10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006.
Or
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 000-26086

YARDVILLE NATIONAL BANCORP

(Exact name of registrant as specified in its charter)

New Jersey	22-2670267
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2465 Kuser Road, Hamilton, New Jersey	08690
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (609) 585-5100

Securities registered pursuant to Section 12(b) of the Act:

Common stock, no par value	Nasdaq Global Select Market
(Title of Class)	(Name of Each Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

£YesR No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o YesR No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. R Yes£No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer oAccelerated filer þNon-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yesþ No

The aggregate market value of voting common stock held by non-affiliates, computed using the closing sales price on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2006), was $260,958,414.

An aggregate of 11,081,409 shares of common shares were outstanding as of March 22, 2007

INDEX

Part 1
Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	17
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 8.	Financial Statements and Supplementary Data	65
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	65
Item 9A.	Controls and Procedures	66
Item 9B.	Other Information	70
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	71
Item 11.	Executive Compensation	75
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	92
Item 13.	Certain Relationships and Related Transactions, and Director Independence	94
Item 14.	Principal Accounting Fees and Services	96
Part IV
Item 15.	Exhibits, Financial Statement Schedules	97

PART I

Item 1. Business.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Annual Report on Form 10-K and other materials we file with the Securities and Exchange Commission, referred to as the “SEC,” as well as information included in oral statements or other written statements made or to be made by us, contain statements that are forward-looking. These may include statements that relate to, among other things, profitability, liquidity, loan loss reserve adequacy, plans for growth, interest rate sensitivity, market risk, regulatory compliance, and financial and other goals. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results and, accordingly, from those expressed in any forward-looking statements made by us or on our behalf. Factors that could cause actual results to differ materially from our current expectations include, among other things:

•adverse changes in our loan quality and the resulting credit risk-related losses and expenses;

•levels of our loan origination volume;

•the results of our efforts to implement our retail strategy and attract core deposits;

•compliance with laws and regulatory requirements, including our formal agreement with the Office of the Comptroller of the Currency, and compliance with Nasdaq standards;

•interest rate changes and other economic conditions;

•proxy contests and litigation;

•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;

•other factors, including those matters discussed in additional detail under the heading “Risk Factors;” and

•other risks and uncertainties detailed from time to time in our filings with the SEC.

Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on any forward-looking statements. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

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General

Yardville National Bancorp, referred to as “we” or the “Company,” is a registered bank holding company headquartered in Mercer County, New Jersey with total assets of $2.6 billion, total deposits of $2.0 billion and total stockholders’ equity of $186.1 million at December 31, 2006. We conduct a general commercial and retail banking business through our principal operating subsidiary, The Yardville National Bank, referred to as the “Bank,” which commenced operations as a commercial bank in 1925. We provide a broad range of lending, deposit and other financial products and services with an emphasis on commercial real estate and commercial and industrial lending to small to mid-sized businesses and individuals. Our existing and target markets are located in the corridor between New York City and Philadelphia. We currently operate 33 full-service branches throughout Mercer, Hunterdon, Somerset, Middlesex, Burlington and Ocean Counties in New Jersey and Bucks County in Pennsylvania.

We have grown our loan portfolio both in our existing markets and by expanding into contiguous markets, and we see opportunities for continued growth. We believe these markets have customers with banking needs that can no longer be adequately served by smaller local institutions but who still desire the personalized service that larger institutions typically do not offer. We believe that the key differentiating factors between us and larger competitors is our philosophy of relationship banking and our in-market expertise, while our ability to enter into larger loan relationships enables us to effectively compete against smaller institutions.

Our goals are to further develop our earnings power and increase the value of our franchise. In order to achieve these goals, we need to continue to utilize our strength as a commercial business lender to generate higher yielding earning assets and manage our cost of funds by attracting lower cost core deposit accounts. Specifically in 2007, we plan to pursue these goals by executing our retail strategy, by expanding our branch network, enhancing our brand image and upgrading our technology infrastructure.

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC are available without charge through the “Investor” or “Investor Relations” section of our Internet web site, www.ynb.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. Neither our Internet web site nor the information contained in or connected with that web site are incorporated by reference into this report.

Our principal and executive offices are located at 2465 Kuser Road, Hamilton, New Jersey 08690. Our telephone number is (609) 585-5100.

Subsidiaries

The Company directly owns the Bank and six additional subsidiaries, Yardville Capital Trust, Yardville Capital Trust II, Yardville Capital Trust III, Yardville Capital Trust IV, Yardville Capital Trust V and Yardville Capital Trust VI. The Company is also the indirect owner, through the Bank, of ten subsidiaries, which provide insurance and financial services and own certain real estate, loans and securities. The assets, liabilities and results of operations of the Bank and its subsidiaries are consolidated with the Company for financial reporting purposes. The trusts are not consolidated subsidiaries. See Note 8 of the Notes to Consolidated Financial Statements filed with this annual report.

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Competition

The Bank’s primary market area in central New Jersey is highly competitive for financial services and the Bank faces significant competition both in making loans and in attracting deposits. The Bank is subject to competition in all aspects of its business from other financial institutions such as commercial banks, savings banks, savings and loan associations, credit unions, insurance companies and finance and mortgage companies. Within the direct market area of the Bank, there are a significant number of competing financial institutions. The Bank competes in its market area with a number of larger commercial banks that have substantially greater resources, higher lending limits and larger branch systems, and that provide a broader array of banking products and services. In its lending business, the Bank is subject to competition from consumer finance companies and mortgage companies, which are subject to fewer regulatory restrictions than banks, and can often offer lower loan rates than banks. Financial institutions are intensely competitive in the interest rates they offer on deposits. In addition, the Bank faces competition for deposits from non-bank institutions such as brokerage firms, insurance companies and investment companies who offer the opportunity to invest in such instruments as short-term money market funds, corporate and government securities funds, mutual funds and annuities.

Supervision and Regulation

General

The Company and its subsidiaries are subject to extensive supervision and regulation under both Federal and state laws. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and restrict the Company’s ability to repurchase stock or to receive dividends from the Bank. The Company and its subsidiaries are also subject to comprehensive examination and supervision by the Board of Governors of the Federal Reserve System (“FRB”) and the Office of the Comptroller of the Currency (“OCC”). The Company and certain of its subsidiaries are also functionally regulated by the Securities and Exchange Commission (“SEC”) and state insurance regulators. These regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of the Company and the Bank. The consequences of noncompliance with these laws and regulations can include substantial monetary and administrative penalties and sanctions. This supervisory framework could materially impact the conduct and profitability of the Company’s activities.

To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on the business of the Company and the Bank.

Bank Holding Company Act

The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and is subject to regulation and supervision by the FRB. The BHC Act requires the Company to secure the prior approval of the FRB before it owns or controls, directly or indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of, any bank or thrift, or merges or consolidates with another bank or thrift holding company. In addition, bank holding companies are restricted in the types of activities in which they may engage, directly or indirectly through subsidiaries, and prior approval of the FRB may be required before engaging in certain activities.

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The Company had elected to become a “financial holding company” under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) in March of 2000. The GLB Act amended the BHC Act to allow a “financial holding company” to engage in certain activities that were not previously permitted for a bank holding company, and to engage on less restrictive terms in certain activities that were previously permitted. These expanded activities include securities underwriting and dealing, insurance underwriting and sales, and merchant banking activities. In order to maintain its status as a financial holding company, the Company and the Bank must be “well capitalized” and “well managed,” and have a “satisfactory” rating under the Community Reinvestment Act (“CRA”). For bank holding companies that are not financial holding companies, the permissible activities are limited to those previously determined by the FRB to be so “closely related to banking” as to be a “proper incident thereto.” As a result of the formal agreement between the Bank and the OCC (which is more fully discussed under “Regulatory Matters” in Part I, Item 3), the Company elected to decertify as a financial holding company. Because the Company was not engaged in any activity that would have required it to be a financial holding company at the time of its decertification, such decertification did not impact the Company’s activities or operations.

There are a number of restrictions imposed on the Company and the Bank by Federal law that are designed to reduce potential loss exposure to the depositors of the Bank and Federal Deposit Insurance Corporation (“FDIC”) insurance funds in the event the Bank should become insolvent. For example, FRB policy requires a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks and to commit resources to support such institutions in circumstances where it might not do so otherwise. The FRB has, in some cases, entered orders for bank holding companies to take affirmative action to strengthen the finances or management of subsidiary banks.

Supervision and Regulation of the Bank

The operations and investments of the Bank are also limited by Federal and state statutes and regulations. The primary Federal regulator of the Bank is the OCC. The Bank and its operating subsidiaries may engage in any activities that are determined by the OCC to be part of or incidental to the business of banking. Under the GLB Act, the Bank may engage in expanded activities (such as insurance sales and securities underwriting) through the formation of a “financial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, the Bank must be “well capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. In addition, the total assets of all financial subsidiaries of a national bank may not exceed the lesser of $50 billion or 45% of the parent bank’s total assets. In calculating its risk-based capital, the Bank must deduct its equity investment, including retained earnings, from total risk-based capital and may not consolidate the assets and liabilities of a financial subsidiary with those of the Bank. If the Bank were to fail to meet the “well capitalized” or “well managed” criteria, and such deficiency was not corrected within six months, it would not be permitted to continue these expanded activities. In addition, if the Bank receives less than a “satisfactory” CRA rating, it would not be permitted to engage in any new activities or to make new investments in reliance on the financial subsidiary authority.

The Bank had previously filed a financial subsidiary certification with the OCC. As a result of the formal agreement between the Bank and the OCC (which is more fully discussed under “Regulatory Matters” in Part 1, Item 3), the Bank is no longer eligible to establish or maintain a financial subsidiary. Because the Bank is not engaged in any activity that could only be conducted through a financial subsidiary, this status will not impact its current activities and operations.

OCC banking laws and regulations generally govern, among other things, the scope of a bank’s business, the investments a bank may make, the loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. In addition, the OCC possesses broad powers to prohibit the Bank from engaging in any activity that it determines would be an unsafe and unsound banking practice.

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The Bank is also subject to Federal laws that limit the amount of transactions between the Bank and its non-bank affiliates, including the Company. Under these provisions, transactions (such as a loan or investment) by the Bank with any non-bank affiliate are generally limited to 10% of the Bank’s capital and surplus for all covered transactions with such affiliate or 20% of capital and surplus for all covered transactions. Any extensions of credit, with limited exceptions, must be secured by eligible collateral in specified amounts. The Bank is also prohibited from purchasing any “low quality” assets from an affiliate. The GLB Act imposes similar restrictions on transactions between the Bank and any financial subsidiaries.

