Selected Historical
Consolidated Financial Data
The following table sets forth certain historical financial data with respect to
Yardville National Bancorp and subsidiaries on a consolidated basis. This table
should be read in conjunction with Yardville National Bancorp's consolidated
financial statements and related notes thereto. All share and per share data
have been restated to reflect the 2.5% stock dividend declared in March 1998 and
the two-for-one stock split effected in the form of a stock dividend declared in
December 1997.
At or for the year ended December 31,
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Statement of Income
(in thousands)
Interest income $ 118,948 $ 100,389 $ 69,719 $ 50,923 $ 40,768
Interest expense 82,813 62,654 39,645 28,392 21,100
- -------------------------------------------------------------------------------------------------------------------
Net interest income 36,135 37,735 30,074 22,531 19,668
Provision for loan losses 3,925 3,700 3,175 1,975 1,125
Securities gains (losses), net 3,182 46 (301) 151 24
Other non-interest income 4,855 3,380 3,066 2,851 2,520
Non-interest expense 26,835 22,861 18,457 15,337 13,341
- -------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and extraordinary item $ 13,412 $ 14,600 $ 11,207 $ 8,221 $ 7,746
Income tax expense 3,395 4,259 3,187 2,639 2,740
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary item $ 10,017 $ 10,341 $ 8,020 $ 5,582 $ 5,006
Extraordinary loss on early retirement
of debt, net of tax benefit (1,464) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income $ 8,553 $ 10,341 $ 8,020 $ 5,582 $ 5,006
- -------------------------------------------------------------------------------------------------------------------
Balance Sheet
(in thousands, except per share data)
Assets $1,943,389 $1,619,312 $1,123,598 $757,666 $614,686
Loans 1,007,973 818,289 646,737 491,649 385,751
Securities 812,236 675,638 417,465 221,688 186,636
Deposits 1,092,690 950,318 743,807 519,643 422,944
Borrowed funds 707,113 545,223 298,689 177,888 134,316
Stockholders' equity 93,245 78,237 58,825 40,756 39,745
Allowance for loan losses 13,542 10,934 8,965 6,768 5,570
Per Share Data
Basic earnings per share
Income before extraordinary item $ 1.32 $ 1.47 $ 1.33 $ 1.11 $ 0.99
Extraordinary loss, net of tax benefit (0.19) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 1.13 1.47 1.33 1.11 0.98
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income before extraordinary item 1.30 1.47 1.33 1.10 --
Extraordinary loss, net of tax benefit (0.19) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 1.11 1.47 1.33 1.10 0.98
- -------------------------------------------------------------------------------------------------------------------
Cash dividends 0.44 0.40 0.34 0.29 0.24
Stockholders' equity (book value) 11.68 10.64 8.88 8.20 7.82
Other Data
Average shares outstanding - basic 7,601 7,022 6,015 5,017 5,052
Average shares outstanding - diluted 7,678 7,039 6,041 5,059 5,117
===================================================================================================================
11
Selected Historical
Consolidated Financial Data (cont'd)
At or for the year ended December 31,
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on average assets 0.48% 0.79% 0.83% 0.82% 0.93%
Return on average stockholders' equity 9.86 15.64 15.34 13.96 13.32
Net interest margin 2.17 3.07 3.33 3.55 3.95
Efficiency ratio 60.75 55.54 56.20 60.07 60.06
Average stockholders' equity
to average assets 4.85 5.05 5.39 5.84 7.00
Dividend payout ratio 39.06 27.46 25.40 25.96 24.63
Tier I leverage ratio 6.92 8.13 7.90 7.68 9.53
Tier I capital as a percent of
risk-weighted assets 10.03 10.56 10.26 9.91 12.24
Total capital as a percent of
risk-weighted assets 11.25 11.65 11.46 11.17 13.49
Allowance for loan losses to total loans 1.34 1.34 1.39 1.38 1.44
Net loan charge offs to average total loans 0.15 0.24 0.17 0.18 0.14
Nonperforming loans to total loans 0.51 0.86 0.48 0.79 1.38
Nonperforming assets to total loans
and other real estate owned 0.74 1.11 0.87 1.78 2.18
Allowance for loan losses to nonperforming
assets 181.67 120.50 158.31 76.65 65.64
Allowance for loan losses to nonperforming
loans 264.23% 155.47% 291.26% 174.75% 104.80%
===================================================================================================================
12
Management's Discussion and
Analysis of Consolidated
Financial Condition and
Results of Operations
This discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report. Throughout the
following sections, the "Corporation" is defined as Yardville National Bancorp
and its wholly owned subsidiaries Yardville National Bank (the "Bank"),
Yardville Capital Trust, Yardville Capital Trust II, and Yardville Capital Trust
III, collectively referred to as "YNB." The purpose of this discussion and
analysis is to assist in the understanding and the evaluation of the financial
condition, changes in financial condition and results of operations of YNB.
2001 OVERVIEW
The significant reduction in short-term interest rates by the Federal Reserve
negatively impacted YNB's net interest margin and financial performance in 2001.
In 2001, net income decreased 17.3%, primarily as the result of the
extraordinary loss on the early retirement of debt and the lower interest rate
environment.
YNB continued to experience strong loan and deposit growth in 2001. Loans
and deposits grew 23.2% and 15.0%, respectively, this past year. At December 31,
2001, YNB had total assets exceeding $1.9 billion.
YNB continued its strategic retail expansion in 2001 with the opening of
its first branch in Burlington County. YNB's core Mercer County market was
further solidified with the addition of its Lawrence branch in early 2001.
Management anticipates that the recent opening of YNB's Hunterdon Regional
Headquarters and third branch office in Hunterdon will provide positive results
in 2002 as YNB continues its targeted expansion into this rapidly developing
county.
The strong growth YNB achieved was supported by the raising of additional
capital in 2001. YNB successfully completed a private equity placement and trust
preferred securities offering that provided new capital to support YNB's ongoing
expansion.
Summary of Financial Performance
YNB's strategic expansion into new and existing markets and strength as a
business lender resulted in strong growth in loans and deposits in 2001. YNB's
net income, however, was negatively impacted by lower interest rates.
Net income amounted to $8.6 million, a 17.3% decrease, compared to $10.3
million earned in 2000. The decrease in net income is primarily the result of
two factors: (1) $50.0 million in Federal Home Loan Bank (FHLB) advances were
retired, which resulted in a pre-tax loss of $2.2 million and (2) the
compression of YNB's net interest margin. Conversely, larger volumes of loan and
security assets as well as net securities gains of $3.2 million enhanced net
income levels in 2001. Driven by commercial loan growth, YNB's loan portfolio
increased 23.2% in 2001 compared to 2000. At December 31, 2001, total loan
outstandings reached $1.0 billion compared to $818.3 million at year-end 2000.
Overall loan quality remains strong as nonperforming assets decreased 17.9% in
2001. YNB continues to actively monitor and manage loan quality. YNB's deposit
base increased 15.0% to total $1.1 billion at December 31, 2001. Money market
and interest bearing demand deposits were the primary types of deposit growth in
2001. YNB's relationship banking philosophy resulted in an 11.4% increase in
non-interest bearing demand deposits in 2001.
Return on average assets (ROA) decreased to 0.48% in 2001 from 0.79% in
2000. For 2001, YNB's return on average stockholders' equity (ROE) was 9.86%
compared to 15.64% in 2000. The efficiency ratio increased to 60.75% in 2001
from 55.54% in 2000. Lower net interest income levels negatively impacted these
measurements.
RESULTS OF OPERATIONS
YNB earned $8.6 million or $1.11 per diluted share for the year ended December
31, 2001, compared to $10.3 million or $1.47 for the year ended December 31,
2000. Net income and earnings per share decreased 17.3% and 24.5%, respectively,
in 2001. Earnings per share, on a diluted basis, excluding the extraordinary
loss on the retirement of debt, were $1.30 or 11.6% lower than 2000 results. YNB
posted net income of $8.0 million or $1.33 per diluted share in 1999. The
decrease in net income and earnings per share in 2001 is principally attributed
to decreased earnings as a result of the extraordinary loss on the retirement of
debt and net interest margin compression. Earnings per share were also
negatively impacted by higher average shares outstanding due to the full impact
of the private common stock placement completed in June 2000, and, to a lesser
extent, the private equity placement completed in August 2001.
NET INTEREST INCOME
Net interest income is YNB's largest and most significant component of operating
income. Net interest income is the difference between interest and fees on loans
and other earning assets, and interest paid on interest bearing liabilities.
This component represented 81.8% of YNB's net revenues in 2001. Net interest
income also depends upon the relative amount and mix of interest earning assets,
interest bearing liabilities, and the interest rate earned or paid on them.
YNB's goal is to optimize net interest income performance in varying interest
rate environments.
The following tables set forth YNB's consolidated average balances of
assets, liabilities and stockholders' equity as well as the amount of interest
income and expense on related items, and YNB's average yield or rate for each of
the five years ended December 31, 2001. The yields and costs are derived by
dividing income and expense by the average balance of assets or liabilities.
13
Financial Summary
Average Balances, Rates Paid and Yields
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2001 December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(in thousands) Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
Interest Earning Assets:
Deposits with other banks $ 3,816 $ 171 4.48% $ 1,322 $ 82 6.20%
Federal funds sold 74,624 2,765 3.71 37,961 2,454 6.46
Securities 747,172 45,604 6.10 494,439 33,435 6.76
Loans (1) 891,957 70,408 7.89 723,570 64,418 8.90
- ------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $1,717,569 $118,948 6.93% $1,257,292 $100,389 7.98%
- ------------------------------------------------------------------------------------------------------------------------------
Non-Interest Earning Assets:
Cash and due from banks $ 21,026 $ 18,307
Allowance for loan losses (11,583) (9,798)
Premises and equipment, net 10,081 9,303
Other assets 52,288 32,944
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 71,812 50,756
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $1,789,381 1,308,048
- ------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Deposits:
Savings, money markets,
and interest bearing demand $ 318,595 $ 9,931 3.12% $ 233,012 $ 7,937 3.41%
Certificates of deposit of
$100,000 or more 129,340 7,581 5.86 106,851 6,918 6.47
Other time deposits 453,747 27,085 5.97 408,414 24,772 6.07
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 901,682 44,597 4.95 748,277 39,627 5.30
Borrowed funds 644,690 35,264 5.47 367,021 21,219 5.78
Trust preferred securities 31,048 2,952 9.51 19,333 1,808 9.35
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $1,577,420 $ 82,813 5.25% $1,134,631 $ 62,654 5.52%
- ------------------------------------------------------------------------------------------------------------------------------
Non-Interest Bearing Liabilities:
Demand deposits $ 104,577 $ 96,024
Other liabilities 20,617 11,284
Stockholders' equity 86,767 66,109
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest bearing
liabilities and stockholders' equity $ 211,961 $ 173,417
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,789,381 $1,308,048
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate spread (2) 1.68% 2.46%
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (3) $ 36,135 2.10% $ 37,735 3.00%
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin
(tax equivalent basis) (4) $ 37,197 2.17% $ 38,656 3.07%
==============================================================================================================================
(1) Loan origination fees are considered an adjustment to interest income. For
the purpose of calculating loan yields, average loan balances include
nonaccrual loans with no related interest income.
(2) The interest rate spread is the difference between the average yield on
interest earning assets and the average rate paid on interest bearing
liabilities.
(3) The net interest margin is equal to net interest income divided by average
interest earning assets.
(4) In order to make pre-tax income and resultant yields on tax exempt
investments and loans comparable to those on taxable investments and loans,
a tax equivalent adjustment is made equally to interest income and interest
expense with no effect on after tax income. The tax equivalent adjustment
has been computed using a Federal income tax rate of 34% and has increased
interest income by $1,062,000, $921,000, $712,000, $419,000, and $325,000
for the years ended December 31, 2001, 2000, 1999, 1998, and 1997,
respectively.
14
------------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------------------------------------------------------
$ 734 $ 45 6.13% $ 3,365 $ 175 5.20% $ 2,533 $ 107 4.22%
17,932 904 5.04 6,180 333 5.39 7,121 380 5.34
341,135 21,216 6.22 198,890 12,197 6.13 140,655 8,770 6.24
564,552 47,554 8.42 438,050 38,218 8.72 355,526 31,511 8.86
------------------------------------------------------------------------------------------------------------------------
$ 924,353 $ 69,719 7.54% $ 646,485 $ 50,923 7.88% $ 505,835 $ 40,768 8.06%
------------------------------------------------------------------------------------------------------------------------
$ 16,208 $ 15,398 $ 15,425
(7,638) (6,102) (5,254)
7,493 5,786 5,288
29,109 22,599 15,337
------------------------------------------------------------------------------------------------------------------------
45,172 37,681 30,796
------------------------------------------------------------------------------------------------------------------------
$ 969,525 $ 684,166 $ 536,631
------------------------------------------------------------------------------------------------------------------------
$ 185,504 $ 4,887 2.63% $ 165,534 $ 5,034 3.04% $ 159,720 $ 5,083 3.18%
51,290 2,643 5.15 25,550 1,386 5.42 23,357 1,273 5.45
320,809 17,528 5.46 211,790 12,152 5.74 168,962 9,759 5.78
------------------------------------------------------------------------------------------------------------------------
557,603 25,058 4.49 402,874 18,572 4.61 352,039 16,115 4.58
256,957 13,523 5.26 158,106 8,756 5.54 84,492 4,761 5.63
11,500 1,064 9.25 11,500 1,064 9.25 2,422 224 9.25
------------------------------------------------------------------------------------------------------------------------
$ 826,060 $ 39,645 4.80% $ 572,480 $ 28,392 4.96% $ 438,953 $ 21,100 4.81%
------------------------------------------------------------------------------------------------------------------------
$ 81,843 $ 66,857 $ 56,700
9,351 4,857 3,404
52,271 39,972 37,574
------------------------------------------------------------------------------------------------------------------------
$ 143,465 $ 111,686 $ 97,678
------------------------------------------------------------------------------------------------------------------------
$ 969,525 $ 684,166 $ 536,631
------------------------------------------------------------------------------------------------------------------------
2.74% 2.92% 3.25%
------------------------------------------------------------------------------------------------------------------------
$ 30,074 3.25% $ 22,531 3.49% $ 19,668 3.89%
------------------------------------------------------------------------------------------------------------------------
$ 30,786 3.33% $ 22,950 3.55% $ 19,993 3.95%
========================================================================================================================
15
Changes in net interest income and margin result from the interaction between
the volume and composition of earning assets, interest bearing liabilities,
related yields, and associated funding costs. The following table demonstrates
the impact on net interest income of changes in the volume of interest earning
assets and interest bearing liabilities and changes in interest rates earned and
paid.
- -------------------------------------------------------------------------------------------------------------------------------
Rate/Volume Analysis
2001 vs. 2000 2000 vs. 1999
Increase (Decrease) Increase (Decrease)
Due to changes in: Due to changes in:
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------------------
Interest Earning Assets:
Deposits with other banks $ 117 $ (28) $ 89 $ 36 $ 1 $ 37
Federal funds sold 1,665 (1,354) 311 313 1,237 1,550
Securities 15,600 (3,431) 12,169 10,231 1,988 12,219
Loans (1) 13,852 (7,862) 5,990 14,029 2,835 16,864
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income 31,234 (12,675) 18,559 24,609 6,061 30,670
- -------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Deposits:
Savings, money markets, and interest
bearing demand 2,738 (744) 1,994 1,423 1,627 3,050
Certificates of deposit of
$100,000 or more 1,358 (695) 663 3,457 818 4,275
Other time deposits 2,725 (412) 2,313 5,162 2,082 7,244
- -------------------------------------------------------------------------------------------------------------------------------
Total deposits 6,821 (1,851) 4,970 10,042 4,527 14,569
Borrowed funds 15,240 (1,195) 14,045 6,256 1,440 7,696
Trust preferred securities 1,113 31 1,144 732 12 744
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 23,174 (3,015) 20,159 17,030 5,979 23,009
- -------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 8,060 $ (9,660) $ (1,600) $ 7,579 $ 82 $ 7,661
===============================================================================================================================
(1) Loan origination fees are considered adjustments to interest income.
YNB's net interest income totaled $36.1 million in 2001, a decrease of 4.2% from
the $37.7 million reported in 2000. The prior year's increase was 25.5% from
1999's net interest income of $30.1 million. The principal factor contributing
to the decrease in net interest income in 2001 was an increase in interest
expense of $20.2 million resulting from increased borrowed funds and time
deposit volumes. In addition, the average rate paid on interest bearing
liabilities did not decline in the same relation to earning asset yields in the
lower interest rate environment of 2001. This was partially offset by increased
volumes of loans and securities and the related interest income.
Average interest earning assets increased by $460.3 million or 36.6% for
2001, with increases of $168.4 million in loans and $252.7 million in
securities. Interest rates started to decline in January 2001 and that trend
continued throughout 2001. The result was a decrease on the yield of earning
assets of 105 basis points to 6.93% from 7.98% in 2000. Led by commercial loans,
YNB's average loan portfolio grew by 23.2% to $892.0 million, with loan yields
averaging 7.89% in 2001 or 101 basis points lower than 2000. The decrease was
due to the aggressive lowering of short-term interest rates by the Federal
Reserve in 2001, which lowered the targeted Federal funds rate eleven times for
a total of 475 basis points. The prime interest rate also declined 475 basis
points, which significantly reduced the yield on YNB's prime related assets.
YNB's commercial, commercial mortgage, and real estate-construction loans with
floating rates tied to the prime rate totaled approximately 42% of total
commercial loans at year-end 2001. The average prime rate decreased from 9.23%
in 2000 to 6.91% in 2001. YNB's average securities portfolio grew by 51.1% to
$747.2 million, and the yield on that portfolio decreased 66 basis points when
comparing 2001 to 2000. The growth in interest earning assets was primarily
funded by increases in borrowed funds and interest bearing deposits.
Interest expense was $82.8 million for 2001, an increase of $20.2 million,
or 32.2% from $62.6 million a year ago. The increase in interest expense for the
comparable time period is principally attributable to higher levels of interest
bearing liabilities, partially offset by modestly lower rates paid on borrowed
funds and interest bearing deposits. During 2001, management acquired additional
borrowed funds to fund loan growth and meet strategic asset and liability
objectives. Average interest bearing liabilities rose $442.8 million in 2001
compared to 2000. The cost of total interest bearing liabilities decreased 27
basis points to 5.25% in 2001 from 5.52% in 2000.
Net interest income was $37.7 million in 2000, an increase of 25.5% from
the $30.1 million reported in 1999. The principal factor contributing to the
increase in net interest income was an
16
increase in interest income due to greater loan and security volumes. This was
partially offset by increased volumes of time deposits and borrowed funds and
the related interest expense.
