted legislation prohibiting such transactions. Once a bank has established
branches in a host state through an interstate merger transaction, it may
establish and acquire additional branches anywhere in the host state where the
acquiree could have branched. The establishment of de novo branches or
acquisition of one or more branches in another state without acquisition of the
entire bank are only permitted if the other state has enacted legislation
authorizing such branching in that state. On April 17, 1996, New Jersey enacted
legislation authorizing interstate mergers and acquisitions of branches. The New
Jersey legislation does not authorize de novo branching into the state. Because
of reciprocity rules adopted by other states (such as Pennsylvania) the lack of
authorization for de novo branching into New Jersey may also affect the ability
of the Bank to branch into other states. Bank management anticipates that the
Interstate Banking Act will increase competitive pressures in the Bank's market
by permitting entry of additional competitors.
1996 Federal Banking Legislation
The Economic Growth And Regulatory Paperwork Reduction Act of 1996 (the
"1996 Banking Law"), enacted as Title II of the Omnibus Consolidated
Appropriations Act for Fiscal Year 1997 was signed into Law on September 30,
1996, implemented a wide range of regulatory relief provisions affecting federal
insured depository institutions. Among the supervisory provisions of the 1996
Banking Law which may affect the Bank, the 1996 Banking Law included the
following: per branch capital requirement for national banks were eliminated;
ATM's and other remote service units were excluded from the definition of
"branch" for purposes of certain branch approval requirements and geographic
restrictions; the law permits well-capitalized banks rated CAMEL 1 or 2 to
invest in bank premises in amounts up to 150 percent of the bank's capital and
surplus with only a 30-day after-the-fact notice and establishes expedited
procedures to permit certain bank holding companies to engage in permissible
nonbanking activities, except for
13
acquisitions of thrifts; exempted from the insider lending restrictions a bank's
company-wide benefit or compensation plans that are widely available to
employees of the bank and that do not give preference to any officer, director,
or principal shareholder (or related interests) over other employees of the
bank; permits the Federal banking agencies to raise the asset limit for an
18-month examination cycle from $175,000,000 to $250,000,000 for banks with a
CAMEL 2 rating; permits the OCC to waive the State residency requirement for
directors of national banks; eliminates the independent auditor attestation
requirement for compliance with safety and soundness laws; authorizes the
Federal banking agencies to permit a bank's independent audit committee to
include some inside directors if the bank is unable to find competent outside
directors, provided a majority of the committee is still made up of outside
directors; requires FRB and the U.S. Department of Housing and Urban
Development, within 6 months of enactment, to simplify and improve RESPA and
TILA disclosures and provide a single format for such disclosures; makes a
number of changes to RESPA's disclosure requirements; generally provides that,
if a bank or a third party self-tests for compliance under the Equal Credit
Opportunity Act and the Fair Housing Act, the test results will not be used
against the bank if the bank identifies possible violations and is taking
appropriate corrective actions, and if the bank is not using the results in its
defense; sunsets the Truth-in-Savings Act's civil liability provision in five
years; recapitalizes the Savings Association Insurance Fund ("SAIF") as of
October 1, 1996; requires banks after December 31, 1996 to pay 20% of the
interest on the bonds that funded the initial capitalization of SAIF ("FICO
bonds") but banks would be required to pay a full pro-rata share of the interest
obligation beginning after the earlier of December 31, 1999 or the date on which
the last savings association ceases to exist; merges SAIF and the Bank Insurance
Fund ("BIF") on January 1, 1999, but only if no insured depository institution
is a savings association on that date; requires the Department of Treasury to
conduct a study by March 31, 1997 on the development of a common charter for all
insured depository institutions; substantially amends the Fair Credit Reporting
Act ("FCRA"); prohibits the Federal banking agencies from examining for
compliance with FCRA unless there has been a complaint about a violation or the
agency otherwise has knowledge of a violation; and amends the Comprehensive
Environmental Response, Compensation, and Liability Act to clarify that a lender
is not liable for environmental cleanups of property securing a loan unless the
lender, among other things, participates in day-to-day decision making over the
operations of the property or has control over environmental compliance and
provides that lenders that foreclose on property may take certain
post-foreclosure actions without incurring liability for environmental cleanup
if the lender did not participate in management of the property prior to
foreclosure and the lender seeks to dispose of the property as soon as it is
commercially reasonable.
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 November, 2000. 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-
14
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 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
15
branching and acquisition laws has been to lower barriers to entry into the
banking business and increase competition for banking business, as well as to
increase both competition for and opportunities to acquire other financial
institutions. Savings banks, savings and loan associations and credit unions
also actively compete for deposits and for various types of loans. In its
lending business, the Bank is subject to increasing competition from consumer
finance companies and mortgage companies, which are not subject to the same kind
of regulatory restrictions as banks and can often offer lower loan rates than
banks. Financial institutions are intensely competitive in the interest rates
they offer on deposits. In addition, the Bank faces competition for deposits
from non-bank institutions such as brokerage firms and insurance companies in
such instruments as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. Finally, a number of the Bank's
competitors provide a wider array of services (such as trust and international
services, which the Bank does not provide) and, by virtue of their greater
financial resources, have higher lending limits and larger branch systems.
Employees
At December 31, 1999, the Company employed 222 full-time employees and 29
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 1999
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.
Branch Offices
The Bank presently maintains 12 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 five additional banking
offices in New Jersey and one additional branch office in Newtown, Pennsylvania:
> 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 $2,520 during the current term.
> 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 $5416.66 during the current term.
> 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 $2,105.00 during the current term.
> Nottingham Pointe Office: The Bank opened this branch office in 1996.
