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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
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(Exact name of registrant as specified in its charter)
New Jersey 22-2670267
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2465 Kuser Road, Hamilton, New Jersey 08690
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(Address of principal executive offices)
(609) 585-5100
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(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 9, 2003 the following
class and number of shares were outstanding:
Common Stock, no par value 10,408,095
- -------------------------- ----------------------------
Class Number of shares outstanding
1
INDEX
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES
PART I FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
Item 1. Financial Statements (unaudited)
Consolidated Statements of Condition
March 31, 2003 (unaudited) and December 31, 2002 3
Consolidated Statements of Income
Three months ended March 31, 2003 and 2002 (unaudited) 4
Consolidated Statements of Cash Flows
Three months ended March 31, 2003 and 2002 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 29
Item 4. Controls and Procedures 31
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings 32
Item 2. Changes in Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
Index to Exhibits 34
Signatures 35
Certifications 36
2
Part I. Financial Information
Item 1. Financial Statements
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
March 31, December 31,
- --------------------------------------------------------------------------------------------------
(in thousands, except share data) 2003 2002
- --------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 31,592 $ 28,608
Federal funds sold 74,060 72,485
- --------------------------------------------------------------------------------------------------
Cash and Cash Equivalents 105,652 101,093
- --------------------------------------------------------------------------------------------------
Interest bearing deposits with banks 872 2,501
Securities available for sale 813,775 820,665
Investment securities (market value of $62,566 in 2003 and
$56,710 in 2002) 60,551 54,690
Loans 1,245,661 1,195,143
Less: Allowance for loan losses (16,561) (16,821)
- --------------------------------------------------------------------------------------------------
Loans, net 1,229,100 1,178,322
Bank premises and equipment, net 12,118 12,208
Other real estate 1,848 1,048
Bank owned life insurance 41,340 40,850
Other assets 23,373 20,081
- --------------------------------------------------------------------------------------------------
Total Assets $2,288,629 $2,231,458
- --------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing $ 137,836 $ 126,183
Interest bearing 1,201,266 1,146,103
- --------------------------------------------------------------------------------------------------
Total Deposits 1,339,102 1,272,286
- --------------------------------------------------------------------------------------------------
Borrowed funds
Securities sold under agreements to repurchase 10,000 10,000
Federal Home Loan Bank advances 736,000 746,000
Obligation for Employee Stock Ownership Plan (ESOP) 300 400
Other 660 1,311
- --------------------------------------------------------------------------------------------------
Total Borrowed Funds 746,960 757,711
- --------------------------------------------------------------------------------------------------
Company-obligated Mandatorily Redeemable Trust Preferred
Securities of Subsidiary Trust holding solely junior
Subordinated Debentures of the Company 36,000 32,500
Other liabilities 20,081 23,022
- --------------------------------------------------------------------------------------------------
Total Liabilities $2,142,143 $2,085,519
- --------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common stock: no par value
Authorized 12,000,000 shares
Issued 10,578,953 shares in 2003 and
10,576,157 shares in 2002 89,377 89,297
Surplus 2,205 2,205
Undivided profits 52,793 50,633
Treasury stock, at cost: 180,248 shares in 2003 and 2002 (3,154) (3,154)
Unallocated ESOP shares (300) (400)
Accumulated other comprehensive income 5,565 7,358
- --------------------------------------------------------------------------------------------------
Total Stockholders' Equity 146,486 145,939
- --------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $2,288,629 $2,231,458
- --------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
- -----------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 2003 2002
- -----------------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $20,054 $17,569
Interest on deposits with banks 7 16
Interest on securities available for sale 8,807 10,160
Interest on investment securities:
Taxable 58 263
Exempt from Federal income tax 631 582
Interest on Federal funds sold 211 302
- -----------------------------------------------------------------------------------------------
Total Interest Income 29,768 28,892
- -----------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings account deposits 2,640 2,784
Interest on certificates of deposit of $100,000 or more 1,058 1,385
Interest on other time deposits 3,853 4,633
Interest on borrowed funds 9,034 8,667
Interest on trust preferred securities 854 775
- -----------------------------------------------------------------------------------------------
Total Interest Expense 17,439 18,244
- -----------------------------------------------------------------------------------------------
Net Interest Income 12,329 10,648
Less provision for loan losses 600 550
- -----------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 11,729 10,098
- -----------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 547 516
Securities gains, net 151 643
Income on bank owned life insurance 509 411
Other non-interest income 365 332
- -----------------------------------------------------------------------------------------------
Total Non-Interest Income 1,572 1,902
- -----------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 5,017 4,242
Occupancy expense, net 1,026 817
Equipment expense 690 544
Other non-interest expense 1,914 1,596
- -----------------------------------------------------------------------------------------------
Total Non-Interest Expense 8,647 7,199
- -----------------------------------------------------------------------------------------------
Income before income tax expense 4,654 4,801
Income tax expense 1,298 1,306
- -----------------------------------------------------------------------------------------------
Net Income $ 3,356 $ 3,495
- -----------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic $ 0.32 $ 0.44
Diluted $ 0.32 $ 0.43
- -----------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 10,397 8,012
Diluted 10,565 8,092
- -----------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
- ----------------------------------------------------------------------------------------------------
(in thousands) 2003 2002
- ----------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 3,356 $ 3,495
Adjustments:
Provision for loan losses 600 550
Depreciation 546 427
ESOP fair value adjustment 31 2
Amortization and accretion 1,210 803
Gains on sales of securities available for sale (151) (643)
Loss on sale of other real estate -- 7
Increase in other assets (2,858) (593)
(Decrease) increase in other liabilities (2,941) 776
---------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided by Operating Activities (207) 4,824
- ----------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net decrease (increase) in interest bearing deposits with banks 1,629 (717)
Purchase of securities available for sale (200,061) (156,963)
Maturities, calls and paydowns of securities available for sale 168,403 65,244
Proceeds from sales of securities available for sale 34,777 121,009
Proceeds from maturities and paydowns of investment securities 815 724
Purchase of investment securities (6,679) (396)
Net increase in loans (52,180) (43,569)
Expenditures for bank premises and equipment (456) (635)
- ----------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (53,752) (15,303)
- ----------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in non-interest bearing demand,
money market, and savings deposits 94,832 62,149
Net decrease in certificates of deposit (28,016) (18,274)
Net decrease in borrowed funds (10,751) (101)
Proceeds from issuance of trust preferred securities 15,000 --
Retirement of trust preferred securities (11,500) --
Proceeds from issuance of common stock 49 --
Decrease in unallocated ESOP shares 100 100
Dividends paid (1,196) (885)
- ----------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 58,518 42,989
- ----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,559 32,510
Cash and cash equivalents as of beginning of period 101,093 66,731
- ----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Period $ 105,652 $ 99,241
- ----------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest 18,476 19,852
Income taxes 6,100 --
- ----------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Transfers from loans to other real estate, net of charge offs 801 --
- ----------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
Yardville National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2003
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America as
applied to the banking industry. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near-term relate to the determination
of the allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for loan losses and other real estate, management
obtains independent appraisals for significant properties.
The consolidated financial data as of and for the three months ended March 31,
2003 includes, in the opinion of management, all adjustments, consisting of only
normal recurring accruals necessary for a fair presentation of such periods. The
consolidated financial data for the interim periods presented is not necessarily
indicative of the results of operations that might be expected for the entire
year ending December 31, 2003.
Consolidation
The consolidated financial statements include the accounts of Yardville National
Bancorp and its subsidiaries, Yardville Capital Trust, Yardville Capital Trust
II, Yardville Capital Trust III, Yardville Capital Trust IV and The Yardville
National Bank (the "Bank") and the Bank's wholly owned subsidiaries
(collectively, the Corporation). All significant inter-company balances and
transactions have been eliminated in consolidation.
Allowance for Loan Losses
The provision for loan losses charged to operating expense is determined by
management and is based upon a periodic review of the loan portfolio, past
experience, the economy, and other factors that may affect a borrower's ability
to repay the loan. This provision is based on management's estimates and actual
losses may vary from these estimates. These estimates are reviewed and
adjustments, as they become necessary, are reported in the periods in which they
become known. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions, particularly in New Jersey. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Corporation's allowance for loan losses and the valuation of other real
estate. Such agencies may require the Corporation to recognize additions to the
allowance or adjustments to the carrying value of other real estate based on
their judgments about information available to them at the time of their
examination.
6
2. Earnings Per Share
Weighted average shares for the basic net income per share computation for the
three months ended March 31, 2003 and 2002 were 10,397,000 and 8,012,000,
respectively. For the diluted net income per share computation, common stock
equivalents of 168,000 and 80,000 were included for the three months ended March
31, 2003 and 2002, respectively. Common stock equivalents that were antidilutive
were 379,000 and 437,000 for the three months ended March 31, 2003 and 2002,
respectively.