The net interest margin, which is calculated by dividing fully taxable
equivalent net interest income by average interest earning assets, declined to
2.17% in 2001 versus 3.07% in 2000 and 3.33% in 1999. The principal factor
causing the narrowing of the net interest margin was the sharp decline in
interest rates throughout 2001. The yields on interest earning assets decreased
105 basis points while the cost of interest bearing liabilities only declined 27
basis points. The yields on floating rate loans tied to the prime rate and
floating rate investments tied to the London Interbank Offer Rate (LIBOR)
declined more quickly than YNB's time deposits. Certificates of deposit (CDs) do
not reprice until their maturity date, and due to the longer average maturity of
CDs, these funding costs declined only modestly until late in 2001. Management
has continued to use an investment leverage strategy (Investment Growth
Strategy) which has also negatively impacted the margin. For the comparative
periods, the net interest margin was negatively impacted by the Investment
Growth Strategy by approximately 35 basis points in 2001, 52 basis points in
2000, and 59 basis points in 1999.
Management expects continued improvement in YNB's net interest margin in
2002. The margin started its improvement in the 4th quarter of 2001. As CDs
mature or reprice to current market levels in 2002, interest expense on these
deposits will decline. With interest rates not expected to decline further,
yields on earning assets should stabilize. The combination of these two factors
should translate to an improving net interest margin throughout 2002.
The Investment Growth Strategy is designed to increase net interest income
by purchasing investments utilizing borrowed funds with a targeted spread of 75
basis points after tax. The primary goals of the strategy are to enhance ROE and
earnings per share. Incrementally, any increase to net interest income by this
strategy will improve ROE and earnings per share. The targeted spread on this
strategy, however, will result in a negative impact to the net interest margin
and ROA. For the period ended December 31, 2001, the Investment Growth Strategy
averaged approximately $361.8 million. The primary goals of this strategy
continue to be met. This strategy is proactively managed, analyzing risk and
reward relationships in different interest rate environments based on the
composition of investments in the strategy and YNB's overall interest rate risk
position.
Nonaccrual loans totaled $3.6 million in 2001, a decrease of $2.2 million
from the $5.8 million reported in 2000. Had such nonaccrual loans been paid in
the manner and at the rate and time contracted at the time the loans were made,
YNB would have recognized additional interest income of approximately $163,000
in 2001, $640,000 in 2000, and $257,000 in 1999. Moreover, YNB's net interest
margin would have been 0.01% higher in 2001, 0.06% higher in 2000, and 0.03%
higher in 1999.
Average non-interest bearing demand deposits increased 8.9% to $104.6
million in 2001 from $96.0 million in 2000. Growth in business checking accounts
and relationships has generated most of the increase. Throughout the comparative
periods, increases in average non-interest bearing demand deposits made a
positive contribution to net interest income.
NON-INTEREST INCOME
Non-interest income amounted to $8.0 million in 2001 compared to $3.4 million
the prior year, an increase of $4.6 million or 134.6%. The primary reasons for
the improvement were net securities gains of $3.2 million compared to $46,000 in
net securities gains in 2000 and an increase in earnings on bank owned life
insurance. Non-interest income in 2000 increased by $661,000, or 23.9% from
1999's posted total of $2.8 million.
Non-interest income represents only a small percentage of YNB's total
revenues. YNB's longer-term strategic objective is to increase fee-based income.
YNB Financial Services, Inc. generates investment and insurance fees by offering
a comprehensive array of financial planning, investment, and insurance products
to individual and business customers. Management anticipates that the continued
development of YNB Financial Services, Inc. will lead to higher non-interest
income levels.
In 2002, YNB will introduce Internet banking and enhanced cash management
services to its customer base. The Retail Incentive and Technology Planning
Committees have been instrumental in marketing and expanding YNB's product base.
While these initiatives will take time to generate the desired revenue,
management believes these actions will lead to achieving longer-term strategic
objectives in this area.
The major components of non-interest income are presented in the following
table.
Year Ended December 31,
- -------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- -------------------------------------------------------------------------
Service charges
on deposit accounts $ 1,857 $ 1,551 $ 1,374
Other service fees 990 822 687
Gains on sales of
mortgages, net 14 10 38
Securities gains
(losses), net 3,182 46 (301)
Investment
and insurance fees 29 -- --
Earnings on bank owned
life insurance 1,784 822 765
Other non-interest
income 181 175 202
- -------------------------------------------------------------------------
Total $ 8,037 $ 3,426 $ 2,765
=========================================================================
17
Service charges on deposit accounts have historically represented the
largest single source of non-interest income. Service charge income in 2001
totaled $1.9 million, an increase of $300,000, compared to $1.6 million in 2000.
Service charge income totaled $1.4 million in 1999. This component of
non-interest income represented only 23.1% of total non-interest income in 2001
due to greater net securities gains and income derived from life insurance
assets. Service charge income in 2000 and 1999 totaled 45.3% and 49.7% of
non-interest income, respectively. Service charge income increased in 2001 due
principally to an increase in income from overdraft fees. Targeted marketing
campaigns designed to increase lower- cost fee generating deposit accounts were
successful in 2001. Commercial customers typically carry compensating depository
balances as part of their overall relationship. Those who meet balance
requirements are not service charged.
YNB also generates non-interest income from a variety of fee-based
services. These include Second Check(R) fees, check fees and Automated Teller
Machine fees on non-customers. Deposit and fee schedules are reviewed annually
by the Product Development and Management Committee to reflect current costs and
competitive factors. Other service fees increased 20.4% to $990,000 in 2001 from
$822,000 in 2000. Other service fees totaled $687,000 in 1999.
YNB recorded net securities gains of $3.2 million in 2001, net securities
gains of $46,000 in 2000 and net securities losses of $301,000 in 1999. The
increase in net securities gains in 2001 resulted primarily from the sale of
higher coupon fixed rate mortgage-backed securities, callable bonds and agency
debentures due to favorable shifts in the treasury yield curve. In addition,
securities were repositioned during the year as part of the management of
longer-term interest rate risk.
Investment and insurance fees resulting from YNB Financial Services, Inc.
activities totaled $29,000 in 2001. The development of this revenue source is
ongoing.
Income from Bank Owned Life Insurance (BOLI) totaled $1.8 million in 2001,
an increase of $962,000 or 117.0% compared to 2000. Income from BOLI totaled
$765,000 in 1999. 2001 results reflect the purchase of an additional $15.0
million in tax-free BOLI assets in December of 2000. BOLI assets offset the cost
of deferred compensation plans and reduce YNB's overall effective tax rate. BOLI
assets have both fixed and floating rates of interest. Their income levels will
fluctuate based on the interest rate environment.
Other non-interest income is primarily composed of income derived from
mortgage servicing and safe deposit box rentals. Other non-interest income
totaled $181,000 in 2001, an increase of $6,000, or 3.4% when compared to
$175,000 in 2000. Other non-interest income totaled $202,000 in 1999.
NON-INTEREST EXPENSE
Non-interest expense totaled $26.8 million in 2001, an increase of $3.9 million
or 17.4%, compared to $22.9 million in 2000. Non-interest expense in 2000
increased 23.9% from $18.5 million in 1999. The largest increases in
non-interest expense in 2001 compared to 2000 were in salaries and employee
benefits and occupancy expense.
The following table presents the major components of non-interest expense
for the years indicated.
Year ended December 31,
- ----------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ----------------------------------------------------------------------
Salaries and
employee benefits $ 14,923 $ 11,632 $ 10,041
Occupancy expense, net 2,817 2,404 1,516
Equipment expense 2,021 1,892 1,642
Marketing 957 1,144 835
O.R.E. expenses 831 893 571
Communication and
postage 694 601 487
Stationery and supplies 633 628 498
Audit and
examination fees 501 396 346
Outside services
and processing 400 269 237
Attorneys' fees 238 257 296
Amortization of trust
preferred expenses 210 176 160
FDIC insurance premium 180 161 67
Insurance (other) 152 156 97
Other 2,278 2,252 1,664
- ----------------------------------------------------------------------
Total $ 26,835 $ 22,861 $ 18,457
======================================================================
Salaries and employee benefits, which represent the largest portion of
non-interest expense, increased $3.3 million in 2001 or 28.3% over 2000. These
expenses increased $1.6 million or 15.8% over 1999. Full time equivalent
employees increased to 293 at December 31, 2001 from 260 at December 31, 2000.
Contributing to this increase was the addition of staff due to branching, as
well as added administrative staff and lending professionals. In addition to
annual merit increases, salaries rose approximately $2.1 million or 22.6%.
Employee benefit expense totaled $3.6 million, an increase of $1.2 million, or
50.5% from 2000. Increases in benefits costs are primarily related to higher
costs associated with executive deferred compensation plans in addition to
increased staffing levels, which translate to higher health benefits costs and
various payroll taxes.
18
The increase in salaries and employee benefits accounted for 82.8% of the
total increase in non-interest expense in 2001. 2000's increase from 1999 was
primarily the result of staffing required with additional branching, as well as
added administrative staff and lending professionals. Higher staffing levels
resulted in increased health benefit costs and payroll taxes. Salaries and
employee benefits, as a percent of average assets, were 0.8% in 2001, 0.9% in
2000, and 1.0% in 1999, respectively.
Net occupancy expense increased $413,000 to $2.8 million in 2001 from $2.4
million reported in 2000. The increase in occupancy expense in 2001 compared to
2000 was due primarily to higher rent expense from the leases on the new
branches in Flemington, Lawrence and Bordentown and normal rent increases on
other leased branch properties. In addition, in the last quarter of 2001, YNB
relocated its Operations Center into a new leased facility. The full impact of
that facility will be reflected in 2002 results. The increase in occupancy
expense in 2000 compared to 1999 was due primarily to the operating expenses
associated with YNB's new corporate headquarters building and branch facility
for the entire year. In addition, YNB began lease payments for its new branches
in Flemington and Lawrence in the last quarter of 2000. This component of
non-interest expense has remained constant as a percentage of average assets at
0.2% in 2001, 2000, and 1999, respectively.
Equipment expense increased $129,000, or 6.8% to $2.0 million in 2001 from
$1.9 million in 2000. The increase in equipment costs reflects the continuing
efforts of YNB to maintain and upgrade technology to enhance productivity and
efficiency while providing the highest quality products and services. Equipment
costs were greater in 2001 as the result of depreciation on furniture and
equipment, equipment repairs and maintenance costs, as well as expenses
associated with our ATM machines and services. YNB's enhanced technology has
allowed management to further diversify business and consumer product lines. The
increase in equipment expenses in 2000 compared to 1999 was due to the same
factors discussed above.
Marketing expenses decreased by $187,000, or 16.3% in 2001 to $957,000,
compared to $1.1 million in 2000. Marketing expenses totaled $835,000 in 1999.
In 2001, marketing efforts were targeted to specific lower-costing funding
products to attract core deposits. There was, comparatively, less marketing
geared toward raising higher costing CDs in 2001. YNB has continued its emphasis
in community activities, which is also reflected in 2001 expenses.
Other real estate (O.R.E.) expenses decreased $62,000 to $831,000 in 2001
when compared to 2000. Management continued to aggressively manage O.R.E.
properties in 2001. O.R.E. expenses increased $322,000 in 2000 to $893,000 from
$571,000 in 1999.
Other expenses include various professional fees, loan-related expenses and
other operating expenses. In 2001 and 2000, other non-interest expenses were
$2.3 million. Other expenses totaled $1.7 million in 1999. The increase in
expenses for 2000 compared to 1999 is primarily attributable to commercial loan
related expenses and other operating expenses associated with a growing
institution.
YNB's ratio of non-interest expense to average assets decreased to 1.5% for
2001 compared to 1.7% for 2000 and 1.9% for 1999.
YNB continuously assesses the efficiency of its operations, seeking ways
which will best serve its customers while reducing operating costs. An important
industry productivity measure is the efficiency ratio. The efficiency ratio is
calculated by dividing total operating expenses by net interest income and other
income. An increase in the efficiency ratio can indicate 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. In 2001, YNB's
efficiency ratio was primarily impacted by the reduced level of net interest
income. YNB's efficiency ratio increased in 2001 to 60.75% compared to 55.54% in
2000, and 56.20% in 1999. Management anticipates that as the net interest margin
improves, the efficiency ratio should return to its historical level.
INCOME TAXES
The provision for income taxes (excluding extraordinary items), which is
comprised of Federal and state income taxes, was $3.4 million in 2001 compared
to $4.3 million in 2000 and $3.2 million in 1999. The decrease in tax expense
resulted from lower taxable income and, to a lesser extent, higher levels of
tax-exempt income. The provisions for income taxes for 2001, 2000, and 1999 were
at effective tax rates of 25.3%, 29.2%, and 28.4%, respectively. Several tax
planning strategies are in place, which have reduced the effective tax rate for
the reported periods. Those savings are anticipated to continue into 2002.
19
Financial Condition
Years ended December 31, 2001 and 2000
TOTAL ASSETS
YNB's assets were $1.9 billion at year-end 2001 versus $1.6 billion the previous
year, an increase of $324.0 million, or 20.0%. The growth in YNB's asset base
throughout 2001 was primarily due to an increase in loans and securities.
Average loans and securities grew 23.2% and 51.1% respectively in 2001. YNB's
strength as a business-focused, independent supercommunity bank is reflected in
the institution's outstanding commercial loan growth. Commercial loans are the
cornerstone of YNB's progress, and their ongoing expansion is attributable both
to the bank's relationship banking philosophy and strong business loan demand in
YNB's markets. Headquartered in Mercer County, and now concentrating its
expansion efforts into rapidly growing Hunterdon County, YNB is committed to
increasing the value of its core banking franchise by expanding into new
markets.
Average interest earning assets in 2001 were $1.7 billion, a 36.6% increase
from $1.3 billion in 2000. The growth in interest earning assets was principally
funded by the increase in interest bearing liabilities, and, to a lesser extent,
stockholders' equity and demand deposits. YNB's ratio of average interest
earning assets to average assets decreased slightly to 96.0% at December 31,
2001, compared to 96.1% at December 31, 2000.
SECURITIES
YNB's securities portfolio totaled $812.2 million, or 41.8% of assets at
December 31, 2001 versus $675.6 million, or 41.7% of assets at December 31,
2000. The $136.6 million or 20.2% increase for the comparable period was
primarily due to meeting a number of strategic objectives. Maintaining adequate
liquidity, managing interest rate risk and reducing YNB's overall effective tax
rate while at the same time generating net interest income is the strategic
focus in YNB's securities portfolio management. On an average basis, the
securities portfolio represented 43.5% of average interest earning assets for
the year ended December 31, 2001, compared to 39.3% of average interest earning
assets for the year ended December 31, 2000.
Securities included in the Investment Growth Strategy totaled approximately
$372.8 million at December 31, 2001 compared to approximately $340.1 million at
December 31, 2000. This represents an increase of $32.7 million or 9.6% in 2001.
The Investment Growth Strategy is diversified and consists of U.S. government
and U.S. agency securities, indicative of the limited credit risk in the
strategy. Floating rate securities, which constituted approximately 34% of this
strategy at the end of 2000, declined to approximately 5% at year-end 2001. The
increase in the Investment Growth Strategy is primarily the result of increases
in fixed rate mortgage-backed securities of $142.7 million and fixed rate
Collateralized Mortgage Obligations (CMOs) of $66.0 million. Offsetting the
increase were calls and sales of U.S. agency securities, in addition to sales
and principal paydowns on mortgage-backed security products, of approximately
$181.0 million. Management utilizes asset and liability simulation models to
analyze risk and reward relationships and the degree of interest rate exposure
associated with this strategy. Purchases and the corresponding funding were
determined during 2001 based on these models and opportunities available in the
marketplace. The income generated from this strategy has offset the costs
associated with the growth of YNB's infrastructure and enhanced total net
interest income. The strategy, which continues to positively contribute to
earnings per share and return on average equity, has been capped at $380.0
million for 2002.
The available for sale (AFS) securities portfolio increased $181.6 million
to $746.5 million at December 31, 2001 from $564.9 million at December 31, 2000.
The available for sale portfolio principally consists of U.S. agency
mortgage-backed securities and U.S Agency bonds, callable and non-callable. A
lower interest rate environment, in addition to strategies implemented to reduce
longer-term interest rate risk exposures, resulted in a change in the
composition of the AFS portfolio in 2001. Lower interest rates led to a decrease
in U.S. Agency callable securities of $58.5 million. There was a reduced need
for adjustable or floating rate investments as determined through YNB's interest
rate risk management process. The primary area of growth was in fixed rate
mortgage-backed securities, including CMOs. Offsetting this increase were sales,
calls and maturities of fixed and floating rate mortgage-backed securities,
including CMOs and U.S. agency obligations. The net increase in mortgage-backed
securities in 2001 was $186.4 million. In addition, corporate obligations
increased $45.2 million, primarily as a result of an investment in a money
market fund and purchasing investment grade bank trust preferred securities to
enhance portfolio yield. The yield on the available for sale portfolio decreased
139 basis points to 5.68% in 2001. Activity in this portfolio is undertaken
primarily to manage liquidity and interest rate risk and to take advantage of
market conditions that create more attractive returns on these investments. As
of December 31, 2001, available for sale securities represented 91.9% of the
entire portfolio. These securities are reported at fair value, with unrealized
gains and losses, net of tax, included as a separate component of stockholders'
equity.
20
Volatility in the bond market continued throughout 2001 with the yield
curve fluctuating often. Indicative of this volatility was the change in the
market value of the AFS portfolio, which increased in value by $12.0 million in
the third quarter and then decreased in value $9.4 million in the fourth
quarter. Management took advantage of this volatile yield curve to reposition
securities throughout 2001, which resulted in net securities gains of $3.2
million. At December 31, 2001, securities available for sale had net unrealized
gains of $555,000 compared to net unrealized losses of $2.4 million at December
31, 2000. The net unrealized gain, net of tax effect, was $361,000 at December
31, 2001 compared to a net unrealized loss of $1.6 million at December 31, 2000
reported in "Accumulated Other Comprehensive Income" in Stockholders' Equity.
Trading securities are purchased specifically for short-term appreciation
with the intent of selling in the near future. Minimal net losses of $22,000
were realized on sales of trading securities for 2001. There were no trading
securities outstanding at December 31, 2001.
Investment securities classified as held to maturity totaled $65.8 million
at December 31, 2001 compared to $110.7 million at December 31, 2000. Securities
in this category, for which there is the intent and the ability to hold to
maturity, are carried at amortized historical cost. This portfolio is primarily
comprised of state and municipal and U.S. agency callable securities. Callable
U.S. Agency securities declined $55.2 million in 2001 due to increased call
activity in a much lower interest rate environment. Offsetting this decline was
net growth of $10.0 million in the municipal bond portfolio. The municipal bond
portfolio grew to $48.7 million at December 31, 2001 from $38.7 million at
December 31, 2000. Municipal bonds were purchased to reduce YNB's effective tax
rate and enhance the tax equivalent yield of the portfolio. At December 31,
2001, investment securities had net unrealized losses of $867,000 compared to
net unrealized losses of $2.1 million at December 31, 2000. The yield on this
portfolio increased six basis points to 6.95% in 2001.
