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 ACT
OF 1934 For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
For transition period from
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2670267
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2465 Kuser Road, Hamilton, New Jersey 08690
-----------------------------------------------------------------
(Address of principal executive offices)
(609) 585-5100
-----------------------------------------------------------------
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 2, 2000, the
following class and number of shares were outstanding:
Common Stock, no par value 6,755,794
- -------------------------- ----------------------------
Class Number of shares outstanding
INDEX
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES
PART 1 FINANCIAL INFORMATION PAGE NO.
- -------------------------------------------------------------------------------
Item 1. Financial Statements
Consolidated Statements of Condition
March 31, 2000 and December 31, 1999
Consolidated Statements of Income
Three months ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
PART 2 OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 27.1 Financial Data Schedule
Item 1. Financial Statements
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
March 31, December 31,
- ------------------------------------------------------------------------------------------------
(in thousands, except share data) 2000 1999
- ------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks .......................................... $ 18,087 $ 17,582
Federal funds sold ............................................... 34,190 8,035
- ------------------------------------------------------------------------------------------------
Cash and Cash Equivalents ................................... 52,277 25,617
- ------------------------------------------------------------------------------------------------
Interest bearing deposits with banks ............................. 1,825 955
Securities available for sale .................................... 328,999 309,298
Investment securities (market value of $99,723 in 2000 and
$100,121 in 1999) ................................................ 107,874 108,167
Loans ............................................................ 696,475 646,737
Less: Allowance for loan losses ............................ (9,478) (8,965)
- ------------------------------------------------------------------------------------------------
Loans, net .................................................. 686,997 637,772
Bank premises and equipment, net ................................. 9,254 9,400
Other real estate ................................................ 2,451 2,585
Other assets ..................................................... 31,249 29,804
- ------------------------------------------------------------------------------------------------
Total Assets ................................................ $ 1,220,926 $ 1,123,598
- ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing ........................................ $ 92,263 $ 90,219
Interest bearing ............................................ 704,049 653,588
- ------------------------------------------------------------------------------------------------
Total Deposits .............................................. 796,312 743,807
- ------------------------------------------------------------------------------------------------
Borrowed funds
Securities sold under agreements to repurchase .............. 26,942 45,000
Federal Home Loan Bank advances ............................. 312,287 250,293
Obligation to Employee Stock Ownership Plan (ESOP) .......... 1,500 1,600
Other ....................................................... 1,098 1,796
- ------------------------------------------------------------------------------------------------
Total Borrowed Funds ........................................ 341,827 298,689
Company - obligated Mandatorily Redeemable Trust Preferred
Securities of Subsidiary Trust holding solely junior
Subordinated Debentures of the Company ...................... 11,500 11,500
Other liabilities ................................................ 12,570 10,777
- ------------------------------------------------------------------------------------------------
Total Liabilities ........................................... $ 1,162,209 $ 1,064,773
- ------------------------------------------------------------------------------------------------
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 6,927,794 in 2000
and 6,917,794 shares in 1999 ........................... 40,091 40,052
Surplus .......................................................... 2,205 2,205
Undivided profits ................................................ 29,183 27,462
Treasury stock, at cost, 172,000 shares in 2000 and 1999 ......... (3,030) (3,030)
Unallocated ESOP shares .......................................... (1,500) (1,600)
Accumulated other comprehensive loss ............................. (8,232) (6,264)
- ------------------------------------------------------------------------------------------------
Total Stockholders' Equity .................................. 58,717 58,825
Total Liabilities and Stockholders' Equity .................. $ 1,220,926 $ 1,123,598
- ------------------------------------------------------------------------------------------------
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) 2000 1999
- -------------------------------------------------------------------- -------- --------
INTEREST INCOME:
Interest and fees on loans ......................................... $ 14,354 $ 10,711
Interest on deposits with banks .................................... 15 19
Interest on securities available for sale .......................... 5,446 2,853
Interest on investment securities:
Taxable ....................................................... 1,190 597
Exempt from Federal income tax ................................ 384 258
Interest on Federal funds sold ..................................... 213 160
- -------------------------------------------------------------------- -------- --------
Total Interest Income ......................................... 21,602 14,598
- -------------------------------------------------------------------- -------- --------
INTEREST EXPENSE:
Interest on savings account deposits ............................... 1,588 1,095
Interest on certificates of deposit of $100,000 or more ............ 1,211 491
Interest on other time deposits .................................... 5,462 3,801
Interest on borrowed funds ......................................... 4,330 2,528
Interest on trust preferred securities ............................. 266 266
- -------------------------------------------------------------------- -------- --------
Total Interest Expense ........................................ 12,857 8,181
- -------------------------------------------------------------------- -------- --------
Net Interest Income ........................................... 8,745 6,417
Less provision for loan losses ..................................... 800 650
- -------------------------------------------------------------------- -------- --------
Net Interest Income After Provision for Loan Losses ........... 7,945 5,767
- -------------------------------------------------------------------- -------- --------
NON-INTEREST INCOME:
Service charges on deposit accounts ................................ 377 308
(Losses) gains on sales of mortgages, net .......................... (21) 15
Securities (losses) gains, net ..................................... (45) 15
Other non-interest income .......................................... 422 390
- -------------------------------------------------------------------- -------- --------
Total Non-Interest Income .................................... 733 728
- -------------------------------------------------------------------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits ..................................... 2,808 2,291
Occupancy expense, net ............................................. 622 313
Equipment expense .................................................. 468 362
Other non-interest expense ......................................... 1,424 1,379
- -------------------------------------------------------------------- -------- --------
Total Non-Interest Expense .................................... 5,322 4,345
- -------------------------------------------------------------------- -------- --------
Income before income tax expense ................................... 3,356 2,150
Income tax expense ................................................. 960 596
- -------------------------------------------------------------------- -------- --------
Net Income .................................................... $ 2,396 $ 1,554
- -------------------------------------------------------------------- -------- --------
EARNINGS PER SHARE:
Basic .............................................................. $ 0.36 $ 0.31
Diluted ............................................................ $ 0.36 $ 0.31
- -------------------------------------------------------------------- -------- --------
Weighted average shares outstanding:
Basic .............................................................. 6,659 5,003
Diluted ............................................................ 6,675 5,030
- -------------------------------------------------------------------- -------- --------
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) 2000 1999
- ---------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 2,396 $ 1,554
Adjustments:
Provision for loan losses 800 650
Depreciation 376 269
Amortization and accretion 55 196
Losses (gains) on sales of securities available for sale 45 (15)
Loss on sales of other real estate 16 1
Write down of other real estate 75 250
Increase in other assets (384) (2,266)
Increase in other liabilities 1,792 577
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,171 1,216
- ---------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest bearing deposits with banks (870) (1,051)
Purchase of securities available for sale (59,434) (45,771)
Maturities, calls, and paydowns of securities available for sale 6,156 13,106
Proceeds from sales of securities available for sale 30,462 8,027
Proceeds from maturities and paydowns of investment Securities 767 1,036
Purchase of investment securities (487) (46,673)
Net increase in loans (50,080) (53,377)
Expenditures for bank premises and equipment (230) (656)
Proceeds from sale of other real estate 98 374
- ---------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (73,618) (124,985)
- ---------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in non-interest bearing demand,
money market, and savings deposits 25,045 122
Net increase in certificates of deposit 27,460 83,900
Net increase in borrowed funds 43,138 51,950
Proceeds from issuance of common stock 39 2,053
Decrease (increase) in unallocated ESOP shares 100 (1,900)
Treasury shares acquired -- (22)
Dividends paid (675) (410)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 95,107 135,693
- ---------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 26,660 11,924
Cash and cash equivalents as of beginning of period 25,617 16,526
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Period $ 52,277 $ 28,450
- ---------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest expense 11,788 8,503
Income taxes 100 301
- ---------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Transfers to other real estate from loans,
net of charge offs 55 525
- ---------------------------------------------------------------------------------------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
Yardville National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2000
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation:
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the 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 revenue 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,
2000 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 result of operations that might be expected
for the entire year ending December 31, 2000.