Under the CRA, the record of a bank holding company and its subsidiary banks must be considered by the appropriate Federal banking agencies in reviewing and approving or disapproving a variety of regulatory applications including approval of a branch or other deposit facility, office relocation, a merger and certain acquisitions of bank shares. Regulators are required to assess the record of the Company and the Bank to determine if they are meeting the credit needs of the communities they serve. Regulators make publicly available an evaluation of banks’ records in meeting credit needs in their communities, including a descriptive rating and a statement describing the basis for the rating.

Deposit Insurance

The deposits of the Bank are insured up to $100,000 per insured depositor by the FDIC (the insurance limit for self-directed retirement accounts, such as IRAs, has been increased to $250,000). Prior to 2007, the premiums paid by insured depository institutions ranged from $0.00 to $0.27 per $100 of insured deposits, based on an institution’s relative risk to the deposit insurance funds. Under these prior rules, the Bank paid FDIC insurance premiums of $0.0075 per $100 of insured deposits.

Beginning in 2007, the FDIC will use a revised risk-based premium system mandated by the Federal Deposit Insurance Reform Act of 2005. Under these new rules, the FDIC will place each institution in one of four risk categories, based first on capital ratios and then on other relevant supervisory information. Within the lowest risk category, rates will be based on the institution’s supervisory ratings, certain financial ratios and long-term debt issuer ratings, as applicable. Depending on the institution’s risk category, rates will range between $0.05 and $0.43 per $100 of insured deposits; institutions in the lowest risk category will be charged a rate between $0.05 and $0.07 per $100 of insured deposits. As FDIC deposit insurance premiums continue to be “risk-based,” higher premiums would be charged to banks that have lower capital ratios or higher risk profiles. Consequently, a decrease in the Bank’s capital ratios, or a negative evaluation by the OCC, as the Bank’s primary Federal banking regulator, may also increase the Bank’s net funding costs and reduce its net income. As a result of these new rules, and the Bank’s regulatory classification under the formal agreement with the OCC, the FDIC insurance premiums paid by the Bank have increased significantly.

All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a Federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance Corporation. This assessment is separate from the assessment of risk-based premiums for deposit insurance. FDIC-insured depository institutions paid an average of approximately 1.275 cents per $100 of assessable deposits in 2006. The FDIC established the FICO assessment rate effective for the first quarter of 2007 at approximately 1.22 cents annually per $100 of assessable deposits.

As a result of the legislation noted above, the Federal deposit insurance system has been substantially reformed. In addition to the features previously discussed, other important aspects of this legislation include (1) merging the Bank Insurance Fund and the Savings Association Insurance Fund into the new Deposit Insurance Fund, effective as of March 31, 2006, (2) beginning April 1, 2010 and every succeeding five years, indexing the insurance limit to allow for inflation, (3) providing credits (totaling $4.7 billion) to offset future premium payments by banks in recognition of their contributions to the FDIC since 1996, (4) eliminating the current

5

1.25% coverage ratio in favor of FDIC discretion to set the ratio within a range of 1.15% to 1.50% annually, (5) allowing the FDIC to manage the pace at which the reserve ratio varies within this range and (6) restoring FDIC discretion to price deposit insurance according to risk for all institutions regardless of the level of the coverage ratio. All of the regulations required to implement these provisions have been adopted. Under this legislation and the implementing regulations, neither the premium credit received by the Bank, nor the increase in premiums paid by the Bank, is expected to be material to the Bank’s financial condition.

Capital Rules

Under risk-based capital requirements for bank holding companies, the Company is required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of 8%. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangible assets (“Tier 1 Capital”). The remainder may consist of certain subordinated debt, certain hybrid capital instruments and other qualifying preferred stock, and a limited amount of the allowance for loan losses (“Tier 2 Capital” and, together with Tier 1 Capital, “Total Capital”). At December 31, 2006, the Company’s Tier 1 Capital and Total Capital ratios were 11.2% and 12.3%, respectively.

In addition, the FRB has established minimum leverage ratio requirements for bank holding companies. For bank holding companies that meet certain specified criteria, including having the highest regulatory rating and not experiencing significant growth or expansion, these requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted average assets equal to 3%. Other bank holding companies that fail to meet such criteria will generally be required to maintain a leverage ratio of 4-5%. The Company’s leverage ratio at December 31, 2006, was 8.8%. The Bank is subject to similar capital requirements adopted by the OCC.

Both the FRB and the OCC risk-based capital standards explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by the agency in assessing an institution’s general capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating the Bank’s capital adequacy. The FRB has issued additional guidelines for certain bank holding companies that engage in trading activities. The Company does not believe that consideration of these additional factors will affect the regulators’ assessment of the Company’s or the Bank’s capital position.

In addition to the required minimum capital levels described above, Federal law establishes a system of “prompt corrective actions” which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a Federally regulated depository institution falls. The extent of these powers depends upon whether the institution in question is considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Generally, the smaller an institution’s capital base relative to its total assets, the greater the scope and severity of the agencies’ powers. The capital thresholds for a “well capitalized” institution and “adequately capitalized” institution are set forth below. An institution will be deemed “undercapitalized” if it fails to meet the minimum capital requirements, “significantly undercapitalized” if it has a Total Capital ratio that is less than 6.0%, a Tier 1 Capital ratio that is less than 3.0% or a leverage ratio that is less than 3.0% and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Business activities may also be influenced by an institution’s capital classification. For example, only a “well capitalized” institution may accept brokered deposits without prior regulatory approval. An “adequately capitalized” institution may accept brokered deposits only with prior regulatory approval.

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The following table sets forth the minimum capital ratios that a bank must satisfy in order to be considered adequately capitalized or well capitalized under the prompt corrective action regulations, the minimum capital ratios applicable to the Bank under its formal agreement with the OCC, and the Bank’s capital ratios at December 31, 2006:

	Adequately Capitalized		Well Capitalized		OCC Required Minimum		Bank Ratios
Total Risk-Based Capital Ratio	8.00	%	10.00	%	10.75	%	11.2	%
Tier 1 Risk-Based Capital Ratio	4.00	%	6.00	%	9.75	%	10.1	%
Leverage Ratio	4.00	%	5.00	%	7.50	%	8.0	%

As a result of the formal agreement with the OCC, the Bank is no longer deemed to be “well capitalized” for regulatory purposes. This classification, however, is not intended to be and should not be construed as a representation of the overall financial condition or prospects of the Bank.

The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person.” Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership.

Under currently applicable guidance, subordinated debentures recorded on the Company’s balance sheet (issued in connection with trust preferred securities) are included in Tier 1 Capital of the Company, up to a maximum of 25% of Tier 1 Capital. Historically, this capital treatment was based on the accounting for these instruments, however, trust preferred securities are no longer consolidated under U.S. generally accepted accounting principles, or “GAAP.” Partly in response to this accounting change, the FRB amended its risk-based capital standards for bank holding companies to allow for the continued inclusion of outstanding and prospective issuances of trust preferred securities in Tier 1 Capital subject to stricter quantitative limits and qualitative standards. Under the amended rule, the aggregate amount of trust preferred securities and certain other capital instruments would be limited to 25% of Tier 1 Capital, net of goodwill less any deferred tax liability. The amount of trust preferred securities and certain other capital instruments in excess of the limit could be included in Tier 2 Capital, subject to restrictions. The amended rule provides a five-year transition period for the application of the quantitative limits. The Company would continue to follow GAAP in accounting for these instruments for regulatory reporting purposes. The amended rule would not impact the Company’s existing treatment of trust preferred securities for purposes of computing its Tier 1 Capital, nor would it affect the capital adequacy rating of the Bank. See “Subordinated Debentures” and “Regulatory Capital” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Limitations on Payment of Dividends

Under applicable New Jersey law, the Company is not permitted to pay dividends on its capital stock if, following the payment of the dividend, it would be unable to pay its debts as they became due in the usual course of business or its total assets would be less than its total liabilities. Further, it is the policy of the FRB that bank holding companies should pay dividends only out of current earnings and only if future retained earnings would be consistent with the Company’s capital, asset quality and financial condition.

Since it has no significant independent sources of income, the ability of the Company to pay dividends is dependent on its ability to receive dividends from the Bank. Under national banking laws, the Bank must obtain the approval of the OCC before declaring any dividend which, together with all other dividends declared by the Bank in the same calendar year, will exceed the total of the Bank’s net profits of that year combined with its retained net profits of the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Net profits are to be calculated without adding back any provision for the Bank’s allowance for loan losses. Furthermore, the Bank, as an FDIC-insured institution, may not pay dividends or make distributions that would cause the institution to fail to meet minimum capital requirements. These restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time.

In addition, as a bank whose deposits are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets during a period in which it is in default under any assessment due to the FDIC. The Bank is not in default under any of its obligations to the FDIC.

Under the formal agreement with the OCC, and the supervisory letter from the Federal Reserve Bank of Philadelphia, prior regulatory approval is required for dividend payments by both the Bank and the Company (see “Regulatory Matters” in Part I, Item 3).

Effect of Government Monetary Policies

The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The FRB has had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The FRB has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

USA PATRIOT Act

The USA PATRIOT Act authorizes the Secretary of the Treasury, in consultation with the other Federal financial institution regulatory agencies, to adopt special measures applicable to financial institutions. Among its provisions, the USA PATRIOT Act requires each financial institution: to establish an anti-money laundering program; to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private bank accounts and correspondent accounts maintained for non-United States persons or their representatives; and to avoid establishing, maintaining, administering or managing correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, the USA PATRIOT Act expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to request for information from Federal banking agencies within 120 hours.

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The USA PATRIOT Act also requires the Federal banking regulators to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

The Department of Treasury has issued regulations implementing the due diligence requirements of the USA PATRIOT Act. These regulations require minimum standards to verify customer identity and maintain accurate records, encourage cooperation among financial institutions, Federal banking agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, prohibit the anonymous use of “concentration accounts,” and require all covered financial institutions to have in place an anti-money laundering compliance program.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance, auditing and accounting, executive compensation and corporate reporting for entities, such as the Company, with equity or debt securities registered under the Securities Exchange Act of 1934. Among other things, Sarbanes-Oxley and its implementing regulations have established new membership requirements and additional responsibilities for our audit committee, imposed restrictions on the relationship between the Company and its outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for our external financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for our corporate insiders, required our management to evaluate the Company’s disclosure controls and procedures and its internal control over financial reporting, and required our auditors to issue a report on our internal control over financial reporting. The NASDAQ Stock Market LLC (“NASDAQ”) has also adopted corporate governance rules that have been approved by the SEC. The requirements are intended to allow shareholders to more easily and efficiently monitor the performance of companies and directors. The Company and its board of directors have, as appropriate, adopted or modified the Company’s policies and practices in order to comply with these regulatory requirements and to enhance the Company’s corporate governance practices.