The following tables present the amortized cost and market values of YNB's
securities portfolios as of December 31, 2001, 2000, and 1999.
- -------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market Amortized Market
(in thousands) Cost Value Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities
and obligations of other
U.S. government agencies $ 113,862 $ 113,861 $ 173,608 $ 172,374 $ 117,496 $ 112,731
Mortgage-backed securities 521,988 523,179 338,377 336,798 170,775 166,164
Corporate obligations 72,946 72,311 26,713 27,091 5,783 5,522
Federal Reserve Bank Stock 2,381 2,381 2,036 2,036 1,397 1,397
Federal Home Loan Bank Stock 34,751 34,751 26,639 26,639 23,484 23,484
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 745,928 $ 746,483 $ 567,373 $ 564,938 $ 318,935 $ 309,298
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market Amortized Market
(in thousands) Cost Value Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
Obligations of other
U.S. government agencies $ 13,000 $ 13,066 $ 68,185 $ 66,439 $ 69,184 $ 63,992
Obligations of state and
political subdivisions 48,694 47,729 38,660 38,336 31,892 29,281
Mortgage-backed securities 4,059 4,092 3,855 3,785 7,091 6,848
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 65,753 $ 64,887 $ 110,700 $ 108,560 $ 108,167 $ 100,121
===============================================================================================================================
21
The expected maturities and average weighted yields for YNB's securities
portfolio as of December 31, 2001 are shown below. Yields for tax-exempt
securities are presented on a fully taxable equivalent basis assuming a 34% tax
rate.
- ---------------------------------------------------------------------------------------------------------------------
SECURITY MATURITIES AND AVERAGE WEIGHTED YIELDS
Securities Available for Sale
December 31, 2001
- ---------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations
of other U.S. government agencies $ -- $ 75,825 $ 31,728 $ 6,308 $113,861
Mortgage-backed securities 108 2,046 34,587 486,438 523,179
Corporate obligations 25,000 6,402 6,766 34,143 72,311
Federal Reserve Bank Stock -- -- -- 2,381 2,381
Federal Home Loan Bank Stock -- -- -- 34,751 34,751
- ---------------------------------------------------------------------------------------------------------------------
Total $ 25,108 $ 84,273 $ 73,081 $564,021 $746,483
- ---------------------------------------------------------------------------------------------------------------------
Weighted average yield, computed
on a tax equivalent basis 1.96% 5.04% 5.62% 5.95% 5.68%
=====================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------
Investment Securities
December 31, 2001
- ---------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- ---------------------------------------------------------------------------------------------------------------------
Obligations of other U.S.
government agencies $ -- $ -- $ -- $ 13,000 $ 13,000
Obligations of state and
political subdivisions 1,586 4,366 5,011 37,731 48,694
Mortgage-backed securities -- -- 1,971 2,088 4,059
- ---------------------------------------------------------------------------------------------------------------------
Total $ 1,586 $ 4,366 $ 6,982 $ 52,819 $ 65,753
- ---------------------------------------------------------------------------------------------------------------------
Weighted average yield, computed
on a tax equivalent basis 6.69% 7.37% 6.87% 6.94% 6.95%
=====================================================================================================================
Expected maturities will differ from contractual maturities because issuers
may have the right to call their obligations with or without call or prepayment
penalties. Mortgage-backed securities experience principal cash flows based on
the activity on the underlying mortgages.
Investments in mortgage-backed securities involve prepayment and interest
rate risk. YNB attempts to minimize these risks by diversifying the coupons and
final maturity dates of the mortgage-backed securities, buying seasoned
securities with consistent and predictable prepayment histories, average lives
and yields. At December 31, 2001 and 2000, YNB had mortgage-backed securities
totaling $527.2 million and $340.7 million, respectively. At December 31, 2001
and 2000, there were $506.1 million and $153.2 million in fixed-rate
mortgage-backed securities outstanding, respectively. Certain of these
securities can be purchased at premiums or discounts. The risk to fixed-rate
mortgage-backed securities is similar to fixed-rate loans. In rising interest
rate environments, the rate of prepayment on fixed-rate mortgage-backed
securities tends to decrease because of lower prepayments on the underlying
mortgages, and conversely, as interest rates fall, prepayments on such
securities tend to rise. The yield and average lives of these securities will
change based on prepayment speeds and how the premium or discount must be
amortized or accreted. Significantly lower interest rates and larger balances of
mortgage-backed securities led to $188.3 million in principal cash flows from
mortgage-backed securities, compared to $25.1 million in 2000.
Included in mortgage-backed securities are U.S. agency named CMOs, which
totaled approximately $126.8 million at December 31, 2001, compared to $152.4
million at December 31, 2000. A CMO is a mortgage-backed security that is
comprised of classes of bonds created by prioritizing the cash flows from the
underlying mortgage pool in order to meet different objectives of investors.
Floating rate CMOs were sold or repositioned as part of YNB's interest rate
reduction plan in 2001. All CMOs at December 31, 2001 were held in the available
for sale category.
22
LOAN PORTFOLIO
The loan portfolio represents YNB's largest earning asset class and is a
significant source of interest income. While YNB's strength has been in
commercial lending, YNB's lending strategy stresses quality growth, product and
industry diversification while maintaining strong underwriting standards.
YNB's strength as a commercial real estate and business lender was again
reflected in 2001 results. By establishing its niche as a strong commercial
lender while expanding geographically, YNB has continued to experience solid
growth. During 2001, total loans increased $189.7 million or 23.2%, reaching
$1.0 billion for the first time in YNB's history at December 31, 2001 from
$818.3 million at December 31, 2000.
There are several factors that may impact loan growth in 2002. They include
competition from other banks and non-banks, borrowers' concerns over the
economy, interest rates, and future consolidation in YNB's markets. The
principal areas of loan growth in dollar volume for 2001 were commercial and
industrial lines of credit and investor-occupied commercial real estate loans,
which grew $91.9 million and $57.3 million, respectively. YNB's loan portfolio
represented 51.9% of assets at December 31, 2001 versus 50.5% at the prior
year-end.
The following table sets forth the components of YNB's loan portfolio at the
dates indicated.
- --------------------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amount % Amount % Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------------------------------------------
Commercial real estate
Owner occupied $ 143,767 14.3% $135,234 16.5% $118,068 18.3% $ 85,856 17.5% $ 83,190 21.6%
Investor occupied 255,471 25.3 198,184 24.2 173,645 26.8 109,316 22.2 61,987 16.1
Construction
and development 99,978 9.9 93,432 11.4 48,535 7.5 36,150 7.4 29,430 7.6
Residential
Multi-family 33,970 3.4 27,800 3.4 18,678 2.9 14,858 3.0 12,943 3.4
1-4 family 107,840 10.7 92,876 11.4 74,639 11.5 63,632 12.9 57,238 14.8
Commercial and
industrial
Term 117,005 11.6 116,995 14.3 63,066 9.7 49,714 10.1 38,977 10.1
Lines of Credit 164,075 16.3 72,217 8.8 77,152 11.9 62,156 12.6 40,866 10.6
Demand 1,055 0.1 1,389 0.2 959 0.2 741 0.2 714 0.2
Consumer
Home Equity 58,084 5.8 50,809 6.2 45,469 7.0 45,396 9.2 39,683 10.3
Installment 19,266 1.9 22,428 2.7 20,375 3.2 18,093 3.7 15,507 4.0
Other 7,462 0.7 6,925 0.9 6,151 1.0 5,737 1.2 5,216 1.3
- --------------------------------------------------------------------------------------------------------------------------------
Total $1,007,973 100.0% $818,289 100.0% $646,737 100.0% $491,649 100.0% $385,751 100.0%
================================================================================================================================
YNB's primary lending focus continues to be commercial real estate as well
as commercial and industrial loans. In underwriting such loans, YNB first
evaluates the cash flow capability of the borrower to repay the loan as well as
the borrower's business experience. In addition, a substantial majority of
commercial loans are also secured by real estate and business assets, and
supported by the personal guarantees of the principals. YNB makes commercial
loans primarily to small- to medium-sized businesses and professionals.
Management diligently monitors the composition and quality of the overall
commercial loan portfolio to limit significant credit concentrations by borrower
or industry.
YNB has significantly increased its capital base through various equity
offerings and retained earnings since 1995. In 2001, YNB successfully completed
both a private trust preferred securities offering and private equity placement.
YNB's larger capital base has resulted in a higher legal lending limit and
attracted larger loan relationships and increased business from existing
customers.
Commercial real estate loans increased by $72.4 million, or 17.0% in 2001
to $499.2 million from $426.8 million at December 31, 2000. Commercial real
estate loans consist of owner occupied, investor occupied, and construction and
land development loans. Construction and land development loans include
residential and commercial projects.
23
Loans are typically made to experienced residential or commercial construction
developers. Residential construction loans include single family, multi-family,
and condominium projects. Commercial construction loans include office and
professional development, retail development and other commercial related
projects. YNB's lending policies generally require an 80% or lower loan-to-value
ratio for commercial real estate mortgages. Collateral values are established
based upon independently prepared appraisals. Growth in commercial real estate
loans accounted for 38.2% of the total loan growth in 2001.
Residential loans are comprised of multi-family and 1-4 family loans. This
portion of the portfolio totaled $141.8 million at December 31, 2001, up $21.1
million, or 17.5% from the prior year. Falling interest rates stimulated
refinancing and growth in this portfolio during 2001. Residential 1-4 family
loans represented $107.8 million, or 76.0% of the total. YNB's residential
mortgage loans are secured by first liens on the underlying real property. YNB
is a participating seller/servicer with FNMA and FHLMC and generally underwrites
its single family residential mortgage loans to conform with standards required
by these agencies. Multi-family loans, which represented $34.0 million of the
total, include 1-4 family loans that either are not secured by first liens or do
not meet the underwriting standards of FNMA or FHLMC.
Commercial and industrial loans include term loans, lines of credit, and
demand loans. Commercial and industrial loans increased $91.5 million, or 48.0%,
at December 31, 2001 to $282.1 million from $190.6 million at December 31, 2000.
Higher balances on business lines of credit from both new and existing
relationships account for the increase in commercial and industrial loans. These
loans accounted for 48.3% of the total loan growth in 2001. Commercial and
industrial loans are typically loans made to small- to middle-market businesses
and consist of working capital loans, which are used to finance inventory,
receivables, and other working capital needs of commercial borrowers as shown
below. In addition, term loans are provided for equipment needs. YNB closely
monitors diversification of risk within industry classification concentrations
with the goal of limiting the risk of loss from any single unexpected event or
trend.
- --------------------------------------------------------------------------------
COMMERCIAL and industrial LOANS
(dollars in thousands)
December 31, 2001
- --------------------------------------------------------------------------------
Percent Number
Industry Classification Balance of balance of loans
- --------------------------------------------------------------------------------
Services $ 79,154 28.1% 236
Retail trade 27,160 9.6 96
Real estate-related 41,859 14.9 123
Manufacturing 13,607 4.8 65
Construction 50,232 17.8 105
Wholesale trade 11,082 3.9 50
Individuals 25,767 9.1 127
Transportation and
public utilities 5,018 1.8 29
Other 28,256 10.0 58
- --------------------------------------------------------------------------------
Total $ 282,135 100.0% 889
================================================================================
Consumer loans increased to $84.8 million at December 31, 2001 compared to
$80.2 million at December 31, 2000. Consumer loans include fixed rate home
equity loans, floating rate home equity lines, indirect auto loans and other
types of installment loans. Home equity loans and lines represent 68.5% of total
consumer loans. In 2001, YNB experienced modest growth in its home equity
portfolio. Competition in YNB's markets for consumer loans remains strong.
The majority of YNB's business is with customers located within Mercer
County, New Jersey and contiguous counties. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount of
real estate are subject to changes in the region's economic environment and real
estate market.
24
The following table provides information concerning the maturity and interest
rate sensitivity of YNB's commercial and industrial and commercial real estate
- -- construction and development loan portfolios at December 31, 2001.
- -------------------------------------------------------------------------------------------------------
After one After
Within but within five
(in thousands) one year five years years Total
- -------------------------------------------------------------------------------------------------------
Maturities:
Commercial and industrial $150,128 $109,590 $22,417 $282,135
Commercial real estate--
construction and development 65,166 34,456 356 99,978
- -------------------------------------------------------------------------------------------------------
Total $215,294 $144,046 $22,773 $382,113
- -------------------------------------------------------------------------------------------------------
Type:
Floating rate loans $204,842 $ 76,194 $11,305 $292,341
Fixed rate loans 10,452 67,852 11,468 89,772
- -------------------------------------------------------------------------------------------------------
Total $215,294 $144,046 $22,773 $382,113
=======================================================================================================
ASSET QUALITY
One of management's chief objectives is to maintain a high quality loan
portfolio regardless of the economic climate. This objective is achieved by
setting high underwriting standards. Additionally, management regularly
evaluates borrower's credit worthiness and risk exposure. Management actively
seeks to reduce the level of nonperforming assets in relation to the entire
portfolio.
Nonperforming assets decreased $1.6 million to $7.5 million at December 31,
2001 compared to $9.1 million at December 31, 2000. For the five-year trend
presented, YNB's nonperforming assets have averaged approximately $7.9 million.
Credit quality has remained strong during periods of robust loan growth.
Nonperforming assets represented 0.38% of total assets at December 31, 2001 and
0.56% at December 31, 2000. The improvement in this ratio is due to both the
growth in YNB's asset base and the reduction in nonperforming loans.
Nonperforming assets as a percentage of total loans and other real estate
were 0.74% at December 31, 2001, compared to 1.11% at December 31, 2000.
Nonperforming assets consist of nonperforming loans and other real estate owned.
Nonperforming loans are composed of (1) loans on a nonaccrual basis, (2) loans
which are contractually past due 90 days or more as to interest and principal
payments but have not been classified as nonaccrual and (3) loans whose terms
have been restructured to provide a reduction or deferral of interest or
principal because of a deterioration in the financial position of the borrower.
YNB's policy with regard to nonaccrual loans varies by the type of loan
involved. Generally, commercial loans are placed on a nonaccrual status when
they are 90 days past due, unless these loans are well secured and in the
process of collection or, regardless of the past due status of the loan, when
management determines that the complete recovery of principal or interest is in
doubt. Consumer loans are generally charged off after they become 120 days past
due. Residential mortgage loans are not generally placed on a nonaccrual status
unless the value of the real estate has deteriorated to the point that a
potential loss of principal or interest exists. Subsequent payments are credited
to income only if collection of principal is not in doubt. If principal and
interest payments are brought contractually current, and future collectibility
is reasonably assured, loans are returned to accrual status.
25
The following table sets forth nonperforming assets and risk elements in YNB's
loan portfolio by type for the years indicated.
- --------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
December 31,
- --------------------------------------------------------------------------------------------------------------------
(in thousands) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Nonaccrual loans:
Commercial real estate $ 888 $ 2,075 $ 733 $ 1,035 $ 2,663
Residential 1,133 2,423 740 175 175
Commercial and industrial 1,494 851 441 594 406
Consumer 98 453 275 242 111
- --------------------------------------------------------------------------------------------------------------------
Total 3,613 5,802 2,189 2,046 3,355
- --------------------------------------------------------------------------------------------------------------------
Restructured loans 770 532 540 634 969
- --------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Residential 514 526 206 771 618
Commercial and industrial -- -- 47 -- --
Consumer 228 173 96 422 373
- --------------------------------------------------------------------------------------------------------------------
Total 742 699 349 1,193 991
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 5,125 7,033 3,078 3,873 5,315
Other real estate 2,329 2,041 2,585 4,957 3,171
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 7,454 $ 9,074 $ 5,663 $ 8,830 $ 8,486
====================================================================================================================
Management believes that, based on its underwriting standards and credit
policies, the overall quality of the loan portfolio remains strong.
Nonperforming loans totaled $5.1 million at December 31, 2001, a decrease of
$1.9 million from the $7.0 million amount reported at December 31, 2000. The
decline in nonperforming loans resulted principally from a decline in nonaccrual
loans.
Nonaccrual loans were $3.6 million, or 0.36% of total loans, at December
31, 2001, a decrease of $2.2 million from December 31, 2000. The decrease is
primarily the result of a reduction in commercial real estate and residential
nonaccrual loans.
Restructured loans totaled $770,000 at December 31, 2001 compared to
$532,000 at December 31, 2000. Income on these loans is being recognized on a
cash basis.
At December 31, 2001, loans that were 90 days or more past due but still
accruing interest income represented $742,000, or 0.07% of total loans, compared
to $699,000, or 0.09% of total loans at December 31, 2000. Management's decision
to accrue income on these loans is based on the level of collateral and the
status of collection efforts.
Other real estate (O.R.E.) totaled $2.3 million at December 31, 2001 and
$2.0 million at December 31, 2000. The increase in O.R.E. for 2001 was
principally due to the reclassification of one residential mortgage loan as
other real estate. O.R.E. properties have been written down to the lower of cost
or fair value less disposition expense.
26
ALLOWANCE FOR LOAN LOSSES
Management utilizes a system to rate substantially all of its loans based on
their respective risks. Under this methodology, reserves are assigned based upon
credit risk ratings for specific loans and general reserves for all other loans.
The general reserves are based on historical performance, migration analysis and
the current economic environment, among other factors. Management closely
monitors delinquencies and delinquency trends. All criticized assets are
reviewed on a quarterly basis. Allocations to the allowance for loan losses,
both specific and general, are determined after this review. Loans are
classified as either "minimal, modest, better than average, average, acceptable,
special mention, substandard, doubtful and loss" based on internal reviews and
valuations performed by the lending staff. These evaluations are, in turn,
examined by YNB's internal loan review staff. A formal loan review function is
in place, independent of loan origination, to identify and monitor risk
classifications. Management continues to review, update and enhance the process
utilized to determine the adequacy of the allowance for loan losses. The
following table presents, for the years indicated, an analysis of the allowance
for loan losses and other related data.
YNB provides for possible loan losses by a charge to current operations to
maintain the allowance for loan losses at an adequate level determined according
to management's documented allowance adequacy methodology. The provision for
loan losses for 2001 was $3.9 million, reflective of the continued strong growth
in the commercial loan portfolio. This compares to a provision for loan losses
of $3.7 million in 2000 and $3.2 million in 1999. Management believes commercial
and construction loan growth has the potential for higher loss severity, which
is reflected in the provision as well.
