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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26086
YARDVILLE NATIONAL BANCORP
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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 (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Quakerbridge Road, Trenton, New Jersey 08619
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(Address of principal executive offices) (Zip Code)
(609) 585-5100
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by checkmark whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2)has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate by checkmark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K[X]
Aggregate market value of voting stock held by non-affiliates (computed by
using the average of the closing bid and asked prices on March 19, 1998, in the
NASDAQ National Market System: $80,561,175.
Number of shares of common stock, no par value, outstanding as of March 19,
1998: 4,944,857.
(continued)
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
DOCUMENT which Document is Incorporated
-------- ------------------------------
Annual Report to Stockholders for fiscal
year ended December 31, 1997 II
Definitive proxy statement for the 1997
Annual Meeting of Stockholders to be held on
April 28, 1998 III
FORM 10-K
INDEX
PART I PAGE
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 18
Signatures 19
Index to Exhibits E-1
YARDVILLE NATIONAL BANCORP
FORM 10-K
PART I
ITEM 1. BUSINESS.
General
Yardville National Bancorp (the "Company") is a bank holding company
registered with the Board of Governors of the Federal Reserve System (the "FRB")
under the Bank Holding Company Act of 1956 (the "Bank Holding Company Act"). The
Company's business is the ownership and management of The Yardville National
Bank, a national banking association and the Company's sole banking subsidiary
(the "Bank"). The Company was incorporated under the laws of New Jersey and
became the holding company of the Bank in 1985. At December 31, 1997, the
Company had consolidated total assets of approximately $614,686,000, deposits of
approximately $422,944,000 and stockholders' equity of approximately
$39,745,000.
The Bank
The Bank received its charter from The Office of the Comptroller of the
Currency (the "OCC") in 1924 and commenced operations as a commercial bank in
1925. The Bank currently operates nine full-service banking offices in Mercer
County, New Jersey, five in Hamilton Township, two in Ewing Township, one in
East Windsor Township and one in Trenton. In September 1997 the Bank opened its
new Telephone Help Center. The Telephone Help Center serves as a centralized
sales and information center for all of the banking offices.
The Bank's principal executive offices are located at 3111 Quakerbridge
Road, Trenton, New Jersey.
The Bank conducts a general commercial and retail banking business. The
principal focus of the Bank has been to provide a full range of traditional
commercial and retail banking services, including savings and time deposits,
letters of credit, checking accounts and commercial, real estate and consumer
loans, for individuals and small and medium size businesses in each of the local
communities that it serves.
The Bank has four wholly-owned non-bank subsidiaries. Yardville
National Investment Corporation, which was incorporated in 1985, was formed to
separate a portion of the Bank's
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investment portfolio functions and responsibilities from its regular banking
operations and to increase the net yield of the investment portfolio. YNB Real
Estate Holding Company is utilized to hold Bank branch properties. Brendan, Inc.
and Nancy-Beth, Inc. are utilized for the control and disposal of other real
estate properties.
Yardville Capital Trust
Yardville Capital Trust, a wholly-owned subsidiary of the Company, was
formed on August 28, 1997 for the exclusive purposes of (i) issuing and selling
trust preferred securities, (ii) using the proceeds from the sale of the trust
preferred securities to acquire subordinated debentures issued by the Company
and (iii) engaging in only those other activities necessary, advisable or
incidental thereto.
Supervision and Regulation
General
Bank holding companies and banks are extensively regulated under both
Federal and state laws. Because the Company is a "bank holding company" under
the Bank Holding Company Act, the FRB, acting through the Federal Reserve Bank
of Philadelphia ("FRBP") is the primary supervisory authority for, and examines,
the Company and any non-bank subsidiaries which are not subsidiaries of the
Bank. Because the Bank is a national bank, the primary supervisory authority for
the Bank and its subsidiaries is the OCC, which regularly examines the Bank. The
FDIC and the FRB (because the Bank is a member of the Federal Reserve System)
also regulate, supervise and have power to examine the Bank and its
subsidiaries.
The regulation and supervision of the Company and the Bank are designed
primarily for the protection of depositors and the FDIC, and not the Company or
its stockholders. Enforcement actions may include the imposition of a
conservator or receiver, cease-and-desist orders and written agreements, the
termination of insurance on deposits, the imposition of civil money penalties
and removal and prohibition orders. If any enforcement action is taken by a
banking regulator, the value of an equity investment in the Company could be
substantially reduced or eliminated.