Consolidation
The consolidated financial statements include the accounts of Yardville National
Bancorp (the "Holding Company") and its subsidiaries, Yardville Capital Trust
(the "Trust") and The Yardville National Bank (the "Bank"), and the Bank's
wholly owned subsidiaries, Yardville National Investment Corporation, Brendan,
Inc., Nancy Beth, Inc., Jim Mary, Inc., Yardville Real Estate Corporation, YNB
Financial Services, Inc., YNB Realty Inc., and Capital Development, Inc.,
(collectively, "YNB"). All significant inter-company accounts and transactions
have been eliminated. Brendan, Inc., Nancy Beth, Inc. and Jim Mary, Inc. are
utilized for the control and disposal of other real estate properties. Yardville
Real Estate Corporation is utilized to hold Bank branch properties, YNB
Financial Services, Inc., provides alternative investment services, and YNB
Realty, Inc., a real estate investment trust, is utilized to more effectively
manage a portion of the Bank's real estate related loans. Capital Development is
utilized for nontraditional lending opportunities.
6
Allowance for Loan Losses
The provision for loan losses charged to operating expense is determined by
management and 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 Bank's allowance for loan losses and the valuation of other real estate.
Such agencies may require the Bank to recognize additions to the allowance or
adjustments to the carrying value of other real estate based on their judgement
about information available at the time of their examination.
Company - Obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company
(Trust Preferred Securities)
On October 16, 1997, Yardville Capital Trust, a statutory business trust and a
wholly owned subsidiary of the Holding Company, issued $11,500,000 of 9.25%
Trust Preferred Securities to the public and $356,000 of 9.25% Common Securities
to the Holding Company. Proceeds from the issuance of the Trust Preferred
Securities were immediately used by the Trust to purchase $11,856,000 of 9.25%
Subordinated Debentures maturing November 1, 2027 from the Holding Company. The
Trust exists for the sole purpose of issuing Trust Preferred Securities and
investing the proceeds in Subordinated Debentures of the Holding Company. These
Subordinated Debentures constitute the sole assets of the Trust.
2. Earnings Per Share
Weighted average shares for the basic net income per share calculation for the
three months ended March 31, 2000 and 1999 were 6,659,000 and 5,003,000
respectively. For the diluted net income per share computation, potential common
stock of 16,000 and 27,000 are included for the three months ended March 31,
2000 and 1999, respectively.
7
3. Comprehensive Income
Listed below is the statement of comprehensive income for three months ended
March 31, 2000 and 1999.
Three Months Ended
Comprehensive Income March 31, 2000
--------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------------------------
Net Income $ 2,396 $ 1,554
--------------------------------------------------------------------------------------------------
Other comprehensive loss
Net change in unrealized loss for the period,
Net of tax (1,968) (640)
Reclassification of realized net (loss) gain on sale of
Securities available for sale, net of tax (45) 10
--------------------------------------------------------------------------------------------------
Holding loss arising during the period,
net of tax and reclassification (2,013) (630)
--------------------------------------------------------------------------------------------------
Reclassification adjustment for realized net
Loss (gain), net of tax 45 (10)
--------------------------------------------------------------------------------------------------
Other comprehensive loss for the period, net of tax (1,968) (640)
--------------------------------------------------------------------------------------------------
Total comprehensive income $ 428 $ 914
==================================================================================================
4. Employee Stock Ownership Plan
The Bank established an Employee Stock Ownership Plan and related trust ("ESOP")
for eligible employees. The ESOP is a tax-qualified plan subject to the
requirements of the Employee Retirement Income Security Act of 1974 (ERISA).
Employees with twelve months of employment with the Bank and who have worked at
least 1,000 hours are eligible to participate. The ESOP borrowed $2,000,000 from
an unaffiliated financial institution and purchased 155,340 shares of common
stock, no par value, of the Holding Company. Shares purchased by the ESOP are
held in a suspense account pending allocation among participants as the loan is
repaid.
Compensation expense is recognized based on the fair value of the stock when it
is committed to be released. Compensation expense amounted to $54,089 and
$100,000 for the three months ended March 31, 2000 and 1999 respectively. The
fair value of unearned shares at March 31, 2000 is $1,115,000.
Unallocated shares are deducted from common shares outstanding for earnings per
share purposes with shares which are committed to be released during the year
added back into weighted average shares outstanding.
8
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES (YNB)
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 1999 Annual Report to stockholders and Form 10-K for the fiscal year
ended December 31, 1999 as well as with the unaudited consolidated financial
statements and the accompanying notes in this Form 10-Q.
This Form 10-Q report contains express and implied statements relating to the
future financial condition, results of operations, plans, objectives,
performance, and business of YNB, which are considered forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These include statements that relate to, among other things,
profitability, liquidity, loan loss reserve adequacy, plans for growth, interest
rate sensitivity, market risk, and financial and other goals. Actual results may
differ materially from those expected or implied as a result of certain risks
and uncertainties, including, but not limited to, changes in economic
conditions, interest rate fluctuations, continued levels of loan quality and
origination volume, competitive product and pricing pressures within YNB's
markets, continued relationships with major customers including sources for
loans and deposits, personal and corporate customers' bankruptcies, legal and
regulatory barriers and structure, inflation, and technological changes, as well
as other risks and uncertainties detailed from time to time in the filings of
YNB with the U.S. Securities and Exchange Commission.
Financial Condition
Assets
Total consolidated assets at March 31, 2000 were $1,220,926,000, an increase of
$97,328,000 or 8.7% compared to $1,123,598,000 at December 31, 1999. The growth
in YNB's asset base during the three months of 2000 was primarily due to
increases in loans (primarily commercial loans), Federal funds sold, and
available for sale securities. The increase in the loan portfolio was the
product of YNB's philosophy of relationship banking and reputation as a
business lender in the marketplace. YNB's asset base includes US agency
securities of approximately $248,705,000 purchased utilizing primarily
repurchase agreements and Federal Home Loan Bank advances (Investment Growth
Strategy). The Investment Growth Strategy securities at March 31, 2000 increased
$20,295,000 or 8.9% from the reported total of $228,410,000 at December 31,
1999. The primary goals of the Investment Growth Strategy, improving return on
equity and earnings per share, continue to be achieved.