Other Laws and Regulations

The Company and the Bank are subject to a variety of laws and regulations which are not limited to banking organizations. In lending to commercial and consumer borrowers, and in owning and operating its own property, the Bank is subject to regulations and potential liabilities under state and Federal environmental laws.

Legislation and Regulatory Changes

Legislation and regulations may be enacted which increase the cost of doing business, limit or expand permissible activities, affect the competitive balance between banks and other financial services providers or impact bank compliance responsibilities. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions are frequently made in Congress and before various bank regulatory agencies. For example, the recently enacted Financial Services Regulatory Relief Act of 2006 has provided meaningful, but limited, relief from various regulatory constraints and compliance burdens imposed on the banking industry. The reduction in the Bank’s regulatory compliance burdens that results from this legislation is not expected to materially impact the Bank’s operations or financial condition.

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Employees

At December 31, 2006, the Company employed 408 full-time employees and 13 part-time employees.

Statistical Disclosure

The Company’s statistical disclosure information, required of bank holding companies, is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is set forth in Item 7 of this report.

Item 1A. Risk Factors.

The following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition and results of operations.

We may not be able to continue to grow our business, which mayadversely impact our results of operations.

During the last five years, our total assets have grown from $2.23 billion at December 31, 2002 to $2.62 billion at December 31, 2006. Our business strategy calls for continued expansion. Our ability to continue to grow depends, in part, upon our ability to open new branch locations, successfully attract deposits to existing and new branches, and identify favorable loan and acquisition opportunities. In the event that we do not continue to grow, our results of operations could be adversely impacted.

We may not be able to manage our growth, which may adverselyimpact our financial results.

As part of our expansion strategy, we plan to open new branches in our existing and target markets. However, we may be unable to identify attractive locations on terms favorable to us, obtain regulatory approvals or hire qualified management to operate new branches. In addition, the organizational and overhead costs may be greater than we anticipated. New branches may take longer than expected to reach profitability, and we cannot assure that they will become profitable. The additional costs of starting new branches may adversely impact our financial results.

Our ability to manage growth successfully will depend on whether we can continue to fund our growth while maintaining cost controls and asset quality, as well as on factors beyond our control, such as national and regional economic conditions and interest rate trends. If we are not able to control costs and maintain asset quality, such growth could adversely impact our earnings and financial condition.

The Company may require additional capital in the future, butthat capital may not be available when it is needed.

The Company is required by Federal regulatory authorities to maintain adequate levels of capital to support its operations. The Company may at some point need to raise additional capital to comply with regulatory requirements, including requirements under the Bank’s agreement with the OCC, or to support continued growth. The Company’s ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside the Company’s control, and on its financial performance. Accordingly, the Company cannot assure you of its ability to raise additional capital if needed or on terms acceptable to the Company. If the Company cannot raise additional capital when needed, the ability to further expand its operations could be materially impaired.

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Future issuances of blank check preferred stock may reduce voting power of common stock and may have anti-takeover effects that could prevent a change in control.

Our certificate of incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock with such designations, rights, powers and preferences as may be determined from time to time by our board of directors, including such dividend, liquidation, conversion, voting or other rights, powers and preferences as may be determined from time to time by the board of directors without further shareholder approval. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock. In addition, the authorized shares of preferred stock and common stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control.

Our exposure to credit risk, because we focus on commerciallending, could adversely affect our earnings and financialcondition.

There are certain risks inherent in making loans. These risks include interest rate changes over the time period in which loans may be repaid, risks resulting from changes in the economy, risks inherent in dealing with borrowers and, in the case of a loan backed by collateral, risks resulting from uncertainties about the future value of the collateral.

Commercial loans are generally viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Commercial and industrial loans and commercial real estate loans, which comprise our commercial loan portfolio, were 82.6% of our total loan portfolio at December 31, 2006. Construction and development loans, which are included as part of our commercial real estate loans, were 12.4% of our total loan portfolio at December 31, 2006. Construction financing typically involves a higher degree of credit risk than commercial mortgage lending. Risk of loss on a construction loan depends largely on the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost (including interest) of construction. If the estimated property value proves to be inaccurate, the loan may be undersecured.

Because our loan portfolio contains a significant number of commercial real estate loans and commercial and industrial loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming loans. An increase in nonperforming loans could cause an increase in the provision for loan losses and an increase in loan charge offs, which could adversely impact our results of operations and financial condition.

Proxy contests and shareholder litigation may adversely effect our results of operations.

An insurgent shareholder group conducted a proxy contest against our board of directors’ nominees in 2006 and we have reason to believe will do so again in 2007. Members of the same shareholder group commenced litigation against us in 2006 and 2007. These contests and litigation cause us to use resources, both in expense and in the time and attention of our management, which could otherwise be used in operating our business. Accordingly, our results of operations may be adversely effected.

Adverse economic and business conditions in our market area mayhave an adverse effect on our earnings.

Substantially all of our business is with customers located within Mercer County and contiguous counties. Generally, we make loans to small to mid-sized businesses, most of which depend on the health of the regional economy for their success. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. Adverse economic and business conditions in our market area could reduce our growth rate, affect our borrowers’ ability to repay their loans and, consequently, adversely affect our

11

financial condition and performance. Further, we place substantial reliance on real estate as collateral for our loan portfolio. A sharp downturn in real estate values in our market area could leave many of our loans undersecured. If we are required to liquidate real estate collateral to satisfy loans during a period of reduced real estate values, our earnings could be adversely affected.

If our allowance for loan losses is not sufficient to coveractual loan losses, our earnings would decrease.

In an attempt to mitigate any loan losses we may incur, we maintain an allowance for loan losses based on, among other things, national and regional economic conditions, and historical loss experience and delinquency trends among loan types. However, we cannot predict loan losses with certainty and we cannot assure you that charge offs in future periods will not exceed the allowance for loan losses. In addition, regulatory agencies, as an integral part of their examination process, review our allowance for loan losses and may require additions to the allowance based on their judgment about information available to them at the time of their examination. Factors that require an increase in our allowance for loan losses could reduce our earnings.

Loss of our key personnel or an inability to hire and retainqualified personnel could adversely affect our business.

The loss of key personnel could have a negative impact on our banking operations because of the loss of their business development skills, lending expertise and community involvement, among other things. Our success also depends on the experience of our branch managers and our lending officers and on their relationships with the communities they serve. Although we have employment agreements with certain key personnel, our employees may voluntarily terminate their employment at any time. We cannot assure you that we will be able to retain our key personnel or attract the qualified personnel necessary for the management of our business.

Changes in interest rates may adversely affect our earnings andfinancial condition.

Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds.

Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. The gap is based on the maturity and repricing characteristics of interest earning assets and interest bearing liabilities for selected time periods. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income. We are unable to accurately predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets.

We may not be able to successfully integrate acquisitions, whichmay adversely affect our business.

We intend to consider future strategic acquisitions, some of which could be material to us and which may include companies that are substantially equivalent or larger in size compared to us. We continually explore and conduct discussions with third parties regarding possible acquisitions. As of the date of this report, we have not entered into any definitive agreement and we do not have any definitive plans relating to any specific acquisitions.

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We will have to integrate any acquisitions into our business. The difficulties of combining the operations, technologies and personnel of companies we acquire include coordinating and integrating geographically separated organizations and integrating personnel with diverse business backgrounds. We may not be able to effectively manage or integrate the acquired companies. Further, we may not be successful in implementing appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. Our efforts to integrate these businesses could be affected by a number of factors beyond our control, such as regulatory developments, general economic conditions and increased competition. In addition, the process of integrating these businesses could cause an interruption of, or loss of momentum in, the activities of our existing business and the loss of key personnel and customers. The diversion of management’s attention and any delays or difficulties encountered in connection with the transition and integration of these businesses could negatively impact our business and results of operations if any of the above adverse effects were to occur. Further, the benefits that we anticipate from any acquisitions may not be obtained.

Competition from other financial institutions in originatingloans and attracting deposits may adversely affect ourprofitability.

We face substantial competition in originating loans. This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders. Many of our competitors enjoy advantages, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans.

In attracting deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of our competitors enjoy advantages, including greater financial resources, more aggressive marketing campaigns, better brand recognition and more branch locations. These competitors may offer higher interest rates than we do, which could decrease the deposits that we attract or require us to increase our rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations and increase our cost of funds.

We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable terms. Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition.

Government regulation significantly affects our business.

The banking industry is extensively regulated. Banking regulations are intended primarily to protect depositors and the FDIC deposit insurance funds, not the shareholders of the Company. We are subject to regulation and supervision by the FRB. The Bank is subject to regulation and supervision by the OCC and, as discussed under the heading “Regulatory Matters” in Part I, Item 3, is party to a formal agreement with the OCC. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and growth. The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. We are subject to various regulatory capital requirements, which involve both quantitative measures of our assets and liabilities and qualitative judgments by regulators regarding risks and other factors. Failure to meet minimum capital requirements or comply with other regulations could result

13

in actions by regulators that could adversely affect our ability to pay dividends or otherwise adversely impact operations. Such actions may include requiring us to increase our allowance for loan losses, requiring us to divest our interest in certain loans and limiting our ability to open new branches.

In addition, changes in laws, regulations and regulatory practices affecting the banking industry may limit the manner in which we conduct our business. Such changes may adversely affect us, including our ability to offer new products and services, obtain financing, attract deposits, make loans and achieve satisfactory spreads and impose additional costs on us. The Bank is also subject to a number of Federal laws which, among other things, require it to lend to various sectors of the economy and population, and establish and maintain comprehensive programs relating to anti-money laundering and customer identification. The Bank’s compliance with these laws will be considered by the Federal banking regulators when reviewing bank merger and bank holding company acquisitions or commence new activities or make new investment in reliance on the GLB Act. As a public company, we are also subject to the corporate governance standards set forth in the Sarbanes-Oxley Act of 2002, as well as the rules and regulations promulgated by the SEC and NASDAQ.

Our disclosure controls and procedures and our internal controlover financial reporting may not achieve their intendedobjectives.

Our system of internal controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the internal control system will be met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. The design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of inherent limitation in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In connection with management’s assessment of our internal control over financial reporting at December 31, 2006, management identified a material weakness related to the risk rating process and the resultant determination of the allowance for loan losses and the provision for loan losses. You should see Item 9A, “Management’s Report on Internal Control Over Financial Reporting,” for additional information.

We continually encounter technological change, and we may havefewer resources than many of our competitors to continue toinvest in technological improvements, which could reduce ourability to effectively compete.

The financial services industry is undergoing rapid technological changes with frequent introduction of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services to enhance customer convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We cannot assure you that we will be able to effectively implement new technology-driven products and services, which could reduce our ability to effectively compete.