Bank Holding Company Act
The Bank Holding Company Act requires a "bank holding company" such as the
Company to secure the prior approval of the FRB before it owns or controls,
directly or indirectly, more than five percent (5%) of the voting shares or
substantially all of the assets of any bank. In addition, a bank holding company
is
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generally prohibited from engaging in or acquiring direct or indirect control of
more than five percent (5%) of the voting shares of any company engaged in
non-banking activities unless the FRB, by order or regulation, has found such
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. In making this determination, the FRB
considers whether the performance of these activities by a bank holding company
would offer benefits to the public that outweigh possible adverse effects.
Applications under the Bank Holding Company Act and the Change in Control Act
(see discussion below) are subject to review based upon the record of compliance
of the applicant with the Community Reinvestment Act of 1977 ("CRA") as
discussed below.
The Company is required to file an annual report with the FRB and any
additional information that the FRB may require pursuant to the Bank Holding
Company Act. The FRB may also make examinations of the Company and any or all of
its subsidiaries. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of credit or provision of any property or
services. The so-called 'anti-tie-in' provisions state generally that a bank may
not condition the pricing or provision of certain products and services on a
requirement that the customer provide certain products or services to the bank
holding company or bank, or any other subsidiary of the bank holding company, or
that the customer not obtain certain products or services from competitors, or
that the customer also obtain certain other products or services from the bank,
its bank holding company or any other subsidiary of the bank holding company.
There is an exception to the tie-in prohibition for "traditional" banking
products and services.
The FRB permits bank holding companies to engage in non-banking activities
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. A number of activities are authorized by FRB regulation, while
other activities require prior FRB approval. The types of permissible activities
are subject to change by the FRB.
FRB regulations require a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. The FRB has, in some
cases, entered orders for bank holding companies to take affirmative action to
strengthen the finances or management of subsidiary banks.
Change in Bank Control Act
Under the Change in Bank Control Act of 1978 ("Change in Control Act"), no
person, acting directly or indirectly or through or in concert with one or more
other persons, may acquire
3
"control" of any federally insured depository institution unless the appropriate
Federal banking agency has been given 60 days' prior written notice of the
proposed acquisition and within that period has not issued a notice disapproving
of the proposed acquisition or has issued written notice of its intent not to
disapprove the action. For this purpose, "control" is generally defined as the
power, directly, or indirectly, to direct the management or policies of an
institution or to vote 25% or more of any class of its voting securities. Under
applicable regulations, control is presumed to exist in certain circumstances,
including ownership of more than 10% of any class of voting shares of a public
company such as the Company. The period for the agency's disapproval may be
extended by the agency. Upon receiving such notice, the Federal agency is
required to provide a copy to the appropriate state regulatory agency if the
institution of which control is to be acquired is state chartered, and the
Federal agency is obligated to give due consideration to the views and
recommendations of the state agency. Upon receiving a notice, the Federal agency
is also required to conduct an investigation of each person involved in the
proposed acquisition. Notice of such proposal is to be published and public
comment solicited thereon. A proposal may be disapproved by the Federal agency
if the proposal would have anti-competitive effects, if the proposal would
jeopardize the financial stability of the institution to be acquired or
prejudice the interests of its depositors, if the competence, experience or
integrity of any acquiring person or proposed management personnel indicates
that it would not be in the interest of depositors or the public to permit such
person to control the institution, if any acquiring person fails to furnish the
Federal agency with all information required by the agency, or if the Federal
agency determines that the proposed transaction would result in an adverse
effect on a deposit insurance fund. In addition, the Change in Control Act
requires that, whenever any federally insured depository institution makes a
loan or loans secured, or to be secured, by 25% or more of the outstanding
voting stock of a federally insured depository institution, the president or
chief executive officer of the lending bank must promptly report such fact to
the appropriate Federal banking agency regulating the institution whose stock
secures the loan or loans.
Supervision and Regulation of the Bank
The operations of the Bank are subject to Federal and state statutes
and regulations applicable to banks chartered under the banking laws of the
United States, to members of the Federal Reserve System and to banks whose
deposits are insured by the FDIC.
4
The primary supervisory authority of the Bank is the OCC (also its
primary Federal regulator), which regularly examines the Bank. The OCC has the
authority to prevent a national bank from engaging in an unsafe or unsound
practice in conducting its business.
Federal and state banking laws and regulations govern, among other
things, the scope of a bank's business, the investments a bank may make, the
reserves against deposits a bank must maintain, loans a bank makes and
collateral it takes, the activities of a bank with respect to mergers and
consolidations and the establishment of branches. All nationally and
state-chartered banks in New Jersey are permitted to maintain branch offices in
any county of the state. Branching outside of New Jersey is also permitted under
certain circumstances. See "Interstate Banking." National bank branches may be
established only after approval by the OCC. It is the general policy of the OCC
to approve applications to establish and operate domestic branches provided that
approval would not violate applicable Federal or state laws regarding the
establishment of such branches. The OCC reserves the right to deny an
application or grant approval subject to conditions if (1) there are significant
supervisory concerns with respect to the application or affiliated
organizations, (2) in accordance with CRA, the applicant's record of helping
meet the credit needs of its entire community, including low and moderate income
neighborhoods, consistent with safe and sound operation, is less than
satisfactory, or (3) any financial or other business arrangement, direct or
indirect, involving the proposed branch or device and bank "insiders"
(directors, officers, employees and 10%-or-greater stockholders) involves terms
and conditions more favorable to the insiders than would be available in a
comparable transaction with unrelated parties. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC's prior
approval is also required for any new branch application of a bank which is
ranked in any of the three "undercapitalized" categories established by FDICIA.