Federal funds sold
At March 31, 2000 Federal funds sold totaled $34,190,000 compared to $8,035,000
at December 31, 1999. The higher amount of Federal funds sold at March 31,
2000 was primarily due to increased certificate of deposit (CD) balances and
borrowed funds raised to fund loan growth and effectively manage liquidity.
Average Federal funds sold for the three months of 2000 was $14,794,000 compared
to $14,000,000 for the same period in 1999. Management remains focused on
maintaining adequate liquidity to fund loan growth and to improve the liquidity
profile of YNB.
9
Securities
The following tables present the amortized cost and market value of YNB's
securities portfolios as of March 31, 2000 and December 31, 1999.
Available For Sale Securities March 31, 2000 December 31, 1999
- ------------------------------------------------------------------------ --------------- ----------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------ --------------- ----------------
U.S. Treasury securities and
Obligations of other U.S.
government agencies $ 123,519 $ 118,539 $ 117,496 $ 112,731
Mortgage-backed securities 194,477 186,982 170,775 166,164
Corporate obligations 6,132 5,943 5,783 5,522
All other securities 17,535 17,535 24,881 24,881
- ------------------------------------------------------------------------ --------------- ----------------
Total $ 341,663 $ 328,999 $ 318,935 $ 309,298
======================================================================== =============== ================
Investment Securities March 31, 2000 December 31, 1999
- ------------------------------------------------------------------------ --------------- ----------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------ --------------- ----------------
Obligations of other U.S.
government Agencies $ 69,184 $ 63,924 $ 69,184 $ 63,992
Obligations of state and
political subdivisions 32,032 29,512 31,892 29,281
Mortgage-backed securities 6,658 6,287 7,091 6,848
- ------------------------------------------------------------------------ --------------- ----------------
Total $ 107,874 $ 99,723 $ 108,167 $ 100,121
======================================================================== =============== ================
Securities represented 35.8% of total assets at March 31, 2000 and 37.2% at
December 31, 1999. Total securities increased $19,408,000 or 4.6% at March 31,
2000 to $436,873,000, compared to $417,465,000 at year-end 1999. The available
for sale portfolio represents 75.3% of the total security holdings of YNB at
March 31, 2000, compared to 74.1% at year-end 1999.
The net unrealized loss on available for sale securities was $12,664,000 as of
March 31, 2000 and was $9,637,000 at December 31, 1999. Net unrealized loss, net
of tax effect, was $8,232,000 as reported in Accumulated Other Comprehensive
Loss in Stockholders' Equity at March 31, 2000, and $6,264,000 reported at
December 31, 1999. The increase in the unrealized loss on available for sale
securities is primarily due to the changes in interest rates from December 31,
1999 to March 31, 2000 and the increased size of the available for sale
securities portfolio.
10
Securities available for sale increased $19,701,000 or 6.4% at March 31, 2000
when compared to the December 31, 1999 balance of $309,298,000. The largest
increase was in mortgage-backed securities, which increased $20,818,000 and this
increase was the major factor for the increase in securities available for sale.
Mortgage-backed securities purchased were primarily comprised floating rate
CMO's which grew by $23,800,000 and that increase was offset by paydowns in
fixed and adjustable rate mortgage backed securities. Floating rate CMO's have
been purchased to improve the performance of the investment portfolio in a
rising rate environment. U.S. Treasury and other U.S. agency obligations
increased $5,808,000 or 5.2%. The growth was primarily in shorter term callable
bonds purchased to improve YNB's liquidity profile.
Investment securities decreased $293,000 or 0.3% to $107,874,000 at March 31,
2000 from $108,167,000 at December 31, 1999. The decrease was due to a modest
increase in obligations of state and political subdivisions offset by principal
paydowns on mortgage backed securities.
The Investment Growth Strategy securities increased $20,295,000 over the
year-end 1999 level. The largest increase was in floating rate US agency
collateralized mortgage obligations, which increased $15,904,000 and accounted
for 78.4% of the total increase. The next largest growth was in US agency
callable bonds that increased $7,007,000. Modest reductions were recorded in
fixed rate mortgage backed securities, which decreased by $1,736,000 as a result
of paydowns and floating rate mortgage backed securities, which decreased, by
$880,000 as a result of paydowns. At March 31, 2000, the Investment Growth
Strategy portfolio was comprised of 73.6% of fixed rate securities and 26.4% of
adjustable or floating rate securities compared to 77.8% fixed rate securities
and 22.1% adjustable rate securities at year end 1999.
11
Loans
Total loans, net of unearned income, increased $49,738,000 or 7.7% at March 31,
2000 to $696,475,000 from $646,737,000 at December 31, 1999. This growth was in
line with the growth experienced in the first quarter of 1999 of $52,606,000.
YNB's loan portfolio represented 57.0% of total assets at March 31, 2000
compared to 57.6% at December 31, 1999. YNB's lending focus continues to be on
commercial and industrial loans, and commercial real estate loans. The ability
of YNB to enter into larger loan relationships and management's philosophy of
relationship banking are key factors in continued strong loan growth. Strong
competition from both bank and nonbank competitors could result in comparatively
lower yields on new and established lending relationships. In addition,
borrowers' concerns over the economy, real estate prices and rising interest
rates could all be factors in slowing future loan growth. Management anticipates
continued loan growth for the second quarter of 2000 but not at the same level
as the first quarter of 2000. Continued profitable loan growth is a key factor
in meeting earnings growth goals.
Loan Portfolio Composition
- -----------------------------------------------------------------------------
(in thousands) 3/31/00 12/31/99 Change % change
- -----------------------------------------------------------------------------
Commercial real estate $ 261,663 $ 251,534 $ 10,129 4.0%
Real estate - mortgage
Residential 123,203 110,293 12,910 11.7
Home equity 23,577 23,614 (37) 0.2
Commercial and industrial 173,298 150,629 22,669 15.0
Real Estate - construction 75,080 70,933 4,147 5.8
Consumer 27,465 27,494 (29) 0.1
Other loans 12,189 12,240 (51) 0.4
- -----------------------------------------------------------------------------
Total loans $ 696,475 $ 646,737 $ 49,738 7.7%
=============================================================================
The table above lists the loan growth by type for the period of December 31,
1999 to March 31, 2000. Commercial and industrial loans had the greatest growth,
increasing $22,669,000 or 15.0%, and accounted for 45.6% of the increase in
total loans. Commercial real estate loans increased $10,129,000 or 4.0% so that
commercial loan types accounted for 65.9% of the total loan increase in the
first quarter of 2000. YNB continued success in generating commercial loan
growth is based on several factors. First, management's focus on commercial
lending has resulted in YNB's growing reputation as a business lender in our
expanding market place. Second, YNB's larger legal lending limit allows for
increased loans to both new and existing customers. YNB also experienced growth
of $4,147,000 or 5.8% in Real Estate construction loans and $12,910,000 or 11.7%
in Real Estate residential mortgage loans. Home Equity loans, Consumer loans and
Other loans all experienced modest decreases in the first quarter of 2000, with
the aggregate decrease in such loans being $117,000. Strong competition for
quality consumer loans is a key factor in the modest reduction in outstanding
Consumer and Home Equity loans
12
Liabilities
The following table provides information concerning YNB's deposit base at March
31, 2000 and December 31, 1999.