3. Stock Based Compensation
The Corporation applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for stock
options in the consolidated financial statements. The following table
illustrates the effect on net income and earnings per share if the Corporation
had applied the fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the three months ended March 31,
- ---------------------------------------------------------------------------------------------------
(in thousands) 2003 2002
- ---------------------------------------------------------------------------------------------------
Net income as reported:
As reported $3,356 $3,495
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards,
net of related tax effects 108 76
- ---------------------------------------------------------------------------------------------------
Pro forma net income $3,248 $3,419
===================================================================================================
Earnings per share:
Basic:
As reported $ 0.32 $ 0.44
Pro forma 0.31 0.43
Diluted:
As reported $ 0.32 $ 0.43
Pro forma 0.31 0.42
- ---------------------------------------------------------------------------------------------------
The fair value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2003 and 2002, respectively: (1) an expected
annual dividend rate of $0.46 in both 2003 and 2002, (2) risk free rate of 2.8%
and 2.7%, (3) expected average life of approximately eight years in 2003 and
five years in 2002, (4) expected volatility of 38% in 2003 and 36% in 2002.
7
4. Comprehensive Income
Below is a summary of comprehensive income for the three months ended March 31,
2003 and 2002.
Comprehensive Income Three Months Ended March 31,
-----------------------------------------------------------------------------------------
(in thousands) 2003 2002
-----------------------------------------------------------------------------------------
Net Income $ 3,356 $ 3,495
-----------------------------------------------------------------------------------------
Other comprehensive income
Unrealized holding losses for the period,
net of tax (1,693) (3,441)
Less reclassification of realized net gain on sale of
securities available for sale, net of tax 100 442
-----------------------------------------------------------------------------------------
Holding loss arising during the period,
net of tax and reclassification (1,793) (3,865)
-----------------------------------------------------------------------------------------
Total comprehensive income (loss) $ 1,563 $ (370)
=========================================================================================
5. Relationships and Transactions with Directors and Officers
Certain directors and officers of the Corporation and their associates are or
have in the past been customers of, and have transactions with, the Bank. All
deposit accounts, loans, and commitments comprising such transactions were made
in the ordinary course of business of the Bank on substantially the same terms,
including interest rates and collateral, as those prevailing for comparable
transactions with other customers of the Bank. In the opinion of management of
the Corporation and the Bank, these loans did not involve more than normal risks
of collectibility or present other unfavorable features.
The following table summarizes activity with respect to such loans:
- --------------------------------------------------------------------------------
For the three For the year
months ended ended
(in thousands) March 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------
Balance as of beginning of period $42,996 $37,409
Additions 1,559 29,724
Reductions 3,220 24,137
- --------------------------------------------------------------------------------
Balance as of end of the period $41,335 $42,996
- --------------------------------------------------------------------------------
None of these loans were past due or on nonaccrual status as of March 31, 2003
or December 31, 2002.
8
In addition, the Corporation has had, and expects in the future to have, other
transactions in the ordinary course of business with many of its directors,
senior officers and other affiliates (and their associates) on substantially the
same terms as those prevailing for comparable transactions with others. No new
material relationships or transactions were commenced, and no material changes
were made to existing relationships or transactions, during the quarter ended
March 31, 2003 other than listed below.
On February 24, 2003, the Bank entered into a contract of sale on its former
operations center to Christopher S. Vernon, a director of the Corporation and
the Bank. The purchase price is $650,000 and the Bank will record a gain on the
sale of the property at closing. The transaction is expected to close in the
second quarter of 2003. The sale is contingent on Mr. Vernon and the Bank
finalizing a lease on the basement space in that building for a term of less
than one year.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This financial review presents management's discussion and analysis of the
financial condition and results of operations. It should be read in conjunction
with the 2002 Annual Report to Stockholders and Form 10-K, as amended, for the
fiscal year ended December 31, 2002 as well as the unaudited consolidated
financial statements and the accompanying notes in this Form 10-Q. Throughout
this report, the terms "YNB," "company," "we," "us," "our," and "corporation"
refer to Yardville National Bancorp, our wholly owned banking subsidiary, The
Yardville National Bank (the "Bank"), and other wholly owned subsidiaries, as a
consolidated entity. The purpose of this discussion and analysis is to assist in
the understanding and evaluation of the financial condition, changes in
financial condition and results of our operations.
This Form 10-Q contains express and implied statements relating to our future
financial condition, results of operations, plans, objectives, performance, and
business, which are considered forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These may include
statements that relate to, among other things, profitability, liquidity, loan
loss reserve adequacy, plans for growth, interest rate sensitivity, market risk,
regulatory compliance, and financial and other goals. Although we believe that
the expectations reflected in such forward-looking statements are based on
reasonable assumptions, we can give no assurance that our expectations will be
achieved. Actual results may differ materially from those expected or implied as
a result of certain risks and uncertainties, including but not limited to, the
results of our efforts to implement our retail strategy; adverse changes in our
loan portfolio and the resulting credit risk-related losses and expenses;
interest rate fluctuations and other economic conditions; continued levels of
our loan quality and origination volume; our ability to attract core deposits;
continued relationships with major customers; competition in product offerings
and product pricing; adverse changes in the economy that could increase
credit-related losses and expenses; adverse changes in the market price of our
common stock; compliance with laws, regulatory requirements and Nasdaq
standards; and other risks and uncertainties detailed from time to time in our
filings with the Securities and Exchange Commission.
The Company assumes no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.
Financial Condition
Assets
Total consolidated assets at March 31, 2003 were $2.29 billion, an increase of
$57.2 million or 2.6% compared to $2.23 billion at December 31, 2002. The growth
in YNB's asset base during the first three months of 2003 demonstrated our
strength as a business-focused, relationship-oriented, community bank as total
loans increased approximately $51 million. The growth in loans was principally
reflected in commercial real estate loans. The funding for this asset growth
came primarily from interest bearing demand deposits. New deposit initiatives in
our northern region, which includes Hunterdon, Somerset, and Middlesex Counties
in New Jersey, have also supported asset growth.
10
Federal funds sold
At March 31, 2003, Federal funds sold totaled $74.1 million compared to $72.5
million at December 31, 2002. Federal funds sold are the primary source of
balance sheet liquidity for YNB. Deposit growth modestly exceeded loan growth
which allowed us to reduce borrowed funds in the first quarter of 2003. This
resulted in a slight increase in the level of Federal funds sold at March 31,
2003.
Securities
The following tables present the amortized cost and market value of YNB's
securities portfolios as of March 31, 2003 and December 31, 2002.
Securities Available For Sale March 31, 2003 December 31, 2002
- ------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and
obligations of other U.S.
government agencies $ 286,958 $ 289,108 $ 245,973 $ 248,901
Mortgage-backed securities 419,907 427,473 468,745 478,357
Corporate obligations 57,777 56,493 55,087 53,696
All other securities 40,701 40,701 39,711 39,711
- ------------------------------------------------------------------------------------------------------------------
Total $ 805,343 $ 813,775 $ 809,516 $ 820,665
==================================================================================================================
Investment Securities March 31, 2003 December 31, 2002
- ------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
Obligations of state and
political subdivisions $ 56,474 $ 58,365 $ 50,308 $ 52,212
Mortgage-backed securities 4,077 4,201 4,382 4,498
- ------------------------------------------------------------------------------------------------------------------
Total $ 60,551 $ 62,566 $ 54,690 $ 56,710
==================================================================================================================
Securities represented 38.2% of total assets at March 31, 2003 and 39.2% at
December 31, 2002. Total securities decreased $1.1 million to $874.3 million at
March 31, 2003 compared to $875.4 million at year-end 2002. The available for
sale portfolio represented 93.1% of the total securities holdings of YNB at
March 31, 2003, compared to 93.8% at December 31, 2002.
11
At March 31, 2003, securities available for sale (AFS) had net unrealized gains,
net of tax effect, of $5.6 million as reported in accumulated other
comprehensive income in stockholders' equity, compared to $7.4 million in net
unrealized gains, net of tax effect, at December 31, 2002. Economic uncertainty
has resulted in volatility in the U.S. treasury yield curve. These changes can
impact the market value of our securities both positively and negatively.
Changes in the treasury yield curve and changes in the mix of securities in the
portfolio in the first quarter of 2003 resulted in the decrease in the net
unrealized gain in our AFS portfolio at March 31, 2003 compared to the balance
at year-end 2002.
