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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, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26086
YARDVILLE NATIONAL BANCORP
--------------------------
(Exact Name of Registrant as specified in its Charter)
New Jersey 22-2670267
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2465 Kuser Road, Hamilton, New Jersey 08690
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(Address of principal executive offices) (Zip Code)
(609) 585-5100
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(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 22, 2002), in the
NASDAQ National Market System: $78,891,586
Number of shares of common stock, no par value, outstanding as of March 22,
2002: 8,042,568
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, 2001:
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 2002
Annual Meeting of Stockholders to be held on
April 30, 2002 III
2
FORM 10-K
INDEX
PART I PAGE
Item 1. Business 1
Item 2. Properties 11
Item 3 Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
Signatures 16
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, 2001, the Company had
total assets of approximately $1.9 billion, deposits of approximately $1.1
billion and stockholders' equity of approximately $93.2 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 sixteen 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 Burlington County located in Bordentown. The Bank operates one office in
Flemington, Hunterdon County, New Jersey, and one branch office in Newtown,
Bucks County, Pennsylvania. In addition, 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. In March 2002, the Bank began leasing a building in Flemington which
will serve as the regional headquarters for the northern Mercer County market
and for Hunterdon County and will include a full service bank branch. This
location will open in April 2002.
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.
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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 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. offers 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
Company Act and the Change in Control Act (see discussion below) are subject to
5
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-Leach-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 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,
6
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 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."
7
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,
8
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, 2001, the Company's tier 1 capital and total capital
ratios were 10.0 percent and 11.3 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, 2001, was 6.9 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
9
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, 2001:
Adequately Well Bank ratios at
Capitalized Capitalized December 31, 2001
----------- ----------- -----------------
Total Risk-Based Capital Ratio 8.00% 10.00% 10.9%
Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 9.8%
Leverage Ratio 4.00% 5.00% 6.8%
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 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
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"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. The FDIC sets deposit insurance
assessment rates on a semiannual basis, and is required to set assessments to
the extent necessary to maintain the ratio of reserves to insured deposits at
1.25%. Factors such as significant bank failures and increases in insured
deposits could result in the reserve ratio falling below 1.25% and resultant
increases in the assessments set by the FDIC.
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.
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
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."
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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 went 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 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.
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In the wake of the tragic events, of September 11th, on October 26, 2001, the
President signed the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism ("USA PATRIOT") Act of 2001.
Under the USA PATRIOT Act, financial institutions are subject to prohibitions
against specified financial transactions and account relationships as well as
enhanced due diligence and "know your customer" standards in their dealings with
foreign financial institutions and foreign customers. For example, the enhanced
due diligence policies, procedures, and controls generally require financial
institutions to take reasonable steps:
o to conduct enhanced scrutiny of account relationships to guard
against money laundering and report any suspicious transactions;
o to ascertain the identity of the nominal and beneficial owners of,
and the source of funds deposited into, each account as needed to
guard against money laundering and report any suspicious
transactions;
o to ascertain for any foreign bank, the shares of which are not
publicly traded, the identity of the owners of the foreign bank, and
the nature and extent of the ownership interest of each such owner;
and
o to ascertain whether any foreign bank provides correspondent accounts
to other foreign banks and, if so, the identity of those foreign
banks and related due diligence information.
Under the USA PATRIOT Act, financial institutions have 180 days from enactment
(or until April 25, 2002) to establish anti-money laundering programs. The USA
PATRIOT Act sets forth minimum standards for these programs, including:
o the development of internal policies, procedures, end controls;
o the designation of a compliance officer;
o an ongoing employee training program; and
o an independent audit function, to test, the programs.
Before the 180-day grace period expires, the Secretary of the Treasury will
prescribe regulations that consider the extent to which these new requirements
are commensurate with the size, location, and activities of financial
institutions subject to the Act.
In addition, the USA PATRIOT Act authorized the Secretary of the Treasury to
adopt rules increasing the cooperation and information sharing between financial
institutions, regulators, and law enforcement authorities regarding individuals,
entities and organizations engaged in, or reasonably suspected based on credible
evidence of engaging in, terrorist acts or money laundering activities. Any
financial institutions complying with these rules will not be deemed to have
violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed
above.
13
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
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
14
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, 2001, the Company employed 280 full-time employees and 26
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 2001
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 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.
In the fourth quarter of 2001 the Bank relocated its operations center into a
leased facility. This facility also houses the Bank's Telephone Help Center. The
Bank leases this office pursuant to a lease that commenced in October, 2001, has
an initial term of fifteen years ending in 2016, and is renewable for two
additional five-year periods thereafter. The monthly base rental payments under
the lease are $19,614.38 during the first five years of the lease. Thereafter,
the monthly rental will be adjusted every five years in accordance with the
negotiated lease.
15
In April of 2002 the Bank will open its regional headquarters in Flemington,
Hunterdon County. The Bank leases this regional headquarters pursuant to a lease
that commenced in March, 2002, has an initial term of fifteen years ending in
2017, and is renewable for three additional five-year periods thereafter. The
initial base monthly rental payments under the lease are $20,000 during the
first five years of the lease. Thereafter, the monthly rental will be adjusted
every five years by 10% in accordance with the negotiated terms of the lease.