Deposits
- -------------------------------------------------------------------------------
(in thousands) 3/31/00 12/31/99 Change % Change
- -------------------------------------------------------------------------------
Non-interest bearing demand
Deposits $ 92,263 $ 90,219 $ 2,044 2.3%
Interest bearing demand deposits 69,169 61,483 7,686 12.5
Money market deposits 75,281 57,143 18,138 31.7
Savings deposits 77,473 80,300 (2,287) 3.5
Certificates of deposit of $100,000
or over 89,066 72,528 16,538 22.8
Other time deposits 393,060 382,134 10,926 2.9
- -------------------------------------------------------------------------------
Total $ 796,312 $ 743,807 $ 52,505 7.1%
===============================================================================
YNB's deposit base is the principal source of funds supporting interest-earning
assets. Total deposits increased $52,505,000 or 7.1% to $796,312,000 at March
31, 2000 compared to $743,807,000 at December 31, 1999. In January 2000, YNB
increased the rates on its Premier Money Market Accounts for both business and
personal customers and launched an aggressive advertising and calling campaign
to promote the higher rates. Management's goal is to fund asset growth with
lower costing and more stable money market account balances instead of higher
costing certificates of deposit. Certificates of deposit were also competitively
priced in the first quarter of 2000 to fund new loan growth and improve
liquidity. Certificates of deposits continued to be an important source of
funding for YNB in the first quarter of 2000. Certificates of deposit of
$100,000 or over increased $16,538,000 or 22.8% to $89,066,000 from $72,528,000
and accounted for 31.5% of the total deposit growth for the period. Other time
deposits increased $10,926,000 or 2.9% to $393,060,000 from $382,134,000 at
December 31, 1999. Growth in certificates of deposit accounted for 52.3% of the
total increase in deposits in the first quarter of 2000. The strong growth
recorded in other deposit types has resulted in certificates of deposit
decreasing to 60.5% of total deposits at March 31, 2000 from 61.1% at year-end
1999. In March of 1998, YNB began to market its certificates of deposit through
a nationwide computer based service. This service allows YNB to have access to a
wider market to raise needed funding. At March 31, 2000, YNB had $121,617,000 in
outstanding certificates of deposit raised through this service. This includes
$20,987,000 raised in the first quarter of 2000. Management anticipates that
this market will continue to play an important role in funding future asset
growth.
Noninterest bearing demand deposits increased $2,044,000 or 2.3% to $92,263,000
as of March 31, 2000 when compared to $90,219,000 at December 31, 1999. This
increase is partially due to the normal fluctuations in demand deposit balances
but also reflects management's ongoing efforts to capture the deposit
relationships of both new and existing customers.
Interest bearing demand deposits increased $7,686,000 or 12.5% to $69,169,000 at
March 31, 2000 from $61,483,000 at year-end 1999. In addition, money market
balances increased $18,138,000 or 31.7% to 75,281,000 at March 31, 2000 from
$57,143,000 at December 31, 1999. This increase resulted from the higher rate,
on a tiered basis, and aggressive marketing campaign of the Premier Money Market
Account conducted by YNB. Savings deposits decreased $2,287,000 or 3.5% to
$77,473,000 at March 31, 2000 from $80,300,000 at December 31, 1999. A key
factor for this decline was the migration of accounts from lower yielding
savings to higher yielding money market accounts.
13
While it is management's intention to fund earning asset growth with the lowest
cost deposits, core deposit growth levels, excluding certificates of deposit,
are not adequate to meet current or projected loan demand. YNB's ability to
generate lower cost deposits is critical to achieving earnings targets. The
continuing reliance on higher cost certificates of deposit to fund asset growth
is a major factor in the continued pressure on YNB's net interest margin.
YNB continues to seek lower cost funding sources. In January 2000, YNB
introduced YNB Online, PC based home and business banking service. This service
will allow customers to have greater access to their accounts and should help to
make YNB's deposits products more competitive in the market place. Another
source of low cost funds is the opening of new branches to serve a wider market
area. In April 2000, YNB opened its first supermarket branch located in Ewing
Township, New Jersey. Management believes that this branch should be a strong
source of both core deposits and consumer loans. In addition, the preparations
to open a branch in Burlington County, New Jersey which is located directly
south of Mercer County, continue and management anticipates opening the branch
in the third quarter of 2000. Management intends to seek and evaluate
opportunities for additional branches. Management believes that expanding the
branch network to tap new deposit markets is the best solution for generating
lower cost funds to support asset growth.
Borrowed Funds
Borrowed funds totaled $341,827,000 at March 31, 2000, an increase of
$43,138,000 or 14.4% when compared to $298,689,000 at December 31, 1999. The
majority of the increase was in Federal Home Loan Bank advances (FHLB) used to
fund the purchase of Investment Growth Strategy assets, replace callable
repurchase agreements that have been called, and to provide funds to support
earning asset growth. Approximately $247,942,000 or 72.5% of borrowed funds at
March 31, 2000 are related to the Investment Growth Strategy. The majority of
this funding consisted of callable FHLB advances. Management continues to
closely monitor the mix of funding used to support the Investment Growth
Strategy. In replacing funding as Investment Growth Strategy funding matures or
is called, management evaluates several factors: the future outlook for interest
rates, interest rate risk, the trade off between maximizing current income or
preserving longer term earnings and other relevant factors. Management
anticipates that funding costs associated with borrowed funds will increase as
shorter term repurchase agreement mature and callable funding at below market
rates are called. At March 31, 2000, $236,000,000 or 95.2% of the Investment
Growth Strategy funding was in callable funding compared to $220,000,000 or
97.8% at December 31, 1999
Securities sold under agreements to repurchase totaled $26,942,000 at March 31,
2000 compared to $45,000,000 at December 31, 1999. $20,000,000 or 74.2% of the
repurchase agreements outstanding at March 31, 2000 were callable compared to
$40,000,000 or 88.9% at December 31, 1999. Callable repurchase agreements have
terms of ten years and call dates of one year or longer. With the recent rise in
interest rates, management anticipates that repurchase agreement costs will rise
as shorter-term repurchase agreements mature and below market rate callable
repurchase agreements are called and are replaced at higher market rates.