See -- "Prompt Corrective Action."
Under the Federal Deposit Insurance Act, the OCC possesses the power to
prohibit institutions regulated by it (such as the Bank) from engaging in any
activity that would be an unsafe and unsound banking practice and in violation
of the law. Moreover, Federal law enactments have expanded the circumstances
under which officers or directors of a bank may be removed by the institution's
Federal supervisory agency, restricted and further regulated lending by a bank
to its executive officers, directors, principal stockholders or related
interests thereof and restricted management personnel of a bank from serving as
directors or in other management positions with certain depository institutions
whose assets exceed a specified amount or
5
which have an office within a specified geographic area, and restrict
management personnel from borrowing from another institution that has a
correspondent relationship with their bank.
The Bank, as a member of the Federal Reserve System, is subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or its subsidiaries, on investments in the stock or
other securities of the bank holding company or its subsidiaries and on taking
such stock or securities as collateral for loans. The Federal Reserve Act and
FRB regulations also place certain limitations and reporting requirements on
extensions of credit by the Bank to principal stockholders of its parent holding
company, among others, and to related interests of such principal stockholders.
Such legislation and regulations may affect the terms upon which any person
becoming a principal stockholder of a holding company may obtain credit from
banks with which the subsidiary bank maintains a correspondent relationship.
In addition, as a bank whose deposits are insured by the FDIC, the Bank may
not pay dividends or distribute any of its capital assets while it remains in
default of any assessment due to the FDIC. The Bank is not in default under any
of its obligations to the FDIC. The FDIC also has authority under the Federal
Deposit Insurance Act to prohibit an insured bank from engaging in conduct
which, in the FDIC's opinion, constitutes an unsafe or unsound practice in
conducting its business. It is possible, depending upon the financial condition
of the Bank and other factors, that the FDIC could claim that the payment of
dividends or other payments might, under some circumstances, be an unsafe or
unsound banking practice.
Under CRA, the record of a bank holding company and its subsidiary banks
must be considered by the appropriate Federal banking agencies in reviewing and
approving or disapproving a variety of regulatory applications including
approval of a branch or other deposit facility, office relocation, a merger and
certain acquisitions of bank shares. Regulators are required to assess the
record of the Company and the Bank to determine if they are meeting the credit
needs of the community (including low and moderate neighborhoods) they serve.
Regulators make publicly available an evaluation of banks' records in meeting
credit needs in their communities, including a descriptive rating and a
statement describing the basis for the rating.
In addition, the Bank is subject to a variety of banking laws and
regulations governing consumer protection, including the Truth in Lending Act
("TILA"), the Truth in Savings Act, the Equal Credit Opportunity Act, the Home
Mortgage Disclosure Act, the Electronic Funds Transfer Act, and the Real Estate
Settlement Procedures Act ("RESPA"), FDIC deposit insurance regulations,
6
and FRB regulations governing such matters as reserve requirements for deposits,
securities margin lending, collection of checks and other items and availability
of deposits for withdrawal by customers, security procedures, and prohibitions
of payment of interest on demand deposits. Under the Americans With Disabilities
Act ("ADA"), certain bank facilities are identified as "public accommodations"
and are subject to regulation to promote accessibility of their facilities for
disabled persons.
Capital Rules
Under risk-based capital requirements for bank holding companies, the
Company is required to maintain a minimum ratio of total capital to
risk-weighted assets (including certain off-balance-sheet activities, such as
standby letters of credit) of eight percent. At least half of the total capital
is to be composed of common equity, retained earnings and qualifying perpetual
preferred stock, less goodwill ("tier 1 capital" and together with tier 2
capital "total capital"). The remainder may consist of subordinated debt,
nonqualifying preferred stock and a limited amount of the loan loss allowance
("tier 2 capital"). At December 31, 1997, the Company's tier 1 capital and total
capital ratios were 12.24 percent and 13.49 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. The Company's leverage ratio at
December 31, 1997, was 8.93 percent. The requirements also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the requirements indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Company of any specific minimum tier 1
leverage ratio applicable to it.