The Bank will also maintain a full-service branch office in the building.
Branch Offices
The Bank presently maintains 16 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 nine 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 $2,530.00 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 $5,416.66 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 20, 2011 (renewable for six five-year periods
thereafter) and base monthly rental payments $5,573.53 during the current
term.
>> Pennington Office: The Bank opened this branch 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
1,730.33 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.
16
>> 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.
>> Flemington Office: The Bank opened this branch office in November 2000. The
lease provides for an initial term of two years and three months ending in
2002 (with no renewable periods) and base monthly payments of $1,850.00
during the term.
>> Lawrence Office: The Bank opened this branch office in January 2001. The
lease provides for an initial term of ten years ending in 2010 (renewable
for four additional five year periods thereafter) and base monthly payments
of $5,848.33 during the current term.
>> Burlington Office: The Bank opened this branch office in May 2001. The
lease provides for an initial term of ten years (renewable for three
additional five year periods thereafter) and base monthly payments of
$5,333.33 during the initial term.
The Bank currently operates a loan production office in leased office space in
Flemington. The Bank has received permission from the OCC to open a branch at
this location. This branch is anticipated to open in the second quarter of 2002.
In addition, the Bank has filed an application with the OCC to open a branch in
Middlesex County. This branch is expected to open in late 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions as of December 31, 2001, 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, 2001, 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 2000 and 2001. 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, 2000: High Low
- -----------------------------
First Quarter $11.13 $8.81
Second Quarter 10.75 8.56
Third Quarter 12.19 10.31
Fourth Quarter 12.25 10.88
Year Ended December 31, 2001:
- ----------------------------
First Quarter $14.25 $12.06
Second Quarter 14.45 13.56
Third Quarter 14.10 11.00
Fourth Quarter 12.80 10.96
Holders
As of December 31, 2001, the Company had approximately 610 holders of record of
the Common Stock.
Dividends
In 2000, the Company paid four quarterly cash dividends on the Common Stock in
the aggregate amount of $2.8 million. In 2001, the Company paid four quarterly
cash dividends on the Common Stock in the aggregate amount of $3.3 million.
Dividends paid per share in 2001 totaled $0.44. Cash dividends are generally
paid quarterly or four times a year. In the first quarter of 2002, the Company
paid a cash dividend in the amount of $.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
18
December 31, 2001, the net profits of the Bank available for distribution to the
Company as dividends without regulatory approval were approximately $11.5
million. The Company expects to pay quarterly cash dividends for the remaining
three quarters in 2002 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 2001
Annual Report to Stockholders under the captions and on the pages indicated
below, and is incorporated by reference:
PAGES IN 2001
CAPTION IN 2001 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
19
PART III
ITEMS 10 THROUGH 13
Information required by Items 10 through 13 is provided in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its annual meeting of stockholders to be held
April 30, 2002. Such information is incorporated by reference. The information
contained in the Company's definitive proxy statement under the caption
"Organization and Compensation Committee Report" shall not be deemed to be
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules
1. Financial Statements
The following financial statements are incorporated herein by
reference to the Company's 2001 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
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, 2001.
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 27, 2002.
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/ 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.
(B) 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.
(J) 10.1 Employment Contract between Registrant and Patrick M. Ryan.
(J) 10.2 Employment Contract between Registrant and Jay G. Destribats
23
INDEX TO EXHIBITS (continued)
Exhibit
Number Description Page
- ------------------------------------------------------------------------------------------------------------------
(J) 10.3 Employment Contract between Registrant and Stephen F. Carman
(J) 10.4 Employment Contract between Registrant and James F. Doran
10.5 Employment Contract between Registrant and Eugene C. McCarthy
(J) 10.6 Employment Contract between Registrant and Mary C. O'Donnell
(J) 10.7 Employment Contract between Registrant and Frank Durand III
10.8 Supplemental Executive Retirement Plan Summary for the Benefit of Patrick M. Ryan
10.9 Supplemental Executive Retirement Plan Summary for the Benefit of Jay G. Destribats
(D) 10.10 1988 Stock Option Plan
10.11 Supplemental Executive Retirement Plan
(E) 10.12 Directors' Deferred Compensation Plan
10.13 Supplemental Executive Retirement Plan Summary for the Benefit of Stephen F. Carman
(F) 10.14 1997 Stock Option Plan
(J) 10.15 Employment contract between Registrant and Howard N. Hall
(J) 10.16 Employment contract between Registrant and Timothy J. Losch
10.17 Supplemental Executive Retirement Plan Summary for the Benefit of Timothy J. Losch
(G) 10.18 1994 Stock Option Plan
(H) 10.19 Lease agreement between Crestwood Construction and the Bank dated May 25, 1998
(I) 10.20 Yardville National Bank Employee Stock Ownership Plan, As amended
13.1 2001 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 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
(E) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB/A
filed July 25, 1995
(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 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
(H) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1998
(I) Incorporated by reference to the Registrant's Statement on Form S-8
(Registration No. 333-71741)
(J) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000
25