Our information systems are vulnerable to damage that could harmour business.

We rely upon our existing information systems for operating and monitoring all major aspects of our business, including deposit and loan information, as well as various internal management functions. These

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systems and our operations are vulnerable to damage or interruption from natural disasters, power loss, network failure, improper operation by our employees, security breaches, computer viruses or intentional attacks by third parties. Any disruption in the operation of our information systems could adversely impact our operations, which may affect our results of operations and financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

As of March 16, 2007, we were conducting our business through 33 banking branches, an operations center and a maintenance center.

Our executive offices are located at 2445 and 2465 Kuser Road, Hamilton, New Jersey, which is also the location of one of our branches. The Bank leases the offices at this location pursuant to a lease that began in October 1999, has an initial term of 14 years ending in 2013, and is renewable for two additional five-year periods thereafter. The monthly rental payments under the lease are $56,387 during the second five years of the lease, which commenced in October 2004. The monthly rental will be adjusted every five years in accordance with a formula based on the Consumer Price Index, provided that the monthly rental payment for any lease period may not vary by more than 3% from the monthly rental payment in the immediately preceding lease period. The Bank has the option to purchase the property at its fair market value at the time the option is exercised.

Of the 33 banking branches, five of the buildings and the land on which they are located are owned and 28 buildings and the land on which they are located are leased. The operations center, the maintenance center, and the land on which they are located are leased.

Item 3. Legal Proceedings.

Actions Related to 2006 Annual Meeting

On March 3, 2006, certain shareholders of the Company, namely Seidman and Associates, LLC, Lawrence B. Seidman and Dennis Pollack (the “Plaintiffs”), filed a Verified Complaint and Order to Show Cause in the Superior Court of New Jersey, Chancery Division, Passaic County, against the Company, the directors and two former directors. The Plaintiffs' action sought to (a) invalidate a director qualification by-law that the directors adopted in January 2006, (b) sought to declare the director qualification by-law inapplicable to Lawrence B. Seidman and find that Seidman was eligible for service on the Company's Board, and (c) sought to declare four director seats open for election at the 2006 Annual Meeting of Shareholders.

On December 12, 2006, after a four day hearing, the court issued a ruling that upheld the validity of the Company's director qualifications by-law, upheld the disqualification of plaintiff Seidman from service on the Company's Board and upheld the results of the May 2006 election that was held at the Annual meeting of Shareholders.

The court also found, however, that the Company lacked a compelling justification to reduce its Board size from 15 seats to 13 seats in December 2005 after two directors resigned from the Board. Based on the lack of a compelling justification, the Court awarded plaintiffs reimbursement for the cost of the proxy contest associated with the 2006 Annual Meeting and the attorneys’ fees and costs associated with the initial order to show cause phase of the litigation.

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Plaintiffs made a post-trial application to the court to (a) hold additional hearings on claims that plaintiffs’ claimed the Court never addressed, (b) require the Company to increase the size of its board by two directors, and (c) issue a ruling that the director qualification by-law does not prohibit plaintiff Seidman from nominating director candidates for the election at the 2007 Annual Meeting of Shareholders.

On February 8, 2007, the court ruled that (a) the Company does not have to increase the size of its board by two seats, (b) no additional hearings were necessary, and (c) there was no reason to address the validity of the director qualification by-law nomination preclusion provision, because there was no present case in controversy that required a ruling on this subject. The Court also found that the Company was responsible for reimbursing Plaintiffs for the costs of the 2006 proxy contest and the individual directors were responsible for reimbursing Plaintiffs for the costs of the initial order to show cause phase of the litigation.

Plaintiffs filed a post-trial application for fees and costs on or about March 18, 2007. In that application they sought reimbursement of approximately $162,000 in proxy costs and attorneys’ fees and costs. The Company and the directors opposed plaintiffs’ application. The parties are currently waiting for the Court to issue a ruling.

Actions Related to 2007 Annual Meeting

On February 9, 2007, certain shareholders of the Company, namely Lawrence B. Seidman and Seidman and Associates, LLC, filed a Verified Complaint and Order to Show Cause in the Superior Court of New Jersey, Chancery Division, Passaic County, against the Company, contending that the 2007 annual meeting of shareholders be held no later than June 4, 2007. On March 21, 2007, the court entered an Order that requires the Company hold its 2007 annual meeting of shareholders on July 12, 2007.

Regulatory Matters

On August 31, 2005, the Bank entered into a formal agreement with the OCC regarding the Bank’s operations, maintaining specified capital levels, obtaining prior approvals of dividend payments, and other concerns identified in the OCC’s Report of Examination for the examination that commenced on January 3, 2005. Under the agreement, the Bank will not be deemed to be “well capitalized” for certain regulatory purposes. Such capital category may not, however, accurately represent the Bank’s general financial condition or prospects. As a result of the agreement, the Bank is not eligible to establish or acquire a financial subsidiary to engage in expanded financial activities such as securities underwriting and insurance brokerage. In addition, the Company has elected to decertify as a “financial holding company” within the meaning of the Bank Holding Company Act. A “financial holding company” may affiliate with financial companies, such as merchant banking, securities and insurance firms, that engage in a broader range of activities than previously permitted for bank holding companies. Neither of these actions will impact current activities and operations of the Company or the Bank.

In January 2006, the OCC commenced a routine examination of the Bank for the annual period ended September 30, 2005. The OCC also conducted more limited reviews in August and November 2006. In January 2007, the OCC commenced a routine examination of the Bank for the annual period ended September 30, 2006.

While we believe the Bank has made progress in addressing many concerns raised by the OCC in the formal agreement, we do not expect the OCC to terminate its formal agreement at this time.

On January 27, 2006, the Federal Reserve Bank of Philadelphia issued a supervisory letter to the Company. The supervisory letter sets forth certain provisions with respect to which the Reserve Bank has requested our compliance, including obtaining prior approvals of dividend payments and any indebtedness other than indebtedness incurred in the ordinary course of business, as well as refraining from purchasing or redeeming any shares of our stock.

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Other Legal Proceedings

Apart from the matters discussed above, the Company 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 our business. We do not consider that any such proceedings depart from usual routine litigation, and in our judgment, our consolidated financial position or results of operations will not be affected materially by the final outcome of any pending legal proceedings.

Item 4. Submission of Matters to a Vote of SecurityHolders.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2006.

PART II

Item 5. Market For Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of EquitySecurities.

Market Information

Our common stock is traded in the Nasdaq Global Select Market under the symbol “YANB.” The following table shows, by quarter, the high and low sales prices of our common stock in the Nasdaq National Market or Nasdaq Global Select Market and the cash dividends declared per common share during 2006 and 2005.

2006 Quarter		High		Low		Cash Dividends Declared
First	$	37.64	$	34.80	$	0.115
Second		38.47		34.68		0.115
Third		36.85		33.75		0.115
Fourth		39.99		35.28		0.115

2005 Quarter
First	$	33.83	$	31.41	$	0.115
Second		36.36		32.34		0.115
Third		36.95		34.68		0.115
Fourth		38.04		33.10		0.115

Holders

As of December 31, 2006, our common stock was held by approximately 4,300 holders of record, which included approximately 700 registered holders and an estimate of individual participants who held our common stock through registered clearing agencies and their nominees.

Dividends

In each of 2006 and 2005, the Company paid four quarterly cash dividends on its common stock in the aggregate amount of $5.1 million and $4.9 million, respectively, or $0.46 per share. Cash dividends are generally paid quarterly or four times a year. In the first quarter of 2007, the Company paid a cash dividend in the amount of $0.115 per share on the common stock. Because substantially all of the funds available for the payment of cash dividends are derived from the Bank, future cash dividends will depend primarily upon the Bank’s earnings, financial condition, needfor funds, and government policies and regulations applicable to both the Bank and the Company. The Company has also agreed with the holders of the trust preferred securities issued by subsidiary trusts (see Note 8 of the Notes to Consolidated Financial Statements) that the Company will not pay dividends if an event of default should occur (and remain uncured) under the terms of the trust preferred securities. As of December 31, 2006, the net profits of the Bank available for distributions to the Company as dividends were approximately $15.3 million.

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Pursuant to the supervisory letter we received from the Federal Reserve Bank of Philadelphia, the Company may not declare or pay any dividend without the prior approval of the Reserve Bank. In addition, the Bank’s formal agreement with the OCC provides that the Bank may not declare or pay any dividend to the Company without the prior written approval of the OCC. In the event that the Bank was unable to pay dividends, it would adversely affect the Company’s ability to pay dividends. While we cannot ensure that we will receive the necessary approvals, we do not believe that the Reserve Bank supervisory letter or the Bank’s formal agreement with the OCC will materially limit our ability to pay future dividends on our common stock. For additional discussion of the supervisory letter and formal agreement, see “Regulatory Matters” in Part I, Item 3.

The Company expects to continue to pay quarterly cash dividends during 2007 to holders of common stock, subject to the conditions described above.

Securities Authorized for Issuance Under Equity CompensationPlans

The following table provides certain information as of December 31, 2006, with respect to compensation plans, including individual compensation arrangements, under which our common stock is authorized for issuance.

Plan Category	Number of Shares to Be Issued upon Exercise of Outstanding Options, Warrants and Rights		Weighted-average Exercise Price of Outstanding Options, Warrants and Rights	Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column
Equity compensation plans approved by security holders(1)	755,335	$	18.13	708,554
Equity compensation plans not approved by security holders	—		—	—
Total	755,335	$	18.13	708,554

____________

(1)These plans consist of the Yardville National Bancorp 1997 Stock Option Plan, the 2003 Director Plan and the 2005 Equity Incentive Plan.

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Item 6. Selected Financial Data.

The following table sets forth certain historical financial data with respect to the Company and should be read in conjunction with the consolidated financial statements and related notes thereto included in this report.