The Bank is subject to similar capital requirements adopted by the OCC. The
OCC has not advised the Bank of any specific minimum leverage ratios applicable
to it. The capital ratios of the Bank are set forth below under "Prompt
Corrective Action."
7
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital requirements.
Prompt Corrective Action
In addition to the required minimum capital levels described above, federal
law establishes a system of "prompt corrective actions" which Federal banking
agencies are required to take, and certain actions which they have discretion to
take, based upon the capital category into which a federally regulated
depository institution falls. Regulations set forth detailed procedures and
criteria for implementing prompt corrective action in the case of any
institution which is not adequately capitalized. Under the rules, an institution
will be deemed to be "adequately capitalized" or better if it exceeds the
minimum Federal regulatory capital requirements. However, it will be deemed
"undercapitalized" if it fails to meet the minimum capital requirements,
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0 percent, a Tier 1 risk-based capital ratio that is less than
3.0 percent, or a leverage ratio that is less than 3.0 percent, and "critically
undercapitalized" if the institution has a ratio of tangible equity to total
assets that is equal to or less than 2.0 percent.
The following table sets forth the minimum capital ratios that a bank must
satisfy in order to be considered adequately capitalized or well capitalized
under the prompt corrective action regulations, and the Bank's capital ratios at
December 31, 1997:
Adequately Well Bank ratios at
Capitalized Capitalized December 31, 1997
----------- ----------- -----------------
Total Risk-Based Capital Ratio 8.00% 10.00% 12.5%
Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 11.2%
Leverage Ratio 4.00% 5.00% 8.5%
The prompt corrective action rules require an undercapitalized institution
to file a written capital restoration plan, along with a performance guaranty by
its holding company or a third party. In addition, an undercapitalized
institution becomes subject to certain automatic restrictions including a
prohibition on payment of dividends, a limitation on asset growth and expansion,
in certain cases, a limitation on the payment of bonuses or raises to senior
executive officers, and a prohibition on the payment of certain "management
fees" to any "controlling person". Institutions that are classified as
undercapitalized are also subject to certain additional supervisory actions,
including increased reporting burdens and regulatory monitoring, a limitation on
the
8
institution's ability to make acquisitions, open new branch offices, or engage
in new lines of business, obligations to raise additional capital, restrictions
on transactions with affiliates, and restrictions on interest rates paid by the
institution on deposits. In certain cases, bank regulatory agencies may require
replacement of senior executive officers or directors, or sale of the
institution to a willing purchaser. If an institution is deemed to be
"critically undercapitalized" and continues in that category for four quarters,
the statute requires, with certain narrowly limited exceptions, that the
institution be placed in receivership.
Deposit Assessments
Deposits of the Bank are insured by the FDIC through the Bank Insurance
Fund ("BIF"). Deposits of certain savings associations are insured by the FDIC
through the Savings Association Insurance Fund ("SAIF"). The FDIC sets deposit
insurance assessment rates on a semiannual basis and will increase deposit
insurance assessments whenever the ratio of reserves to insured deposits in a
fund is less than 1.25. The insurance assessments paid by an institution are to
be based on the probability that the fund will incur a loss with respect to the
institution. The FDIC has adopted deposit insurance regulations under which
insured institutions are assigned to one of the following three capital groups
based on their capital levels: "well-capitalized," "adequately capitalized" and
"undercapitalized." Banks in each of these three groups are further classified
into three subgroups based upon the level of supervisory concern with respect to
each bank. The resulting matrix creates nine assessment risk classifications to
which are assigned deposit insurance premiums ranging from 0.00% for the best
capitalized, healthiest institutions, to 0.27% for undercapitalized institutions
with substantial supervisory concerns.
In addition, the Bank is subject to semi-annual assessments relating to
interest payments on Financing Corporation (FICO) bonds issued in connection
with the resolution of the thrift industry crisis. Currently, the FICO
assessments on BIF-insured deposits are made at one-fifth the rate currently
applicable to SAIF-insured deposits. It is expected that after December 31, 1999
(or when the last savings association ceases to exist, if earlier), all
assessable deposits at all institutions will be assessed at the same rates in
order to pay FICO bond interest.
Limitations on Payment of Dividends; Regulatory Agreement
Under applicable New Jersey law, the Company is not permitted to pay
dividends on its capital stock if, following the payment of the dividend, (i)
the corporation would be unable to
9
pay its debts as they become due in the usual course of business or (ii) the
corporation's total assets would be less than its total liabilities.
Determinations under clause (ii) above may be based upon (i) financial
statements prepared on the basis of generally accepted accounting principles,
(ii) financial statements prepared on the basis of other accounting principles
that are reasonable under the circumstances, or (iii) a fair valuation or other
method that is reasonable in the circumstances.
