Yardville National Bancorp Cites Retail Expansion in Third Quarter Earnings

HAMILTON, N.J., Oct. 23 /PRNewswire-FirstCall/ -- Execution of Yardville National Bancorp's retail banking strategy helped the company balance the effects of slowing commercial loan growth in the third quarter, as both net income and earnings per share for the third quarter of 2006 were comparable to the same period one year ago. YNB's net income for the third quarter was $5.33 million compared to $5.35 million earned for the same period of 2005 while diluted earnings per share for the quarter were $0.47 compared with $0.48 for the third quarter of 2005.

For the first nine months of 2006, YNB reported a decline in net income to $15.6 million compared with $16.6 million for the same period in 2005. This is due principally to an increase in non-interest expense of $4.0 million and an increase in the provision for loan losses of $575,000, partially offset by a $1.9 million increase in net interest income and a decrease in income tax expense of $2.2 million. Despite the prolonged flat yield curve and the challenge to meet commercial loan pricing terms and structures offered by competitors, YNB's tax equivalent net interest margin remained stable at 3.03 percent for the nine month period ended September 30, 2006, compared to the same period in 2005.

Diluted earnings per share for the nine months ended September 30, 2006 were $1.37 compared to $1.51 for the same period in 2005. This reflects both the lower net income for the first nine months of 2006 and the impact of the private placement of additional shares of common stock at the end of 2005.

"The combination of slowing commercial loan growth and, to a lesser extent, certain credits that we are addressing diligently, have negatively impacted the level of net interest income improvement we expected and, consequently, YNB's overall performance year to date," commented YNB CEO Patrick M. Ryan.

While YNB continued to benefit from established relationships with long- time commercial lending customers, many of them are conservatively managing their real estate portfolios given the current environment. Large payoffs of existing loans from these customers have offset additions to the commercial portfolio from new customers in new markets. At September 30, 2006, total loans were $2.00 billion, an increase of 1.1 percent over $1.97 billion in total loans at September 30, 2005.

Non-performing assets (NPAs) were up $6.3 million at September 30, 2006 compared to the same date in 2005, but have been reduced on a linked quarter basis from $24.1 million at June 30, 2006 to $20.3 million at September 30, 2006. Total NPAs were 0.68 percent of total assets at September 30, 2006, compared with 0.47 percent of total assets at September 30, 2005. In the third quarter, a real estate developer with a sizable lending relationship filed for bankruptcy. Although the loans are well-secured, YNB placed this $7.3 million relationship in nonaccrual loans. Also during the third quarter, YNB recovered $7.4 million of the $10 million Solomon Dwek line of credit and charged off the remaining $2.6 million. The remainder of the relationship is currently performing and is secured by real estate collateral. The allowance for loan losses to total loans was 1.12 percent of total loans, covering 112.9 percent of total nonperforming loans at September 30, 2006. Net loan chargeoffs increased to $6.6 million for the first nine months of 2006 compared to $3.1 million for the same period last year.

"Although we are continuing our emphasis on commercial banking, retail banking has become an important strategic focus for YNB," noted F. Kevin Tylus, YNB President and Chief Operating Officer. "We have experienced positive results as our 'Simply Better' suite of products continues to be well received in new and existing markets, and we are using these lower-cost consumer deposits to replace expensive alternative deposit funds like Reserve Funds and Express Data CDs," he continued. " 'Simply Better' balances have increased $79.2 million from the beginning of this year through September 30, 2006. The change in the composition of our deposit base has helped us manage our deposit costs," he continued, "but the decreased reliance on alternative deposit funds has resulted in relatively modest growth in total deposits." At September 30, 2006, total deposits increased 0.9 percent to $2.03 billion from $2.01 billion at September 30, 2005.

YNB's CEO Mr. Ryan elaborated on YNB's small business strategy. "Our focus as we enter new markets is to introduce our retail brand and community banking philosophy through our expanded deposit product line while we develop small business lending opportunities," he continued. "Accordingly, we are devoting resources to re-energizing our small business banking sector," he concluded.

YNB has opened three new branches this year. Cream Ridge and Ringoes, New Jersey opened earlier this year, and one opened in Whitehouse Station, New Jersey in the third quarter, to bring YNB's total to 30. Several more branches are planned to open in New Jersey's dynamic Somerset and Middlesex counties during the fourth quarter of 2006 and in early 2007.

YNB's Executive Vice President and Chief Financial Officer Stephen F. Carman provided further explanation of YNB's third quarter results. "Two of the critical factors in achieving our financial objectives for 2006 were reaching commercial loan projections and an improving asset quality profile," he explained. "The effect of slower commercial loan growth in 2006 and the impact of the aforementioned two nonperforming real estate developer relationships have restricted anticipated net interest income improvement and somewhat hampered progress in achieving our financial objectives," he said. "As we noted last quarter, improvements in loan growth and credit quality were key elements of our ability to achieve our previously issued guidance. We now anticipate that our net income for 2006 will be near our 2005 net income, between $21.0 and $22.0 million, with 2006 diluted earnings per share between $1.85 and $1.93."