14
YNB had FHLB advances outstanding of $312,287,000 at March 31, 2000, an increase
of $61,994,000 or 24.8% when compared to $250,293,000 at December 31, 1999. YNB
continues to utilize callable FHLB advances to fund both Investment Growth
Strategy purchases as well as other earning assets. In the first quarter of
2000, as funding was called or matured, management replaced this funding with
callable funding having relatively shorter call periods. This has helped to
reduce the impact of higher rates on borrowing costs. At March 31, 2000 callable
advances totaled $283,500,000 or 90.8% of advances outstanding compared to
$239,500,000 or 95.7% at December 31, 1999. Callable FHLB advances have terms of
ten years and are callable after periods ranging from one to five years. There
are $127,500,000 in callable advances with call dates in 2000 outstanding as of
March 31, 2000. Management anticipates that, if rates continue to rise, some or
all of these advances will be called and will have to be replaced with higher
costing advances.
Borrowed funds included $1,500,000 related to the ESOP. The ESOP purchased
155,340 shares of the common stock, no par value, of the Holding Company with a
loan from a nonaffiliated financial institution. The financing is for a term of
five years with an interest rate of 7.00% and a maturity date in 2004. The
interest rate is fixed for the period of the loan, and the loan will be repaid
in equal monthly installments over the term of the loan. The shares purchased by
the ESOP were used as collateral for the loan. The Holding Company guarantees
the repayment of the loan.
YNB has the ability to borrow up to $37,845,000 from the FHLB through its line
of credit program, subject to collateral requirements. In addition, YNB is
eligible to borrow up to 30% of assets under the FHLB advance program subject to
FHLB stock requirements, collateral requirements and other restrictions. YNB
also maintains unsecured federal funds lines with four commercial banks totaling
$25,000,000 for daily funding needs. YNB's funding strategy is to rely on
deposits to fund new loan growth whenever possible and to rely on borrowed funds
as a secondary funding source for loans.
15
Company - Obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company
(Trust Preferred Securities)
On October 16, 1997, the Holding Company through the Trust, completed the sale
of $11,500,000, of 9.25% Trust Preferred Securities to the public. For
regulatory capital purposes the entire amount of the issue is treated as Tier 1
capital at the Holding Company level.
Capital
Stockholders' equity at March 31, 2000 totaled $58,717,000, a decrease of
$108,000 or 0.2% compared to $58,825,000 at December 31, 1999. This net decrease
resulted from the following factors:
(i) YNB earned net income of $2,396,000 for the period and paid cash
dividends of $675,000.
(ii) The unrealized loss on available for sale securities was $8,232,000 at
March 31, 2000 compared to an unrealized loss of $6,264,000 at December
31, 1999. This increase in the unrealized loss resulted in a $1,968,000
reduction in stockholders' equity.
(iii) YNB received $39,000 in proceeds from exercised options.
(iv) A reduction in commitment to ESOP of $100,000 to $1,500,000 at March
31, 2000 from $1,600,000 resulted in an increase of $100,000 in
Stockholders' equity.
While total Stockholders' equity declined $108,000, Tier one regulatory capital
increased $1,859,000 or 2.4% and Total regulatory capital increased $2,372,000
or 2.8%. The following table sets forth regulatory capital ratios for the
Holding Company and the Bank as of March 31, 2000 and December 31, 1999.
Amount Ratios
- --------------------------------------------------------------------------------
dollars in thousands 03/31/00 12/31/99 03/31/00 12/31/99
- --------------------------------------------------------------------------------
Risk-based capital:
Tier 1:
Holding Company $ 78,438 $ 76,579 9.8% 10.3%
Bank 77,913 76,279 9.6 10.2
- --------------------------------------------------------------------------------
Total:
Holding Company 87,916 85,544 10.9 11.5
Bank 87,390 85,244 10.8 11.4
- --------------------------------------------------------------------------------
Tier 1 leverage:
Holding Company 78,438 76,579 6.7 7.9
Bank 77,913 76,279 6.6 7.8
- --------------------------------------------------------------------------------
16
The minimum regulatory capital requirements for financial institutions require
institutions to have a Tier 1 leverage ratio of 4.0%; a Tier 1 risk-based asset
capital ratio of 4.0% and a total risked based capital ratio of 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, 2000, the ratios of the
Holding Company and the Bank exceeded the ratios required to be considered well
capitalized. It is management's goal to provide YNB with adequate capital to
continue to support asset growth and maintain both the Bank and Holding Company
as well capitalized institutions.
Credit Quality
The following table sets forth nonperforming assets and risk elements in YNB's
loan portfolio by type as of March 31, 2000 and December 31, 1999.
Nonperforming Assets
- ----------------------------------------------------------------------------
(in thousands) 03/31/00 12/31/99
- ----------------------------------------------------------------------------
Nonaccrual loans:
Commercial and industrial $1,446 $ 676
Real estate - mortgage 2,787 1,189
Real estate - construction 200 --
Consumer 11 12
Other 312 312
- ---------------------------------------------------------------------------
Total 4,756 2,189
- ---------------------------------------------------------------------------
Restructured loans 532 540
- ---------------------------------------------------------------------------
Loans 90 days or more past due:
Commercial and industrial 57 46
Real estate - mortgage 502 277
Consumer 1 26
- ---------------------------------------------------------------------------
Total 560 349
- ---------------------------------------------------------------------------
Total nonperforming loans 5,848 3,078
- ---------------------------------------------------------------------------
Other real estate 2,451 2,585
- ---------------------------------------------------------------------------
Total nonperforming assets $8,299 $5,663
===========================================================================
Allowance for loan losses to total loans, end of
period 1.36% 1.39%
Allowance for loan losses to nonperforming
loans, end of period 162.07% 291.26%
============================================================================
At March 31, 2000, nonperforming loans, which are loans 90 days and more past
due, restructured loans and nonaccrual loans, totaled $5,848,000, a $2,770,000
or 90.0% increase from the $3,078,000 at December 31, 1999. The increase in
nonperforming loans was primarily due to a $1,598,000 increase in nonaccrual
Real Estate loans and a $770,000 increase in nonaccrual commerical and
industrial loans since year-end 1999. One loan relationship totaling $1,711,000
accounted for 61.8% of the total increase in nonperforming loans.
17
Other real estate (O.R.E.) at March 31, 2000 totaled $2,451,000, a $134,000 or
5.2% decrease when compared to $2,585,000 at December 31, 1999. Management uses
an active strategy to liquidate these assets and re-deploy the proceeds into
earning assets.
Nonperforming assets at March 31, 2000 totaled $8,299,000 a $2,636,000 or 46.5%
increase from the $5,663,000 level at December 31, 1999. Total nonperforming
assets as a percentage of total assets were 0.68% at March 31, 2000 compared to
0.50% at December 31, 1999. The increase in nonperforming assets resulted from
the higher nonperforming loans partially offset by a reduction in Other real
estate.
Allowance for Loan Losses
The allowance for loan losses totaled $9,478,000 at March 31, 2000, an increase
of $513,000 from the $8,965,000 at year-end 1999. The provision for loan losses
for the first three months of 2000 was $800,000 compared to $650,000 for the
same period of 1999. Gross chargeoffs were $350,000 for the first quarter of
2000 compared to $271,000 for the same period in 1999. Gross recoveries were
$63,000 for the first quarter of 2000 compared to $25,000 for the same period in
1999. Annualized net chargeoffs as a percentage of average loans were 0.17% for
both the first quarter of 2000 and for the year ended December 31, 1999.