Since it has no significant independent sources of income, the ability of
the Company to pay dividends is dependent on its ability to receive dividends
from the Bank. Under national banking laws, a national bank must obtain the
approval of the OCC before declaring any dividend which, together with all other
dividends declared by the national bank in the same calendar year will exceed
the total of the bank's net profits of that year combined with its retained net
profits of the preceding 2 years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. Net profits are to be calculated
without adding back any provision to the bank's allowance for loan and lease
losses. These restrictions would not prevent the Bank from paying dividends from
current earnings to the Company at this time. FDICIA prohibits FDIC- insured
institutions from paying dividends or making capital distributions that would
cause the institution to fail to meet minimum capital requirements. The FDICIA
restrictions would not prevent the Bank from paying dividends from current
earnings to the Company at this time. The Bank in 1991 entered into a written
agreement with the OCC (the "Regulatory Agreement") to, among other things,
create a Compliance Committee, implement a plan to correct any compliance
deficiencies, and reduce its classified assets and to maintain the Bank's common
stockholders' equity at 5% of total assets. In 1991, in connection with the
Regulatory Agreement and at the recommendation of the FRBP, the Board of
Directors of the Company adopted a resolution, under which the Board could not
declare a dividend to the Company's stockholders except with 10 days' prior
written notice to the FRBP. The Regulatory Agreement was terminated on October
18, 1993, and on December 21, 1994, the Board of Directors of the Company
rescinded its resolution with the permission of the FRBP, which was granted on
November 30, 1994.
New Jersey Banking Laws
Provisions of the New Jersey Banking Act of 1948 with supplements (the "New
Jersey Banking Act") may apply to national banking associations with their
principal offices in New Jersey, subject to pre-emption by applicable Federal
laws. The merger of a national bank into a state bank requires approval of the
New Jersey Commissioner of Banking; however, a state bank may merge into a
national bank without such prior approval. The New Jersey
10
Banking Act also purports to regulate certain aspects of bank business,
including small loans and certain deposit accounts. New Jersey law permits
interstate banking and branching, subject to certain limitations. See the
discussion under "Interstate Banking", below.
Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"), beginning on September 29, 1995, bank
holding companies are now permitted to acquire banks in any state without regard
to state law, except that state laws which require the acquiror to have been in
existence for a specified minimum period of time are preserved, up to a maximum
existence requirement of 5 years. Except for initial entry into a state, after
an acquisition the acquiror may not control more than 10% of total insured
deposits in the U. S. or more than 30% of insured deposits in the acquiror's
home state. Stricter state deposit concentration caps apply if they are
nondiscriminatory. In addition, effective June 1, 1997, banks in different
states may be merged into a single bank with interstate branches, subject to any
necessary regulatory approvals and provided the banks are adequately
capitalized, unless the state in which such branches would be located has
enacted legislation prohibiting such transactions. Once a bank has established
branches in a host state through an interstate merger transaction, it may
establish and acquire additional branches anywhere in the host state where the
acquiree could have branched. The establishment of de novo branches or
acquisition of one or more branches in another state without acquisition of the
entire bank are only permitted if the other state has enacted legislation
authorizing such branching in that state. On April 17, 1996, New Jersey enacted
legislation authorizing interstate mergers and acquisitions of branches. The New
Jersey legislation does not authorize de novo branching into the state. Because
of reciprocity rules adopted by other states (such as Pennsylvania) the lack of
authorization for de novo branching into New Jersey may also affect the ability
of the Bank to branch into other states. Bank management anticipates that the
Interstate Banking Act will increase competitive pressures in the Bank's market
by permitting entry of additional competitors.
1996 Federal Banking Legislation
The Economic Growth And Regulatory Paperwork Reduction Act of 1996 (the
"1996 Banking Law"), enacted as Title II of the Omnibus Consolidated
Appropriations Act for Fiscal Year 1997 was signed into Law on September 30,
1996, implemented a wide range of regulatory relief provisions affecting federal
insured depository institutions. Among the supervisory provisions of the 1996
Banking Law which may affect the Bank, the 1996 Banking Law included the
following: per branch capital requirement for
11
national banks were eliminated; ATM's and other remote service units were
excluded from the definition of "branch" for purposes of certain branch approval
requirements and geographic restrictions; the law permits well-capitalized banks
rated CAMEL 1 or 2 to invest in bank premises in amounts up to 150 percent of
the bank's capital and surplus with only a 30-day after-the-fact notice and
establishes expedited procedures to permit certain bank holding companies to
engage in permissible nonbanking activities, except for acquisitions of thrifts;
exempted from the insider lending restrictions a bank's company-wide benefit or
compensation plans that are widely available to employees of the bank and that
do not give preference to any officer, director, or principal shareholder (or
related interests) over other employees of the bank; permits the Federal banking
agencies to raise the asset limit for an 18-month examination cycle from
$175,000,000 to $250,000,000 for banks with a CAMEL 2 rating; permits the OCC to
waive the State residency requirement for directors of national banks;
eliminates the independent auditor attestation requirement for compliance with
safety and soundness laws; authorizes the Federal banking agencies to permit a
bank's independent audit committee to include some inside directors if the bank
is unable to find competent outside directors, provided a majority of the
committee is still made up of outside directors; requires FRB and the U.S.