At December 31, 2001, the allowance for loan losses totaled $13.5 million,
an increase of $2.6 million or 23.9% from $10.9 million at December 31, 2000,
which compares to $9.0 million at December 31, 1999. The ratio of allowance for
loan losses to total loans was 1.34%, 1.34%, and 1.39%, at December 31, 2001,
2000, and 1999, respectively. Another measure of the adequacy of the allowance
for loan losses is the ratio of the allowance to total nonperforming loans. At
December 31, 2001 this ratio was 264.23% versus 155.47% at December 31, 2000.
- --------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
At or for the year ended December 31,
- --------------------------------------------------------------------------------------------------------------------
(in thousands) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Allowance balance, beginning of year $ 10,934 $ 8,965 $ 6,768 $ 5,570 $ 4,957
Charge offs:
Commercial real estate (696) (356) (233) (453) (75)
Residential -- (288) -- -- (40)
Commercial and industrial (591) (896) (278) (94) (202)
Consumer (412) (327) (574) (296) (257)
- --------------------------------------------------------------------------------------------------------------------
Total charge offs (1,699) (1,867) (1,085) (843) (574)
- --------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial real estate -- -- 20 4 --
Commercial and industrial 31 -- -- 3 9
Consumer 351 136 87 59 53
Total recoveries 382 136 107 66 62
- --------------------------------------------------------------------------------------------------------------------
Net charge offs (1,317) (1,731) (978) (777) (512)
Provision charged to operations 3,925 3,700 3,175 1,975 1,125
- --------------------------------------------------------------------------------------------------------------------
Allowance balance, end of year $ 13,542 $ 10,934 $ 8,965 $ 6,768 $ 5,570
- --------------------------------------------------------------------------------------------------------------------
Loans, end of year $1,007,973 $818,289 $646,737 $491,649 $385,751
Average loans outstanding $ 891,957 $723,570 $564,552 $438,050 $355,526
Allowance for loan losses to total loans 1.34% 1.34% 1.39% 1.38% 1.44%
Net loan charge offs to average total loans 0.15 0.24 0.17 0.18 0.14
Nonperforming loans to total loans 0.51 0.86 0.48 0.79 1.38
Nonperforming assets to total assets 0.38 0.56 0.50 1.17 1.38
Nonperforming assets to total loans and other
real estate owned 0.74 1.11 0.87 1.78 2.18
Allowance for loan losses to nonperforming assets 181.67 120.50 158.31 76.65 65.64
Allowance for loan losses to nonperforming loans 264.23% 155.47% 291.26% 174.75% 104.80%
====================================================================================================================
27
YNB's gross charge offs in 2001 totaled $1.7 million, compared with $1.9
million in 2000 and $1.1 million in 1999. Losses on loans and loans which are
determined to be uncollectible are charged against the allowance and subsequent
recoveries, if any, are credited to it. YNB's gross recoveries totaled $382,000
in 2001, compared to $136,000 in 2000 and $107,000 in 1999. The balance of the
allowance for loan losses is determined by an overall analysis of the loan
portfolio and reflects an amount which, in management's judgment, is adequate to
provide for potential loan losses.
YNB recognizes that despite its best efforts to minimize risk through its
strong credit review process, losses will occur. In times of economic slowdown,
either within its markets or nationally, the risk inherent in YNB's loan
portfolio will increase. The timing and amount of loan losses that may occur is
dependent upon several factors, most notably current and expected economic
conditions and the financial condition of YNB's borrowers. Although management
uses the best information available, the level of the allowance for loan losses
remains an estimate which is subject to significant judgment and short term
change.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following tables describe the allocation for loan losses among various
categories of loans and certain other information as of the dates indicated. An
unallocated allowance is distributed proportionately among each loan category.
This unallocated portion of the loan loss allowance is important to maintain the
overall allowance at a level that is adequate to absorb potential credit losses
inherent in the total loan portfolio. The allocation is made for analytical
purposes and is not necessarily indicative of the categories in which future
loan losses may occur. The total allowance is available to absorb losses from
any segment of loans.
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial real estate $ 6,843 50.5% 49.5% $ 6,303 57.6% 52.2% $ 5,229 58.3% 52.6%
Residential 1,106 8.2 14.1 1,118 10.2 14.7 840 9.4 14.4
Commercial and industrial 4,974 36.7 28.0 2,739 25.1 23.3 2,303 25.7 21.8
Consumer 619 4.6 8.4 774 7.1 9.8 593 6.6 11.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total $13,542 100.0% 100.0% $10,934 100.0% 100.0% $8,965 100.0% 100.0%
====================================================================================================================================
December 31,
- -------------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial real estate $3,594 53.1% 47.1% $3,201 57.5% 45.3%
Residential 598 8.8 15.9 476 8.5 18.2
Commercial and industrial 1,994 29.5 22.9 1,385 24.9 20.9
Consumer 582 8.6 14.1 508 9.1 15.6
- -------------------------------------------------------------------------------------------------------------------
Total $6,768 100.0% 100.0% $5,570 100.0% 100.0%
===================================================================================================================
28
DEPOSITS
YNB's primary funding source is deposits. YNB's deposit base consists of
non-interest and interest bearing demand deposits, savings and money market
accounts, and time deposits. These deposits support earning asset growth. YNB's
strategic focus is to generate lower-cost deposits in new and existing markets.
Management believes that YNB's relationship banking philosophy and entry into
Hunterdon County will contribute to building lower-cost core deposits. YNB also
continues to offer expanded products and services to its customer base. In 2002,
Internet banking and enhanced corporate cash management services will be added
to YNB's established product line.
Total deposits amounted to $1.1 billion at year-end 2001 compared to $950.3
million at the end of 2000, an increase of 15.0%. Average total deposits during
2001 totaled $1.0 billion compared to $844.3 million during 2000, an increase of
19.2%. The average rate paid on YNB's deposit balances in 2001 was 4.43%, a 26
basis point decrease from the 4.69% average rate for 2000. The growth in YNB's
deposit base in 2001 was primarily in Premier Money Market accounts, and, to a
lesser extent, interest bearing demand deposits. CDs were competitively priced
in the first nine months to promote new branches, fund loan growth and enhance
liquidity. As higher rate CDs matured and repriced throughout the year in a much
lower interest rate environment, depositors shifted their funds from CDs into
YNB's competitively priced Premier Money Market account. Time deposits were
54.2% of total deposits at the end of 2001 compared to 59.8% at the end of 2000.
The competition for deposits in YNB's primary markets between commercial and
savings banks as well as non-bank financial institutions continues. In 2001,
YNB's cost of deposits declined only modestly due to the longer average maturity
of other time deposits, which declined only 10 basis points. Growth in money
market accounts accounted for 52.9% of the total increase in deposits for 2001
compared to 34.5% at the end of 2000.
The following table provides information concerning average balances and rates
of deposits for the years indicated:
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE DEPOSIT BALANCES AND RATES
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
% of % of % of
(in thousands) Balance Rate Total Balance Rate Total Balance Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 104,577 --% 10.4% $ 96,024 --% 11.4% $ 81,843 --% 12.8%
Interest bearing
demand deposits 88,765 2.70 8.8 67,443 2.60 8.0 57,788 2.79 9.0
Money market deposits 154,901 4.02 15.4 89,232 4.85 10.6 47,986 2.89 7.5
Savings deposits 74,929 1.75 7.4 76,337 2.43 9.0 79,730 2.36 12.5
Time deposits of
$100,000 or more 129,340 5.86 12.9 106,581 6.47 12.7 51,290 5.15 8.0
Other time deposits 453,747 5.97 45.1 408,414 6.07 48.3 320,809 5.46 50.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total $1,006,259 4.43% 100.0% $844,301 4.69% 100.0% $639,446 3.92% 100.0%
=================================================================================================================================
YNB also markets its CDs through a nationwide computer-based service.
During 2001, management pursued a strategy of reducing the higher costing
certificates of deposit generated through this service without negatively
impacting liquidity. These CDs, which totaled $128.6 million at December 31,
2000, declined to $107.0 million at year-end 2001. The average maturity of these
CDs is approximately eight months. This funding source tends to fluctuate
depending on funding needs and cost. Although this service has enabled YNB to
reach a greater number of potential depositors, these CDs generally tend to be
higher costing. With YNB's continued geographic expansion into new markets like
Hunterdon and Burlington Counties, management will continue its efforts to
further expand lower cost core deposits and reduce the need for higher cost
funding sources.
The average balance of non-interest bearing demand deposits was $104.6
million during 2001, an increase of $8.6 million, or 8.9% from $96.0 million
during 2000. Non-interest bearing demand deposits represent a stable,
interest-free source of funds. The increase in demand deposits is primarily from
the growth in business checking accounts. YNB's free checking product was again
actively and consistently marketed in 2001. The increase in business and
personal checking accounts has contributed positively to net interest income.
Average interest bearing demand and money market deposits increased 31.6%
and 73.6%, respectively, from 2000 to 2001. Average savings deposits decreased
1.8%. YNB's primary deposit gathering strategy emphasizes growth in non-interest
bearing demand deposits and other low cost deposits, such as interest bearing
demand and money market accounts. The increase in lower cost deposits is
attributed to YNB's sales focus and incentives instituted throughout the branch
network to cross-sell YNB's products and services. In 2001, YNB actively
marketed its Premier Money Market accounts to both business
29
and personal depositors. This campaign resulted in strong growth in money market
deposits with average money market deposits increasing $65.7 million or 73.6% in
2001. The average cost of these deposits decreased from 4.85% to 4.02% in 2001.
Total average time deposits, which consist of certificates of deposit and
individual retirement accounts, increased 13.2% or $68.1 million to $583.1
million from $515.0 million in 2000. The average months to maturity on the
entire CD portfolio at December 31, 2001 was approximately five months.
Short-term interest rates declined 475 basis points in 2001, however, the
average cost of time deposits declined only 20 basis points. The average cost of
time deposits will continue to decline into 2002 as time deposits mature or
reprice lower. The result should be an improving net interest margin in 2002.
The following table details amounts and maturities for certificates of
deposit of $100,000 or more for the years indicated:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
Maturity range:
Within three months $ 60,878 $ 34,472
After three months
but within six months 28,096 31,512
After six months
but within twelve months 44,017 54,770
After twelve months 4,693 10,257
- --------------------------------------------------------------------------------
Total $ 137,684 $ 131,011
================================================================================
Certificates of deposit of $100,000 or more totaled $137.7 million, or 12.6% of
deposits, at December 31, 2001 compared to $131.1 million, or 13.8% of deposits,
at December 31, 2000.
YNB expects to open its regional headquarters in Flemington, which will include
a full service branch, by the end of April 2002. A third branch in Flemington
will be added in the second quarter of 2002. Management will continue to analyze
and assess new branch opportunities in existing and new markets with the goal of
broadening YNB's customer base geographically and attracting additional
lower-cost core deposits.
BORROWED FUNDS
YNB utilizes borrowed funds for its earning asset growth not supported by
deposit generation and for asset/liability management purposes. Borrowed funds
consist primarily of securities sold under agreements to repurchase, FHLB
advances, and other forms of borrowings. Management has available unsecured
Federal funds lines of credit with four of its correspondent banks for daily
funding needs.
Borrowed funds totaled $707.1 million at December 31, 2001, an increase of
$161.9 million or 29.7% when compared to $545.2 million at December 31, 2000.
The increase in borrowed funds is primarily due to an increase in FHLB advances.
FHLB advances were used to fund earning asset growth, enhance liquidity, manage
interest rate risk and, to a lesser extent, funding for the Investment Growth
Strategy. At December 31, 2001, borrowed funds represented 36.4% of YNB's assets
compared to 33.7% at year end 2000. YNB's borrowed funds position includes
callable FHLB advances that have terms of two to ten years and are callable
after periods ranging from three months to five years. Callable borrowings
totaled $565.0 million at December 31, 2001, of which $433.5 million have call
dates in 2002. Generally, when rates rise, some or all of these advances could
be called and would then be replaced with higher costing borrowings. Conversely,
when rates fall, advances will not be called and the duration of these
liabilities would be extended.
In April 2001, management curtailed the use of 10-year callable advances
for purposes of the Investment Growth Strategy. Much of the longer-term interest
rate risk in YNB's balance sheet is embedded in the FHLB callable advances used
to fund investment purchases in this strategy. With the capping of the
Investment Growth Strategy, advances will not be used for this purpose in 2002.
Borrowed funds also include $800,000 related to YNB's Employee Stock
Ownership Plan (ESOP). Initiated in 1999, the ESOP purchased 155,340 shares of
YNB's common stock with a loan from a nonaffiliated financial institution.
Borrowed funds averaged $644.7 million in 2001, an increase of $277.7
million from the average reported in 2000 of $367.0 million. The average cost of
borrowed funds decreased 31 basis points during the year to 5.47% compared with
5.78% in 2000. The use of callable FHLB advances allowed YNB to reduce its
funding costs in relation to other funding alternatives in 2001. At year-end
2001, there were $695.0 million in outstanding borrowings with the FHLB and no
outstanding borrowings with YNB's correspondents.
In December 2001, $50.0 million in FHLB advances were retired, which
resulted in an extraordinary pre-tax loss of $2.2 million. The purpose of this
transaction was to strategically reposition a portion of our borrowed funds
portfolio to meet asset and liability objectives designed to reduce longer-term
interest rate risk. Interest expense reduction on these liabilities will be
realized in the first quarter of 2002 and management expects this restructuring
to have a positive impact to the net interest margin throughout 2002.
30
Within approved policy guidelines, management will continue to use borrowed
funds as an alternative funding source to manage its cost of funds and as a tool
for interest rate risk management and liquidity in 2002.
ASSET AND LIABILITY MANAGEMENT
The objective of asset and liability management is the prudent control of
liquidity risk, market risk and the appropriate use of capital. Asset and
liability management is governed by policies reviewed and approved annually by
YNB's Board of Directors. The Board of Directors delegates responsibility for
asset and liability management to YNB's Asset and Liability Committee (ALCO).
ALCO sets strategic goals that establish the daily market risk management
actions for YNB.
LIQUIDITY
Liquidity measures the ability to generate sufficient cash flows to satisfy all
of YNB's current and future financial obligations and commitments. Liquidity
management refers to YNB's ability to support asset growth while satisfying the
borrowing needs and deposit withdrawal requirements of customers. In addition to
maintaining liquid assets, factors such as capital position, profitability,
asset quality and availability of funding affect a bank's ability to meet its
liquidity needs.
Traditional sources of liquidity include deposit growth, asset maturities
and asset prepayments. Management continues its focus on generating core
deposits to strengthen liquidity. In addition, YNB uses borrowed funds, which
further support and enhance liquidity. As previously discussed, YNB
strategically utilizes a nationwide computer-based service to generate CDs to
bolster liquidity and fund loan growth as well. Asset prepayments include
proceeds from principal and interest on loans and mortgage-backed securities
(MBS). While maturities and scheduled amortization of loans and MBS are
generally a predictable source of funds, deposit flows and investment
prepayments are greatly influenced by interest rates and competition. Brokered
CD facilities are also available as another source of liquidity. As part of its
liquidity management, YNB has a contingency funding plan in place. YNB's
contingency funding plan is structured to manage potential liquidity concerns
due to changes in interest rates, credit markets or other external risks.
Liquidity was again actively managed in 2001, as strong earning asset
growth continued. The unpledged or free securities position is designed to
provide a pool of securities, with modest market value risk, for liquidity
purposes. Total unpledged securities were approximately $246.8 million at
December 31, 2001 and $153.0 million at December 31, 2000. The unpledged
security position will fluctuate due to several factors. Management's goal is to
build the unpledged security position by purchasing short-term high quality
securities with comparatively minimal market value risk. A higher level of
Federal funds sold may be experienced from time to time instead of building the
unpledged security position. This may be due to projected loan growth or
investment opportunities in the marketplace.
At December 31, 2001, liquid assets, (excluding securities purchased
utilizing borrowed funds), amounted to $419.3 million, as compared to $326.1
million at December 31, 2000. This represents 28.2% and 26.9% of earning assets,
and 26.7% and 25.4% of total adjusted assets at December 31, 2001 and 2000,
respectively.
Liquidity can be further analyzed by utilizing the Consolidated Statements
of Cash Flows. During 2001, net cash provided by financing activities was $315.6
million. This was primarily due to net increases in borrowed funds of $162.7
million and non-interest bearing demand, money market, and savings deposits of
$118.9 million. Net cash used by investing activities was $328.2 million,
consisting primarily of a $864.8 million purchase of securities available for
sale and $192.5 million net increase in loans, partially offset by maturities,
calls, paydowns, and sales of securities available for sale of $688.5 million.
Net cash provided by operating activities was $6.2 million. Overall, cash and
cash equivalents decreased $6.4 million at year-end 2001 compared to year-end
2000.
YNB is eligible to borrow funds from the FHLB subject to FHLB stock level
requirements, collateral requirements and individual advance proposals based on
FHLB credit standards. FHLB advances are collateralized by securities as well as
residential and commercial mortgage loans. YNB also has the ability to borrow at
the Federal Reserve discount window. YNB also maintains unsecured Federal funds
lines totaling $25 million with four correspondent banks for daily funding
needs.
Active liquidity management remains a strategic focus, due to the strong
asset growth YNB has experienced over the last several years. Management
continues to develop additional funding opportunities to ensure YNB's ability to
continue to grow while maintaining sufficient liquidity. YNB's entry into new
markets, such as Hunterdon County, and targeted branch expansion in its primary
market, Mercer County, should build YNB's deposit base and further enhance its
already sound liquidity profile.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
YNB's market risk arises principally from interest rate risk inherent in its
lending, investment, deposit and borrowing activities. YNB's profitability is
affected by fluctuations in interest rates. A sudden and significant change in
interest rates may adversely impact YNB's earnings to the extent that the
interest rates of those assets and liabilities do not change at the same speed,
to the same extent or on the same basis. Accordingly, management actively
analyzes and manages its interest rate risk exposure.
The primary goal of YNB's interest rate risk management is to control
exposure to interest rate risk inherent in the balance sheet, determine the
level of risk appropriate given YNB's strategic objectives and manage the risk
consistent with the Board of Director's approved limits and guidelines. These
limits and guidelines reflect YNB's tolerance for interest rate risk over both
short- and long-term time horizons. The Board of Directors reviews YNB's
interest rate risk position quarterly.
31
YNB's interest rate risk and subsequent risk to net interest income is
derived from the difference in the maturity and repricing characteristics
between YNB's assets and liabilities. Most notably, assets and liabilities are
mismatched with respect to repricing frequency, maturity and/or index. As was
the case in 2001, time deposits, which represented over 50% of YNB's deposit
base, repriced slower in response to the 475 basis point short-term interest
rate reduction experienced during the year compared to the repricing of earning
assets. The asset sensitive position of the balance sheet in a falling interest
rate environment resulted in reduced net interest income levels in 2001. YNB
currently does not participate in hedging programs, interest rate swaps or other
activities involving the use of off-balance sheet derivative financial
instruments, but may do so in the future to mitigate interest rate risk.