Management maintains the allowance for loan losses at a level determined in
accordance with management's documented allowance adequacy methodology. It is
management's assessment, based on management's estimates, that the allowance is
adequate in relation to the credit risk exposure levels.
18
Results of Operations
Net Income
YNB reported net income of $2,396,000 for the three months ended March 31, 2000,
an increase of $842,000 or 54.2% over the same period in 1999. The increase in
net income for the first quarter of 2000, compared to the same period in 1999,
is primarily attributable to higher net interest income, offset by increased
non-interest expense and to a lesser extent a higher provision for loan losses.
Basic and diluted earnings per share for the three months ended March 31, 2000
increased $0.05 or 16.1% to $0.36 from $0.31 for the same period in 1999.
Net Interest Income
YNB's net interest income for the first quarter of 2000 was $8,745,000, an
increase of $2,328,000 or 36.3% from the same period in 1999. The principal
factor contributing to this increase was an increase in interest income of
$7,004,000 resulting from increased loan and securities balances and higher
yields offset by an increase of $4,676,000 in interest expense. This increase in
interest expense was primarily due to both higher average balances of time
deposits and borrowed funds and higher interest rates on all deposit types and
borrowed funds.
The net interest margin (tax equivalent basis) which is net interest income
divided by average interest earning assets, for the first quarter of 2000, was
3.21% a 14 basis point or 4.2% decline compared to 3.35% for the same period in
1999. The principal factors causing the narrowing of the net interest margin
were the more rapid increase in the cost of interest bearing liabilities as
compared to the yield on interest earning assets. Total interest bearing
liability costs increased 47 basis points as compared to a 29 basis point
increase in the yield on interest earning assets.
The net interest margin for the 2000 and 1999 comparative periods was also
negatively impacted by the Investment Growth Strategy. The securities in the
Investment Growth Strategy at March 31, 2000, was approximately $248,705,000
compared to $191,800,000 at March 31, 1999. The targeted spread on this strategy
is 75 basis points after tax. Because of the targeted spread on this strategy,
there will be a negative impact to the net interest margin and return on average
assets Conversely, this strategy is designed to increase both return on average
equity and earnings per share, the primary goals of the strategy. The goals of
this strategy continue to be achieved.
Interest Income
For the first quarter of 2000 total interest income was $21,602,000, an increase
of $7,004,000 or 48.0% when compared to interest income of $14,598,000 for the
same period in 1999. This increase is due to higher average balances in both
loans and securities and higher yields on both earning asset types. Average
loans increased $142,341,000 or 27.4% and the yield increased 43 basis points to
8.68% from 8.25%. The increased loan yields reflected the higher prime rate of
interest as well as higher overall interest rates in the first quarter of 2000
compared to the same period in 1999. Interest and fees on loans for the three
months ended March 31, 2000 increased $3,643,000 or 34.0% to $14,354,000 from
$10,711,000 for the same period in 1999. Average securities outstanding for the
three months ended March 31, 2000 increased $190,162,000 or 76.8% to
$437,795,000 when compared to the $247,633,000 for the same period of 1999. Over
the same period, the yield on the securities portfolio increased 42 basis points
to 6.41% from 5.99%. These factors resulted in interest on securities increasing
$3,312,000 or 89.3% to $7,020,000 for the three months ended March 31, 2000
compared to $3,708,000 for the same period in 1999. Overall, the yield on YNB's
interest earning asset portfolio increased 29 basis points to 7.75% for the
three months ended March 31, 2000 from the 7.46% for the same period in 1999.
19
Interest Expense
Total interest expense increased $4,676,000 or 57.2% to $12,857,000 for the
first three months of 2000 compared to $8,181,000 for the same period in 1999.
The increase in interest expense for the comparable time periods resulted from a
larger deposit base, led by higher costing time deposits, and an increase in
borrowed funds. In addition to the higher balances, the rates paid on both
deposits and borrowed funds increased due to the higher rates experienced in
2000 when compared to 1999. The average rate paid on interest bearing
liabilities for the three months ended March 31, 2000 increased 47 basis points
to 5.13% from 4.66% for the same period of 1999.
Interest on other time deposits under $100,000 increased $1,661,000 to
$5,462,000 for the three months ended March 31, 2000 from $3,801,000 for the
same period in 1999. This increase was caused by both an increase of
$110,486,000 in the average outstanding balance to $388,337,000 for the three
months ended March 31, 2000, when compared to the outstanding average balance of
$277,851,000 for the three months ended March 31, 1999 and an increase of 16
basis points in the cost of other certificates of deposit under $100,000 to
5.63% from 5.47% for the same periods as listed above. Interest expense on
certificates of deposit under $100,000 accounted for 42.5% of total interest
expense for the three months ended March 31, 2000 and 35.5% of the total
increase in interest expense for that period. During the first three months of
2000, YNB offered attractive rates on CDs locally and nationwide to fund loan
growth and improve the liquidity profile of YNB.
Interest on certificates of deposit of $100,000 or more increased $720,000 or
146.6% to $1,211,000 for the three months ended March 31, 2000 from $491,000 for
the same period in 1999. The increase was caused by an increase in the average
outstanding balance of $45,265,000 to $83,281,000 for the three months ended
March 31, 2000 when compared to the outstanding average balance of $38,016,000
for the three months ended March 31, 1999. The cost of certificates of deposit
of $100,000 or more increased 65 basis points to 5.82% for the first three
months of 2000 from 5.17% for the same period in 1999. YNB has increased its
reliance on this deposit type with increases in both in market and from the
nationwide market through a software program. YNB anticipates that certificates
of deposit of $100,000 or more will continue to play an important part in
funding future earning asset growth.
20
Interest expense on borrowed funds increased $1,802,000 or 71.3% to $4,330,000
for the first three months of 2000 when compared to $2,528,000 for the same
period in 1999. The increased expense was caused by a $112,929,000 increase in
the average balance outstanding in the first quarter of 2000 to $312,357,000
when compared to the $199,428,000 for the same period in 1999. The rate paid on
borrowed funds increased 47 basis points for the three months ended March 31,
2000 to 5.54% from the 5.07% for the same period last year. The primary cause
for the increase in interest expense on borrowed funds is higher rates and the
higher level of borrowings used to fund the Investment Growth Strategy. The
higher interest rate environment in 2000 has resulted in increased costs as
existing below market callable FHLB advances and repurchase agreements are
called and have been replaced at current market level rates. Management
anticipates that if interest rates continue to rise the cost of borrowed funds
will also increase.