Securities available for sale decreased $6.9 million or 0.8% to $813.8 million
at March 31, 2003 as compared to $820.7 million as of December 31, 2002. The
decrease in securities available for sale was the result of a $50.9 million
decrease in mortgage-backed securities partially offset by a $40.2 million
increase in U.S. agency bonds and increases in corporate obligations and all
other securities. In the first quarter of 2003, we implemented a strategy of
moderately extending the duration of the portfolio, currently at approximately
two years, to improve the performance of the portfolio in a stable or falling
interest rate environment, while at the same time seeking to limit extension
risk in a rising rate environment. This was accomplished through securities
sales and by not investing in 30 year fixed rate mortgage-backed securities and
fixed and floating rate CMOs that were experiencing faster than anticipated
principal prepayments. The proceeds were instead invested in longer-term
tax-free municipal bonds, classified as held to maturity, and into U.S. Agency
callable bonds classified as available for sale. YNB has targeted a 2.5-year
duration on the securities portfolio. These actions were intended to stabilize
the yield on the investment portfolio in the current rate environment. However,
should overall interest rates continue to fall or prepayments on mortgage-backed
securities increase from first quarter levels, the yield on our AFS portfolio
could continue to decline.
We manage a portion of our AFS portfolio with the primary objective of enhancing
return on average stockholders' equity and earnings per share. We refer to this
as our Investment Growth Strategy. At March 31, 2003, these Investment Growth
Strategy securities decreased $60.4 million from the year-end 2002 level to
$169.7 million. Management utilizes asset and liability simulation models to
analyze risk and reward relationships in different interest rate environments
and the degree of interest rate risk exposure associated with this strategy. Our
Investment Growth Strategy, as a percentage of total assets, has declined to
7.4% of total assets and we believe will continue to decline over time as our
asset base grows.
Investment securities, classified as held to maturity, increased $5.9 million to
$60.6 million at March 31, 2003 from $54.7 million at December 31, 2002. The
increase was due to a $6.2 million increase in tax-free municipal bonds,
partially offset by a $305,000 decrease in mortgage-backed securities.
12
Loans
We continue to emphasize commercial real estate and commercial and industrial
loans to individuals and small-to mid-sized businesses. The loan portfolio
represents our largest earning asset class and is our primary source of interest
income. Total loans increased $50.5 million or 4.2% to $1.25 billion at March
31, 2003 from $1.20 billion at December 31, 2002. Our strength as a commercial
lender and geographic expansion has resulted in ongoing loan growth. Our loan
portfolio represented 54.4% of total assets at March 31, 2003 compared to 53.6%
at December 31, 2002. Strong competition from both bank and non-bank
competitors, in addition to borrowers' concerns over the economy, real estate
prices and interest rates could affect future loan growth. The majority of our
lending business is with customers located within Mercer County, New Jersey and
contiguous counties. Accordingly, the ultimate collectability of the loan
portfolio and the recovery of the carrying amount of real estate are subject to
changes in the region's economic environment and real estate market.
The table below sets forth YNB's loan portfolio composition and loan growth by
type for the three months ended March 31, 2003.
Loan Portfolio Composition
- -------------------------------------------------------------------------------------------------------------------
(In thousands) 03/31/03 12/31/02 Change % Change
- -------------------------------------------------------------------------------------------------------------------
Commercial real estate
Owner occupied $ 176,288 $ 164,450 $ 11,838 7.2%
Investor occupied 355,503 321,583 33,920 10.5
Construction and development 122,415 121,295 1,120 0.9
- -------------------------------------------------------------------------------------------------------------------
Residential
1-4 family 119,749 116,829 2,920 2.5
Multi-family 31,983 34,012 (2,029) (6.0)
- -------------------------------------------------------------------------------------------------------------------
Commercial and industrial
Term 138,588 129,513 9,075 7.0
Lines of credit 196,552 207,562 (11,010) (5.3)
Demand 792 972 (180) (18.5)
- -------------------------------------------------------------------------------------------------------------------
Consumer
Home equity 74,887 70,579 4,308 6.1
Installment 19,841 19,078 763 4.0
Other 9,063 9,270 (207) (2.2)
===================================================================================================================
Total loans $1,245,661 $1,195,143 $ 50,518 4.2%
===================================================================================================================
At March 31, 2003, commercial real estate loans and commercial and industrial
loans represented 79.5% of total loans. In underwriting these loans, we first
evaluate the cash flow capacity of the borrower to repay the loan as well as the
borrower's business experience. In addition, a majority of commercial loans are
also secured by real estate and/or business assets and supported by the personal
guarantees of the principals. We also diligently monitor the composition and
quality of the overall commercial portfolio including significant credit
concentrations by borrower or industry.
Commercial real estate loans consist of owner occupied, investor occupied, and
construction and development loans. Construction and development loans include
residential and commercial projects and are typically made to experienced
developers. Residential construction loans include single family, multi-family,
and condominium projects. Commercial construction loans include office and
professional development, retail development and other commercial related
projects. Our lending policies generally require an 80% or lower loan-to-value
ratio for commercial real estate mortgages. Collateral values are established
based upon independently prepared appraisals. Commercial real estate loans
increased $46.9 million in the first three months of 2003 with the greatest
growth in investor occupied loans of approximately $34 million, as real estate
development continued in our markets. Growth in commercial real estate loans
accounted for 92.8% of the total loan growth year to date.
13
Residential loans include 1-4 family and multi-family loans. This segment of our
portfolio totaled $151.7 million at March 31, 2003, increasing $891,000 or 0.6%
from year-end 2002. Residential 1-4 family loans totaled $119.7 million at March
31, 2003 and represented 78.9% of total residential mortgage loans. YNB's 1-4
family loans are secured by first liens on the underlying real property. YNB is
a participating seller/servicer with the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) and generally
underwrites its single-family residential mortgage loans to conform to the
standards required by these agencies. Multi-family loans, which represented
$32.0 million of the total residential loans, primarily consist of loans secured
by apartment complexes.
Commercial and industrial loans are typically loans made to small and mid-sized
businesses for a wide variety of needs and include working capital loans, which
are used to finance inventory, receivables, and other working capital needs of
commercial borrowers. Commercial and industrial loans are structured as term
loans, lines of credit and demand loans. Commercial and industrial loans
decreased $2.1 million or 0.6% to $335.9 million at March 31, 2003 from $338.0
million at December 31, 2002. The decrease in commercial and industrial loans in
the first three months of 2003 resulted primarily from an $11.0 million decrease
in lines of credit outstanding, partially offset by an increase of $9.1 million
in term loans.
Consumer loans include fixed rate home equity loans, floating rate home equity
lines, indirect auto loans and other types of installment loans. Home equity
loans and lines represented 72.2% of total consumer loans at March 31, 2003.
Consumer loans increased $4.9 million or 4.9% to $103.8 million at March 31,
2003 from $98.9 million at December 31, 2002. The growth was primarily reflected
in increased home equity loans and lines. We believe that lower interest rates
accounted for the increased activity in the consumer loan portfolio in the first
three months of 2003. The expansion of our retail network is expected to
generate additional opportunities to increase the size of the consumer loan
portfolio.
We enter into a variety of financial instruments with off-balance sheet risk in
the normal course of business. These financial instruments include commitments
to extend credit and letters of credit, both of which involve, to varying
degrees, elements of risk in excess of the amount reflected in the consolidated
financial statements.
Credit risk for letters of credit is managed by limiting the total amount of
arrangements outstanding and by applying normal credit policies to all
activities with credit risk. Collateral is obtained based on management's credit
assessment of the customer.
The contract amounts of off-balance sheet financial instruments as of March 31,
2003 and December 31, 2002 for commitments to extend credit were $280.5 million
and $243.1 million, respectively, and for letters of credit were $17.9 million
and $19.6 million, respectively.
Commitments to extend credit and letters of credit may expire without being
drawn upon, and therefore, the total commitment amounts do not necessarily
represent future cash flow requirements.
Deposit liabilities
The following table provides information concerning YNB's deposit base at March
31, 2003 and December 31, 2002.
Deposits
- -------------------------------------------------------------------------------------------------------------------
(In thousands) 3/31/03 12/31/02 Change % Change
- -------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand
deposits $ 137,836 $ 126,183 $ 11,653 9.2%
Interest bearing demand deposits 190,652 122,015 68,637 56.3
Money market deposits 326,444 314,529 11,915 3.8
Savings deposits 85,428 82,801 2,627 3.2
Certificates of deposit of $100,000
or more 135,344 145,191 (9,847) (6.8)
Other time deposits 463,398 481,567 (18,169) (3.8)
- -------------------------------------------------------------------------------------------------------------------
Total $1,339,102 $1,272,286 $ 66,816 5.3%
===================================================================================================================
14
Deposits represent our primary funding source and support earning asset growth.