Department of Housing and Urban Development, within 6 months of enactment, to
simplify and improve RESPA and TILA disclosures and provide a single format for
such disclosures; makes a number of changes to RESPA's disclosure requirements;
generally provides that, if a bank or a third party self-tests for compliance
under the Equal Credit Opportunity Act and the Fair Housing Act, the test
results will not be used against the bank if the bank identifies possible
violations and is taking appropriate corrective actions, and if the bank is not
using the results in its defense; sunsets the Truth-in-Savings Act's civil
liability provision in five years; recapitalizes the SAIF as of October 1, 1996;
requires banks after December 31, 1996 to pay 20% of the interest on the bonds
that funded the initial capitalization of SAIF ("FICO bonds") but banks would be
required to pay a full pro-rata share of the interest obligation beginning after
the earlier of December 31, 1999 or the date on which the last savings
association ceases to exist; merges SAIF and the BIF on January 1, 1999, but
only if no insured depository institution is a savings association on that date;
requires the Department of Treasury to conduct a study by March 31, 1997 on the
development of a common charter for all insured depository institutions;
substantially amends the Fair Credit Reporting Act ("FCRA"); prohibits the
Federal banking agencies from examining for compliance with FCRA unless there
has been a complaint about a violation or the agency otherwise has knowledge of
a violation; and amends the Comprehensive Environmental Response, Compensation,
and Liability Act to clarify that a lender is not liable for environmental
cleanups of
12
property securing a loan unless the lender, among other things, participates in
day-to-day decision making over the operations of the property or has control
over environmental compliance and provides that lenders that foreclose on
property may take certain post-foreclosure actions without incurring liability
for environmental cleanup if the lender did not participate in management of the
property prior to foreclosure and the lender seeks to dispose of the property as
soon as it is commercially reasonable.
Other Laws and Regulations
The Company and the Bank are subject to a variety of laws and regulations
which are not limited to banking organizations. In lending to commercial and
consumer borrowers, and in owning and operating its own property, the Bank is
subject to regulations and risks under state and Federal environmental laws.
Legislation and Regulatory Changes
Legislation and regulations may be enacted which increase the cost of doing
business, limiting or expanding permissible activities, or affecting the
competitive balance between banks and other financial services providers.
Proposals to change the laws and regulations governing the operations and
taxation of banks, bank holding companies, and other financial institutions are
frequently made in Congress and before various bank regulatory agencies. No
prediction can be made as to the likelihood of any major changes or the impact
such changes might have on the Company and the Bank.
Effect of Government Monetary Policies
The earnings of the Company are and will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The FRB has had, and will likely continue to have, an
important impact on the operating results of commercial banks through its power
to implement national monetary policy in order, among other things, to curb
inflation or combat a recession. The FRB has a major effect upon the levels of
bank loans, investments and deposits through its open market operations in
United States government securities and through its regulation of, among other
things, the discount rate on borrowings of member banks and the reserve
requirements against member banks' deposits. It is not possible to predict the
nature and impact of future changes in monetary and fiscal policies.
13
Competition
The Bank faces significant competition both in generating loans and in
attracting deposits. The central New Jersey area is a highly competitive market.
The Bank is subject to vigorous competition in all aspects of its business from
other financial institutions such as commercial banks, savings banks, savings
and loan associations, credit unions, insurance companies and finance and
mortgage companies. Within the direct market area of the Bank there are a
significant number of offices of competing financial institutions. The Bank
competes in its market area with a number of larger commercial banks that have
substantially greater resources, higher lending limits, larger branch systems
and provide a wider array of banking services. The effect of liberalized
branching and acquisition laws has been to lower barriers to entry into the
banking business and increase competition for banking business, as well as to
increase both competition for and opportunities to acquire other financial
institutions. Savings banks, savings and loan associations and credit unions
also actively compete for deposits and for various types of loans. In its
lending business, the Bank is subject to increasing competition from consumer
finance companies and mortgage companies, which are not subject to the same kind
of regulatory restrictions as banks and can often offer lower loan rates than
banks. Financial institutions are intensely competitive in the interest rates
they offer on deposits. In addition, the Bank faces competition for deposits
from non-bank institutions such as brokerage firms and insurance companies in
such instruments as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. Finally, a number of the Bank's
competitors provide a wider array of services (such as trust and international
services, which the Bank does not provide) and, by virtue of their greater
financial resources, have higher lending limits and larger branch systems.