Management controls interest rate risk by identifying and quantifying
interest rate risk exposures using simulation and economic value risk models, as
well as a simpler gap analysis described below.
One measure of interest rate risk is the gap ratio, which is defined as the
difference between the dollar volume of interest earning assets and interest
bearing liabilities maturing or repricing within a specified period of time as a
percentage of total assets. A positive gap results when the volume of interest
rate-sensitive assets exceeds that of interest rate-sensitive liabilities within
comparable time periods. A negative gap results when the volume of interest
rate-sensitive liabilities exceeds that of interest rate-sensitive assets within
comparable time periods.
The following table sets forth certain information at December 31, 2001 relating
to YNB's assets and liabilities by scheduled repricing for adjustable assets and
liabilities, or by contractual maturity for fixed-rate assets and liabilities.
- -----------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 2001
- -----------------------------------------------------------------------------------------------------------------------------
Six More than More than More than More than
Under months one year two years five years ten years
six through through through through and not
(in thousands) months one year two years five years ten years repricing Total
- -----------------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ -- $ -- $ -- $ -- $ -- $ 27,771 $ 27,771
Federal funds sold and
interest bearing deposits 41,280 -- -- -- -- -- 41,280
Available for sale securities 95,461 69,027 132,492 193,903 140,939 114,661 746,483
Investment securities 1,287 841 3,413 16,663 5,677 37,872 65,753
Loans 347,950 63,020 131,664 345,396 73,304 46,639 1,007,973
Other assets, net -- 15,911 -- -- -- 38,218 54,129
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 485,978 $ 148,799 $267,569 $ 555,962 $ 219,920 $ 265,161 $1,943,389
==============================================================================================================================
Liabilities and
Stockholders' Equity
Non-interest
bearing demand $ -- $ -- $ -- $ -- $-- $ 114,405 $ 114,405
Savings and interest
bearing demand 25,715 15,689 -- 141,118 -- -- 182,522
Money markets 107,922 -- -- 95,950 -- -- 203,872
Certificates of deposit
of $100,000 or more 88,974 44,017 3,519 1,174 -- -- 137,684
Other time deposits 278,914 131,061 31,026 13,206 -- -- 454,207
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits $ 501,525 $ 190,767 $ 34,545 $ 251,448 $-- $ 114,405 $1,092,690
Borrowed funds 157,305 9,008 60,800 352,000 128,000 -- 707,113
Trust preferred securities -- -- -- -- -- 32,500 32,500
Other liabilities -- -- -- -- -- 17,841 17,841
Stockholders' equity -- -- -- -- -- 93,245 93,245
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 658,830 $ 199,775 $ 95,345 $ 603,448 $ 128,000 $ 257,991 $1,943,389
=============================================================================================================================
Gap (172,852) (50,976) 172,224 (47,487) 91,920 7,170
Cumulative gap (172,852) (223,828) (51,604) (99,090) (7,170) --
Cumulative gap to total asset -8.9% -11.5% -2.7% -5.1% -0.4% --
==============================================================================================================================
32
As indicated in the table on the preceeding page, YNB's one-year gap position at
December 31, 2001 was a negative 11.5%. Generally, a financial institution with
a negative gap position will most likely experience a decrease in net interest
income during periods of rising rates and increases in net interest income
during periods of lower interest rates.
Included in the analysis of YNB's gap position are certain savings
deposits, money markets and interest checking accounts, which are less sensitive
to fluctuations in interest rates than other interest-bearing sources of funds.
In determining the sensitivity of such deposits, management reviews the recent
movement (last 12 months) of its deposit rates relative to market rates.
Historically, management has used regression analysis to determine deposit
sensitivity, but due to the sudden and significant drop in interest rates in
2001, recent patterns are considered a more accurate tool. The ALCO committee
has estimated that these deposits are less sensitive to interest rate changes
compared to time deposits.
The negative gap in the one-year timeframe, which was brought about in the
second half of 2001, was a result primarily of the increase in investment cash
flows over one year and the reduction in fixed rate borrowings over one year.
Both contributed to the level of the negative gap by the end of 2001. The
one-year cumulative gap position policy guideline is measured as a percentage of
assets within a +10/-25% range. At December 31, 2001, the gap position was
within the policy guideline. While gap analysis represents a useful
asset/liability management tool, it does not necessarily indicate the effect of
general interest rate movements on YNB's net interest income due to
discretionary repricing of some assets and liabilities, balance sheet options,
and other competitive pressures.
Simulation analysis involves dynamically modeling YNB's interest income and
expenses over a specified time period under various interest rate scenarios and
balance sheet structures. YNB uses simulation analysis primarily to measure the
sensitivity of net interest income over 12- and 24-month time horizons. In YNB's
base case sensitivity scenario, the model estimates the variance in net interest
income with a change in interest rates of plus and minus 200 basis points over a
12-month period. Management utilized a minus 150 basis point scenario due to the
low interest rate environment that existed at year end. The plus and minus base
case scenario is measured within a policy guideline of -7%. The following table
reflects the estimated exposure of YNB's net interest income in the base case
scenario at December 31, 2001 and 2000:
Percentage Change
Changes in Interest In Net Interest Income
Rate in Basis Points -----------------------
Over 12 months 2001 2000
- ------------------------------------------------------------------------------
+200 0.4 5.0
- -150/-200 -4.6 -8.3
==============================================================================
The longer asset structure and shorter liability structure now presents a more
balanced interest rate risk profile over the next 12 to 24 months. The current
yield curve level and projected interest rate environment suggests that assets
will roll over at modestly higher yields in 2002, while liability costs will
decline, stabilize and then rise by the end of 2002. YNB's net interest income
will benefit most from a flat to modestly higher interest rate environment in
2002. If interest rates increase 2%, net interest income will improve by
approximately 0.4% in 2002. If interest rates decrease 1.5%, net interest income
decreases by approximately 4.6% in 2002. There are several factors that
management addresses when constructing short-term and longer-term interest rate
risk models.
There is fundamental uncertainty regarding the maturity, repricing and/or
runoff characteristics of some of YNB's assets and liabilities. Money market
deposits, for example, have no contractual maturity, meaning customers have the
ability to withdraw funds from these deposit accounts freely. These deposits may
run off unexpectedly due to changes in market rates or even competitive factors.
Accordingly, rates on money market deposits may have to be increased more or
reduced less than expected. Given the uncertainties of deposit runoff or
repricing the interest rate sensitivity of bank liabilities cannot be calculated
precisely. The uncertainty also reflects options embedded in financial
instruments, which include mortgage-backed securities and FHLB advances. To deal
with the many uncertainties when constructing either short or longer-term
interest rate risk measurements, management has developed a number of
assumptions. Depending on the product or behavior in question, each assumption
will reflect some combination of market data, research analysis and business
judgment.
YNB also measures longer-term interest rate risk through the Economic Value
of Equity ("EVE") model. This model involves projecting future cash flows from
YNB's current assets and liabilities over a very long time horizon, discounting
those cash flows at appropriate interest rates, and then aggregating the
discounted cash flows. YNB's EVE is the estimated net present value of these
discounted cash flows. The variance in the economic value of equity is measured
as a percentage of the present value of equity. The sensitivity of EVE to
changes in the level of interest rates is a measure of the sensitivity of
long-term earnings to changes in interest rates. YNB uses the sensitivity of EVE
principally to measure the exposure of equity to changes in interest rates over
a relatively long time horizon. The following table lists YNB's percentage
change in EVE in a plus or minus 200 basis point rate shock at December 31, 2001
and 2000. Due to the low interest rate environment not all interest rates could
be shocked 200 basis points. Based on the underlying assumptions used:
Percentage Change
Changes in Interest in EVE
Rate in Basis Points -----------------
(Rate Shock) 2001 2000
- ------------------------------------------------------------------------------
+200 -45 -34
- -200 -1 -83
==============================================================================
Certain shortcomings are inherent in the methodology used in the previously
discussed interest rate risk measurements. Modeling changes in EVE analysis
require the making of certain assumptions, which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. Accordingly, although the EVE model provides an indication of YNB's
interest rate risk exposure at a particular point in time,
33
such measurements are not intended to and do not provide a precise forecast of
the effect of change in market interest rates on YNB's net interest income and
will differ from actual results.
STOCKHOLDERS' EQUITY AND CAPITAL RESOURCES
The management of capital in a regulated environment requires a balance between
earning the highest return for stockholders while maintaining sufficient capital
levels for proper risk management, satisfying regulatory requirements, and for
future expansion. YNB's proactive capital management is designed to ensure that
YNB is always well capitalized as defined by regulatory authorities.
On August 22, 2001, YNB completed the private placement of 596,654 shares
of Common Stock. The shares were sold to a limited number of accredited
investors at an aggregate purchase price of approximately $7.8 million.
Stockholders' equity at December 31, 2001 totaled $93.2 million compared to
$78.2 million at December 31, 2000. This represents an increase of $15.0 million
or 19.2%. This increase resulted from (i) earnings of $8.6 million, (ii) net
proceeds of $7.4 million from the private equity offering, (iii) proceeds of
$6,000 from exercised stock options, (iv) a positive adjustment to equity of
$1.9 million related to the improvement in market value on securities available
for sale, (v) proceeds of $400,000 from allocated ESOP shares, and (vi) an
increase of $8,000 associated with the fair market value adjustment related to
the allocation of shares from the ESOP offset by cash dividend payments of $3.3
million.
In 1999, YNB adopted an Employee Stock Ownership Plan (ESOP) to permit
eligible employees of YNB to share in the growth of YNB through stock ownership.
At that time, Yardville National Bancorp sold 155,340 shares to the ESOP for $2
million. The ESOP financed the stock purchase with a nonaffiliated financial
institution. The financing is for a term of five years with an interest rate of
7.00%. The full balance of the loan will be repaid in equal installments over
the term of the loan. The shares purchased by the ESOP were used as collateral
for the loan. The balance of unallocated ESOP shares at December 31, 2001 is
$800,000. The annual expenses associated with the ESOP were $439,000 in 2001,
$376,000 in 2000 and $463,000 in 1999. These expenses include compensation
expense, debt service on the loan and any adjustment required due to changes in
the fair value of the shares at time of allocation. The reason for the increase
in cost was primarily the result of adjustments related to the change in the
fair value of the stock.
In the first quarter of 2001, the Board of Directors increased the regular
quarterly dividend on common stock from $0.10 to $0.11. Dividends declared on
common stock totaled $0.44 per share for 2001 compared to $0.40 for 2000, an
increase of 10.0%. The dividend payout ratio was 39.1% for 2001, compared to
27.5% at year-end 2000.
YNB trades on the NASDAQ National Market System under the symbol YANB. The
quarterly market price ranges and dividends declared per common share for the
last two years are shown below.
Cash
Dividend
2001 Quarter High Low Declared
- -------------------------------------------------------------------
First $ 14.25 $ 12.06 $ 0.11
Second 14.45 13.56 0.11
Third 14.10 11.00 0.11
Fourth 12.80 10.96 0.11
- -------------------------------------------------------------------
Total $ 0.44
===================================================================
2000 Quarter
- -------------------------------------------------------------------
First $ 11.13 $ 8.81 $ 0.10
Second 10.75 8.56 0.10
Third 12.19 10.31 0.10
Fourth 12.25 10.88 0.10
- -------------------------------------------------------------------
Total $ 0.40
===================================================================
Yardville National Bancorp and its banking subsidiary are subject to
minimum risk-based and leverage capital guidelines under Federal banking
regulations. These banking regulations relate a company's capital to the risk
profile of its assets, balance sheet and off-balance sheet items, and provide
the basis for evaluating capital adequacy. Capital is measured using three
ratios: Tier I leverage, Tier I risk-based, and total risk-based capital. These
guidelines require minimum risk-based capital ratios of 4% and 8% of
risk-weighted assets for Tier I and total risk-based capital measurements. Total
capital is comprised of all of the components of Tier 1 capital plus qualifying
subordinated debt instruments and the reserve for loan losses, subject to
certain limits. In addition, the current minimum regulatory guideline for the
Tier 1 leverage ratio is 4%.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital level designations ranging from "well
capitalized" to "critically undercapitalized." A bank is considered "well
capitalized" if it has minimum Tier 1 and total risk-based capital ratios of 6%
and 10%, respectively, and a minimum Tier 1 leverage ratio of 5%. At December
31, 2001, the capital ratios for YNB exceeded the above ratios required by
regulatory definition to be considered well capitalized. The table below
summarizes YNB's capital ratios for the years indicated:
December 31,
- --------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------
Tier I leverage 6.9% 8.1% 7.9%
Tier I risk-based 10.0% 10.6% 10.3%
Total risk-based 11.3% 11.6% 11.5%
====================================================================
34
On March 28, 2001, Yardville Capital Trust III (the Trust III), a statutory
business trust and a wholly owned subsidiary of Yardville National Bancorp,
issued $6.0 million of 10.18% Trust Preferred Securities in a private placement
and $190,000 of 10.18% Common Securities to Yardville National Bancorp. Proceeds
from the issuance of the Trust Preferred Securities were immediately used by the
Trust III to purchase $6.2 million of 10.18% Subordinated Debentures maturing
June 8, 2031 from Yardville National Bancorp. The Trust III exists for the sole
purpose of issuing Trust Preferred Securities and investing the proceeds in
Subordinated Debentures of Yardville National Bancorp. These Subordinated
Debentures constitute the sole assets of the Trust III. These Subordinated
Debentures are redeemable in whole or part prior to maturity after June 8, 2011.
The Trust III is obligated to distribute all proceeds of a redemption, whether
voluntary or upon maturity, to holders of the Trust Preferred Securities.
Yardville National Bancorp's obligation with respect to the Trust Preferred
Securities and the Subordinated Debentures, when taken together, provides a full
and unconditional guarantee on a subordinated basis by Yardville National
Bancorp of the obligations of the Trust III to pay amounts when due on the Trust
Preferred Securities.
Of the total proceeds raised by the private trust preferred securities and
equity offerings in 2001, approximately $11.5 million was contributed to the
Bank to support future asset growth.
In June of 2000, YNB completed a private equity placement and a private
trust preferred securities offering. The private equity offering consisted of
68,500 units, each unit consisting of ten shares of common stock and one common
stock warrant. The units, sold to a limited number of accredited investors,
generated net proceeds of $6.8 million after offering costs. In addition, YNB,
through Yardville Capital Trust II, completed the sale of $15.0 million of 9.50%
Trust Preferred Securities to a nonaffiliated financial institution. Of the
total proceeds raised by both offerings in 2000, approximately $21.3 million was
contributed to the Bank to support asset growth.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, YNB adopted Statement of Financial Accounting Standards No.
133 (SFAS 133) "Accounting for Derivative Instruments and Hedging Activities."
The adoption of this statement had no material impact on the financial position
or results of YNB.
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and
Other Intangible Assets." Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies the criteria that acquired intangible assets
must meet to be recognized and reported apart from goodwill. Statement 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 will also require
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and subsequently Statement No. 144 after its adoption.
Statement 142 requires that goodwill and any intangible asset determined to
have an indefinite useful life acquired after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
The Company was required to adopt the provisions of Statement 141
immediately. The initial adoption of Statement 141 had no impact on the
Company's consolidated financial statements. The Company is required to adopt
Statement 142 effective January 1, 2002. The Company currently has no recorded
goodwill or intangible assets and does not anticipate that the initial adoption
of Statement 142 will have a significant impact on the Company's consolidated
financial statements.
In August, 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Statement No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Statement No. 144 requires companies to separately
report discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The Company adopted Statement No. 144 on January 1, 2002. The Company does
not anticipate that the initial adoption of Statement No. 144 will have a
significant impact on the Company's consolidated financial statements.
35
FORWARD-LOOKING STATEMENTS
This annual 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, and market risk.
Actual results may differ materially from those expressed 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 Securities and Exchange Commission.
Unaudited quarterly results are summarized as follows:
- ------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
- ------------------------------------------------------------------------------------------------------
(in thousands, except per share data) December 31 September 30 June 30 March 31
- ------------------------------------------------------------------------------------------------------
2001
Interest income $ 29,295 $ 30,295 $ 29,494 $ 29,864
Interest expense 20,052 21,388 20,991 20,382
- ------------------------------------------------------------------------------------------------------
Net interest income 9,243 8,907 8,503 9,482
Provision for loan losses 1,525 825 650 925
Non-interest income 2,294 2,263 1,914 1,566
Non-interest expense 6,865 7,023 6,543 6,404
- ------------------------------------------------------------------------------------------------------
Income before income tax expense 3,147 3,322 3,224 3,719
Income tax expense 749 831 823 992
- ------------------------------------------------------------------------------------------------------
Income before extraordinary item 2,398 2,491 2,401 2,727
Extraordinary loss net of tax benefit (1,464) -- -- --
- ------------------------------------------------------------------------------------------------------
Net income $ 934 $ 2,491 $ 2,401 $ 2,727
======================================================================================================
Earnings per share-- basic $ 0.12 $ 0.33 $ 0.33 $ 0.37
Earnings per share-- diluted 0.12 0.32 0.32 0.37
======================================================================================================
2000
Interest income $ 28,502 $ 26,507 $ 23,778 $ 21,602
Interest expense 18,939 16,526 14,332 12,857
- ------------------------------------------------------------------------------------------------------
Net interest income 9,563 9,981 9,446 8,745
Provision for loan losses 800 1,200 900 800
Non-interest income 935 866 892 733
Non-interest expense 5,985 5,845 5,709 5,322
- ------------------------------------------------------------------------------------------------------
Income before income tax expense 3,713 3,802 3,729 3,356
Income tax expense 1,089 1,110 1,100 960
- ------------------------------------------------------------------------------------------------------
Net income $ 2,624 $ 2,692 $ 2,629 $ 2,396
======================================================================================================
Earnings per share-- basic $ 0.36 $ 0.37 $ 0.39 $ 0.36
Earnings per share-- diluted 0.36 0.37 0.39 0.36
======================================================================================================
36
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition
December 31,
- -------------------------------------------------------------------------------------
(in thousands, except share data) 2001 2000
- -------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 27,771 $ 19,099
Federal funds sold 38,960 54,015
- -------------------------------------------------------------------------------------
Cash and Cash Equivalents 66,731 73,114
- -------------------------------------------------------------------------------------
Interest bearing deposits with banks 2,320 591
Securities available for sale 746,483 564,938
Investment securities (market value of $64,887 in 2001
and $108,560 in 2000) 65,753 110,700
Loans 1,007,973 818,289
Less: Allowance for loan losses (13,542) (10,934)
- -------------------------------------------------------------------------------------
Loans, net 994,431 807,355
Bank premises and equipment, net 10,910 9,428
Other real estate 2,329 2,041
Other assets 54,432 51,145
- -------------------------------------------------------------------------------------
Total Assets $1,943,389 $1,619,312
- -------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing $ 114,405 $ 102,718
Interest bearing 978,285 847,600
- -------------------------------------------------------------------------------------
Total Deposits 1,092,690 950,318
- -------------------------------------------------------------------------------------
Borrowed funds
Securities sold under agreements to repurchase 10,000 10,000
Federal Home Loan Bank advances 695,008 532,768
Obligation for Employee Stock Ownership Plan (ESOP) 800 1,200
Other 1,305 1,255
- -------------------------------------------------------------------------------------
Total Borrowed Funds 707,113 545,223
- -------------------------------------------------------------------------------------
Company - obligated Mandatorily Redeemable Trust
Preferred Securities of Subsidiary Trust holding solely
junior Subordinated Debentures of the Company 32,500 26,500
Other liabilities 17,841 19,034
- -------------------------------------------------------------------------------------
Total Liabilities $1,850,144 $1,541,075
- -------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
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 8,214,568 shares in 2001
and 7,617,214 shares in 2000 54,334 46,881
Surplus 2,205 2,205
Undivided profits 40,175 34,963
Treasury stock, at cost: 172,000 shares (3,030) (3,030)
Unallocated ESOP shares (800) (1,200)
Accumulated other comprehensive income (loss) 361 (1,582)
- -------------------------------------------------------------------------------------
Total Stockholders' Equity 93,245 78,237
- -------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,943,389 $1,619,312
=====================================================================================
See Accompanying Notes to Consolidated Financial Statements.