Interest expense on savings, money markets and interest bearing demand accounts
increased $493,000 or 45.0% to $1,588,000 for the first quarter of 2000 when
compared to the $1,095,000 for the same period in 1999. Early in January 2000,
YNB redesigned its Premier Money Market Account for both personal and business
customers. The most significant change was an increase on a tiered basis in the
rate paid to be more competitive in the market place. This had the immediate
impact of increasing the cost of existing money market balances and was a key
factor in the increased cost on these deposit types. Management believes that
money market accounts are less expensive than certificate of deposits and
present more opportunities to cross sell other bank products and services. YNB
has already experienced substantial growth in Premier Money Market balances due
to the higher rate and aggressive marketing campaign conducted to promote the
product. The cost of savings, money markets and interest bearing demand deposits
increased 56 basis points to 3.06% for the first quarter of 2000 when compared
to 2.50% for the same period in 1999. At the same time, the average balance of
these deposit types increased $32,609,000 or 18.6% to $207,763,000 for the first
quarter of 2000 from $175,154,000 for the same period in 1999.
While YNB seeks to fund asset growth with lower cost savings, money market,
interest bearing checking and non-interest bearing demand deposits, this is not
always possible, as asset growth rates continue to exceed the growth rate in
these deposit types. To attract lower cost deposits to fund asset growth
management has launched several new products including YNB Online, the new
Premier Money Market account and a new free checking product. Management
anticipates that over time these new products along with additional branches in
new markets should result in lower cost core deposits providing a higher
percentage of the new funding than has been experienced recently. This
improvement in the deposit mix will help to control interest expense going
forward. However, the ability of YNB to lower the cost of interest bearing
liabilities is dependent on market conditions. If interest rates should continue
to rise, YNB's interest expense will also increase.
Provision for Loan Losses
YNB provides for possible loan losses by a charge to current operations. The
provision for loan losses for the three months ended March 31, 2000 was
$800,000, a 23.1% increase over the $650,000 provision recorded for the same
period of 1999. The increase in the provision was primarily due to the strong
loan growth. Management believes that the reserve for loan losses is adequate in
relation to the credit risk exposure levels.
21
Non-interest Income
Total non-interest income for the first three months of 2000 was $733,000, an
increase of $5,000 or 0.7% over non-interest income of $728,000 for the same
period in 1999. The increase was due to increased service charges on deposit
accounts and growth in other non-interest income, offset by net losses on sales
of securities and mortgages.
Other non-interest income increased $32,000 or 8.2% for the first three months
of 2000 compared to the same period in 1999. The increase was principally due to
increased Visa debit card fees and ATM service charges. These two fee types
increased approximately $33,000 to $111,000 in the first quarter of 2000 from
$78,000 for the same period in 1999. The single largest component of other
non-interest income was income derived from bank owned life insurance assets,
which totaled $193,000 for the first quarter of 2000 as compared to $188,000 for
the same period in 1999. This income represented 45.7% and 48.2% of total other
non-interest income for the first quarter of 2000 and 1999 respectively. The
income earned on these assets is used to offset expenses on deferred
compensation programs.
Non-interest income represents only 3.3% of YNB's total revenue in the first
quarter of 2000 compared to 4.8% for the same period in 1999. Management views
this area as an opportunity to increase overall revenue. Management continues to
closely evaluate both traditional and non-traditional sources of new
non-interest income as part of a longer-term strategy to increase earnings.
Non-interest Expense
Total non-interest expense increased $977,000 or 22.5% to $5,332,000 for the
first three months of 2000 compared to $4,345,000 for the same period in 1999.
The increase in non-interest expense was due to increases in salaries and
employee benefits, occupancy, equipment, and other non-interest expense. Total
non-interest expenses, on an annualized basis, as a percentage of average assets
were 1.8% for the first three months of 2000 compared to 2.1% for the same
period of 1999. The improvement in this ratio is due to the strong asset growth
experienced by YNB. YNB's efficiency ratio for the first three months of 2000
was 56.2%, a decrease from the 60.8% for the same period in 1999. 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 or greater volume of income
while a decrease would indicate a more efficient allocation of resources.
Salary and employee benefits increased $517,000 or 22.6% to $2,808,000 for the
first three months of 2000 compared to $2,291,000 for the same period in 1999.
Salary and benefits expense accounted for 52.8% of total non-interest expenses
for the first three months of 2000. Salary expense increased $438,000 or 25.0%
reflecting increased staffing levels throughout YNB as the organization
continues to grow and normal salary increases. Benefit expense increased $79,000
or 14.7%. The increase in salary and benefit expense in the first quarter of
2000 accounted for 52.9% of the total increase in non-interest expense when the
first quarter of 2000 is compared to the same period in 1999.
22
Occupancy expense for the first three months of 2000 was $622,000, an increase
of $309,000 or 98.7% compared to $313,000 for the same period in 1999. Total
rent expense on leased properties increased $156,000 and accounted for 50.5% of
the total increase for the period. The primary cause for the increase in rent
expense, as well as the total increase in occupancy expense, were the expenses
associated with YNB's corporate headquarters building. YNB first occupied the
building in October of 1999.
Equipment expense increased $106,000 or 29.3% to $468,000 for the first three
months of 2000 from $362,000 for the same period in 1999. The equipment costs
increase reflects the continuing efforts of YNB to maintain and upgrade
technology in order to provide the highest quality products and service and
increase productivity. Equipment costs included depreciation on equipment, which
totaled $281,000 for the first three months of 2000 reflecting an increase of
$68,000 or 31.9% from the $213,000 for the same period in 1999. The increase in
depreciation accounted for 62.3% of the total increase in equipment expense. A
significant portion of the increased equipment expense related to the equipment
costs associated with YNB's new corporate headquarters.
Other non-interest expenses increased $45,000 or 3.3% to $1,424,000 for the
first three months of 2000 when compared to the $1,379,000 for the same period
in 1999. While most expense categories that are included in other non-interest
expenses increased the total increase was reduced by a $146,000 decline in
expenses related to other real estate owned to $110,000 in the first quarter of
2000 compared to $256,000 for the same period in 1999. Management closely
monitors non-interest expenses and seeks to control the growth of these
expenses. However, as YNB continues to grow, the costs associated with properly
managing the organization will also continue to increase.
Income Tax Expense
The effective income tax rate for the three months ended March 31, 2000 was
28.6% compared to 27.7% for the same period in 1999. The modest increase in the
tax rate resulted from the growth in tax-free income not keeping pace with the
growth in overall income. Total income tax expense for the three months ended
March 31, 2000 was $960,000, an increase of $364,000 from the $596,000 for the
same period in 1999. The increase in tax expense resulted from higher taxable
income and a higher effective tax rate.
23
Item 3: Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in YNB's market risk from December 31, 1999
except as discussed below. For information regarding YNB's market risk refer to
the Company's 1999 Annual Report to stockholders.
Changes in Earnings Risk
Net interest income over the next twelve-month period indicates a modest
increase in risk to lower rates (-200 basis points) at March 31, 2000 than
reported at December 31, 1999. Comparing the simulation results of this low rate
scenario to the flat rate interest rate scenario indicates a -2.6% change in net
interest income compared to -2.5% at year end 1999. At the same time, YNB's
exposure to higher rates (+200 basis points) decreased modestly to a 1.5% change
in net interest income compared to a 1.4% change at year-end 1999. The
cumulative one-year gap remained a negative $103,821,000 or -8.5% of total
assets at March 31, 2000 compared to a negative $152,280,000 or 13.6% of assets
at year-end 1999. The dollar change in the gap was $48,459,000.