	At or for the Year Ended December 31,
		2006			2005		2004		2003		2002
Statement of Income
(in thousands)
Interest income	$	189,531		$	170,267	$	139,864	$	121,469	$	120,259
Interest expense		105,401			87,054		69,145		68,289		73,776
Net interest income		84,130			83,213		70,719		53,180		46,483
Provision for loan losses		11,350			10,530		9,625		9,360		4,375
Securities (losses) gains, net		(6,523	)		862		1,297		1,513		3,084
Other non-interest income		7,281			6,628		6,682		6,581		5,220
Loss on redemption of FHLB advances		15,271			—		—		—		—
Non-interest expense		55,232			49,602		42,649		38,159		31,044
Income before income tax (benefit) expense		3,035			30,571		26,424		13,755		19,368
Income tax (benefit) expense		(2,230	)		9,637		7,899		3,446		5,364
Net income	$	5,265		$	20,934	$	18,525	$	10,309	$	14,004
Balance Sheet
(in thousands, except per share data)
Assets	$	2,620,731		$	2,956,731	$	2,805,917	$	2,431,193	$	2,232,468
Loans		1,972,881			1,972,840		1,782,592		1,443,355		1,195,143
Allowance for loan losses		24,563			22,703		20,116		17,295		16,821
Securities		498,713			830,694		880,782		866,693		876,365
Deposits		2,003,283			1,972,717		1,810,004		1,483,809		1,272,286
Subordinated debentures		62,892			62,892		62,892		47,428		33,510
Borrowed funds		337,281			718,120		753,130		738,080		757,711
Stockholders' equity		186,094			177,458		160,158		143,557		145,939
Per Share Data
Net income - basic	$	0.48		$	1.97	$	1.77	$	0.99	$	1.72
Net income - diluted		0.46			1.89		1.71		0.97		1.68
Cash dividends		0.46			0.46		0.46		0.46		0.44
Stockholders' equity (book value)		16.88			16.35		15.27		13.80		14.08
Other Data
Average shares outstanding - basic		10,948			10,609		10,455		10,391		8,124
Average shares outstanding - diluted		11,350			11,057		10,861		10,651		8,319

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Selected Financial Data (continued)

	At or for the Year Ended December 31,
		2006			2005			2004			2003			2002
Financial Ratios
Return on average assets		0.18	%		0.72	%		0.70	%		0.44	%		0.67	%
Return on average stockholders' equity		2.87			12.57			12.38			7.09			13.45
Net interest margin		2.97			2.98			2.76			2.35			2.29
Net interest margin (1)		3.05			3.05			2.83			2.42			2.36
Efficiency ratio		83.05			54.69			54.19			62.28			56.66
Efficiency ratio (1)		81.00			53.52			53.06			60.87			55.40
Total loans to total assets		75.28			66.72			63.53			59.37			53.53
Capital Ratios
Average stockholders' equity to average assets		6.26			5.76			5.64			6.19			4.97
Dividend payout ratio		96.13			23.88			26.00			46.46			25.32
Tier 1 leverage ratio		8.83			8.32			7.62			7.79			7.76
Tier 1 capital as a percentage of risk-weighted assets		11.17			10.82			10.09			11.05			11.84
Total capital as a percentage of risk-weighted assets		12.26			11.82			11.42			12.07			13.00
Asset Quality Ratios
Allowance for loan losses to total loans		1.25			1.15			1.13			1.20			1.41
Net loan charge offs to average total loans		0.48			0.42			0.42			0.67			0.10
Nonperforming loans to total loans		1.47			0.94			0.56			0.74			0.52
Nonperforming assets to toal loans and other real
estate owned		1.49			0.94			0.56			0.74			0.61
Nonperforming assets to total assets		1.12			0.63			0.36			0.44			0.33
Allowance for loan losses to nonperforming assets		83.38			121.97			201.00			162.55			229.73
Allowance for loan losses to nonperforming loans		84.48	%		121.97	%		201.00	%		162.55	%		268.11	%
Market Price Per Share of Common Stock
Closing	$	37.72		$	34.65		$	34.26		$	25.74		$	17.24
High		39.99			38.04			35.05			25.90			21.20
Low		33.75			31.41			23.21			16.30			12.25

____________

(1)The net interest margin and efficiency ratio are also presented on a tax equivalent basis. We believe that this presentation provides comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Although we believe that these financial measures enhance investors’ understanding of our business and performance, these measures should not be considered an alternative to GAAP. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Average Balances, Yields and Costs.”

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Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

The purpose of this discussion and analysis is to provide the reader with information pertinent to understanding and assessing Yardville National Bancorp’s results of operations for each of the past three years and financial condition for each of the past two years, as well as selected data for the past five years. Throughout this annual report the terms “YNB,” “Company,” “we,” “us,” and “our,” will refer to Yardville National Bancorp, our wholly-owned banking subsidiary The Yardville National Bank (the “Bank”), and other subsidiaries as a consolidated entity, except where noted. The following discussion and analysis should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements with respect to the financial condition, results of operations and business of YNB. These forward-looking statements involve certain risks and uncertainties. Certain factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are described in Part I, Item 1, on page 1.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the preparation of our consolidated financial statements we are required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

YNB’s significant accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Note 1 of the Notes to Consolidated Financial Statements contains a summary of our significant accounting policies. We believe our policies governing the allowance for loan losses, income taxes and asset impairments including other than temporary declines in the value of our securities, are critical accounting policies because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed and approved these critical accounting policies and has discussed these policies with our audit committee.

The allowance for loan losses represents our best estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. The adequacy of our allowance for loan losses is evaluated regularly. The allowance for loan losses has been determined in accordance with U.S. generally accepted accounting principles, under which we are required to maintain an adequate allowance for loan losses. The allowance for loan losses is determined based on our assessment of several factors. Those factors include reviews and evaluations of specific loans, current economic conditions, historical loan loss experience, the borrowers’ ability to repay amounts advanced, collateral values and the level of classified and nonperforming loans. We believe that our allowance for loan losses is adequate to cover probable loan losses which are specifically identifiable, as well as losses inherent in our portfolio which are probable but not specifically identifiable. Note 1 of the Notes to Consolidated Financial Statements describes the methodology used to determine the allowance for loan losses.

We are subject to the income tax laws of the United States and the states where we conduct our business. We account for income taxes by recognizing the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for estimated future tax consequences, which require judgment with respect to events that have been recognized in our consolidated financial statements or tax returns. Fluctuations in the

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actual outcome of these future tax consequences, including the recoverability of deferred tax assets, could materially impact our consolidated financial statements or results of operations. Notes 1 and 9 of the Notes to Consolidated Financial Statements include further explanation of our accounting for income taxes.

Certain of our assets are carried in our consolidated statements of financial condition at fair value or at the lower of cost or fair value. Valuation allowances are established when necessary to recognize impairment of such assets. We periodically perform analyses to test for impairment of various assets. In addition to our impairment analyses related to loans, another significant analysis relates to other than temporary declines in the value of our securities. We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its carrying value and whether such decline is other than temporary. If such decline is deemed other than temporary, we would adjust the carrying value of the security by writing down the security to fair market value through a charge to current period earnings. At December 31, 2006 we have determined that all unrealized losses were temporary in nature.

Results of Operations

2006 Executive Summary

Yardville National Bancorp is a $2.62 billion holding company headquartered in Hamilton, New Jersey. Positioned in the dynamic Central New Jersey business corridor connecting New York City and Philadelphia, we operate 33 full-service branches through our wholly-owned banking subsidiary, The Yardville National Bank, in Mercer, Hunterdon, Somerset, Middlesex, Burlington, and Ocean Counties in New Jersey and Bucks County, Pennsylvania.

Located in Mercer County since 1925, we offer relationship-based community banking to customers throughout New Jersey and Eastern Pennsylvania. We provide a broad range of lending, deposit and other financial products and services. We emphasize the origination of commercial real estate and commercial and industrial loans to small to mid-sized businesses funded by deposits generated through our expanding branch network. Our commitment is to provide quality products and exceptional service to our customers, while building shareholder value by extending the YNB franchise into demographically strong markets.

Our focus as a commercial business lender provides us opportunities to generate higher yielding earning assets. We generate substantially all of our revenue from interest income earned on loans and securities. Throughout 2006 we experienced a flat, and at times inverted yield curve, which produced an exceptionally challenging interest rate environment. The combination of a challenging interest rate environment and a very competitive marketplace for loans and deposits contributed to net interest income pressure causing our primary source of income to lag expectations.

We remain focused on gathering core deposits through the continued execution of our retail strategy. We have added branches in new markets, consistently marketing our products and services while reinforcing our brand image. The generation and retention of core deposits will enable us to effectively fund our commercial loan growth, generate net interest income and enhance shareholder value.

During 2006, we continued our geographic expansion by opening our first branch in Ocean County, New Jersey. We added two more branches in Hunterdon County, New Jersey in the second and third quarters. In the fourth quarter, we opened new branches in Woodbridge in Middlesex County, and Skillman in Somerset County, bringing the total number of branches opened in 2006 to five. In early 2006, we also introduced our Simply Better Money Market product throughout our branch network with great success. Simply Better Money Market balances exceeded $260.0 million by year-end.

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Late in the fourth quarter of 2006, we announced the restructuring of a portion of our balance sheet. The restructuring of the balance sheet is intended to enhance our net interest margin and increase our net interest income in 2007 and beyond while reducing our interest rate risk exposure and enhancing our liquidity profile. To achieve these results, we sold lower yielding securities and used the proceeds to retire $320.0 million in higher cost fixed rate Federal Home Loan Bank (FHLB) advances. We also refinanced $100.0 million in FHLB advances to further reduce interest expense. The restructuring resulted in a charge to fourth quarter 2006 earnings of approximately $12.9 million after tax, or $1.13 per diluted share.

Throughout management’s discussion and analysis of financial condition and results of operations we will present information including and excluding the impact of our restructure. We believe that this provides comparability for our core operating business and is consistent with industry practice. Although we believe that these financial measures enhance investors’ understanding of our business and performance, these measures should not be considered an alternative to U.S. generally accepted accounting principles.

Primarily due to the balance sheet restructuring, and to a lesser extent, the competitive factors described above, net income decreased to $5.3 million from the $20.9 million reported in 2005. Diluted earnings per share for the full year decreased to $0.46 compared with $1.89 for the prior year. Excluding the impact of the one-time charges associated with the restructuring, we would have reported full year net income of approximately $18.1 million or $1.59 per diluted share.

Despite accelerated loan payoffs and intense competition for commercial loans, average loans grew $115.3 million in 2006 compared to average loans in 2005. These factors, however, contributed to flat loan growth when comparing year-end balances at December 31, 2006 to December 31, 2005. Total loans for both periods were $1.97 billion. Nonperforming assets increased to $29.5 million, or 1.12% of total assets at December 31, 2006, compared to $18.6 million or 0.63% for the same date in 2005. Contributing to the increase was the placement of several credits on nonaccrual status in December 2006. Net loan charge offs were $9.5 million for 2006 compared to $7.9 million for 2005.

In 2006, our Simply Better Money Market was the primary vehicle accounting for the net increase in deposits for the year. This product was aggressively marketed in our new branches and throughout our branch network. Money market deposits increased $185.5 million or 72.8% primarily as a result of our marketing efforts as well as some existing depositors shifting their balances out of lower yielding interest bearing demand and savings deposits. Interest bearing demand and savings deposits declined 9.3% and 49.0%, respectively. CDs remained popular with depositors in 2006. As a result, time deposits or CDs increased 7.6% to $872.9 million at year-end 2006. Total deposits at December 31, 2006 were $2.00 billion, a net increase of $30.6 million from December 31, 2005. Although net deposit growth was modest in 2006, strong deposit growth in our new branches allowed us to substantially reduce our reliance on other more expensive wholesale deposit funding sources and, in turn, strengthened liquidity.