At September 30, 2006, YNB's total risk-based capital was 12.2 percent, Tier 1 capital to risk-weighted assets was 11.2 percent, and Tier 1 capital to average assets was 8.8 percent. In the first three quarters of 2006, YNB paid total cash dividends of $0.345 per share. The third quarter of 2006 marks the 51st consecutive period in which YNB has paid shareholders a cash dividend.

YNB had $3.0 billion in assets at September 30, 2006, with 30 branches serving individuals and businesses in Mercer, Hunterdon, Burlington, Middlesex, Somerset, and Ocean counties in New Jersey and Bucks County in Pennsylvania. Located in the corridor between New York City and Philadelphia, YNB offers a broad range of lending, deposit and other financial products and services to business and individual banking customers throughout the region.

Note regarding forward-looking statements

This press release and other statements made from time to time by our management contain express and implied statements relating to our future financial condition, results of operations, plans, objectives, performance, and business, which are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements that relate to, among other things, profitability, liquidity, adequacy of the allowance for loan losses, plans for growth, interest rate sensitivity, market risk, regulatory compliance, and financial and other goals. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. Actual results may differ materially from those expected or implied as a result of certain risks and uncertainties, including, but not limited to, the results of our efforts to implement our retail strategy, adverse changes in our loan portfolio and the resulting credit risk-related losses and expenses, interest rate fluctuations and other economic conditions, our ability to attract core deposits, continued relationships with major customers, competition in product offerings and product pricing, adverse changes in the economy that could increase credit- related losses and expenses, adverse changes in the market price of our common stock, proxy contests and litigation, compliance with laws and regulatory requirements, including our agreement with the Office of the Comptroller of the Currency and NASDAQ standards, and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, as well as other risks and uncertainties detailed from time to time in statements made by our management. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

L.G. Zangani, LLC provides financial public relations services to the Company. As such, L.G. Zangani, LLC and/or its officers, agents and employees, receives remuneration for public relations and/or other services performed for the Company. This remuneration may take the form of cash, capital stock in the Company, or warrants and/or options to purchase stock in the Company.