Changes in Market risk
Management measures longer-term market risk through the Economic Value of
Portfolio Equity ("EVPE"). The present value of asset and liability cash flows
are subjected to rate shocks of plus or minus 200 basis points. The variance in
the residual, or economic value of equity is measured as a percentage of total
assets. This variance is managed within a negative 3% boundary.
At March 31, 2000, the EVPE changes by -3.50% for rate shifts of +200 and -0.94%
for rate shifts of -200 basis points. The non-symmetry of the results is
indicative of the callable funding utilized to fund earning asset growth. This
compares to changes of -3.67% and -0.01% respectively at December 31, 1999 and
- -3.82% and --2.06% at March 31, 1999.
The primary causes for this decrease in risk to rising rates since year-end 1999
are discussed below:
Asset duration decreased to 2.27 years at March 31, 2000 from 2.39 years at
December 31, 1999. The primary cause for this decrease in duration was a
reduction in the duration of the investment portfolio to 3.62 years at March 31,
2000 from 3.79 years at December 31, 1999.
Liability duration also decreased to 1.26 years at March 31, 2000 from 1.37
years at December 31, 1999. This decline was caused by the shortening of the
duration of both total deposits and borrowed funds since the end of 1999.
Management is initiating strategies in 2000 to bring this measurement back
within policy guidelines.
24
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Not Applicable.
Item 2: Changes in Securities and Use of Proceeds
Not Applicable.
Item 3: Defaults Upon Senior Securities
Not Applicable.
Item 4: Submission of Matters to a Vote of Securities Holders
The annual stockholders meeting of Yardville National Bancorp was held Tuesday,
May 2, 2000.
The following nominees were elected as directors:
Votes for Votes withheld
Lorraine Buklad 5,403,237 445,049
Sidney L. Hofing 5,407,542 440,744
James J. Kelley 5,407,232 441,054
Louis R. Mattlack 5,403,419 444,867
The following directors' terms continued beyond the annual stockholders'
meeting:
C. West Ayres Elbert G. Basolis, Jr.
Jay. G. Destibats, Chairman of the Board Anthony M. Giampetro
Gilbert W. Lugossy Weldon J. McDaniel, Jr.
Patrick M. Ryan F. Kevin Tylus
The only other matter voted upon at the meeting was an amendment to the
Yardville National Bancorp 1997 stock option plan to increase the number of
shares of stock subject to the plan by 660,000. The number of votes cast for,
cast against and withheld were as follows:
For 3,255,003
Against 731,053
Abstain 57,799
Item 5: Other Information
Not Applicable
25
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. There were no Form 8-K reports filed during the
quarter for which this report is filed.
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ---------- ------------- ---------------------------------------------------------------------------------- --------
(G) 3.1 Restated Certificate of Incorporation of the Company, as amended
by the Certificate of Amendment thereto filed on March 6, 1998.
(B) 3.2 By-Laws of the Company
(B) 4.1 Specimen Share of Common Stock
(I) 4.2 See Exhibits 3.1 and 3.2 for the Registrant's Certificate of Incorporation and
By-Laws, which contain provisions defining the rights of stockholders of the
Registrant.
(I) 4.3 Amended and Restated Trust Agreement dated October 16, 1997, among the
Registrant, as depositor, Wilmington Trust Company, as property trustee, and the
Administrative Trustees of Yardville Capital Trust.
(I) 4.4 Indenture dated October 16, 1997, between the Registrant and Wilmington Trust
Company, as trustee, relating to the Registrant's 9.25% Subordinated Debentures
due 2027.
(I) 4.5 Preferred Securities Guarantee Agreement dated as of October 16, 1997, between
the Registrant and Wilmington Trust Company, as trustee, relating to the
Preferred Securities of Yardville Capital Trust.
(L) 10.1 Employment Contract between Registrant and Patrick M. Ryan.
(L) 10.2 Employment Contract between Registrant and Jay G. Destribats
(L) 10.3 Employment Contract between Registrant and Stephen F. Carman
(M) 10.4 Employment Contract between Registrant and James F. Doran
(M) 10.5 Employment Contract between Registrant and Richard A. Kauffman
(M) 10.6 Employment Contract between Registrant and Mary C. O'Donnell
(M) 10.7 Employment Contract between Registrant and Frank Durand III
(D) 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ---------- ------------- ---------------------------------------------------------------------------------- --------
(D) 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats
(E) 10.10 1988 Stock Option Plan
(M) 10.11 Employment Contract between Registrant and Thomas L. Nash
(A) 10.12 Directors' Deferred Compensation Plan
(B) 10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993
(L) 10.14 Lease between Gardeners Property Partnership and the Bank
(A) 10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated
October, 1994
(C) 10.16 Survivor Income Plan for the Benefit of Stephen F. Carman
(C) 10.17 Lease Agreement between Devon Inc. and the Bank dated as of February 9, 1996
10.18 1997 Stock Option Plan, as amended effective May 2, 2000.
(M) 10.19 Employment Contract between Registrant and Howard N. Hall
(M) 10.20 Employment Contract between Registrant and Sarah J. Strout
(M) 10.21 Employment Contract between Registrant and Nina D. Melker
(L) 10.22 Employment Contract between Registrant and Timothy J. Losch
(G) 10.23 Survivor Income Plan for the Benefit of Timothy J. Losch
(G) 10.24 Lease Agreement between the Ibis Group and the Bank dated
July 1997
(H) 10.25 Lease Agreement between Hilton Realty Co. of Princeton and the bank dated March
31, 1998.
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ---------- ------------- ---------------------------------------------------------------------------------- --------
(H) 10.26 1994 Stock Option Plan.
(J) 10.27 Lease agreement between Crestwood Construction and the Bank dated May 25, 1998
(K) 10.29 Yardville National Bank Employee Stock Ownership Plan, As amended
(L) 10.30 Lease Agreement between Sycamore Street Associates and the Bank dated October
30, 1998
10.31 List of Subsidiaries of the Registrant
(M) 10.32 Employment Contract between Registrant and Kathleen A. Fone
27.1 Financial Data Schedule
- ----------
(A) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB/A filed on July 25, 1995
(B) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-78050)
(C) Incorporated by reference to the Registrant's Annual Report on
Form 10-KSB for fiscal year ended December 31, 1995
(D) Incorporate by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996
(E) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1997, as
amended by Form 10-Q/A filed on August 15, 1997
(F) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (Registration No. 333-28193)
(G) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
(H) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1998, as
amended by Form 10-Q/A filed June 9, 1998
(I) Incorporated by reference to the Registrant's Registration
Statement on Form S-2 (Registration Nos. 333-35061 and
333-35061-01)
(J) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1998.
(K) Incorporated by reference to the Registration Statement on
Form S-8 (Registration No. 333-71741).
(L) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 as
amended by Form 10-K/A filed on April 20, 1999.
(M) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
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, 2000 By: /s/ Stephen F. Carman
------------------------ ---------------------------
Stephen F. Carman
Executive Vice President and
Chief Financial Officer