Our deposit base consists of non-interest bearing demand, interest bearing
demand, savings and money market accounts and time deposits. We continue to
implement our retail strategy, which includes expanding our branch network,
enhancing our brand image and upgrading our technology infrastructure with the
goal of further developing the earnings power of the retail network and
increasing our non-interest income. This will be accomplished by attracting
lower cost transaction and other core deposit accounts and reducing our
dependence on higher cost certificates of deposit (CDs) and borrowed funds. Our
Somerville branch, our first in Somerset County, opened in May 2003 and is
anticipated to further build and develop our northern region and contribute to
achieving the goals of our retail strategy.
Total deposits increased $66.8 million or 5.3% to $1.34 billion at March 31,
2003 compared to $1.27 billion at December 31, 2002. The growth in our deposit
base in the first three months of 2003 was primarily driven by the growth in
interest bearing demand deposits, and to a lesser extent, money market deposits
and non-interest bearing demand deposits.
Interest bearing demand deposits increased $68.6 million or 56.3% to $190.7
million at March 31, 2003 from $122.0 million at year-end 2002. The strong
growth in interest bearing demand deposits resulted primarily from the
successful bidding on surrogates deposits from several counties in New Jersey
and the introduction of a new interest bearing demand deposit product in our new
markets called "Simply Better Checking." In January 2003, YNB was awarded
approximately $46.0 million in additional surrogates deposits obtained through a
competitive bidding process. The average cost of all surrogates deposits for
2003 is approximately 2.55%.
As part of our retail strategy, we have changed the way we promote new branches.
In the past, we typically would offer an above market CD rate to attract
customers to our new branches. In conjunction with the opening of the Middlesex
County branch, and to support our retail expansion in our northern region, we
introduced "Simply Better Checking." This account is an interest bearing demand
deposit account with an above market introductory interest rate for the first
six months. This product encourages customers to bring their primary
relationship account to YNB. The introduction of this product was supported by
advertising and targeted direct mail. In the first quarter of 2003,
approximately 325 new accounts with $25.4 million in balances were opened. We
believe this product will allow us to attract new customers and support our
growth in our northern region, including our new Somerville branch, and Bucks
County, Pennsylvania.
We also experienced other core deposit growth with money market balances
increasing $11.9 million or 3.8% to $326.4 million at March 31, 2003 from $314.5
million at December 31, 2002. The increase in money market balances resulted
from new depositors as well as existing depositors moving CD proceeds into YNB's
Premier money market accounts. Savings deposits increased $2.6 million or 3.2%
to $85.4 million at March 31, 2003 from $82.8 million at December 31, 2002.
15
YNB markets its CDs through its branch network and through a computer-based
service provided by an independent third party, which enables us to place CDs
nationally. Total CDs, which include CDs of $100,000 or more and other time
deposits, decreased $28.0 million or 4.5% to $598.7 million at March 31, 2003
from $626.8 million at December 31, 2002. The decrease resulted from a $20.9
million decline in CDs obtained through the nationwide computer-based service
and a $7.1 million decrease in CDs obtained through the retail network. At March
31, 2003, we had approximately $75.9 million in CDs obtained through this
nationwide computer-based service, compared to approximately $96.8 million at
December 31, 2002. CDs continued to be an important source of funding for YNB in
2003, representing 44.7% of the total deposits at March 31, 2003 compared to
49.3% at year-end 2002. While CDs are expected to represent an important funding
vehicle, we are continuing efforts to further increase lower cost core deposits
and reduce the need for higher cost funding sources in both new and existing
markets.
Non-interest bearing demand deposits increased $11.7 million or 9.2% to $137.8
million at March 31, 2003 compared to $126.2 million at December 31, 2002. The
increase in demand deposits was primarily attributable to the growth in new and
existing business relationships.
While it is our strategy to fund earning asset growth with the lowest cost core
deposits, excluding certificates of deposit, core deposits have historically not
been adequate to meet loan demand and are not expected to do so in the future.
We believe growth experienced in money market balances over the past two years
may shift to historically higher cost CDs if interest rates rise.
Borrowed Funds
YNB's primary funding strategy is to rely on deposits to fund new earning asset
growth whenever possible, and to utilize borrowed funds as a secondary funding
source for earning assets as well as for asset and liability management, and
liquidity purposes. Borrowed funds consist primarily of Federal Home Loan Bank
(FHLB) advances. Borrowed funds totaled $747.0 million at March 31, 2003, a
decrease of $10.7 million from the $757.7 million outstanding at December 31,
2002. The decrease in borrowed funds resulted primarily from a decrease in FHLB
advances. It is our goal to retire FHLB advances as they mature in 2003. In
addition to the $10.0 million retired in the first quarter there are $46.0
million in advances that mature before December 31, 2003. Based on our liquidity
position at quarter end, it is our intention to pay off these advances as they
become due and reduce total borrowed funds. Within approved policy guidelines,
YNB will continue to use borrowed funds as an alternative funding source or to
meet desired business, asset and liability or liquidity objectives. With the
decreasing level of securities in the Investment Growth Strategy, FHLB advances
are not expected to be used for that purpose in 2003.
16
YNB had FHLB advances outstanding of $736.0 million at March 31, 2003 compared
to $746.0 million at December 31, 2002. At March 31, 2003, callable borrowings
totaled $619.0 million or 84.1% of total borrowings compared to $629.0 million
or 84.3% at December 31, 2002. Callable borrowings have terms of two to ten
years and are callable after periods ranging from three months to five years. As
of March 31, 2003, YNB had $506.0 million in outstanding callable borrowings
with call dates in 2003. We anticipate that, at current interest rate levels,
none of these callable advances will be called in 2003. Based on our analysis,
we believe rates would have to increase 400 basis points before we would
experience call activity.
Company - obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trust holding solely junior Subordinated Debentures of the Company
(Trust Preferred Securities)
On February 19, 2003, the Company through Yardville Capital Trust IV, a
subsidiary of the Company, completed the sale of $15.0 million of floating rate
Trust Preferred Securities in a private placement. The floating rate is based on
three month LIBOR plus 340 basis points reset quarterly. These securities have a
maturity date of March 1, 2033 and are callable in whole or part prior to
maturity after March 1, 2008. A portion of the proceeds from the sale of these
securities was utilized to redeem on March 31, 2003 the entire issue of $11.5
million of 9.25% Trust Preferred Securities at par plus accrued dividends.
As part of our capital plan, the majority of the net proceeds raised through
trust preferred securities offerings were contributed to the Bank to support
future asset growth. As of March 31, 2003, all of our Trust Preferred Securities
outstanding qualified as Tier 1 capital.
Equity Capital
Stockholders' equity at March 31, 2003 totaled $146.5 million, an increase of
approximately $547,000 or 0.4%, compared to $145.9 million at December 31, 2002.
This increase resulted from the following factors:
(i) YNB earned net income of $3.4 million and paid cash dividends of $1.2
million for the three months ended March 31, 2003.
(ii) The net unrealized gains on securities available for sale were $5.6
million at March 31, 2003 compared to net unrealized gains of $7.4
million at December 31, 2002. The decrease in net unrealized gains
resulted in a $1.8 million decrease in stockholders' equity.
(iii) Proceeds of $49,000 from the exercise of stock options and a $31,000
increase associated with the fair market value adjustment related to
the allocation of shares to employee accounts in the ESOP.
(iv) A reduction in unallocated ESOP shares of $100,000, to $300,000 at
March 31, 2003 from $400,000 at December 31, 2002.
17
The table below presents the actual capital amounts and ratios of the Holding
Company and the Bank at March 31, 2003 and December 31, 2002.
Amount Ratios
- --------------------------------------------------------------------------------------------------------------------
(amounts in thousands) 3/31/03 12/31/02 3/31/03 12/31/02
- --------------------------------------------------------------------------------------------------------------------
Risk-based capital:
Tier 1:
Holding Company $ 176,917 $ 171,076 11.7% 11.8%
Bank 166,494 164,430 11.0 11.4
- --------------------------------------------------------------------------------------------------------------------
Total:
Holding Company $ 193,477 $ 187,897 12.8% 13.0%
Bank 183,055 181,251 12.1 12.6
- --------------------------------------------------------------------------------------------------------------------
Tier 1 leverage:
Holding Company $ 176,917 $ 171,076 7.8% 8.2%
Bank 166,494 164,430 7.3 7.9
- --------------------------------------------------------------------------------------------------------------------
The minimum regulatory capital requirements for financial institutions require
institutions to have a Tier 1 leverage ratio of at least 4.0%, a Tier 1
risk-based capital ratio of at least 4.0% and a total risk-based capital ratio
of at least 8.0%. To be considered "well capitalized," an institution must have
a minimum Tier 1 capital and total risk-based capital ratio of 6.0% and 10.0%,
respectively, and a minimum Tier 1 leverage ratio of 5.0%. At March 31, 2003,
the ratios of the Holding Company and the Bank exceeded the ratios required to
be considered well capitalized. It is our goal to maintain adequate capital to
continue to support YNB's asset growth and maintain its status as a
well-capitalized institution.