Contact: Stephen F. Carman, VP/Treasurer [phone] or [e-mail] M. Ryan, CEO [phone] YNB's website http://www.ynb.com/ Investor Relations website http://www.zangani.com/ Yardville National Bancorp Summary of Financial Information (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share amounts) 2006 2005 2006 2005 Stock Information: Weighted average shares outstanding: Basic 10,965 10,602 10,911 10,558 Diluted 11,345 11,050 11,314 11,011 Shares outstanding end of period 11,033 10,572 Earnings per share: Basic $0.49 $0.50 $1.43 $1.57 Diluted 0.47 0.48 1.37 1.51 Dividends paid per share 0.115 0.115 0.345 0.345 Book value per share 17.51 15.97 Tangible book value per share 17.38 15.81 Closing price per share 35.66 35.25 Closing price to tangible book value 205.18% 222.96% Key Ratios: Return on average assets 0.72% 0.73% 0.70% 0.77% Return on average stockholders' equity 11.46 12.61 11.47 13.41 Net interest margin 2.95 2.94 2.96 2.96 Net interest margin (tax equivalent) (1) 3.02 3.01 3.03 3.03 Efficiency ratio 58.50 56.40 59.89 55.13 Equity-to-assets at period end 6.41 5.62 Tier 1 leverage ratio (2) 8.82 7.91 Asset Quality Data: Net loan charge-offs $2,835 $1,148 $6,598 $3,144 Nonperforming assets as a percentage of total assets 0.68% 0.47% Allowance for loan losses at period end as a percent of: Total loans 1.12 1.15 Nonperforming loans 112.89 162.00 Nonperforming assets at period end: Nonperforming loans $19,825 $13,995 Other real estate 502 - Total nonperforming assets $20,327 $13,995 (1) The net interest margin is equal to net interest income divided by average interest earning assets. In order to present pre-tax income and resultant yields on tax-exempt investments and loans on a basis comparable to those on taxable investments and loans, a tax equivalent adjustment is made to interest income. The tax equivalent adjustment has been computed using a Federal income tax rate of 35% and has the effect of increasing interest income by $544,000 and $503,000 for the three month periods and $1,614,000 and $1,461,000 for the nine month periods ended September 30, 2006 and 2005, respectively. (2) Tier 1 leverage ratio is Tier 1 capital to adjusted quarterly average assets. Yardville National Bancorp and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share amounts) 2006 2005 2006 2005 INTEREST INCOME: Interest and fees on loans $38,062 $32,785 $110,790 $92,704 Interest on deposits with banks 679 397 1,245 748 Interest on securities available for sale 8,833 9,315 26,637 27,485 Interest on investment securities: Taxable 22 26 71 82 Exempt from Federal income tax 1,044 957 3,079 2,761 Interest on Federal funds sold 241 274 521 576 Total Interest Income 48,881 43,754 142,343 124,356 INTEREST EXPENSE: Interest on savings account deposits 7,061 5,632 20,182 15,082 Interest on certificates of deposit of $100,000 or more 2,886 1,983 7,670 4,576 Interest on other time deposits 7,176 4,296 19,139 11,182 Interest on borrowed funds 9,177 9,737 27,873 28,557 Interest on subordinated debentures 1,411 1,217 4,077 3,480 Total Interest Expense 27,711 22,865 78,941 62,877 Net Interest Income 21,170 20,889 63,402 61,479 Less provision for loan losses 2,125 2,100 6,275 5,700 Net Interest Income After Provision for Loan Losses 19,045 18,789 57,127 55,779 NON-INTEREST INCOME: Service charges on deposit accounts 736 762 2,172 2,110 Securities gains, net - 274 - 750 Income on bank owned life insurance 454 451 1,315 1,255 Other non-interest income 524 555 1,681 1,571 Total Non-Interest Income 1,714 2,042 5,168 5,686 NON-INTEREST EXPENSE: Salaries and employee benefits 7,425 7,439 22,648 21,302 Occupancy expense, net 1,581 1,244 4,376 3,619 Equipment expense 794 751 2,446 2,284 Other non-interest expense 3,586 3,499 11,600 9,826 Total Non-Interest Expense 13,386 12,933 41,070 37,031 Income before income tax expense 7,373 7,898 21,225 24,434 Income tax expense 2,045 2,546 5,672 7,833 Net Income $5,328 $5,352 $15,553 $16,601 EARNINGS PER SHARE: Basic $0.49 $0.50 $1.43 $1.57 Diluted 0.47 0.48 1.37 1.51 Weighted average shares outstanding: Basic 10,965 10,602 10,911 10,558 Diluted 11,345 11,050 11,314 11,011 Yardville National Bancorp and Subsidiaries Consolidated Statements of Condition (Unaudited) September 30, Dec. 31, (in thousands) 2006 2005 2005 Assets: Cash and due from banks $30,656 $39,645 $52,686 Federal funds sold 26,465 14,200 10,800 Cash and Cash Equivalents 57,121 53,845 63,486 Interest bearing deposits with banks 67,544 22,835 16,408 Securities available for sale 707,239 795,107 741,668 Investment securities 95,509 87,817 89,026 Loans 1,995,003 1,974,155 1,972,840 Less: Allowance for loan losses (22,380) (22,672) (22,703) Loans, net 1,972,623 1,951,483 1,950,137 Bank premises and equipment, net 11,697 11,193 11,697 Other real estate 502 - - Bank owned life insurance 49,168 45,756 46,152 Other assets 42,250 37,474 38,157 Total Assets $3,003,653 $3,005,510 $2,956,731 Liabilities and Stockholders' Equity: Deposits Non-interest bearing $216,746 $240,148 $232,269 Interest bearing 1,815,459 1,774,097 1,740,448 Total Deposits 2,032,205 2,014,245 1,972,717 Borrowed funds Securities sold under agreements to repurchase 10,000 10,000 10,000 Federal Home Loan Bank advances 674,000 724,000 704,000 Subordinated debentures 62,892 62,892 