37
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income
Year Ended December 31,
- -------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 2001 2000 1999
- -------------------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 70,408 $ 64,418 $ 47,554
Interest on deposits with banks 171 82 45
Interest on securities available for sale 39,866 27,146 15,674
Interest on investment securities:
Taxable 3,722 4,647 4,236
Exempt from Federal income tax 2,016 1,642 1,306
Interest on Federal funds sold 2,765 2,454 904
- -------------------------------------------------------------------------------------------
Total Interest Income 118,948 100,389 69,719
- -------------------------------------------------------------------------------------------
Interest Expense:
Interest on savings account deposits 9,931 7,937 4,887
Interest on certificates of deposit of $100,000 or more 7,581 6,918 2,643
Interest on other time deposits 27,085 24,772 17,528
Interest on borrowed funds 35,264 21,219 13,523
Interest on trust preferred securities 2,952 1,808 1,064
- -------------------------------------------------------------------------------------------
Total Interest Expense 82,813 62,654 39,645
- -------------------------------------------------------------------------------------------
Net Interest Income 36,135 37,735 30,074
Less provision for loan losses 3,925 3,700 3,175
- -------------------------------------------------------------------------------------------
Net Interest Income After Provision For Loan Losses 32,210 34,035 26,899
- -------------------------------------------------------------------------------------------
Non-Interest Income:
Service charges on deposit accounts 1,857 1,551 1,374
Securities gains (losses), net 3,182 46 (301)
Bank owned life insurance 1,784 822 765
Other non-interest income 1,214 1,007 927
- -------------------------------------------------------------------------------------------
Total Non-Interest Income 8,037 3,426 2,765
- -------------------------------------------------------------------------------------------
Non-Interest Expense:
Salaries and employee benefits 14,923 11,632 10,041
Occupancy expense, net 2,817 2,404 1,516
Equipment expense 2,021 1,892 1,642
Other non-interest expense 7,074 6,933 5,258
- -------------------------------------------------------------------------------------------
Total Non-Interest Expense 26,835 22,861 18,457
- -------------------------------------------------------------------------------------------
Income before income tax expense
and extraordinary item 13,412 14,600 11,207
Income tax expense 3,395 4,259 3,187
- -------------------------------------------------------------------------------------------
Income before extraordinary item $ 10,017 $ 10,341 $ 8,020
Extraordinary loss on early retirement of debt,
net of tax benefit of $753,000 (1,464) -- --
- -------------------------------------------------------------------------------------------
Net Income $ 8,553 $ 10,341 $ 8,020
===========================================================================================
Earnings Per Share:
Basic
Income before extraordinary item $ 1.32 $ 1.47 $ 1.33
Extraordinary loss (0.19) -- --
- -------------------------------------------------------------------------------------------
Net Income $ 1.13 $ 1.47 $ 1.33
===========================================================================================
Diluted
Income before extraordinary item $ 1.30 $ 1.47 $ 1.33
Extraordinary loss (0.19) -- --
- -------------------------------------------------------------------------------------------
Net Income $ 1.11 $ 1.47 $ 1.33
===========================================================================================
See Accompanying Notes to Consolidated Financial Statements.
38
Yardville National Bancorp and Subsidiaries
Consolidated Statements
of Changes in Stockholders' Equity
Year Ended December 31, 2001, 2000 and 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Unallocated other
Common Common Undivided Treasury ESOP comprehensive
(in thousands, except share amounts) shares stock Surplus profits stock shares (loss) income Total
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 4,968,174 $20,364 $2,205 $21,479 $(3,008) $ (284) $40,756
Net income 8,020 8,020
Unrealized loss - securities available
for sale, net of tax of $3,221 (5,980) (5,980)
------
Total comprehensive income 2,040
------
Cash dividends (2,037) (2,037)
Common stock issued:
Exercise of stock options 13,980 68 68
Common shares issued 1,610,000 17,620 17,620
ESOP shares issued 155,340 2,000 (2,000)
ESOP shares allocated 400 400
Treasury shares acquired (1,700) (22) (22)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1999 6,745,794 $40,052 $2,205 $27,462 $(3,030) $(1,600) $ (6,264) $58,825
Net income 10,341 10,341
Unrealized loss - securities available
for sale, net of tax of $2,520 4,682 4,682
------
Total comprehensive income 15,023
------
Cash dividends (2,840) (2,840)
ESOP fair value adjustment (75) (75)
Common stock issued:
Exercise of stock options 14,420 69 69
Common shares issued 685,000 6,835 6,835
ESOP shares allocated 400 400
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2000 7,445,214 $46,881 $2,205 $34,963 $(3,030) $(1,200) $ (1,582) $78,237
Net income 8,553 8,553
Unrealized gain - securities available
for sale, net of tax of $1,047 1,943 1,943
------
Total comprehensive income 10,496
------
Cash dividends (3,341) (3,341)
ESOP fair value adjustment 8 8
Common stock issued:
Exercise of stock options 700 6 6
Common shares issued 596,654 7,439 7,439
ESOP shares allocated 400 400
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2001 8,042,568 $54,334 $2,205 $40,175 $(3,030) $ (800) $ 361 $93,245
===================================================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
39
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 8,553 $ 10,341 $ 8,020
Adjustments:
Provision for loan losses 3,925 3,700 3,175
Depreciation 1,608 1,521 1,286
ESOP fair value adjustment 8 (75) --
Amortization and accretion 1,040 146 512
(Gain) loss on sales of securities available for sale (3,182) (46) 301
Writedown of other real estate 569 599 587
Loss on sale of other real estate 38 25 1
Increase in other assets (4,344) (8,862) (3,953)
(Decrease) increase in other liabilities (1,993) 8,257 2,898
- --------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 6,222 15,606 12,827
- --------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net (increase) decrease in interest bearing deposits with banks (1,729) 364 (222)
Purchase of securities available for sale (864,841) (363,424) (196,574)
Maturities, calls and paydowns of securities available for sale 360,152 65,692 31,225
Proceeds from sales of securities available for sale 328,301 49,240 31,694
Proceeds from maturities and paydowns of investment securities 63,352 5,263 8,197
Purchase of investment securities (18,429) (7,841) (80,333)
Purchase of Bank Owned Life Insurance -- (15,000) --
Net increase in loans (192,469) (173,989) (157,047)
Expenditures for bank premises and equipment (3,090) (1,549) (4,435)
Proceeds from sale of other real estate 572 626 2,765
- --------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (328,181) (440,618) (364,730)
- --------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in non-interest bearing demand, money market,
and savings deposits 118,904 92,760 39,849
Net increase in certificates of deposit 23,478 113,751 184,315
Net increase in borrowed funds 162,690 246,534 120,801
Proceeds from issuance of trust preferred securities 6,000 15,000 --
Proceeds from issuance of common stock 7,445 6,904 19,688
Decrease (increase) in unallocated ESOP shares 400 400 (1,600)
Treasury shares acquired -- -- (22)
Dividends paid (3,341) (2,840) (2,037)
- --------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 315,576 472,509 360,994
- --------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (6,383) 47,497 9,091
Cash and cash equivalents as of beginning of year 73,114 25,617 16,526
- --------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Year $ 66,731 $ 73,114 $ 25,617
- --------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 85,140 $ 56,700 $ 36,403
Income taxes 3,745 6,922 4,348
- --------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-cash Investing and Financing Activities:
Transfers from loans to other real estate,
net of charge offs $ 1,466 $ 706 $ 981
========================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
40
Years ended December 31, 2001, 2000, and 1999
Notes to Consolidated
Financial Statements
---------------------------------------------
1. Summary of Significant Accounting Policies
Business
Yardville National Bancorp through its subsidiary Yardville National Bank (the
Bank) provides a full range of services to individuals and corporate customers
in Mercer County and contiguous counties. The Bank is subject to competition
from other financial institutions. The Bank is also subject to the regulations
of certain Federal agencies and undergoes periodic examinations by those
regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the balance sheet and revenues and expenses for the period. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans.
A. Consolidation. The consolidated financial statements include the accounts of
Yardville National Bancorp and its subsidiaries, Yardville Capital Trust,
Yardville Capital Trust II, Yardville Capital Trust III, and the Bank and the
Bank's wholly owned subsidiaries (collectively, the Corporation). All
significant inter-company accounts and transactions have been eliminated.
B. Cash and Cash Equivalents. For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash on hand, amounts due from
banks, and Federal funds sold. Generally, Federal funds are purchased or sold
for one day periods.
C. Securities. The Corporation's securities portfolio is classified into three
separate portfolios: held to maturity, available for sale and trading.
Securities classified as available for sale may be used by the Corporation as
funding and liquidity sources and can be used to manage the Corporation's
interest rate sensitivity position. These securities are carried at their
estimated market value with their unrealized gains and losses carried, net of
income tax, as adjustments to stockholders' equity. Amortization of premium or
accretion of discount are recognized as adjustments to interest income, on a
level yield basis. Gains and losses on disposition are included in earnings
using the specific identification method.
Investment securities are composed of securities that the Corporation has
the positive intent and ability to hold to maturity. These securities are stated
at cost, adjusted for amortization of premium or accretion of discount. The
premium or discount adjustments are recognized as adjustments to interest
income, on a level yield basis. Unrealized losses due to fluctuations in market
value are recognized as investment security losses when a decline in value is
assessed as being other than temporary.
Trading securities are purchased specifically for short-term appreciation
with the intent of selling in the near future. Trading securities are carried at
fair value with realized and unrealized gains and losses reported in
non-interest income.
D. Loans. Interest on loans is recognized based upon the principal amount
outstanding. Loans are stated at face value, less unearned income and net
deferred fees. Generally, commercial loans are placed on a nonaccrual status
when they are 90 days past due unless they are well secured and in the process
of collection or, regardless of the past due status of the loan, when management
determines that the complete recovery of principal and interest is in doubt.
Consumer loans are generally charged off after they become 120 days past due.
Mortgage loans are not generally placed on a nonaccrual status unless the value
of the real estate has deteriorated to the point that a potential loss of
principal or interest exists. Subsequent payments are credited to income only if
collection of principal is not in doubt. If principal and interest payments are
brought contractually current and future collectibility is reasonably assured,
loans are returned to accrual status. Loan origination and commitment fees less
certain costs are deferred and the net amount amortized as an adjustment to the
related loan's yield. Loans held for sale are recorded at the lower of aggregate
cost or market.
E. Allowance for Loan Losses. The provision for loan losses charged to operating
expense is determined by management and is based upon a periodic review of the
loan portfolio, past experience, the economy, and other factors that may affect
a borrower's ability to repay the loan. This provision is based on management's
estimates, and actual losses may vary from these estimates. These estimates are
reviewed and adjustments, as they become necessary, are reported in the periods
in which they become known. Management believes that the allowance for loan
losses is adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions, particularly in New Jersey. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses and the
valuation of other real estate. Such agencies
41
may require the Corporation to recognize additions to the allowance or
adjustments to the carrying value of other real estate based on their judgments
about information available to them at the time of their examination.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or fair value of the collateral. Impairment losses are included in
the allowance for loan losses through provisions charged to income.
F. Bank Premises and Equipment. Bank premises and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation. Depreciation is
computed on straight-line and accelerated methods over the estimated useful
lives of the assets ranging from three years to forty years depending on the
asset or lease. Charges for maintenance and repairs are expensed as they are
incurred.
G. Other Real Estate (O.R.E). O.R.E. comprises real properties acquired through
foreclosure or deed in lieu of foreclosure in partial or total satisfaction of
problem loans. The properties are recorded at the lower of cost or fair value
less estimated disposal costs at the date acquired. When a property is acquired,
the excess of the loan balance over the fair value is charged to the allowance
for loan losses. Any subsequent writedowns that may be required to the carrying
value of the property are included in other non-interest expense. Gains realized
from the sale of other real estate are included in other non-interest income,
while losses are included in non-interest expense.
H. Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in the tax rates is recognized
in income in the period of the enactment date.
I. Stock Based Compensation. The Corporation applies Accounting Principles Board
(APB) Opinion 25 in accounting for its plans and, accordingly, no compensation
cost has been recognized for its stock options in the consolidated financial
statements. Pro forma disclosures, as required by SFAS 123, "Accounting for
Stock Based Compensation," have been included for awards granted after January
1, 1995 (see note 10).
J. Earnings Per Share. Basic net income per common share is calculated by
dividing net income, less the dividends on preferred stock, if any, by the
weighted average common shares outstanding during the period.
Diluted net income per common share is computed similar to that of basic
net income per common share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if all
potentially dilutive common shares, principally stock options, were issued
during the reporting period.
Weighted average shares for the basic net income per share computation for
the years ended December 31, 2001, 2000, and 1999 were 7,601,000, 7,022,000, and
6,015,000, respectively. For the diluted net income per share computation,
common stock equivalents of 77,000, 17,000, and 26,000 are included for the
years ended December 31, 2001, 2000, and 1999, respectively.
K. Comprehensive Income. Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes items recorded
directly to equity, such as unrealized gains and losses on securities available
for sale.
Comprehensive income is presented in the consolidated statements of changes
in stockholders' equity.
L. Reclassification. Certain reclassifications have been made in the
consolidated financial statements for 2000 and 1999 to conform to the
classification presented in 2001.
2. CASH AND DUE FROM BANKS
The Corporation maintains various deposits with other banks. As of December 31,
2001 and 2000, the Corporation maintained sufficient cash on hand to satisfy
Federal regulatory requirements.
42
3. SECURITIES
The amortized cost and estimated market value of securities available for sale
are as follows:
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities
and obligations of
other U.S. government
agencies $ 113,862 $ 914 $ (915) $ 113,861 $ 173,608 $ 241 $ (1,475) $172,374
Mortgage-backed securities 521,988 3,204 (2,013) 523,179 338,377 1,587 (3,166) 336,798
Corporate obligations 72,946 779 (1,414) 72,311 26,713 713 (335) 27,091
Federal Reserve Bank Stock 2,381 -- -- 2,381 2,036 -- -- 2,036
Federal Home Loan Bank Stock 34,751 -- -- 34,751 26,639 -- -- 26,639
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 745,928 $ 4,897 $ (4,342) $ 746,483 $ 567,373 $ 2,541 $ (4,976) $564,938
====================================================================================================================================
The amortized cost and estimated market value of investment securities are as
follows:
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of other U.S.
government agencies $ 13,000 $ 67 $ (1) $ 13,066 $ 68,185 $ 2 $(1,748) $ 66,439
Obligations of state and
political subdivisions 48,694 367 (1,332) 47,729 38,660 364 (688) 38,336
Mortgage-backed securities 4,059 48 (15) 4,092 3,855 -- (70) 3,785
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 65,753 $ 482 $ (1,348) $ 64,887 $110,700 $366 $(2,506) $108,560
====================================================================================================================================
The amortized cost and estimated market value of securities available for sale
and investment securities as of December 31, 2001 by contractual maturity are
shown below. Expected maturities will differ from contractual maturities because
issuers may have the right to call their obligations with or without call or
prepayment penalties.
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Due in 1 year or less $ 25,000 $ 25,000
Due after 1 year
through 5 years 81,530 82,227
Due after 5 years
through 10 years 39,219 38,494
Due after 10 years 78,191 77,583
- --------------------------------------------------------------------------------
Subtotal 223,940 223,304
Mortgage-backed securities 521,988 523,179
- --------------------------------------------------------------------------------
Total $ 745,928 $ 746,483
================================================================================
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Due in 1 year or less $ 1,586 $ 1,607
Due after 1 year
through 5 years 4,366 4,500
Due after 5 years
through 10 years 5,011 5,091
Due after 10 years 50,731 49,597
- --------------------------------------------------------------------------------
Subtotal 61,694 60,795
Mortgage-backed securities 4,059 4,092
- --------------------------------------------------------------------------------
Total $ 65,753 $ 64,887
================================================================================
Proceeds from sale of securities available for sale during 2001, 2000, and
1999 were $328.3 million, $49.2 million, and $31.7 million, respectively. Gross
gains of $3,575,000, $162,000, and $21,000 were realized on those sales in 2001,
2000, and 1999, respectively. Gross losses of $393,000, $116,000, and $322,000
were realized on those sales in 2001, 2000 and 1999, respectively.
43
Securities with a carrying value of approximately $565.4 million as of
December 31, 2001 were pledged to secure public deposits and for other purposes
as required or permitted by law. As of December 31, 2001, Federal Home Loan Bank
(FHLB) stock with a carrying value of $34.8 million was held by the Corporation
as required by the FHLB.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table shows comparative year-end detail of the loan portfolio:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
Commercial real estate $ 499,216 $ 426,850
Residential 141,810 120,676
Commercial and industrial 282,135 190,601
Consumer 84,812 80,162
- --------------------------------------------------------------------------------
Total loans $1,007,973 $ 818,289
================================================================================
Residential mortgage loans held for sale amounted to $1.4 million and $1.6
million as of December 31, 2001 and 2000, respectively. These loans are
accounted for at the lower of aggregate cost or market value and are included in
the table above.
The Corporation originates and sells mortgage loans to FHLMC and FNMA.
Generally, servicing on such loans is retained by the Corporation. As of
December 31, 2001 and 2000, loans serviced for FNMA and FHLMC were $29.4 million
and $35.0 million, respectively.
The Corporation has extended credit in the ordinary course of business to
directors, officers, and their associates on substantially the same terms,
including interest rates and collateral, as those prevailing for comparable
transactions with other customers of the Corporation.