Our 401(k) savings plan has, since August 1998, included an option for our
employees to invest a portion of their plan accounts in a fund (the "YNB Stock
Fund") that has acquired shares of our common stock in the open market. In
connection with the addition of the YNB Stock Fund to the plan, we inadvertently
did not register with the Securities and Exchange Commission the 401(k) savings
plan interests or the shares of common stock acquired by the YNB Stock Fund and
may not have distributed certain information to plan participants on a timely
basis as required by securities laws. After being advised of those requirements,
we promptly completed the registration and distributed the required information
to our plan participants. In November 2002, the Board of Directors of YNB
approved the discontinuance of the YNB Stock Fund, and the sale of our common
stock owned by the YNB Stock Fund to the YNB employee stock ownership plan in
the near future. As of October 31, 2002, there was a total of approximately $5.2
million invested in the 401(k) savings plan, of which approximately $738,000 was
in the YNB Stock Fund (which owned approximately 41,847 shares of our common
stock as of such date). While it is possible that we may have liability based on
the requirements applicable to the 401(k) savings plan, we do not believe that
any such liabilities or claims, if asserted, would have a material adverse
effect on our financial condition or results of operations. That conclusion is
based in part on our expectation that the sale of our common stock by the YNB
Stock Fund will occur in the near future and at a price at or near the current
market price of our common stock. If the sale is completed at a price
significantly lower than the current market price of our common stock, it is
possible that such liabilities or claims, if asserted, could have a material
adverse effect on our financial condition or results of operations. There can be
no assurance that we will be able to complete the sale of shares by the 401(k)
savings plan in the time period or in the price range currently contemplated.
18
We also maintain a dividend reinvestment and stock purchase plan (the "YNB
DRIP"). In 1997, in connection with adding a 3% discount to dividend
reinvestments through the YNB DRIP, we inadvertently did not register with the
Securities and Exchange Commission our common stock purchased through the YNB
DRIP and may not have distributed certain information to plan participants as
required by securities laws. After being advised of those requirements, we
promptly suspended operation of the YNB DRIP. We expect in the near future to
complete the registration of the shares of common stock purchased (and to be
purchased) through the YNB DRIP. In addition, our Board of Directors has
approved an offer to be made in the near future to all YNB DRIP participants to
rescind their purchases of common stock through the YNB DRIP since December 1,
1997. Approximately 125,993 shares of common stock as adjusted for stock splits
and stock dividends have been acquired through the YNB DRIP since December 1,
1997, at prices ranging from $8.88 to $19.93 per share. As of May 1, 2003, the
market price of our common stock was $18.76 per share. We do not believe that
participants will be likely to accept the rescission offer if the market price
of our common stock is then close to or higher than the rescission price (an
amount equal to the original purchase price of the shares, plus interest since
the date of purchase and less any amounts received by the participant with
respect to such shares, including subsequent cash dividends whether or not they
were reinvested in shares of our common stock). In the event some participants
do accept the rescission offer, we believe, based upon the current market price
of the common stock, that the aggregate amount of rescission payments would not
have a material adverse effect on our financial condition or results of
operations. If, however, a greater than expected number of participants accept
the rescission offer or the rescission offer is completed at a time when the
market price of our common stock is significantly lower than the current market
price of our common stock, the aggregate amount of rescission payments could
have a material adverse effect on our financial condition or results of
operations. There can be no assurance that we will be able to complete the
rescission offer in the time period currently contemplated.
19
Credit Quality
We have successfully grown our loan portfolio, while at the same time
maintaining high asset quality standards. Our significant lending experience,
collateral based approach to lending, and the effective development and
management of our commercial loan relationships have resulted in low levels of
nonperforming assets and net charge offs.
The following table sets forth nonperforming assets and risk elements in YNB's
loan portfolio by type as of March 31, 2003 and December 31, 2002.
Nonperforming Assets
- --------------------------------------------------------------------------------------------------
(in thousands) 03/31/03 12/31/02
- --------------------------------------------------------------------------------------------------
Nonaccrual loans:
Commercial real estate $ 2,735 $ 2,395
Residential 1,374 1,526
Commercial and industrial 983 1,143
Consumer 40 55
- --------------------------------------------------------------------------------------------------
Total 5,132 5,119
- --------------------------------------------------------------------------------------------------
Restructured loans -- 711
- --------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Residential 355 323
Consumer 87 121
- --------------------------------------------------------------------------------------------------
Total 442 444
- --------------------------------------------------------------------------------------------------
Total nonperforming loans 5,574 6,274
- --------------------------------------------------------------------------------------------------
Other real estate 1,848 1,048
- --------------------------------------------------------------------------------------------------
Total nonperforming assets $ 7,422 $ 7,322
- --------------------------------------------------------------------------------------------------
Allowance for loan losses to total loans 1.33% 1.41%
Allowance for loan losses to nonperforming loans 297.11% 268.11%
==================================================================================================
Nonperforming assets, which consist of nonperforming loans and other real
estate, totaled $7.4 million at March 31, 2003, a $100,000 or 1.4% increase from
$7.3 million at December 31, 2002. Nonperforming assets over the past five years
have averaged approximately $7.7 million. Nonperforming assets increased
primarily due to an increase in other real estate (ORE) partially offset by a
reduction in restructured loans. Total nonperforming assets as a percentage of
total assets were 0.32% at March 31, 2003 compared to 0.33% at December 31,
2002. The modest decrease in this ratio resulted primarily from the increase in
total assets.
At March 31, 2003, nonperforming loans, which are loans 90 days or more past due
and nonaccrual loans, totaled $5.6 million, a $700,000 or 11.2% decrease from
$6.3 million at December 31, 2002. The decrease in nonperforming loans was
primarily due to the return to performing status of one restructured loan
totaling $711,000. Nonaccrual loans increased a modest $13,000 due to an
increase in new nonaccrual loans, partially offset by loan charge offs and
transfers to ORE.
20
ORE totaled $1.8 million at March 31, 2003 reflecting an $800,000 increase from
$1.0 million in ORE at December 31, 2002. The increase in ORE resulted primarily
from the transfer of two nonaccrual loans into ORE. ORE is reported at the lower
of cost or fair value at the time of acquisition, and at the lower of cost or
fair value, less estimated costs to sell, thereafter.
We believe that our historical low level of nonperforming assets in relation to
an increasing loan portfolio is reflective of our credit culture, which includes
strict underwriting standards, active loan review and strong credit policies.
Our objective is to maintain a high credit quality loan portfolio regardless of
the economic climate. The continuing weakness of the economy, however, could
cause nonperforming asset levels to increase from their current or historical
levels, which would have a negative impact on our earnings.
Allowance for Loan Losses
We have identified the allowance for loan losses to be a critical accounting
policy. We utilize a system to rate substantially all of our loans based on
their respective risk. Our emphasis on commercial real estate and commercial and
industrial loans has provided higher earnings. These loans, however, entail
greater risk than residential mortgage and consumer loans. The primary emphasis
in our risk rating system is on commercial real estate and commercial and
industrial loans.
In setting the reserve percentage for each risk rating from time to time, we
utilize a computer software program to perform migration analysis to determine
historical loan loss experience. In addition, we use our judgment concerning the
anticipated impact on credit risk of economic conditions, real estate values,
interest rates and level of business activity. Allocations to the allowance for
loan losses, both specific and general, are determined after this review.
Risk is measured by use of a matrix, which is customized to measure the risk of
each loan type. Commercial loan risk ratings of 1 to 5 are considered to be
acceptable and correspond to loans rated as either "minimal, modest, better than
average, average and acceptable." Loans with acceptable risk were reserved at a
range of 0.25% to 1.40% at March 31, 2003. The previous range of 0.35% to 1.50%
was lowered in the first quarter of 2003 based on historical loan loss rates
over an eight quarter rolling trend utilizing migration analysis and
management's judgment. Risk ratings of between 6 and 8 are considered higher
than acceptable risk and correspond to loans rated as "special mention,
substandard and doubtful." Due to the higher level of risk, these loans were
reserved at a range of 3.75% to 50% at March 31, 2003. Loans with a risk rating
of 9 are considered to be a loss and reserved at 100%. At March 31, 2003, there
were no 9 rated loans.
Residential mortgages and consumer loans are assigned individual reserve
percentages of between 0.15% for the lowest risk to 2.60% for higher risk loans
within the acceptable risk ratings. The assigned reserve percentages changed in
the first quarter of 2003 from the previous range of 0.25% to 0.75%. These
changes were based on historical loan loss rates over an eight quarter rolling
trend utilizing migration analysis and management's judgment.