62,892 Obligation for Employee Stock Ownership Plan (ESOP) 1,828 94 2,250 Other 1,221 1,271 1,870 Total Borrowed Funds 749,941 798,257 781,012 Other liabilities 29,111 24,204 25,544 Total Liabilities $2,811,257 $2,836,706 $2,779,273 Stockholders' equity: Common stock: no par value 107,682 93,755 105,122 Surplus 2,205 2,205 2,205 Undivided profits 97,659 82,816 85,896 Treasury stock, at cost (3,160) (3,160) (3,160) Unallocated ESOP shares (1,828) (94) (2,250) Accumulated other comprehensive loss (10,162) (6,718) (10,355) Total Stockholders' Equity 192,396 168,804 177,458 Total Liabilities and Stockholders' Equity $3,003,653 $3,005,510 $2,956,731 Financial Summary Average Balances, Yields and Costs (Unaudited) Three Months Ended Three Months Ended September 30, 2006 September 30, 2005 Average Average Average Yield/ Average Yield/ (in thousands) Balance Interest Cost Balance Interest Cost INTEREST EARNING ASSETS: Interest bearing deposits with banks $48,451 $679 5.61% $44,856 $397 3.54% Federal funds sold 18,250 241 5.28 31,730 274 3.45 Securities 799,020 9,899 4.96 865,708 10,298 4.76 Loans (1) 2,006,680 38,062 7.59 1,897,451 32,785 6.91 Total interest earning assets $2,872,401 $48,881 6.81% $2,839,745 $43,754 6.16% NON-INTEREST EARNING ASSETS: Cash and due from banks $32,730 $32,582 Allowance for loan losses (23,450) (21,992) Premises and equipment, net 11,811 10,495 Other assets 79,990 77,729 Total non-interest earning assets 101,081 98,814 Total assets $2,973,482 $2,938,559 INTEREST BEARING LIABILITIES: Deposits: Savings, money markets, and interest bearing demand $936,087 $7,061 3.02% $1,007,863 $5,632 2.24% Certificates of deposit of $100,000 or more 252,200 2,886 4.58 229,898 1,983 3.45 Other time deposits 619,723 7,176 4.63 496,127 4,296 3.46 Total interest bearing deposits 1,808,010 17,123 3.79 1,733,888 11,911 2.75 Borrowed funds 689,532 9,177 5.32 740,330 9,737 5.26 Subordinated debentures 62,892 1,411 8.97 62,892 1,217 7.74 Total interest bearing liabilities $2,560,434 $27,711 4.33% $2,537,110 $22,865 3.60% NON-INTEREST BEARING LIABILITIES: Demand deposits $212,068 $210,439 Other liabilities 15,031 21,304 Stockholders' equity 185,949 169,706 Total non-interest bearing liabilities and stockholders' equity $413,048 $401,449 Total liabilities and stockholders' equity $2,973,482 $2,938,559 Interest rate spread(2) 2.48% 2.56% Net interest income and margin (3) $21,170 2.95% $20,889 2.94% Net interest income and margin (tax equivalent basis)(4) $21,714 3.02% $21,392 3.01% (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 present pre-tax income and resultant yields on tax-exempt investments and loans on a basis comparable to those on taxable investments and loans, a tax equivalent adjustment is made to interest income. The tax equivalent adjustment has been computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $544,000 and $503,000 for the three month periods ended September 30, 2006 and 2005, respectively. Financial Summary Average Balances, Yields and Costs (Unaudited) Nine Months Ended Nine Months Ended September 30, 2006 September 30, 2005 Average Average Average Yield/ Average Yield/ (in thousands) Balance Interest Cost Balance Interest Cost INTEREST EARNING ASSETS: Interest bearing deposits with banks $31,366 $1,245 5.29% $31,821 $748 3.13% Federal funds sold 14,068 521 4.94 25,651 576 2.99 Securities 809,409 29,787 4.91 859,820 30,328 4.70 Loans (1) 2,002,629 110,790 7.38 1,850,447 92,704 6.68 Total interest earning assets $2,857,472 $142,343 6.64% $2,767,739 $124,356 5.99% NON-INTEREST EARNING ASSETS: Cash and due from banks $34,635 $31,779 Allowance for loan losses (23,165) (21,280) Premises and equipment, net 11,716 10,443 Other assets 78,102 76,663 Total non-interest earning assets 101,288 97,605 Total assets $2,958,760 $2,865,344 INTEREST BEARING LIABILITIES: Deposits: Savings, money markets, and interest bearing demand $952,150 $20,182 2.83% $991,206 $15,082 2.03% Certificates of deposit of $100,000 or more 243,014 7,670 4.21 193,123 4,576 3.16 Other time deposits 587,183 19,139 4.35 481,918 11,182 3.09 Total interest bearing deposits 1,782,347 46,991 3.52 1,666,247 30,840 2.47 Borrowed funds 707,701 27,873 5.25 743,801 28,557 5.12 Subordinated debentures 62,892 4,077 8.64 62,892 3,480 7.38 Total interest bearing liabilities $2,552,940 $78,941 4.12% $2,472,940 $62,877 3.39% NON-INTEREST BEARING LIABILITIES: Demand deposits $210,741 $205,088 Other liabilities 14,255 22,251 Stockholders' equity 180,824 165,065 Total non-interest bearing liabilities and stockholders' equity $405,820 $392,404 Total liabilities and stockholders' equity $2,958,760 $2,865,344 Interest rate spread(2) 2.52% 2.60% Net interest income and margin (3) $63,402 2.96% $61,479 2.96% Net interest income and margin (tax equivalent basis) (4) $65,016 3.03% $62,940 3.03% (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 present pre-tax income and resultant yields on tax-exempt investments and loans on a basis comparable to those on taxable investments and loans, a tax equivalent adjustment is made to interest income. The tax equivalent adjustment has been computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $1,614,000 and $1,461,000 for the nine month periods ended September 30, 2006 and 2005, respectively.