Our non-interest expense increased 42.1% principally due to the $15.3 million loss on FHLB advances associated with the balance sheet restructure in the fourth quarter of 2006. Excluding the loss on advances, non-interest expense increased 11.4% in 2006. The increase was principally due to higher salaries and employee benefits and occupancy costs associated with our branch expansion, as well as greater other non-interest expense. Other non-interest expense increased as a result of costs associated with our 2006 proxy contest, in addition to higher regulatory and compliance related expenses. Excluding the effects of the balance sheet restructure, our efficiency ratio would have been 60.42% for 2006 compared to 54.69% for 2005. Net interest income growth below expectations, combined with higher expenses and lower non-interest income, resulted in the higher efficiency ratio.

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Based on the results of an annual examination by the OCC in January 2006, and more limited reviews in August and November 2006 to update progress with the requirements of the formal agreement, we continue to believe that the Bank has made progress with respect to compliance with many areas of the formal agreement, but we do not expect the OCC to terminate its formal agreement at this time. Our annual examination by the OCC commenced in January 2007.

We anticipate the market challenges we experienced in 2006, which included a flat to inverted yield curve, increased deposit costs, and a competitive commercial loan origination environment will continue into 2007. We have positioned our balance sheet for 2007 to take advantage of gradually declining interest rates, a scenario we believe more likely in the coming year. We deem the benefits we have realized, and expect to realize, as the result of the ongoing execution of our retail strategy merit the investment of resources in people, facilities, marketing and technology. We believe continuing to grow our commercial loan business, extending our geographic footprint and attracting lower cost core deposits provide us an opportunity to enhance profitability and increase the value of the YNB franchise.

Net Interest Income

Net interest income is the largest and most significant component of our operating income. Net interest income is the difference between income on interest earning assets and expense on interest bearing liabilities. Net interest income depends upon the relative amounts and types of interest earning assets and interest bearing liabilities, and the interest rate earned or paid on them. Net interest income is also impacted by changes in interest rates and the shape of market yield curves.

The following table sets forth an analysis of net interest income by each major category of average interest earning assets and interest bearing liabilities, and the related yields and costs for the years ended December 31, 2006, 2005, 2004, 2003 and 2002. Average yields for each year are derived by dividing income by the average balance of the related assets, and average costs are derived by dividing expense by the average balance of the related liabilities. The yields and costs include fees, costs, premiums and discounts, which are considered adjustments to interest rates.

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Financial Summary

Average Balances, Yields and Costs

	December 31, 2006							December 31, 2005
(in thousands)		Average Balance			Interest	Average Yield/ Cost			Average Balance			Interest	Average Yield/ Cost
INTEREST EARNING ASSETS:
Interest bearing deposits with banks	$	37,321		$	1,979	5.30	%	$	30,534		$	1,027	3.36	%
Federal funds sold		16,475			835	5.07			23,112			730	3.16
Securities		782,531			38,527	4.92			860,430			40,826	4.74
Loans (1)		1,995,515			148,190	7.43			1,880,166			127,684	6.79
Total interest earning assets	$	2,831,842		$	189,531	6.69	%	$	2,794,242		$	170,267	6.09	%
NON-INTEREST EARNING ASSETS:
Cash and due from banks	$	33,735						$	32,939
Allowance for loan losses		(23,019	)						(21,823	)
Premises and equipment, net		11,791							10,716
Other assets		77,827							76,561
Total non-interest earning assets		100,334							98,393
Total assets	$	2,932,176						$	2,892,635
INTEREST BEARING LIABILITIES:
Deposits:
Savings, money markets, and interest
bearing demand	$	948,828		$	27,461	2.89	%	$	985,346		$	20,757	2.11	%
Certificates of deposit of $100,000 or more		244,662			10,706	4.38			208,521			6,992	3.35
Other time deposits		596,517			26,626	4.46			497,530			16,432	3.30
Total interest bearing deposits		1,790,007			64,793	3.62			1,691,397			44,181	2.61
Borrowed funds		671,656			35,117	5.23			740,075			38,114	5.15
Subordinated debentures		62,892			5,491	8.73			62,892			4,759	7.57
Total interest bearing liabilities	$	2,524,555		$	105,401	4.18	%	$	2,494,364		$	87,054	3.49	%
NON-INTEREST BEARING LIABILITIES:
Demand deposits	$	209,160						$	209,179
Other liabilities		14,946							22,520
Stockholders' equity		183,515							166,572
Total non-interest bearing liabilities
and stockholders' equity	$	407,621						$	398,271
Total liabilities and stockholders' equity	$	2,932,176						$	2,892,635
Interest rate spread (2)						2.51	%						2.60	%
Net interest income and margin (3)				$	84,130	2.97	%				$	83,213	2.98	%
Net interest income and margin
(tax equivalent basis) (4)				$	86,284	3.05	%				$	85,187	3.05	%

____________

(1)	Loan origination fees are considered an adjustment to interest income. For purposes of calculating loan yields, average loan balances include nonaccrual balances with no related interest income.
(2)	The interest rate spread is the difference between the average yield on interest earning assets and 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 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 the appropriate Federal income tax rate for the period and has the effect of increasing interest income by $2,154,000, $1,974,000, $1,678,000, $1,419,000 and $1,245,000 for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively.

December 31, 2004							December 31, 2003							December 31, 2002
Average Balance			Interest		Average Yield/ Cost		Average Balance			Interest		Average Yield/ Cost		Average Balance			Interest		Average Yield/ Cost
$	25,545		$	371	1.45	%	$	10,383		$	121	1.17	%	$	2,887		$	60	2.08	%
	26,198			347	1.32			48,102			523	1.09			72,790			1,157	1.59
	879,794			38,640	4.39			878,698			35,296	4.02			864,895			43,647	5.05
	1,626,477			100,506	6.18			1,323,243			85,529	6.46			1,085,306			75,395	6.95
$	2,558,014		$	139,864	5.47	%	$	2,260,426		$	121,469	5.3	%	$	2,025,878		$	120,259	5.94	%
$	29,026						$	25,428						$	22,965
	(18,805	)						(17,060	)						(14,771	)
	11,200							12,085							11,363
	73,045							67,005							51,198
	94,466							87,458							70,755
$	2,652,480						$	2,347,884						$	2,096,633
$	880,130		$	12,929	1.47	%	$	662,262		$	10,834	1.64	%	$	469,985		$	11,228	2.39	%
	161,065			4,165	2.59			137,168			4,014	2.93			148,119			5,184	3.50
	460,694			12,269	2.66			457,717			14,521	3.17			469,858			17,747	3.78
	1,501,889			29,363	1.96			1,257,147			29,369	2.34			1,087,962			34,159	3.14
	738,110			36,071	4.89			742,877			35,799	4.82			735,201			36,403	4.95
	55,718			3,711	6.66			40,395			3,121	7.73			33,700			3,214	9.54
$	2,295,717		$	69,145	3.01	%	$	2,040,419		$	68,289	3.35	%	$	1,856,863		$	73,776	3.97	%
$	185,443						$	139,332						$	118,154
	21,679							22,728							17,493
	149,641							145,405							104,123
$	356,763						$	307,465						$	239,770
$	2,652,480						$	2,347,884						$	2,096,633
					2.46	%						2.02	%						1.97	%
			$	70,719	2.76	%				$	53,180	2.35	%				$	46,483	2.29	%
			$	72,397	2.83	%				$	54,599	2.42	%				$	47,728	2.36	%

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Changes in net interest income and margin result from the interaction between the volume and composition of interest 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

	2006 vs. 2005 Increase (Decrease) Due to changes in:								2005 vs. 2004 Increase (Decrease) Due to changes in:
(in thousands)		Volume			Rate		Total			Volume			Rate		Total
INTEREST EARNING ASSETS:
Interest bearing deposits with banks	$	265		$	687	$	952		$	85		$	571	$	656
Federal funds sold		(251	)		356		105			(45	)		428		383
Securities		(3,802	)		1,503		(2,299	)		(859	)		3,045		2,186
Loans (1)		3,651			16,855		20,506			16,645			10,533		27,178
Total interest income		(137	)		19,401		19,264			15,826			14,577		30,403
INTEREST BEARING LIABILITIES:
Deposits:
Savings, money markets, and interest
bearing demand		(790	)		7,494		6,704			1,686			6,142		7,828
Certificates of deposit of $100,000 or more		1,339			2,375		3,714			1,416			1,411		2,827
Other time deposits		3,684			6,510		10,194			1,038			3,125		4,163
Total deposits		4,233			16,379		20,612			4,140			10,678		14,818
Borrowed funds		(3,580	)		583		(2,997	)		97			1,946		2,043
Subordinated debentures		-			732		732			508			540		1,048
Total interest expense		653			17,694		18,347			4,745			13,164		17,909
Net interest income	$	(790	)	$	1,707	$	917		$	11,081		$	1,413	$	12,494

__________

(1) Loan origination fees are considered adjustments to interest income.

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During 2006 our net interest margin was relatively stable. We experienced some improvement in our fourth quarter net interest margin due to our balance sheet restructure and expect the full quarterly benefit in our first quarter 2007 net interest margin. The table below lists various components relating to our net interest margin by quarter for 2006 and 2005.

	2006												2005
	4th Qtr			3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
Interest Earning Assets:
Interest bearing deposits with banks		5.32	%		5.61	%		5.19	%		4.66	%		4.18	%		3.54	%		3.08	%		2.47	%
Federal funds sold		5.30			5.28			4.95			4.39			3.98			3.45			2.94			2.43
Securities		4.98			4.96			4.92			4.84			4.84			4.76			4.71			4.67
Loans		7.58			7.59			7.37			7.17			7.12			6.91			6.69			6.40
Total interest earning assets		6.85	%		6.81	%		6.65	%		6.46	%		6.39	%		6.16	%		6.02	%		5.78	%
Interest Bearing Liabilities:
Interest bearing deposits		3.93	%		3.79	%		3.55	%		3.19	%		3.02	%		2.75	%		2.45	%		2.19	%
Borrowed funds		5.14			5.32			5.25			5.19			5.24			5.26			5.07			5.02
Subordinated debentures		8.99			8.97			8.65			8.31			8.13			7.74			7.35			7.04
Total interest bearing liabilities		4.34	%		4.33	%		4.15	%		3.89	%		3.78	%		3.60	%		3.38	%		3.18	%
Interest rate spread		2.51	%		2.48	%		2.50	%		2.57	%		2.61	%		2.56	%		2.64	%		2.60	%
Net interest margin		3.01			2.95			2.93			3.00			3.03			2.94			3.00			2.94
Net interest margin (tax equivalent basis)		3.09			3.02			3.01			3.08			3.10			3.01			3.07			3.01

Net Interest Margin and Net Interest Income

Our net interest margin, on a tax equivalent basis, was 3.05% for the twelve months ending December 31, 2006, the same as reported for 2005. In 2005, the Federal Open Market Committee (FOMC) increased short-term interest rates 200 basis points and an additional 100 basis points in the first six months of 2006. Primarily as a result of these rate increases and competition for deposits, our cost of funds increased 64 basis points during 2006. In 2006, longer term rates have remained relatively unchanged compared to the rise in short term rates. As a result, while shorter term deposit costs have sharply increased, yields on fixed rate loans and securities have not significantly increased. This trend limited the growth of net interest income and helped cause the 2006 net interest margin to remain at the same level as 2005. In addition, the higher level of nonaccrual loans in 2006 compared to 2005 had a negative impact on our net interest margin. Our tax equivalent margin would have been higher by five basis points in 2006 and three basis points in 2005 had all nonaccrual loans performed at original contract terms.