21
We provide for possible loan losses by a charge to current operations to
maintain the allowance for loan losses at an adequate level according to our
documented allowance adequacy methodology. The allowance for loan losses totaled
$16.6 million at March 31, 2003, a decrease of $260,000 from the $16.8 million
at year-end 2002. The provision for loan losses for the first three months of
2003 was $600,000 compared to $550,000 for the same period of 2002. Gross
charge offs were $917,000 for the first three months of 2003 compared to $62,000
for the same period in 2002. Gross recoveries were $57,000 for the first three
months of 2003 compared to $16,000 for the same period in 2002. Annualized net
charge offs as a percentage of average loans were 0.28% compared to 0.10% for
the year ended December 31, 2002. The decreased size of the allowance resulted
primarily from three factors. First, net charge offs for the first three months
of 2003 exceeded the provision for loan losses over the same period. Second,
total nonperforming loans decreased from the year-end 2002 level improving the
coverage ratio. A third factor was a $500,000 charge off of a risk rated 9 loan
which was fully reserved at December 31, 2002.
We maintain the allowance for loan losses at a level determined in accordance
with the above-described process. The change in the allowance reflected this
extensive analysis. It is our assessment based on our judgment and analysis,
that the allowance for loan losses was appropriate to the credit risk at March
31, 2003. One measure of the adequacy of the allowance for loan losses is the
ratio of allowance for loan losses to total loans. This ratio was 1.33% at March
31, 2003 compared to 1.41% at December 31, 2002. Another measure of the adequacy
of the allowance for loan losses is the ratio of the allowance for loan losses
to total nonperforming loans. This ratio was 297.11% at March 31, 2003 compared
to 268.11% at December 31, 2002.
The following table describes the allocation of the allowance for loan losses
among various categories of loans and certain other information as of the dates
indicated. An unallocated allowance is distributed proportionately among each
loan category. This unallocated portion of the allowance for loan losses is
important to maintain the overall allowance at a level that is adequate to
absorb potential credit losses inherent in the total loan portfolio. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future loan losses may occur. The total allowance is
available to absorb losses from any segment of loans.
- -----------------------------------------------------------------------------------------------------------
As of March 31, 2003 As of December 31, 2002
- -----------------------------------------------------------------------------------------------------------
Percent Percent of Percent Percent of
Reserve of loans to Reserve of loans to
(in thousands) Amount Allowance Total loans Amount Allowance Total loans
- -----------------------------------------------------------------------------------------------------------
Commercial
real estate $ 8,171 49.3% 52.5% $ 8,189 48.7% 50.8%
Residential 858 5.2 12.2 1,063 6.3 12.6
Commercial
and industrial 6,674 40.3 27.0 6,886 40.9 28.3
Consumer 858 5.2 8.3 683 4.1 8.3
- -----------------------------------------------------------------------------------------------------------
Total $16,561 100.0% 100.0% $16,821 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------------
22
Extending credit to businesses and consumers exposes us to credit risk. We
manage credit risk in the loan portfolio through adherence to strict
underwriting standards, guidelines and limitations. Various approval levels,
based on the amount of the loan and other credit considerations, have also been
established. We recognize that despite our best efforts to minimize risk, losses
will occur. In times of economic slowdown, either within our markets or
nationally, the risk inherent in YNB's loan portfolio will increase. The timing
and amount of loan losses that may occur is dependent upon several factors, most
notably current and expected general, regional and local economic conditions and
specific financial condition of our borrowers. Although we use the best
information available, the level of the allowance for loan losses remains an
estimate which is subject to significant judgment and short-term changes.
Results of Operations
Net Income
YNB had net income of $3.4 million for the three months ended March 31, 2003, a
decrease of $139,000 or 4.0% compared to $3.5 million for the same period in
2002. The decrease in net income for the first three months of 2003 compared to
the same period in 2002 was primarily attributable to an increase in
non-interest expenses and a reduction in net securities gains, partially offset
by higher net interest income. Basic earnings per share for the three months
ended March 31, 2003 decreased 27.3% to $0.32 compared to $0.44 for the same
period in 2002. Diluted earnings per share for the three months ended March 31,
2003 decreased 25.6% to $0.32 compared to $0.43 for the same period in 2002. The
decrease in earnings per share reflects the higher average shares outstanding
from the public stock offering completed in December 2002, and to a lesser
extent, the reduction in net income. YNB sold 2.3 million common shares and
raised $34.3 million in net new equity capital from the recently completed
capital stock offering.
Net Interest Income
Net interest income is the largest and most significant component of our
operating income. YNB's net interest income for the first three months of 2003
was $12.3 million, an increase of $1.7 million or 15.8% from the same period in
2002. The most significant components of the increase were an increase in
interest and fees on loans and a reduction in interest expense on deposits,
partially offset by decreased income on securities.
23
We are continuing our efforts to improve our net interest margin in 2003. The
net interest margin is calculated as net interest income divided by average
interest earning assets. For the first three months of 2003, the net interest
margin was 2.25%, a 1 basis point increase compared to 2.24% for the same period
in 2002. The critical factor that limited the improvement in the net interest
margin in the first quarter of 2003 was the continued pressure on the investment
portfolio yield. This yield continued to decline due to the overall low interest
rate environment and the higher than anticipated principal paydowns on
mortgage-backed securities. We have implemented several strategies designed to
increase net interest income and the net interest margin in 2003. These include
increasing the duration of the investment portfolio to stabilize or improve the
yield, the early redemption of $11.5 million of 9.25% trust preferred securities
on March 31, 2003 and continuing to include interest rate floors on floating
rate commercial loans to protect income streams in a falling rate environment.
We believe the successful implementation of our retail strategy will result in a
lower overall cost of funds over time which will improve profitability.
The net interest margin for the three-month comparative periods in 2003 and 2002
was also impacted by the Investment Growth Strategy. There was a negative impact
to the overall net interest margin due to the strategy.
Interest Income
For the first three months of 2003, total interest income was $29.8 million, an
increase of $876,000 when compared to interest income of $28.9 million for the
same period in 2002. This increase was primarily due to an increase in the
volume of average loan assets for the first quarter of 2003 compared to the
first quarter of 2002, partially offset by the reduction in the overall yield on
earning assets.
Interest and fees on loans for the three months ended March 31, 2003 increased
$2.5 million or 14.1% to $20.1 million from $17.6 million for the same period in
2002. The increase in loan interest income resulted from higher average loans of
$198.8 million or 19.5%, partially offset by the yield on loans decreasing 31
basis points to 6.59% for the three months ended March 31, 2003 from 6.90% for
the same period in 2002. The lower loan yield reflected the impact of the
reduction of short-term interest rates in 2002.
Interest on securities declined $1.5 million or 13.7% to $9.5 million for the
three months ended March 31, 2003 compared to $11.0 million for the same period
in 2002. Average securities for the three months ended March 31, 2003 increased
$90.0 million or 11.1% to $900.7 million when compared to the $810.7 million for
the same period in 2002. Over the same period, the yield on the securities
portfolio decreased 121 basis points to 4.22% from 5.43%. The decline in
interest income resulted from the overall lower yield on the securities
portfolios, partially offset by the higher average balance of securities. The
lower yield on the securities portfolios is due to a combination of factors. The
shortening of portfolio duration in 2002, higher than projected prepayment
speeds on mortgage-backed securities and lower interest rates accounted for the
reduction in the overall portfolio yield.
24
Interest Expense
Total interest expense decreased $805,000 or 4.4% to $17.4 million for the first
three months of 2003, compared to $18.2 million for the same period in 2002. The
decrease in interest expense for the comparable time periods resulted primarily
from lower rates paid on all interest bearing deposits and, to a lesser extent,
on borrowed funds, partially offset by higher overall average balances on these
interest-bearing liabilities. Average interest bearing liabilities were $1.97
billion for the three months ended March 31, 2003 reflecting an increase of
$213.2 million or 12.1% when compared to the average balance of $1.76 billion
for the same period in 2002. The average rate paid on interest bearing
liabilities for the three months ended March 31, 2003 decreased 61 basis points
to 3.54% from 4.15% for the same period of 2002.
Interest expense on deposit accounts decreased $1.3 million or 14.2% to $7.5
million for the first quarter of 2003 compared to $8.8 million for the same
period in 2002. The decline in interest expense on deposits resulted primarily
from a $1.1 million decrease in the interest expense on other time deposits and
certificates of deposits of $100,000 or more to $4.9 million for the first three
month of 2003 compared to $6.0 million for the same period in 2002. Interest
expense on savings, money markets and interest bearing demand deposits decreased
$144,000 to $2.6 million for the first three months of 2003 compared to $2.8
million for the same period in 2002. The decrease in cost of 77 basis points on
these deposits partially offset the average growth of these deposits. For the
first quarter of 2003, the average balance of savings, money markets and
interest bearing demand deposits increased $146.9 million or 34.6% to $571.6
million compared to $424.8 for the same period in 2002. The growth in these core
deposit accounts was primarily due to increased balances in our competitively
priced Premier money market accounts and the acquisition of surrogates deposits
through a bidding process. In addition, the introduction of our new "Simply
Better Checking" product, in our northern region, as part of YNB's retail
strategy also increased core deposits.