The following table summarizes activity with respect to such loans:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
Balance as of beginning of year $ 14,671 $ 10,823
Additions 7,146 6,234
Repayments 5,362 2,386
- --------------------------------------------------------------------------------
Balance as of end of year $ 16,455 $ 14,671
================================================================================
None of these loans are past due or on nonaccrual status as of December 31,
2001 and 2000.
The majority of the Corporation's business is with customers located within
Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount of
real estate are subject to changes in the region's economic environment and real
estate market. A portion of the total portfolio is secured by real estate. The
principal areas of exposure are construction and development loans, which are
primarily commercial and residential projects, and commercial mortgage loans.
Commercial mortgage loans are completed projects and are generally
owner-occupied or tenanted investment projects, creating cash flow.
Changes in the allowance for loan losses are as follows:
Year Ended December 31,
- ---------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
Balance as of beginning
of year $ 10,934 $ 8,965 $ 6,768
Loans charged off (1,699) (1,867) (1,085)
Recoveries of loans
charged off 382 136 107
- ---------------------------------------------------------------------------
Net charge offs (1,317) (1,731) (978)
Provision charged
to operations 3,925 3,700 3,175
- ---------------------------------------------------------------------------
Balance as of
end of year $ 13,542 $ 10,934 $ 8,965
===========================================================================
The detail of loans charged off is as follows:
Year Ended December 31,
- ------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------
Commercial real estate $ (696) $ (356) $ (233)
Residential -- (288) --
Commercial and industrial (591) (896) (278)
Consumer (412) (327) (574)
- ------------------------------------------------------------------------------
Total $ (1,699) $ (1,867) $ (1,085)
==============================================================================
Nonperforming assets include nonperforming loans and other real estate. The
nonperforming loan category includes loans on which accrual of interest has been
discontinued with subsequent interest payments credited to income as received,
only if collection of principal is not in doubt; loans 90 days past due or
greater on which interest is still accruing; and restructured loans.
Nonperforming loans as a percentage of total loans were 0.51% as of December 31,
2001 and 0.86% as of December 31, 2000.
44
A summary of nonperforming assets follows:
December 31,
- -------------------------------------------------------------------------------
(in thousands) 2001 2000
- -------------------------------------------------------------------------------
Nonaccrual loans:
Commercial real estate $ 888 $2,075
Residential 1,133 2,423
Commercial and industrial 1,494 851
Consumer 98 453
- -------------------------------------------------------------------------------
Total nonaccrual loans $3,613 $5,802
- -------------------------------------------------------------------------------
Restructured loans $ 770 $ 532
- -------------------------------------------------------------------------------
Loans past due 90 days or more:
Residential $ 514 $ 526
Consumer 228 173
- -------------------------------------------------------------------------------
Total loans past due 90 days
or more 742 699
- -------------------------------------------------------------------------------
Total nonperforming loans 5,125 7,033
Other real estate 2,329 2,041
- -------------------------------------------------------------------------------
Total nonperforming assets $7,454 $9,074
===============================================================================
The Corporation has defined the population of impaired loans to be all
nonaccrual commercial loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value of
the collateral or the present value of the loan's expected cash flows. Smaller
balance homogeneous loans that are collectively evaluated for impairment,
including residential mortgage and consumer loans, are specifically excluded
from the impaired loan portfolio.
The recorded investment in loans receivable for which an impairment has
been recognized as of December 31, 2001 and 2000 was $4.2 million and $5.1
million, respectively. The related allowance for loan losses on these loans as
of December 31, 2001 and 2000 was $982,000 and $786,000, respectively. The
average recorded investment in impaired loans during 2001 and 2000 was $4.3
million and $4.7 million, respectively. There was no interest income recognized
on impaired loans in 2001, 2000, and 1999. There are no commitments to lend
additional funds to debtors whose loans are nonperforming.
Additional income before income taxes amounting to approximately $163,000
in 2001, $640,000 in 2000 and $257,000 in 1999 would have been recognized if
interest on all loans had been recorded based upon original contract terms.
5. BANK PREMISES AND EQUIPMENT
The following table represents comparative information for premises and
equipment:
December 31,
- ------------------------------------------------------------------------------
(in thousands) 2001 2000
- ------------------------------------------------------------------------------
Land and improvements $ 854 $ 1,249
Buildings and improvements 7,507 6,910
Furniture and equipment 13,266 10,378
- -------------------------------------------------------------------------------
Total 21,627 18,537
Less accumulated depreciation 10,717 9,109
- -------------------------------------------------------------------------------
Bank premises
and equipment, net $10,910 $ 9,428
===============================================================================
6. DEPOSITS
Total deposits consist of the following:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 114,405 $102,718
Interest bearing
demand deposits 105,354 77,110
Money market deposits 203,872 128,489
Savings deposits 77,168 73,588
Certificates of deposit
of $100,000 and over 137,684 131,011
Other time deposits 454,207 437,402
- --------------------------------------------------------------------------------
Total $1,092,690 $950,318
================================================================================
A summary of certificates of deposit by maturity is as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
Within one year $542,966 $432,227
One to two years 34,545 124,333
Two to three years 6,551 5,035
Three to four years 4,605 3,791
Four to five years 3,224 3,027
- --------------------------------------------------------------------------------
Total $591,891 $568,413
================================================================================
45
7. BORROWED FUNDS
Borrowed funds include securities sold under agreements to repurchase, FHLB
advances, and obligation for ESOP. Other borrowed funds consist of Federal funds
purchased and Treasury tax and loan deposits.
The following table presents comparative data related to borrowed funds of
the Corporation as of and for the years ended December 31, 2001, 2000, and 1999.
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Securities sold
under agreements
to repurchase $ 10,000 $ 10,000 $ 45,000
FHLB advances 695,008 532,768 250,293
Obligation for ESOP 800 1,200 1,600
Other 1,305 1,255 1,796
- --------------------------------------------------------------------------------
Total $707,113 $545,223 $298,689
- --------------------------------------------------------------------------------
Maximum amount
outstanding at
any month end $707,113 $545,223 $304,473
Average interest rate
on year-end balance 4.97% 5.79% 5.49%
Average amount
outstanding
during the year $644,690 $367,021 $256,957
Average interest rate
for the year 5.47% 5.78% 5.26%
- --------------------------------------------------------------------------------
There are $10.0 million in securities sold under agreements to repurchase
with an expected maturity over 90 days as of December 31, 2001. The outstanding
amount is a callable repurchase agreement with a maturity of ten years and a
call date of one year. Due to the call provision, the expected maturity could
differ from the contractual maturity.
The FHLB advances as of December 31, 2001 mature as follows:
- -----------------------------------------------------------------
(in thousands) 2001
- -----------------------------------------------------------------
Within one year $ 22,008
Over one to two years 56,000
Over two to three years 87,000
Over five years 530,000
- -----------------------------------------------------------------
Total $695,008
=================================================================
The outstanding amount includes $555.0 million in callable advances with
two to ten year maturities and call dates of three months to five years. Due to
the call provisions, expected maturities could differ from contractual
maturities.
In December 2001, YNB retired $50.0 million in convertible FHLB advances
early. The $50.0 million consisted of ten year original maturity borrowings with
lockout dates ranging from three months to two years. The borrowings had an
average rate of 4.38% and an average maturity of 8.8 years. As a result of the
transaction, YNB recognized an extraordinary loss on the early retirement of the
debt of $2.2 million ($1.5 million net of tax benefit of $753,000). The
retirement was funded through short term floating rate FHLB advances. The
transaction was undertaken to improve the interest rate risk profile of YNB.
Interest expense on borrowed funds is comprised of the following:
Year Ended December 31,
- ----------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------
Securities sold under
agreements to
repurchase $ 624 $ 1,281 $ 5,507
FHLB advances 34,535 19,785 7,854
Obligation for ESOP 72 100 115
Other 33 53 47
- ----------------------------------------------------------------------------
Total $35,264 $21,219 $13,523
============================================================================
8. COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY
(Trust Preferred Securities)
On March 28, 2001, Yardville Capital Trust III (the Trust III), a statutory
business trust, and a wholly owned subsidiary of Yardville National Bancorp,
issued $6.0 million of 10.18% Trust Preferred Securities in a private placement
transaction to one investor and $190,000 of 10.18% Common Securities to
Yardville National Bancorp. Proceeds from the issuance of the Trust Preferred
Securities were immediately used by the Trust III to purchase $6.2 million of
10.18% Subordinated Debentures maturing June 8, 2031 from Yardville National
Bancorp. The Trust III exists for the sole purpose of issuing Trust Preferred
Securities and investing the proceeds into Subordinated Debentures of Yardville
National Bancorp. These Subordinated Debentures constitute the sole assets of
the Trust III. These Subordinated Debentures are redeemable in whole or part
prior to maturity after June 8, 2011. The Trust III is obligated to distribute
all proceeds of a redemption, whether voluntary or upon maturity, to holders of
the Trust Preferred Securities. Yardville National Bancorp's obligation with
respect to the Trust Preferred Securities and the Subordinated Debentures, when
taken together, provides a full and unconditional guarantee on a subordinated
basis by Yardville National Bancorp of the obligations of the Trust III to pay
amounts when due on the Trust Preferred Securities.
On June 23, 2000, Yardville Capital Trust II (the Trust II), a statutory
business trust and a wholly owned subsidiary of Yardville National Bancorp,
issued $15.0 million of 9.50% Trust Preferred Securities in a private placement
transaction to one investor and $464,000 of 9.50% Common Securities to Yardville
National Bancorp. Proceeds from the issuance of the Trust Preferred Securities
were immediately used by the Trust II to purchase $15.0 million of 9.50%
Subordinated Debentures maturing June 22, 2030 from Yardville National Bancorp.
The Trust II exists for the sole purpose of issuing Trust Preferred Securities
and investing the proceeds into Subordinated Debentures of Yardville National
Bancorp. These Subordinated Debentures constitute the sole assets of the Trust
II. These Subordinated Debentures are redeemable in whole or part prior to
maturity after June 23, 2010. The Trust II is obligated to distribute all
proceeds of a redemption, whether voluntary or upon maturity, to holders of the
Trust Preferred Securities. Yardville National Bancorp's obligation with respect
to the Trust Preferred Securities and the Subordinated Debentures, when
46
taken together, provides a full and unconditional guarantee on a subordinated
basis by Yardville National Bancorp of the obligations of the Trust II to pay
amounts when due on the Trust Preferred Securities. In 1997, Yardville Capital
Trust (the Trust) issued $11.5 million of 9.25% Trust Preferred Securities and
$356,000 of 9.25% Common Securities to Yardville National Bancorp. Proceeds were
used by the Trust to purchase $11.9 million of 9.25% Subordinated Debentures
maturing November 1, 2027. Those debentures are redeemable in whole or in part
prior to maturity after November 1, 2002.
9. INCOME TAXES
Income taxes reflected in the consolidated financial statements for 2001, 2000,
and 1999 are as follows:
Year Ended December 31,
- ------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ------------------------------------------------------------------------
Federal:
Current $4,000 $5,162 $4,153
Deferred (685) (1,011) (1,005)
State:
Current 80 108 39
- ------------------------------------------------------------------------
Total tax expense $3,395 $4,259 $3,187
========================================================================
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities for 2001 and 2000 are
as follows:
December 31,
- -------------------------------------------------------------------------------
(in thousands) 2001 2000
- -------------------------------------------------------------------------------
Deferred tax assets:
Allowance for
loan losses $ 5,409 $4,465
Writedown of basis
of O.R.E. properties 149 106
Deferred income 14 5
Net state operating
loss carryforwards 46 22
Accumulated other
comprehensive loss -- 853
Deferred compensation 1,022 660
- -------------------------------------------------------------------------------
Total deferred tax assets $ 6,640 $6,111
- -------------------------------------------------------------------------------
Valuation allowance (78) (78)
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated other
comprehensive income (194) --
Deferred income (1,065) (274)
Unamortized discount
accretion (77) (160)
Depreciation 40 (26)
Other (27) 28
- -------------------------------------------------------------------------------
Total deferred tax liabilities $(1,323) $ (432)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 5,239 $5,601
===============================================================================
The Corporation has established the valuation allowance against certain
temporary differences. The Corporation is not aware of any factors which would
generate significant differences between taxable income and pre-tax accounting
income in future years, except for the effects of the reversal of current or
future net deductible temporary differences. Management believes, based upon
current information, that it is more likely than not that there will be
sufficient taxable income through carryback to prior years to realize the net
deferred tax asset. However, there can be no assurance regarding the level of
earnings in the future.
A reconciliation of the tax expense computed by multiplying pre-tax
accounting income by the statutory Federal income tax rate of 34% is as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Income tax expense
at statutory rate $4,560 $4,964 $3,810
State income taxes, net
of Federal benefit 53 71 26
Changes in taxes
resulting from:
Tax exempt interest (701) (591) (471)
Tax exempt income (606) (279) (260)
Non-deductible
expenses 89 94 82
- --------------------------------------------------------------------------------
Total $3,395 $4,259 $3,187
================================================================================
10. BENEFIT PLANS
Retirement Savings Plan. The Corporation has a 401(K) plan which covers
substantially all employees with one or more years of service. The plan permits
all eligible employees to make basic contributions to the plan up to 12% of base
compensation. Under the plan, the Corporation provided a matching contribution
of 50% in 2001, 2000 and 1999 up to 6% of base compensation. Employer
contributions to the plan amounted to $178,000 in 2001, $151,000 in 2000, and
$128,000 in 1999.
Postretirement Benefits. The Corporation provides additional postretirement
benefits, namely life and health insurance, to retired employees over the age of
62 who have completed 15 years of service. The plan calls for retirees to
contribute a portion of the cost of providing these benefits in relation to
years of service.
The cost of retiree health and life insurance benefits is recognized over
the employees' period of service. There were $84,000 in periodic postretirement
benefit costs under SFAS 106 in 2001, and none for 2000 and 1999. The actuarial
present value of benefit obligations was $839,000 in 2001 and $755,000 in 2000.
Stock Option Plans. The Corporation maintains stock option plans for both
officers and directors. In April 1997, the stockholders approved the 1997 stock
option plan for key employees (The 1997 Plan). The 1997 Plan allows for the
granting of 1,070,000 shares of the Corporation's common stock at an option
price to be no less than the market value of the stock on
47
the date such options are granted. Options typically have a ten-year term and
vest ratably over a five-year period. At December 31, 2001 there were 225,078
shares available for grant under the 1997 Plan.
In April 1994, the Board of Directors approved a non-qualified stock option
plan for non-employee directors (Director Plan). The Director Plan allows for
the granting of 228,820 shares of the Corporation's common stock at an option
price to be no less than the market value of the stock on the date such options
are granted. Options typically have a ten-year term and vest ratably over a
five-year period. At December 31, 2001 there were 7,500 shares available for
grant under the Director Plan.
Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------
Balance,
December 31, 1998 490,491 $15.55
- -----------------------------------------------------------------------
Shares:
Granted 19,680 12.08
Exercised 13,980 4.78
Expired 3,252 12.10
- -----------------------------------------------------------------------
Balance,
December 31, 1999 492,939 $15.76
- -----------------------------------------------------------------------
Shares:
Granted 509,500 10.94
Exercised 14,420 4.91
Expired 5,472 11.64
- -----------------------------------------------------------------------
Balance,
December 31, 2000 982,547 $15.75
- -----------------------------------------------------------------------
Shares:
Granted 39,200 12.74
Exercised 700 9.55
Expired 7,740 16.44
- -----------------------------------------------------------------------
Balance,
December 31, 2001 1,013,307 $13.40
- -----------------------------------------------------------------------
Shares exercisable as of
December 31, 2001 392,143 $14.46
=======================================================================
The fair value of options granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2001, 2000, and 1999, respectively: (1) an
expected annual dividend rate of $0.44, $0.44, and $0.40 (2) risk free rate of
4.3%, 5.0%, and 6.3% (3) expected life of approximately five years in 2001, 2000
and 1999 (4) expected volatility of 38% in 2001 and 40% in 2000 and 1999.
The Corporation applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for stock options in the
consolidated financial statements. Had the Corporation determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
123, the Corporation's 2001, 2000, and 1999 net income would have been reduced
to the pro forma amounts indicated below:
- ---------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------
Net income:
As reported $ 8,553 $ 10,341 $ 8,020
Pro forma 8,395 8,482 7,952
- ---------------------------------------------------------------------------
Earnings per share:
Basic:
As reported $ 1.13 $ 1.47 $ 1.33
Pro forma 1.10 1.21 1.32
Diluted:
As reported $ 1.11 $ 1.47 $ 1.33
Pro forma 1.09 1.21 1.32
============================================================================
Benefit Plans. The Corporation has a salary continuation plan for key executives
and a director deferred compensation plan for its board members. The plans
provide for yearly retirement benefits to be paid over a specified period. In
addition, there is an officer group term replacement plan for divisional
officers. The present value of the benefits accrued under these plans as of
December 31, 2001 and 2000 is approximately $1.7 million and $845,000,
respectively, and is included in other liabilities in the accompanying
consolidated statements of condition. Compensation expense of approximately
$780,000, $140,000, and $142,000 is included in the accompanying consolidated
statements of income for the years ended December 31, 2001, 2000, and 1999,
respectively.
In connection with the benefit plans, the Corporation has purchased life
insurance policies on the lives of the executives, directors, and divisional
officers. The Corporation is the owner and beneficiary of the policies. The cash
surrender values of the policies are approximately $31.8 million and $30.1
million as of December 31, 2001 and 2000, respectively, and are included in
other assets in the accompanying consolidated statements of condition.
The following table summarizes information about YNB's stock options:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Number of Weighted
Range of Number Remaining Average Shares Average
Exercise Of Shares Contractual Exercise Exercisable Exercise
Prices Outstanding Life in Years Price at Period End Price
- ----------------------------------------------------------------------------------------------------------
$3.90 - $ 5.85 25,785 1.03 $ 3.90 25,785 $ 3.90
$10.50 - $15.75 575,122 8.89 11.10 118,930 11.03
$16.63 - $18.25 412,400 6.10 17.20 247,428 17.20
- ----------------------------------------------------------------------------------------------------------
$3.90 - $18.25 1,013,307 7.56 $ 13.40 392,143 $ 14.46
==========================================================================================================
48
11. COMMON STOCK
In 1997, the Corporation's Board of Directors authorized the repurchase of up to
172,000 shares in aggregate of the Corporation's common stock. At various times
in 1998, the Corporation repurchased shares totaling 170,300 at an average price
of $17.67. In 1999, the Corporation repurchased 1,700 shares at an average price
of $12.94, completing the stock repurchase program.
In 1999, 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
million from an unaffiliated financial institution and purchased 155,340 shares
of common shares, no par value, of the Corporation. 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 $367,000,
$275,000 and $347,000 for the years ended December 31, 2001, 2000, and 1999,
respectively. The fair value of unearned shares at December 31, 2001 is
$777,000.