Employees
At December 31, 1997, the Company employed 169 full-time employees and
10 part-time employees.
14
Statistical Disclosure
Statistical disclosure information regarding the Company is included in
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations," which is incorporated by reference to the Company's 1997
Annual Report to Stockholders.
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located at 3111
Quakerbridge Road, Trenton, New Jersey in a building owned by the Bank and the
management and staff of the Company utilize the facilities and equipment of the
Bank. The Bank owns its principal executive offices, where it also has a banking
office, in Yardville, New Jersey, and three additional banking offices in
Hamilton Township, New Jersey. The Bank leases its banking office in Ewing
Township, New Jersey. The lease provides for a term of five years ending in
1999, renewable for three 5- year periods, and a base monthly rental of
$2,333.34 during the initial term. The Bank also leases its banking office in
East Windsor Township, New Jersey. The lease provides for a term of five years
ending in 1999, renewable for three 5-year periods, and provides for a base
monthly rental of $2,457.92 during the initial term. The Bank also leases its
banking office in Trenton. The lease provides for a term of five years ending in
1999, renewable for three 5-year periods, and provides for a base monthly rental
of $1,875.00. The Bank also leases its banking office in Hamilton Square, New
Jersey, which opened in the second quarter of 1996. The Bank assumed a 20 year
lease effective April 1, 1996. The lease commenced on October 1, 1991 and ends
on September 30, 2011 and is renewable for 5-year periods, and provides for a
base monthly rental of $5,573.53 during the initial term. The Bank purchased a
building and property in Ewing Township and opened its ninth branch in the third
quarter of 1996. Yardville National Investment Corporation leases space from the
Bank at the Bank's principal executive offices. The Bank also leases its
Telephone Help Center located in Hamilton Township. The lease provides for a
term of two years ending in August 31, 1999, renewable for a one year period and
provides for a base monthly rental of $3,250.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal actions as of December 31,
1997, arising out of the ordinary course of business. Management of the Company
does not deem any of the claims against the Company in such matters are material
in relation to the Company's financial condition, results of operations or
liquidity based on information currently available to the Company.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1997, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Common Stock is traded in the NASDAQ National Market. The following
table shows the range of high and low closing bid prices of the Common Stock in
the NASDAQ National Market during 1996 and 1997. The prices below reflect the
two-for-one stock split declared December 23, 1997. The price quotations reflect
inter-dealer quotations without adjustment for retail markup, markdown or
commission, and may not represent actual transactions.
Bid Price
High Low
Year Ended December 31, 1996:
- -----------------------------
First Quarter $ 8 1/2 $ 7 7/8
Second Quarter 8 3/8 7 3/4
Third Quarter 9 3/16 7 13/16
Fourth Quarter 10 1/2 9
Year Ended December 31, 1997:
- -----------------------------
First Quarter $11 13/16 $ 9 5/8
Second Quarter 13 9 7/8
Third Quarter 14 3/4 12 3/8
Fourth Quarter 17 13/16 13 5/8
Holders
As of December 31, 1997, the Company had approximately 581 holders of
record of the Common Stock.
16
Dividends
In 1996, the Company paid cash dividends on the Common Stock in the
aggregate amount of $1,083,000. Dividends paid per share in 1996 totaled $0.225.
In 1997, the Company paid cash dividends on the Common Stock in the aggregate
amount of $1,233,000. Dividends paid per share in 1997 totaled $0.25. All
dividend information reflects the two-for-one stock split declared December 23,
1997. In the first quarter of 1998, the Company paid a cash dividend in the
amount of $.07 per share on the Common Stock. Because substantially all of the
funds available for the payment of cash dividends are derived from the Bank,
future cash dividends will depend primarily upon the Bank's earnings, financial
condition, need for funds, and government policies and regulations applicable to
both the Bank and the Company. As of December 31, 1997, the net profits of the
Bank available for distribution to the Company as dividends without regulatory
approval were approximately $6,512,000. The Company expects to pay quarterly
cash dividends in 1998 to holders of Common Stock, subject to the Company's
financial condition.
ITEMS 6, 7 AND 8
Information required by items 6, 7 and 8 is provided in the Company's 1997
Annual Report to Stockholders under the captions and on the pages indicated
below, and is incorporated by reference:
PAGES IN 1997
ANNUAL REPORT
CAPTION IN 1997 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 15-35
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS 36-52
INDEPENDENT AUDITORS' REPORT 53
The Company is not required to provide selected quarterly financial
data in response to Item 8 and, therefore, such data has been omitted from the
1997 Annual Report to Stockholders.
17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
ITEMS 10 THROUGH 13
Information required by Items 10 through 13 is provided in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its annual meeting of stockholders to be held
April 28, 1998. Such information is incorporated by reference. The information
contained in the Company's definitive proxy statement under the caption
"Organization and Compensation Committee Report" shall not be deemed to be
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed or incorporated by reference as a part of this report
are listed in the Index to Exhibits which appears at page E-1.