The total cost of interest bearing deposits was 2.57% for the first quarter of
2003 and reflects a 89 basis point decrease when compared to the 3.46% cost for
the same period in 2002. The key factors for the decrease in the cost of
interest bearing deposits were a change in the mix of average interest bearing
deposits and the decline in the cost of certificates of deposit of $100,000 or
more and other time deposits. Average savings, money markets and interest
bearing demand deposits for the first quarter of 2003 was $571.6 million which
represented 48.6% of total average interest bearing deposits compared to $424.8
million and 41.8% of total average interest bearing deposits for the same period
in 2002. These deposits types had a cost of 1.85% in the first quarter of 2003
compared to 2.62% for the same period in 2002. The other factor resulting in the
decrease was the drop in the cost of time deposits. For the first quarter of
2003, the cost of certificates of deposit of $100,000 or more decreased 65 basis
points to 3.07% compared to 3.72% for the same period in 2002. The cost of other
time deposits decreased 87 basis points to 3.31% for the first quarter of 2003
compared to 4.18% for the same period in 2002. We believe that, at the current
low level of interest rates, the cost of our time deposits will continue to
decline as above market rate CDs reprice to market rates at maturity.
25
Interest expense on borrowed funds increased $367,000 or 4.2% to $9.0 million
for the first three months of 2003 compared to $8.7 million for the same period
in 2002. The increased interest expense was the result of a $48.7 million or
6.9% increase in the average balance outstanding in the first three months of
2003 to $757.2 million when compared to $708.5 million for the same period in
2002. The average rate paid on borrowed funds decreased 12 basis points for the
three months ended March 31, 2003 to 4.77% from 4.89% for the same period last
year. As part of our strategy to improve our net interest margin, we paid off
one $10.0 million FHLB advance that matured in March 2003 and plan to retire
additional FHLB advances of $46.0 million (including $10.0 million retired in
April 2003) at their maturity dates in 2003, subject to future liquidity needs.
Interest expense on trust preferred securities increased $79,000 or 10.2% to
$854,000 for the first quarter of 2003 from $775,000 for the same period in 2002
while the average cost of trust preferred securities decreased to 8.93% for the
first quarter of 2003 compared to 9.54% for the same period in 2002. In February
2003 we issued $15.0 million in floating rate trust preferred securities at a
rate of three month LIBOR plus 340 basis points for an initial rate of 4.74%. On
March 31, 2003 we retired $11,500,000 of fixed rate trust preferred securities
with a cost of 9.25%. We expect that these transactions will reduce trust
preferred interest expense in 2003.
We continue to implement our retail strategy with the goal of attracting lower
cost core deposits. This should allow us over time to reduce our dependency on
higher cost CDs and borrowed funds. The success of this strategy should allow us
to lower our cost of funds and improve our net interest margin. To the extent
that core deposit growth is not adequate to fund earning asset growth, we would
expect to use both CDs and borrowed funds to meet our liquidity needs.
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2003 was
$600,000, an increase of $50,000 from the $550,000 for the same period in 2002.
For the comparable periods, loan growth was the driving factor in determining
the provision for loan losses. The increase in net charge offs and the slight
increase in the level of nonperforming loans resulted in a modest increase in
the provision for loan losses in the first quarter of 2003 compared to the same
period in 2002. The ratio of the allowance for loan losses to nonperforming
loans increased to 297.11% at March 31, 2003 from 257.39% at March 31, 2002.
Non-interest Income
Non-interest income consists of service charges on deposit accounts, net
securities gains, income on bank owned life insurance and other non-interest
income. Total non-interest income for the first three months of 2003 was $1.6
million, a decrease of $330,000 or 17.4% over non-interest income of $1.9
million for the same period in 2002. The decrease was due to $492,000 less in
net securities gains in 2003 when compared to the same period in 2002.
26
Service charges on deposit accounts increased $31,000 or 6.0% to $547,000 for
the three months ended March 31, 2003 compared to $516,000 for the same period
in 2002. Service charge income has increased in the first three months of 2003
due to increased income from overdraft fees and growth in transaction accounts
and the related service fee income from a larger branch network. We will
continue targeted marketing campaigns in 2003, designed to attract lower cost or
interest free demand deposit accounts with the goal of lowering our cost of
funds and generating additional service charge or fee income.
Net gains on the sale of securities totaled $151,000 in the first three months
of 2003 compared to $643,000 in net gains on the sale of securities for the same
period in 2002. The positioning of our balance sheet in 2002 for higher rates
resulted in net securities gains that were $492,000 higher in 2002.
Income on bank owned life insurance (BOLI) was $509,000 for the first three
months of 2003 compared to $411,000 for the same period in 2002. The increase in
BOLI income was due to the higher average balance of these assets and the
exchange of lower yielding floating rate BOLI assets into higher yielding fixed
rate BOLI assets. The income earned on these assets is used to offset the
benefit costs of deferred compensation programs. Our BOLI assets are single
premium policies. After the initial purchase, there are no additional premiums
to be paid on those policies.
Other non-interest income increased $33,000 or 9.9% to $365,000 for the three
months ended March 31, 2003 from $332,000 for the same period in 2002. Other
non-interest income includes a variety of fee-based services. These include
Second Check fees, check fees and automated teller machine fees charged to
non-customers. As our customer base has grown, the income from fee-based
services has increased.
Non-interest Expense
The implementation of our retail strategy, higher professional fees and the
ongoing growth of YNB are the principal reasons for increased non-interest
expense in the first quarter of 2003. We expect non-interest expense to continue
to increase throughout the year compared to 2002. The development of our
northern region has resulted in increased salaries and employee benefits in our
retail and lending divisions.
Non-interest expenses consist of salaries and employee benefits, occupancy,
equipment and all other operating expenses we incur. Non-interest expense
totaled $8.6 million in the first three months of 2003, an increase of $1.4
million or 20.1% compared to the $7.2 million for the same period in 2002. The
largest increase in non-interest expense for the first quarter of 2003 compared
to the first quarter of 2002 was in salary and employee benefit expense. Total
non-interest expenses, on an annualized basis, as a percentage of average assets
were 1.52% for the first three months of 2003 compared to 1.46% for the same
period of 2002. The increase in this ratio was due to increased non-interest
expenses, partially offset by higher average total assets. YNB's efficiency
ratio for the first three months of 2003 was 62.20% compared to 57.36% for the
same period in 2002. The efficiency ratio is computed by dividing total
operating expenses by net interest income and other income. An increase in the
efficiency ratio indicates that more resources are being utilized to generate
the same volume of income while a decrease would indicate a more efficient
allocation of resources. The increase in the efficiency ratio was due to higher
non-interest expense, lower non-interest income and higher net interest income.
Improvements to the efficiency ratio will depend on increases in net interest
income, the level of non-interest income and controlled growth in non-interest
expenses.
27
Salaries and employee benefits increased $775,000 or 18.3% to $5.0 million for
the first three months of 2003 compared to $4.2 million for the same period in
2002. Full time equivalent employees increased to 342 at March 31, 2003 compared
to 293 at March 31, 2002. Salary expense increased $647,000 and accounted for
83.5% of the increase in salary and employee benefit expense. This increase
reflects the salary expense associated with the opening of new branches, the
hiring of experienced lending and administrative personnel, and annual merit
increases, all as part of our strategic plan. Benefit expense increased $128,000
or 11.4% primarily due to higher costs associated with the increased number of
employees as well as increased costs associated with medical insurance premiums
and our ESOP. As we continue to implement our retail strategy, we would expect
salaries and employee benefit expenses to continue to increase.
Occupancy expense for the first three months of 2003 was $1.0 million, an
increase of $209,000 or 25.6% compared to $817,000 for the same period in 2002.
The increase in occupancy expense was due to the additional costs, including
rent expense, associated with the operation and expansion of our branch network.
In the second quarter of 2002, we opened two new branches in Hunterdon County,
New Jersey, one of which is located in our northern regional headquarters. In
November 2002, we opened our first branch in Middlesex County, New Jersey. Our
first branch office in Somerset County, New Jersey, opened in May 2003. As part
of our retail strategy, one additional branch in Mercer County is planned. We
continue to explore other branch locations in our markets and expect occupancy
expense to increase as our branch network expands.