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.
On May 18, 1999, the Corporation completed the sale of 1,610,000 shares of
its common stock in an underwritten public offering. The common stock was
offered at a price of $12.00 per share and generated gross proceeds of $19.3
million. Net proceeds after the underwriting discount and other offering costs
were approximately $17.6 million. Of the net proceeds, $17.5 million was
contributed to the Bank to support future asset growth.
On June 23, 2000, the Corporation completed the private placement of 68,500
units, each unit consisting of 10 shares of common stock and 1 common stock
purchase warrant. The warrants have an expiration date of June 23, 2010 and a
purchase price of $12.00 per share. The units were sold to a limited number of
accredited investors and generated gross proceeds of $6.9 million. Net proceeds
after offering costs were $6.8 million. Nearly all the net proceeds were
contributed to the bank to support future asset growth.
On August 22, 2001, the Corporation completed the private placement of
596,654 shares of common stock for an aggregate purchase price of $7.8 million.
Net proceeds after offering costs was $7.4 million. Of the net proceeds, $6.0
million was contributed to the Bank to support future asset growth.
12. OTHER NON-INTEREST EXPENSE
Other non-interest expense included the following:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Marketing $ 957 $1,144 $ 835
O.R.E. expenses 831 893 571
Communication and postage 694 601 487
Stationery and supplies 633 628 498
Audit and examination fees 501 396 346
Outside services and
processing 400 269 237
Attorneys' fees 238 257 296
Amortization of trust preferred
expenses 210 176 160
FDIC insurance premium 180 161 67
Insurance (other) 152 156 97
Other 2,278 2,252 1,664
- --------------------------------------------------------------------------------
Total $7,074 $6,933 $5,258
================================================================================
13. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation enters into a variety of financial instruments with off-balance
sheet risk in the normal course of business. These financial instruments include
commitments to extend credit and letters of credit, both of which involve to
varying degrees, elements of risk in excess of the amount recognized in the
consolidated financial statements.
Credit risk, the risk that a counterparty of a particular financial
instrument will fail to perform, is the contract amount of the commitments to
extend credit and letters of credit. The credit risk associated with these
financial instruments is essentially the same as that involved in extending
loans to customers. Credit risk is managed by limiting the total amount of
arrangements outstanding and by applying normal credit policies to all
activities with credit risk. Collateral is obtained based on management's credit
assessment of the customer.
The contract amounts of off-balance sheet financial instruments as of
December 31, 2001 and 2000 for commitments to extend credit were $191.8 million
and $153.9 million, respectively. For letters of credit, the contract amounts
were $13.4 million and $14.1 million, respectively.
Many such commitments to extend credit may expire without being drawn upon,
and therefore, the total commitment amounts do not necessarily represent future
cash flow requirements.
The Corporation maintains lines of credit with four of its correspondent
banks. There were $25.0 million in lines of credit available as of December 31,
2001. Subject to collateral requirements, the Corporation also maintains lines
of credit with the FHLB and three brokerage firms. There were approximately $300
million in lines available at December 31, 2001.
49
The Corporation leases various banking offices, its corporate headquarters
and operations center. Total lease rental expense was $1.3 million, $1.0
million, and $531,080 for the years ended December 31, 2001, 2000, and 1999,
respectively. Minimum rentals under the terms of the leases are approximately
$2.0 million per year in 2002, 2003, and 2004, approximately $2.2 million in
2005 and $2.3 million in 2006.
The Corporation and the Bank are party, in the ordinary course of business,
to litigation involving collection matters, contract claims and other
miscellaneous causes of action arising from their business. Management does not
consider that any such proceedings depart from usual routine litigation, and in
its judgment, the Corporation's consolidated financial position or results of
operations will not be affected materially by the final outcome of any pending
legal proceedings.
14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets (as defined in the regulations). Management believes,
as of December 31, 2001, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 2001, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
Permission from the Comptroller of the Currency is required if the total of
dividends declared in a calendar year exceeds the total of the Bank's net
profits, as defined by the Comptroller, for that year, combined with its
retained net profits of the two preceding years. The retained net profits of the
Bank available for dividends are approximately $11.5 million as of December 31,
2001.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDIC Improvement Act") became law. While the FDIC Improvement
Act primarily addresses additional sources of funding for the Bank Insurance
Fund, which insures the deposits of commercial banks and saving banks, it also
imposes a number of new mandatory supervisory measures on savings associations
and banks.
The following table presents the Corporation's and Bank's actual capital amounts
and ratios:
- ----------------------------------------------------------------------------------------------------------------------------------
REGULATORY MATTERS
Per Regulatory Guidelines
- ----------------------------------------------------------------------------------------------------------------------------------
Actual Minimum "Well Capitalized"
- ----------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001:
Corporation
Total capital (to risk-weighted assets) $ 138,919 11.3% $ 98,752 8.0% $ 123,441 10.0%
Tier I capital (to risk-weighted assets) 123,838 10.0 49,376 4.0 74,064 6.0
Tier I capital (to average assets) 123,838 6.9 71,575 4.0 89,469 5.0
Bank
Total capital (to risk-weighted assets) $ 134,163 10.9% $ 98,476 8.0% $ 123,095 10.0%
Tier I capital (to risk-weighted assets) 120,621 9.8 49,238 4.0 73,857 6.0
Tier I capital (to average assets) 120,621 6.8 71,309 4.0 89,136 5.0
As of December 31, 2000:
Corporation
Total capital (to risk-weighted assets) $ 117,244 11.6% $ 80,536 8.0% $ 100,671 10.0%
Tier I capital (to risk-weighted assets) 106,310 10.6 40,268 4.0 60,402 6.0
Tier I capital (to average assets) 106,310 8.1 52,322 4.0 65,402 5.0
Bank
Total capital (to risk-weighted assets) $ 115,567 11.5% $ 80,325 8.0% $ 100,406 10.0%
Tier I capital (to risk-weighted assets) 104,633 10.4 40,162 4.0 60,244 6.0
Tier I capital (to average assets) 104,633 8.0 52,596 4.0 65,745 5.0
===================================================================================================================================
50
The FDIC Improvement Act requires financial institutions to take certain
actions relating to their internal operations, including: providing annual
reports on financial condition and management to the appropriate Federal banking
regulators, having an annual independent audit of financial statements performed
by an independent public accountant and establishing an independent audit
committee composed solely of outside directors. The FDIC Improvement Act also
imposes certain operational and managerial standards on financial institutions
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instruments for which it is practical
to estimate that value:
Cash and Cash Equivalents. For such short-term investments, the carrying amount
was considered to be a reasonable estimate of fair value.
Securities and Mortgage-backed Securities. The fair value of investments and
mortgage-backed securities is based on bid prices published in financial
newspapers or bid quotations received from securities dealers.
Loans. Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage and other consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing loans, except residential mortgage loans, is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimate of maturity is based on the
Corporation's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for prepayment
estimates using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
Deposit Liabilities. The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, interest bearing demand deposits, money
market, and savings deposits, is considered to be equal to the amount payable on
demand. The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
Borrowed Funds. For securities sold under agreements to repurchase and FHLB
advances, fair value was based on rates currently available to the Corporation
for agreements with similar terms and remaining maturities. For convertible
securities sold under agreements to repurchase and FHLB advances, option
adjusted spread pricing (OAS) was obtained from sources believed to be reliable.
For other borrowed funds, the carrying amount was considered to be a reasonable
estimate of fair values.
The estimated fair values of the Corporation's financial instruments are as
follows:
December 31, 2001
- -------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- -------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 66,731 $ 66,731
Interest bearing
deposits with banks 2,320 2,320
Securities available
for sale 746,483 746,483
Investment securities 65,753 64,887
Loans, net 994,431 1,003,888
Financial Liabilities:
Deposits 1,092,690 1,099,097
Borrowed funds 707,113 748,604
Trust preferred securities 32,500 34,223
===============================================================================
December 31, 2000
- -------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- -------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 73,114 $ 73,114
Interest bearing
deposits with banks 591 591
Securities available
for sale 564,938 564,938
Investment securities 110,700 108,560
Loans, net 807,355 807,619
Financial Liabilities:
Deposits 950,318 953,640
Borrowed funds 545,223 561,719
Trust preferred securities 26,500 26,213
===============================================================================
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, and as the fair value for
these financial instruments was not material, these disclosures are not included
above.
51
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets that are not considered financial
assets include the deferred tax assets and bank premises and equipment. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
16. PARENT CORPORATION INFORMATION
The condensed financial statements of the parent company only are presented
below:
YARDVILLE NATIONAL BANCORP (Parent Corporation)
Condensed Statements of Condition
December 31,
- -------------------------------------------------------------------------------
(in thousands) 2001 2000
- -------------------------------------------------------------------------------
Assets:
Cash $ 2,224 $ 310
Securities available for sale 105 105
Investment in subsidiaries 121,992 104,658
Other assets 3,418 1,812
- -------------------------------------------------------------------------------
Total Assets $127,739 $106,885
- -------------------------------------------------------------------------------
Liabilities and
Stockholders' Equity:
Other liabilities $ 184 $ 128
Obligation for ESOP 800 1,200
Subordinated debentures 33,510 27,320
Stockholders' equity 93,245 78,237
- -------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $127,739 $106,885
===============================================================================
Condensed Statements of Income
Year Ended December 31,
- ------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------
Operating Income:
Dividends from subsidiary $ 6,294 $ 4,648 $ 3,099
Interest income 12 14 12
Other income 472 501 514
- -----------------------------------------------------------------------------
Total Operating Income 6,778 5,163 3,625
- -----------------------------------------------------------------------------
Operating Expense:
Interest expense 3,024 1,909 1,179
Other expense 833 668 728
- -----------------------------------------------------------------------------
Total Operating Expense 3,857 2,577 1,907
- -----------------------------------------------------------------------------
Income before income
taxes and equity in
undistributed income
of subsidiaries 2,921 2,586 1,718
Federal income tax benefit (1,144) (701) (470)
- ------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries 4,065 3,287 2,188
Equity in undistributed
income of subsidiaries 4,488 7,054 5,832
- -----------------------------------------------------------------------------
Net Income $ 8,553 $ 10,341 $ 8,020
==============================================================================
Condensed Statements of Cash Flows
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Cash Flows from
Operating Activities:
Net Income $ 8,553 $ 10,341 $ 8,020
Adjustments:
Increase in other assets (1,606) (196) (320)
Equity in undistributed
income of subsidiaries (4,488) (7,054) (5,832)
Increase in other liabilities 56 98 21
- --------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 2,515 3,189 1,889
- --------------------------------------------------------------------------------
Cash Flows from
Investing Activities:
Investing in subsidiaries (10,895) (22,626) (19,499)
- --------------------------------------------------------------------------------
Net Cash Used by
Investing Activities (10,895) (22,626) (19,499)
- --------------------------------------------------------------------------------
Cash Flows from
Financing Activities:
(Decrease) increase in
obligation for ESOP (400) (400) 1,600
Proceeds from issuance of
subordinated debentures 6,190 15,464 --
Proceeds from shares issued 7,845 7,304 18,088
Purchase of treasury shares -- -- (22)
Dividends paid (3,341) (2,840) (2,037)
- --------------------------------------------------------------------------------
Net Cash Provided by
Financing Activities 10,294 19,528 17,629
- --------------------------------------------------------------------------------
Net increase in cash 1,914 91 19
Cash as of beginning of year 310 219 200
- --------------------------------------------------------------------------------
Cash as of end of year $ 2,224 $ 310 $ 219
================================================================================
52
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Yardville National Bancorp:
We have audited the accompanying consolidated statements of condition of
Yardville National Bancorp and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2001. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Yardville
National Bancorp and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
- -----------------------
Short Hills, New Jersey
January 29, 2002
53
Officers
- ---------
YARDVILLE NATIONAL BANCORP John P. Samborski Susan M. Valentino
Commercial Lending/Hunterdon Retail Administration
President/Chief Executive Officer
Patrick M. Ryan Sarah J. Strout Assistant Vice Presidents
Chief Credit Officer
Secretary/Treasurer Dennis Andersen
Stephen F. Carman Vice Presidents Retail Administration
Assistant Secretary and Treasurer James T. Brotherton Dawn L. Antinoro
Diane H. Polyak Lending Business Development Retail Administration
YARDVILLE NATIONAL BANK Carol A. Budd Sharon L. Bokma
Commercial Lending Community Banking
President/Chief Executive Officer
Patrick M. Ryan Shawn Chase-Merritt Devon C. Callan
Retail Administration Cash Management
Executive Vice Presidents
Stephen F. Carman James L. Christie Nancy J. Collar
Cashier/Chief Financial Officer Retail Administration/Hunterdon Operations
Timothy J. Losch Scott W. Civil Valerie Dromboski
Chief Operating Officer Commercial Lending Residential Mortgage
First Senior Vice Presidents Barbara A. Cromwell Robert S. Eastham
James F. Doran Retail Manager/Hunterdon Retail Administration
Senior Lending Officer
Vincent P. Ditta Frank Fischer
Frank Durand III Commercial Lending Community Banking
Bank Administrator
Sandra A. Gray Doreen A. Goch
Howard N. Hall Commercial Mortgage Community Banking
Controller
Peggy A. Iucolino Fay Horrocks
Eugene C. McCarthy Purchasing Human Resources
Hunterdon Market Manager
Linda M. Kelly Dale K. Inman
Mary C. O'Donnell Computer Operations Consumer Lending
Risk Management Officer
Frank J. Kenny, Jr. Barbara A. Kaminsky
Senior Vice Presidents Commercial Lending Operations
Kathleen A. Fone
Human Resources William B. McDowell Kathleen M. Kirkham
Small Business Lending Retail Administration
Nancy C. German
Operations Debra L. Mincarelli Gabriella Kovacs
Retail Operations Retail Administration
Brian K. Gray
Strategic Plan Administrator Richard Occhiogrosso Denise B. Kreig
Commercial Mortgage Consumer Operations
Richard A. Kauffman
Chief Technology Officer Joanne O'Donnell Ian H. MacLaren
Credit Administration Loan Review
Thomas A. McBain
Audit Tina H. Orben Janet Manfredi-Flannery
YNB Financial Services, Inc. Retail Administration
Nina D. Melker
Community Banking Diane H. Polyak Frances C. Marshall
Assistant Controller Application Administration
Thomas L. Nash
Commercial Mortgage William V. Radlinsky Anne S. Marsilio
Loan Review Residential Mortgage
Daniel J. O'Donnell
General Counsel Leslie Rita Julia C. Moriarty
Technology Project Leader Retail Administration
Joseph H. Robotin H. Lana Tremblay
Residential Mortgage Credit Administration
Christine A. Secrist Michelle L. Warnke
Retail Administration Commercial Lending/Hunterdon
Roger R. Vadenais
Consumer Lending
54
Board of Directors
------------------
YARDVILLE NATIONAL BANCORP YARDVILLE NATIONAL BANK
Jay G. Destribats, Jay G. Destribats,
Chairman of the Board Chairman of the Board
*Elbert G. Basolis, Jr., *Elbert G. Basolis, Jr.,
Vice Chairman Vice Chairman
Patrick M. Ryan, Patrick M. Ryan,
President and C.E.O. President and C.E.O.
C. West Ayres C. West Ayres
Lorraine Buklad Lorraine Buklad
Anthony M. Giampetro, M.D. Anthony M. Giampetro, M.D.
Sidney L. Hofing Sidney L. Hofing
James J. Kelly James J. Kelly
Gilbert W. Lugossy Gilbert W. Lugossy
Louis R. Matlack, Ph.D. Louis R. Matlack, Ph.D.
Martin Tuchman Martin Tuchman
F. Kevin Tylus F. Kevin Tylus
Christopher S. Vernon *Christopher S. Vernon
Business Development Board
--------------------------
Kevin Alliotts William J. Matisa, Jr.
David West Ayres Thomas McElrath
Gregory S. Blair Mary Melfi
Robert C. Bogart Robert E. Mule
Joseph Boniakowski George Muller
William Braddock Terry Owens
Vincent Civale Jeffrey F. Perlman
Rein P. Clabbers Robert J. Rahl
Fred Daniel Joyce H. Rainear
Rosalie A. Daniels Armand L. Ruderman
Erica L. Edwards G. Jeremiah Ryan
Nancy S. Ellis David A. Saltman
William G. Engel John Seramba
Samuel A. Fruscione Evelyn Shallo
Gary Dean Gray Craig Shelton
Daniel J. Graziano Joseph S. Taylor
Vernon H. Hammond Ronald K. Vernon
Robert K. Hornby Peter V. Walsh
Jerry Jaremenko Robert P. Wise
Patrick D. Kennedy Lawrence H. Wissner
John J. Klein III Robert L. Workman
Richard J. Klockner Leo R. Zamparelli
Nancy J. Knight Leonardo Zangani
Paul R. Kramer Brenda Zanoni
Samuel D. Marrazzo Harold N. Zeltt
George S. Martin Joseph E. Ziegler
Louis Zuegner
*As of February 27, 2002
55
Shareholder Information
- -----------------------
Corporate Headquarters Registrar and Stock
Yardville National Bancorp Transfer Agent
2465 Kuser Road First City Transfer Company
Hamilton Square, NJ 08690 P.O. Box 170
(609) 585-5100 Iselin, NJ 08830-0170
(732) 906-9227
Annual Meeting Financial Information
Shareholders are invited Investors, security analysts and others
to attend the Annual Meeting desiring financial information should contact:
of Shareholders at: Stephen F. Carman,
La Villa Ristorante Secretary/Treasurer
2275 Kuser Road (609) 631-6222
Hamilton, NJ 08690
Tuesday, April 30, 2002 Form 10-K Availability
Doors open 9:00 a.m. Copies of Yardville National Bancorp's Form
Meeting begins 10-K filed with the Securities and Exchange Commission
at 10:00 a.m. are available without charge
upon written request to the Company:
Yardville National Bancorp
Dividend Reinvestment and Stock Attn: Stephen F. Carman
Purchase Plan 2465 Kuser Road
Yardville National Bancorp offers Hamilton Square, NJ 08690
its shareholders a plan to increase
their investment in the Corporation. Mailing Address
Through the Dividend Reinvestment The Yardville National Bank
and Stock Purchase Plan, registered P.O. Box 8487
holders of common stock may have Trenton, New Jersey 08650
their quarterly dividends reinvested
in additional common shares at a 3%
discount from the market price.
They may also purchase additional
shares with cash payments of up to
$5,000 per month without brokerage
fees, commissions, or service
charges. Registered shareholders
not enrolled in this plan may
receive a plan prospectus and
enrollment card by contacting
Howard N. Hall at (609) 631-6223.
Yardville National Bank is a Member of the FDIC, an Equal Opportunity
Employer, and an Equal Housing Lender.
56