Effective April 1, 1996, the Bank assumed a lease with a remaining term
ending on September 30, 2011 (renewable for six five-year periods thereafter)
and base monthly rental payments $5573.53 during the current term.
> Pennington Office: The Bank opened this branch office in 1998. 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 $1730.33 during the initial term.
> Newtown Office: The Bank opened this branch office in the first quarter of
1999 under a lease that became effective in 1998. 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 $4,670.83
during the initial term.
The Bank expects to open its third branch office in Ewing Township in
April, 2000. The lease will provide 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 rental
payments of $1,677 during the remainder of the initial term.
16
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions as of December 31, 1999,
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 as 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, 1999, through the solicitation of
proxies or otherwise
17
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 1998 and 1999. The prices
below reflect the 2.5% stock dividend declared in March 1998. The price
quotations reflect inter-dealer quotations without adjustment for retail markup,
markdown or commission, and may not represent actual transactions.
Bid Price
-----------------
Year Ended December 31, 1998: High Low
- ----------------------------- ------ -----
First Quarter $19.03 $17.08
Second Quarter 19.75 16.38
Third Quarter 16.75 12.00
Fourth Quarter 14.25 12.00
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
Holders
As of December 31, 1999, the Company had approximately 601 holders of
record of the Common Stock.
Dividends
In 1998, the Company paid four quarterly cash dividends on the Common
Stock in the aggregate amount of $1,449,000. In 1999, the Company paid four
quarterly cash dividends on the Common Stock in the aggregate amount of
$2,037,000. Dividends paid per share in 1999 totaled $0.34. The fourth quarter
dividend in 1999 included a special year-end cash dividend of $0.01. Cash
dividends are generally paid quarterly or four times a year. All dividend data
has been restated to reflect the 2.5% stock dividend declared in March 1998. In
the first quarter of 2000, the Company paid a cash dividend in the amount of
$.10 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, 1999, the net profits of the
Bank available for distribution to the Company as dividends without regulatory
approval were approximately $10,288,000. The Company expects to pay quarterly
cash dividends for the remaining three quarters in 2000 to holders of Common
Stock, subject to the Company's financial condition.
18
ITEMS 6, 7, 7A AND 8
Information required by items 6, 7, 7A and 8 is provided in the Company's
1999 Annual Report to Stockholders under the captions and on the pages indicated
below, and is incorporated by reference:
PAGES IN 1999
CAPTION IN 1999 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
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
2, 2000. Such information is incorporated by reference. The information
contained in the Company's definitive proxy statement under the caption
"Organization and Compensation Committee Report" shall not be deemed to be
incorporated by reference herein.
19
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 1999 Annual Report to Stockholders:
- Consolidated Statements of Condition
- Consolidated Statements of Income
- Consolidated Statements of changes in Stockholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
- Independent Auditors' Report
2. Financial Statement Schedules
None
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, 1999.
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 22, 2000.
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/ F. Kevin Tylus Director
---------------------------
F. Kevin Tylus
22
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------------------------------------------------------------------------------------
(G) 3.1 Restated Certificate of Incorporation of the Company,
as amended by the Certificate of Amendment thereto
filed on March 6, 1998.
(B) 3.2 By-Laws of the Company
(B) 4.1 Specimen Share of Common Stock
(I) 4.2 See Exhibits 3.1 and 3.2 for the Registrant's
Certificate of Incorporation and By-Laws, which
contain provisions defining the rights of stockholders
of the Registrant.
(I) 4.3 Amended and Restated Trust Agreement dated October 16,
1997, among the Registrant, as depositor, Wilmington
Trust Company, as property trustee, and the
Administrative Trustees of Yardville Capital Trust.
(I) 4.4 Indenture dated October 16, 1997, between the
Registrant and Wilmington Trust Company, as trustee,
relating to the Registrant's 9.25% Subordinated
Debentures due 2027.
(I) 4.5 Preferred Securities Guarantee Agreement dated as of
October 16, 1997, between the Registrant and
Wilmington Trust Company, as trustee, relating to the
Preferred Securities of Yardville Capital Trust.
(L) 10.1 Employment Contract between Registrant and Patrick M.
Ryan.
(L) 10.2 Employment Contract between Registrant and Jay G.
Destribats
(L) 10.3 Employment Contract between Registrant and Stephen F.
Carman
10.4 Employment Contract between Registrant and James F.
Doran
10.5 Employment Contract between Registrant and Richard A.
Kauffman
10.6 Employment Contract between Registrant and Mary C.
O'Donnell
10.7 Employment Contract between Registrant and Frank
Durand III
(D) 10.8 Salary Continuation Plan for the Benefit of Patrick M.
Ryan
23
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
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
(F) 10.18 1997 Stock Option Plan
10.19 Employment Contract between Registrant and Howard N.
Hall
10.20 Employment Contract between Registrant and Sarah J.
Strout
10.21 Employment Contract between Registrant and Nina D.
Melker
(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.
24
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
10.32 Employment Contract between Registrant and Kathleen A.
Fone
13.1 1999 Annual Report to Stockholders
21 List of Subsidiaries of the Registrant
23.1 Consent of KPMG, LLP
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
25
INDEX TO EXHIBITS (CONTINUED)
(E) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1997, as
amended by Form 10-Q/A filed on August 15, 1997
(F) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (Registration No. 333-28193)
(G) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
(H) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1998, as
amended by Form 10-Q/A filed June 9, 1998
(I) Incorporated by reference to the Registrant's Registration
Statement on Form S-2 (Registration Nos. 333-35061 and
333-35061-01)
(J) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1998.
(K) Incorporated by reference to the Registration Statement on Form
S-8 (Registration No. 333-71741).
(L) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 as
amended by Form 10-K/A filed on April 20, 1999.