Equipment expense increased $146,000 or 26.8% to $690,000 for the first three
months of 2003 from $544,000 for the same period in 2002. The increase in
equipment costs over the past several years reflects the continuing efforts of
YNB to maintain and upgrade technology and systems in order to provide quality
products and customer service. We expect this trend to continue in 2003.
Other non-interest expenses increased $318,000 or 19.9% to $1.9 million for the
first three months of 2003 compared to $1.6 million for the same period in 2002.
Our other non-interest expenses reflect our growth. For example, expenses such
as communication and postage, and stationery and supplies have grown as the
number of facilities and phone lines have increased. In addition, all other
non-interest expenses (including professional fees and insurance) reflected
increases due to the continuing costs associated with acquiring new loan and
deposit relationships and regulatory compliance.
Income Tax Expense
The effective income tax rate for the three months ended March 31, 2003 was
27.9% compared to 27.2% for the same period in 2002. Total income tax expense
for the three months ended March 31, 2003 was $1.3 million, approximately the
same amount as reported in the first quarter of 2002.
28
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in YNB's market risk from December 31, 2002,
except as discussed below. For information regarding YNB's market risk please
refer to the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 2002.
In 2002, we have followed a strategy of positioning YNB for the possibility of
rising rates. This has primarily involved shortening the duration of the
investment portfolio, and borrowing callable advances with long lockout periods.
While these actions have limited the improvement in YNB's net interest margin,
they have improved our overall interest rate risk position. After a review of
our asset and liability simulation results in the first quarter of 2003, we
modified our strategy. While we believe that interest rates will move higher in
the future, there is a possibility that interest rates could continue to move
lower. To adequately balance our interest rate risk position, we have continued
to institute interest rate floors on floating rate commercial loans in 2003. At
March 31, 2003, approximately $388 million or approximately 82% of floating rate
commercial loans have floors. This action is expected to mitigate the impact to
net interest income should rates decline further from their March 31, 2003
levels. We also began to slowly extend the duration of the investment portfolio.
This action should improve net interest income in a stable or falling rate
environment, but may increase longer-term interest rate risk in the event that
rates rise.
We manage interest rate risk by identifying and quantifying interest rate risk
exposures using simulation analysis, economic value at risk models and simpler
gap analysis. At March 31, 2003, the cumulative one-year gap was a positive
$23.4 million or 1.0% of total assets compared to a positive $152.1 million or
6.8% of total assets at December 31, 2002.
Simulation analysis involves dynamically modeling YNB's interest income and
interest expense over a specified time period under various interest rate
scenarios and balance sheet structures. We use simulation analysis primarily to
measure the sensitivity of net interest income over 12 and 24-month time
horizons. In YNB's base case sensitivity scenario, the model estimates the
variance in net interest income with a change in interest rates of plus and
minus 200 basis points over a 12-month period. Management utilized a minus 100
basis points scenario due to the low interest rate environment that existed at
March 31, 2003. The plus and minus base case scenario is measured within a
policy limit of -7% change in net interest income in the first year and -14% in
year two. The following table measures the expected change in net interest
income from the base case given the below listed change in interest rates.
Percentage Change in Net Interest Income
Changes in market interest rates 2003 2004
- -----------------------------------------------------------------------------------------
+200 4.9% 3.2%
Flat -- --
- -100 -1.1% 1.0%
These results reflect a more balanced interest rate risk exposure at March 31,
2003 than existed at December 31, 2002. While the +200 rate scenario is still
positive, it has decreased from year-end 2002. The -100 risk has been reduced
significantly. The year two projections are now positive compared to a possible
negative change at December 31, 2002.
29
We measure longer-term interest rate risk through the Economic Value of Equity
("EVE") model. This model involves projecting future cash flows from YNB's
current assets and liabilities over a long time horizon, discounting those cash
flows at appropriate interest rates, and then aggregating the discounted cash
flows. YNB's EVE is the estimated net present value of these discounted cash
flows. The variance in the economic value of equity is measured as a percentage
of the present value of equity. YNB uses the sensitivity of EVE principally to
measure the exposure of equity to changes in interest rates over a relatively
long time horizon. The following table lists YNB's percentage change in EVE in a
plus or minus 200 basis point rate shock at March 31, 2003 and December 31,
2002. Due to the low level of interest rates at both dates, not all interest
rates could be shocked down 200 basis points.
Changes in interest rate in Percentage Change in EVE
basis points (Rate Shock) 3/31/03 12/31/02
- --------------------------------------------------------------------------------
+200 -19% -11%
- -200 -15% -18%
The actions we have taken to better balance our shorter-term interest rate risk
in a rising or declining interest rate environment have also changed the
longer-term interest rate risk position as measured by EVE. At March 31, 2003,
YNB's longer-term exposure to rising rates, as measured by the percentage change
in EVE, has increased. At the same time, with rates near historic lows, the risk
to lower rates as a percentage of EVE has been reduced.
Certain shortcomings are inherent in the methodology used in the previously
discussed interest rate risk measurements. Modeling changes in the simulation
and EVE analysis require the making of certain assumptions, which may or may not
reflect the manner in which actual yields and costs respond to changes in market
interest rates. Accordingly, although these models provide an indication of our
interest rate risk exposure at a particular point in time, such measurements are
not intended to and do not provide a precise forecast of the effect of change in
market interest rates on YNB's net interest income and may differ from actual
results.
We believe that as of March 31, 2003, YNB is well positioned to limit
fluctuations to net interest income from either rising or falling interest
rates. We continue to monitor our gap position and rate shock analyses to detect
changes to our exposure to fluctuating interest rates. We have the ability, to a
certain extent, to shorten or lengthen maturities on assets, sell securities,
enter into derivative financial instruments, or seek funding sources with
different repricing characteristics in order to change our asset liability
structure for the purpose of mitigating the effect of interest rate risk.
30
Item 4. Controls and Procedures
(A) YNB's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and
operation of the company's disclosure controls and procedures within 90
days of the filing of this quarterly report, and, based on their
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective.
(B) There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of their evaluation.
31
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Not Applicable.
Item 2: Changes in Securities and Use of Proceeds
On February 19, 2003, Yardville Capital Trust IV (Trust IV), a statutory
business trust, and a wholly owned subsidiary of Yardville National Bancorp,
issued $15.0 million of floating rate Trust Preferred Securities in a private
placement transaction (in reliance upon Section 4(2) of the Securities Act of
1933, as amended) and $464,000 of floating rate Common Securities to Yardville
National Bancorp. The floating rate is based on three month LIBOR plus 340 basis
points. Proceeds from the issuance of the Trust Preferred Securities were
immediately used by Trust IV to purchase $15.5 million of floating rate
Subordinated Debentures maturing March 1, 2033 from Yardville National Bancorp.
In connection with the sale of the Trust Preferred Securities, Yardville
National Bancorp paid commissions of $375,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Company-obligated
Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust holding
solely junior Subordinated Debentures of the Company (Trust Preferred
Securities)."
Item 3: Defaults Upon Senior Securities
Not Applicable.
Item 4: Submission of Matters to a Vote of Securities Holders
Not Applicable.
Item 5: Other Information
Not Applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Contract of Sale dated February 24, 2003, between the Bank and
Christopher S. Vernon.
99.1 Certification by Patrick M. Ryan, President and Chief Executive
Officer
99.2 Certification by Stephen F. Carman, Vice President and Treasurer
(b) Reports on Form 8-K.
32
Date Filed Description
- ---------- -----------
1/28/03 8-K to file fourth quarter and full year 2002 earnings
announcement.
1/31/03 8-K/A to correct certain information reported in an 8-K filed on
10/21/02.
2/13/03 8-K/A to correct certain information reported in 8-K reports
filed on 10/21/02 and 1/28/03
33
INDEX TO EXHIBITS
Exhibit
Number Description Page
- -----------------------------------------------------------------------------------------------------------------
10.1 Contract of Sale dated February 24, 2003, between the Bank and Christopher S. Vernon.
99.1 Certification by Patrick M. Ryan, President and Chief Executive Officer
99.2 Certification by Stephen F. Carman, Vice President and Treasurer
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YARDVILLE NATIONAL BANCORP
--------------------------
(Registrant)
Date: May 15, 2003 By: Stephen F. Carman
-------------------------- ------------------------
Stephen F. Carman
Vice President and
Treasurer
35
CERTIFICATION
-------------
I, Patrick M. Ryan, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Yardville National
Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 By: Patrick M. Ryan
- ------------------- ----------------------------
Name: Patrick M. Ryan
Title: President and Chief
Executive Officer
36
CERTIFICATION
-------------
I, Stephen F. Carman, Vice President and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Yardville National
Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 By: Stephen F. Carman
- ------------------- -----------------------------
Name: Stephen F. Carman
Title: Vice President and
Treasurer
37