(b) Financial Statements
The following audited consolidated financial statements and the Company's
independent auditors' report thereon have been incorporated in this report by
reference to the Company's 1997 Annual Report to Stockholders:
1. Consolidated Statements of Condition
2. Consolidated Statements of Income
3. Consolidated Statements of Changes in Stockholders' Equity
4. Consolidated Statements of Cash Flows
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1997.
18
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has caused this annual report to be signed
on its behalf by the undersigned thereunto duly authorized on March 25, 1998.
YARDVILLE NATIONAL BANCORP
By: /s/ Patrick M. Ryan
--------------------------------
Patrick M. Ryan, President and
Chief Executive Officer
Signatures Title
---------- -----
/s/ Jay G. Destribats
- ------------------------- Chairman of the Board
Jay G. Destribats and Director
/s/ Patrick M. Ryan
- ------------------------- Director, President and
Patrick M. Ryan Chief Executive Officer
/s/ Stephen F. Carman
- ------------------------- Treasurer, Secretary,
Stephen F. Carman Principal Financial Officer
and Principal Accounting Officer
/s/ C. West Ayres
- ------------------------- Director
C. West Ayres
/s/ Elbert G. Basolis, Jr.
- ------------------------- Director
Elbert G. Basolis, Jr.
/s/ Lorraine Buklad
- ------------------------- Director
Lorraine Buklad
/s/ Anthony M. Giampetro
- ------------------------- Director
Anthony M. Giampetro
/s/ Sidney L. Hofing
- ------------------------- Director
Sidney L. Hofing
/s/ James J. Kelly
- ------------------------- Director
James J. Kelly
19
Signatures Title
---------- -----
/s/ Gilbert W. Lugossy
- ------------------------- Director
Gilbert W. Lugossy
/s/ Louis R. Matlack
- ------------------------- Director
Louis R. Matlack
/s/ Weldon J. McDaniel, Jr
- ------------------------- Director
Weldon J. McDaniel, Jr.
/s/ F. Kevin Tylus
- ------------------------- Director
F. Kevin Tylus
20
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
3.1 Restated Certificate of Incorporation of the Company, as amended by
the Certificate of Amendment thereto filed March 6, 1998 ................
**3.2 By-Laws of the Company...................................................
**4.1 Specimen Share of Common Stock...........................................
****10.1 Employment Contract between Registrant and Patrick M. Ryan...............
****10.2 Employment Contract between Registrant and Jay G. Destribats.............
10.3 Employment Contract between Registrant and Stephen F. Carman.............
10.4 Employment Contract between Registrant and James F. Doran................
10.5 Employment Contract between Registrant and Richard A. Kauffman...........
10.6 Employment Contract between Registrant and Mary C. O'Donnell.............
10.7 Employment Contract between Registrant and Frank Durand III..............
****10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan..............
****10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats............
+10.10 1988 Stock Option Plan...................................................
*10.11 1994 Stock Option Plan...................................................
*10.12 Directors' Deferred Compensation Plan....................................
**10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993...
*10.14 Lease between Richardson Realty Company and the Bank dated November 18,
1994.....................................................................
*10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the
Bank dated October, 1994.................................................
***10.16 Survivor Income Plan for the Benefit of Stephen F. Carman................
***10.17 Lease Agreement between Devon Inc. and the Bank dated as of February 9, 1996
++10.18 1997 Stock Option Plan...................................................
10.19 Employment Contract between Registrant and Howard N. Hall................
10.20 Employment Contract between Registrant and Sarah J. Strout...............
10.21 Employment Contract between Registrant and Nina D. Melker................
10.22 Employment Contract between Registrant and Timothy J. Losch..............
10.23 Survivor Income Plan for the Benefit of Timothy J. Losch ................
(Continued)
E-1
10.24 Lease Agreement between The Ibis Group and the Bank dated July, 1997.....
13.1 1997 Annual Report to Stockholders.......................................
21 List of Subsidiaries of the Registrant...................................
23.1 Consent of KPMG Peat Marwick LLP ........................................
27.1 Financial Data Schedules.................................................
* Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1994, as amended by Form 10-KSB/A
filed on July 25, 1995.
** Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-78050)
*** Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995.
**** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
+ Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997, as amended by Form 10-Q/A
filed on August 15, 1997.
++ Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-28193)
E-2