The net interest margin is calculated by dividing net interest income by average earning assets. Based on the factors discussed above, our tax equivalent net interest margin would have marginally declined year over year if we had not restructured our balance sheet in the fourth quarter of 2006. The proceeds from selling lower yielding securities to retire higher cost FHLB advances, combined with an additional refinancing of other advances, resulted in a higher fourth quarter net interest margin and raised our margin for the year. Beginning in the first quarter of 2007, we expect to realize the full quarterly benefit of the balance sheet restructure to our tax equivalent net interest margin.

While we continue to execute our retail strategy, which is designed to attract lower cost deposits, we believe there will be continued pressure on the net interest margin until the yield curve steepens. Additionally, competition for loans and deposits will also add pressure on our net interest margin during 2007.

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Net interest income, on a tax equivalent basis, increased 1.3% to $86.3 million for 2006, compared to $85.2 million for 2005. The increase is primarily attributable to the increased volume and rate on average loans, partially offset by the higher volume and cost of interest bearing deposits.

In 2006, interest income rose to $189.5 million, or 11.3%, from $170.3 million in 2005, primarily due to higher interest income on loans. Average interest earning assets increased $37.6 million or 1.3% to $2.83 billion in 2006 from $2.79 billion in 2005. Loans averaged $2.0 billion for 2006, an increase of $115.3 million or 6.1% compared to $1.88 billion for 2005. During 2006, interest and fees on loans increased $20.5 million, or 16.1%, as loan yields increased by 64 basis points to 7.43% from 6.79% for 2005. Our yield on loans is affected by market rates, the level of adjustable rate loans, repayment or repricing of higher fixed rate loans, portfolio mix, the level of nonaccrual loans, and other factors. The principal factor moving loan yields higher in 2006 was our floating rate commercial loans in the first half of the year. In the second half of 2006, the yield on commercial loans began to decline modestly. This was due primarily to two factors. The composition of the commercial loan portfolio took on a more fixed rate profile as existing borrowers moved from higher rate floating rates into lower fixed rates and new borrowers sought loans at fixed rates. Floating rate commercial loans of $167.4 million with an average rate of 7.56% had reached their interest rate caps, which also contributed to the pressure on our commercial loan yield. At December 31, 2006 floating rate loans with caps totaled $185.1 million at an average rate of 7.66%. Fixed rate commercial loans totaled approximately 62% of total commercial loans at year-end 2006 compared to 53% at year-end 2005. Secondly, the strong competition in our markets was reflected in competitive terms and interest rates on fixed rate loans, which also added to a moderately declining commercial loan yield. We would expect that pressure on our commercial loan yield to continue in 2007 based on expected market conditions.

Average securities declined $77.9 million or 9.1% to $782.5 million in 2006 from $860.4 million in 2005. The decline in average securities was due primarily to the sale of shorter duration agency securities totaling approximately $295 million as part of the fourth quarter balance sheet restructure. As a result, interest on securities declined $2.3 million in 2006. The average yield on the securities portfolio, however, increased 18 basis points to 4.92% during 2006. In the second half of 2005, the securities portfolio was positioned in modestly longer duration mortgage-backed securities based on the repricing characteristics of our balance sheet at that time. This produced a higher portfolio yield compared to peers in a difficult yield curve environment during 2006.

The combination of higher average interest bearing deposits and increased average costs due to the higher interest rate environment on all interest bearing liabilities resulted in a $18.3 million or 21.1% increase in interest expense. Average interest bearing deposits rose $98.6 million to $1.79 billion, while overall deposit costs rose 101 basis points to 3.62% during 2006. The increased cost was due to the highly competitive environment for deposits and the higher interest rate environment in the first half of 2006. Also contributing to increased interest expense on deposits were $125.0 million in two-year pay floating rate swaps, indexed to one month and three month LIBOR, which were entered into in 2004 to better match the repricing terms of our CDs and floating rate commercial loans by converting longer term fixed rate CDs to floating rate. After lowering CD costs in 2004 and the first half of 2005, the increase in LIBOR rates contributed to increased CD costs and interest expense for 2006.

We continued the execution of our retail strategy in 2006 with the ongoing objective of effectively managing our cost of funds by attracting lower cost deposits through a larger geographic footprint. In 2006, average savings, money markets and interest bearing demand deposits declined $36.5 million or 3.7% to $948.8 million. The decline in this deposit category included the runoff of approximately $68.3 million in Reserve Fund money market balances. Reserve Funds are priced at a premium to the Federal funds rate and are more expensive than funds we have generated through our branches. We were able to reduce our usage of these funds by replacing them with money market balances raised through our branch network. In addition, there was shifting of deposit balances out of lower cost interest bearing demand and savings accounts into higher cost Simply Better Money Market accounts.

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Average time deposits, including CDs of $100,000 or more, increased $135.1 million or 19.1% to $841.2 million in 2006 compared to $706.1 million in 2005. We increased time deposit rates during 2006 due to the interest rate environment, funding needs and competitive factors. Average non-interest bearing demand deposits remained at $209.2 million in 2006, the same average as reported in 2005. Although average non-interest bearing demand deposits remained stable during 2006, actual balances declined approximately $35.1 million, particularly due to competitive factors and the desire of businesses to earn a rate of return on their operating balances. We expect the challenge of attracting interest free demand deposit balances to continue in 2007, which will have an impact on net interest income and margin performance.

Average borrowed funds decreased $68.4 million while average subordinated debentures remained unchanged. Related interest costs increased by 8 and 116 basis points to 5.23% and 8.73%, respectively. The decline in average borrowed funds and related interest expense was due to the payoff and refinancing of $320.0 million in FHLB advances in the fourth quarter, as well as called FHLB advances retired during 2006. The payoff and refinancing of higher cost advances as part of the balance sheet restructure will result in significant interest expense savings in 2007. The cost of FHLB advances, based on composition of the advance portfolio at December 31, 2006, is approximately 4.25%. We had $62.9 million in outstanding subordinated debentures, of which $41.2 million had floating interest rates tied to spreads over LIBOR, which is the primary cause for the increase in interest expense of $732,000 as rates rose, primarily during the first half of 2006.

We expect continued strong competition for commercial loans and deposits in 2007. We believe the balance sheet restructure completed in the fourth quarter of 2006 will make significant positive contributions to the net interest margin starting in the first quarter of 2007. The impact of competition and a continued flat to at times inverted yield curve, however, is anticipated to result in margin pressure throughout 2007 and could limit the expansion of the margin as a result of the balance sheet restructure. To achieve our profitability goals in 2007 we need to increase commercial loan growth, improve asset quality and manage our cost of funds by executing our retail strategy. In 2007, we will continue to open branches in new and developing markets, promote our brand image, and market YNB’s attractive core deposit products, which include our Simply Better suite of product offerings. Our balance sheet is currently positioned to perform optimally in a lower interest rate environment, which we believe will give us the best opportunity to increase profitability and enhance shareholder value in 2007.

Provision for Loan Losses

We provide for loan losses by a charge to current income to maintain the allowance for loan losses at an adequate level, to absorb probable losses inherent in our loan portfolio, determined according to our documented allowance adequacy methodology. The provision for loan losses for the year ended December 31, 2006 was $11.4 million compared to $10.5 million for 2005. The provision for loan losses is determined after a detailed review of our loan portfolio which focuses on credit risk ratings, nonaccrual loans and the level of problem credits. Net charge offs were 0.48% and 0.42% of average loans for the years ended December 31, 2006 and 2005, respectively. The allowance for loan losses increased by $1.9 million to $24.6 million at December 31, 2006 compared to $22.7 million at the end of 2005. The increase in the allowance was due primarily to a change in asset quality. The allowance for loan losses as a percentage of total loans was 1.25% at December, 31, 2006 compared with 1.15% at December 31, 2005. See “Asset Quality” and “Allowance for Loan Losses” under the heading “Review of Financial Condition.”

Non-Interest Income

The largest component of our non-interest income is service charges and related fees on deposit accounts and other banking services. We also earn non-interest income as a result of income on bank owned life insurance (BOLI), investment and insurance fees, and other non-interest income. Net securities gains or losses also impact our level of non-interest income.

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For 2006, non-interest income totaled $758,000 compared to $7.5 million for 2005. The decline was due primarily to the securities losses associated with the fourth quarter balance sheet restructuring, which resulted in a pre-tax loss of $6.5 million. Excluding net securities losses or gains, non-interest income represented 3.7% of total revenues for 2006 and 2005.

Non-interest income, excluding net securities losses or gains, increased by $653,000 or 9.9% to $7.3 million for 2006 compared to $6.6 million for 2005. The increase was principally due to higher income on other service fees and BOLI.

The components of non-interest income for the three-year period ended December 31, 2006 are presented in the following table.

	Year ended December 31,
(in thousands)	2006			2005		2004
Service charges on deposit accounts	$	2,840		$	2,819	$	3,134
Other service fees		1,989			1,401		1,495
Income on bank owned life insurance		1,799			1,651		1,766
Prepayment penalties on loans		406			485		—
Securities (losses) gains, net		(6,523	)		862		1,297
Other non-interest income		247			272		287
Total	$	758		$	7,490	$	7,979

Service charges on deposit accounts represent the largest single source of our non-interest income. Service charges on deposit accounts increased a modest $21,000 or 0.74%, primarily due to higher overdraft and uncollected funds activity. We have also competitively positioned certain product offerings, which has slowed or, in some cases, reduced service charge income. For example, the landscape for attracting business checking accounts has notably changed. Our business customers that meet certain minimum balance requirements can avoid paying fees on their checking account, which has affected the level of service charge income growth.

Other service fee income totaled $2.0 million in 2006, an increase of $588,000 or 42.0% when compared to $1.4 million in 2005. Other service fee income is comprised of VISA debit income, automated teller machine fees, wire transfer fees, earnings on certain community reinvestment assets and a variety of fee-based services. In 2006, the increase in other service fee income was due to greater community reinvestment income and VISA debit income.

Income on BOLI was $1.8 million in 2006, an increase of $148,000 or 9.0% from $1.7 million in 2005. The increase in income was due to a higher interest crediting rate for 2006 applicable to certain BOLI assets and the purchase of an additional $1.7 million in BOLI assets in May 2006. BOLI income is exempt from Federal and state income taxes. Our BOLI portfolio increased to $49.7 million at December 31, 2006 from $46.2 million at December 31, 2005. BOLI assets are single premium insurance policies purchased from multiple carriers to offset the costs of deferred compensation plans and other employee benefits. The level of these investments is limited to 25% of Tier 1 capital at the time of purchase.

Net securities losses totaled $6.5 million during 2006 compared to net securities gains of $862,000 in 2005. The decline was due to the aforementioned balance sheet restructure.

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Non-interest Expense

Our non-interest expense consists primarily of salaries and employee benefits, occupancy, equipment and other expenses related to conducting and expanding our operations. In 2006, non-interest expense totaled $70.5 million, an increase of $20.9 million or 42.1%, compared to $49.6 million in 2005. The increase in non-interest expense in 2006 was primarily due to the loss on redemption of FHLB advances, which accounted for nearly 75% of the total increase in non-interest expense in 2006 compared to 2005.

Excluding the impact of the one-time charges associated with the loss on redemption of FHLB advances, total non-interest expense would have been $55.2 million for the year ended December 31, 2006, an increase of $5.6 million or 11.4% from 2005. The largest increases were in salaries and employee benefits, occupancy, FDIC insurance premiums and attorneys’ fees. To a lesser extent, audit and examination fees also contributed to higher non-interest expense in 2006. Included in these expenses are costs incurred in connection with our proxy contest and related litigation of approximately $750,000 as well as additional expenses resulting from our agreement with the OCC.

Our efficiency ratio, which provides a measure of our operating efficiency, is total non-interest expense as a percentage of the sum of net interest income plus non-interest income. We also measure our efficiency ratio on a tax equivalent basis. Our efficiency ratio was significantly higher in 2006, due principally to the balance sheet restructure, finishing the year at 83.05% compared to 54.69% in 2005. Our core efficiency ratio, excluding the balance sheet restructure, would have been 60.42% in 2006. On a tax equivalent basis, our core efficiency ratio was 59.03% and 53.52% for 2006 and 2005, respectively. Our core efficiency ratio in 2006 was moderately higher than 2005, due primarily to higher non-interest expense, partially offset by the increase in net interest income. The increase in net interest income for 2006 compared to 2005 was less than expected due to slower than anticipated commercial loan growth and higher deposit costs. As a result, non-interest expenses increased disproportionately, compared to net interest income. Our goal is to maintain our efficiency ratio in the range of 55% to 60% even as we grow. If we are not able to meet net interest income projections in 2007, our core efficiency ratio could continue to increase as non-interest expense will increase primarily due to the costs associated with a larger branch network.

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The following table presents the major components of non-interest expense for the years ended December 31, 2006, 2005, and 2004.

	Year ended December 31,
(in thousands)	2006		2005		2004
Salaries and employee benefits	$	29,800	$	27,654	$	23,476
Loss on redemption of FHLB advances		15,271		—		—
Occupancy expense, net		6,016		4,934		4,283
Equipment expense		3,297		3,173		3,123
Marketing		2,212		2,224		1,768
Audit and examination fees		1,607		1,323		1,032
Outside services and processing fees		1,497		1,773		1,483
Attorneys' fees		1,295		662		509
Communication and postage		1,094		981		938
Stationery and supplies		1,089		941		757
Directors and committee fees		1,045		1,004		1,355
FDIC insurance premium		909		259		239
Insurance		568		563		393
Real estate appraisal fees		299		134		33
Amortization of subordinated debentures expense		273		272		251
Deposit intangible amortization		204		204		204
ORE expense		148		79		5
Other		3,879		3,422		2,800
Total	$	70,503	$	49,602	$	42,649

Salaries and employee benefits is the largest component of non-interest expense. Benefits expense includes the cost of health insurance, benefit plans, incentive compensation and payroll taxes, which have collectively increased in each of the past three years as we have employed more personnel. Salaries and employee benefits increased $2.1 million or 7.8% to $29.8 million for the year ended December 31, 2006 compared to $27.7 million for the same period in 2005. Full time equivalent employees increased to 415 at December 31, 2006 from 406 at December 31, 2005. Salary expense rose $1.3 million or 6.0% to $22.6 million in 2006, primarily due to new hires in 2006, merit pay increases and the full impact of employees hired in 2005. Staffing additions in 2006 and 2005 resulted from our continued branch expansion and enhanced regulatory compliance and risk management requirements. Benefits expense increased 13.6%, principally due to higher health benefit costs and payroll taxes associated with the increase in full time employees. Also contributing to the increase in benefits expense were costs associated with our post retirement benefits.

Occupancy costs consist primarily of rent, taxes and related maintenance costs. Net occupancy expense increased $1.1 million or 21.9% to $6.0 million in 2006 from $4.9 million in 2005. The increase was principally due to costs associated with the expansion of our retail franchise, which is expected to continue with the opening of several new branch locations in 2007.

FDIC insurance premiums and audit and examination fees increased 251.0% and 21.5% to $909,000 and $1.6 million, respectively in 2006. As a result of our agreement with the OCC we are required to pay higher bank examination fees and FDIC insurance premiums. Our audit and tax fees also include additional costs incurred to comply with the corporate governance and financial reporting requirements of the Sarbanes-Oxley Act of 2002. We anticipate that when the OCC agreement is terminated, our FDIC insurance premiums and OCC examination fees will decline; however, we do not expect termination of the agreement in 2007.

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Primarily due to costs related to our proxy contest and related litigation, attorneys’ fees increased $633,000 or 95.6% to $1.3 million from $662,000 in 2005. Also contributing to the increase were costs associated with problem loan workout and regulatory compliance issues as well as expenses reflecting the growth of our franchise.

Other expenses totaled $3.9 million in 2006 compared to $3.4 million in 2005. Other expenses are comprised of a variety of professional fees, which include expenses associated with the origination and management of loans and other operating expenses. This increase also reflects certain costs related to our proxy contest.

We believe that non-interest expenses will increase in 2007 as we continue to execute our retail strategy, which will be reflected in higher salaries and employee benefits and occupancy expense. In addition, we anticipate that costs associated with a proxy contest and related litigation will again contribute to non-interest expense. We also expect continued increased FDIC insurance premiums and higher examination fees as a result of our agreement with the OCC.

Income Taxes

We have identified accounting for income taxes as a critical accounting policy. The provision for income taxes, comprised of Federal and state income taxes, provided a tax benefit of $2.2 million for 2006, a decrease of $11.9 million when compared to tax expense of $9.6 million for 2005. The tax benefit in 2006 primarily resulted from the adjustment of pre-tax book income for permanent differences such as tax-exempt interest income and income on BOLI, which produced a pre-tax loss from operations of $2.8 million. The provision for income taxes in 2005 was at an effective rate of 31.5%. We anticipate that our overall effective tax rate in 2007 will return closer to the level experienced in 2005.

Financial Condition

Summary

Total assets at December 31, 2006 were $2.62 billion, a decrease of $336.0 million or 11.4%, as compared to total assets of $2.96 billion at December 31, 2005. The decline in our balance sheet is principally due to the fourth quarter balance sheet restructure, which reduced securities available for sale and FHLB advances by approximately $320.0 million. We also experienced slowing loan growth, reflective of the challenging commercial loan market we faced in 2006.

We expect moderate asset growth in 2007 based on anticipated expansion in our commercial loan portfolio funded primarily from deposits attracted through our expanding branch network. In 2007, we will be increasing our emphasis on small business loan and deposit generation opportunities as part of our efforts to promote our relationship banking philosophy and to improve our financial performance.

Loans

We are a reputable and dynamic provider of commercial loans, which include commercial real estate and commercial and industrial loans, to creditworthy borrowers in our markets, with such loans generally secured by properties within our primary service areas.

We experienced accelerated loan payoffs and intense competition for commercial loans in 2006, both contributing factors in our flat net loan growth this past year. Total loans at December 31, 2006 held steady, finishing the year at $1.97 billion, the same as at the end of 2005. Growth in commercial and industrial loans of $23.3 million was primarily offset by a decline of $22.0 million in commercial real estate loans. During 2006, our average loan growth was influenced by our relationships with several larger real estate developers. We have been

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successful in providing this type of customer with construction and development financing as well as selected permanent financing. A slowdown in the real estate market has limited the opportunities for growth in our construction portfolio. Increased competition for permanent financing has limited our success in that market. As a result of these trends, we experienced slower loan growth in 2006. Should these trends continue in 2007, we would expect loan growth to continue to be slow.

Average loans increased $115.3 million during 2006, indicative of the ongoing commercial activity in our home Mercer County market as well as the developing markets of Hunterdon, Middlesex and Somerset Counties. Despite a somewhat tenuous real estate market in New Jersey, the economy has remained resilient and we expect continued opportunities to build new and grow established relationships.

Even with the average loan growth we produced in 2006, year over year actual growth fell short of expectations and results we have generated in the past. During 2006, we again experienced a significant level of commercial loan payoffs. Total commercial loan payoffs during 2006 totaled $326.1 million compared to $252.2 million in 2005.

Increased competition was reflected in aggressive pricing and terms offered by our competitors in 2006. Generally, we have not been willing to match pricing that does not earn us an acceptable rate of return or compromise underwriting standards to meet projected or budgeted growth targets. We focus our efforts on building new relationships and providing quality service to our established loan customers who value our relationship banking philosophy.

The following table reflects the composition of the loan portfolio for the five years ended December 31, 2006.

LOAN PORTFOLIO COMPOSITION

	December 31,
	2006				2005				2004				2003				2002
(in thousands)		Amounts	%			Amounts	%			Amounts	%			Amounts	%			Amounts	%
Commercial real estate
Investor occupied	$	574,855	29.1	%	$	596,476	30.3	%	$	594,799	33.4	%	$	432,571	30.0	%	$	21,583	26.9	%
Owner occupied		258,345	13.1			225,823	11.4			215,313	12.1			204,539	14.2			164,450	13.8
Construction and
development		244,207	12.4			277,075	14.0			190,546	10.7			123,790	8.6			121,295	10.1
Commercial and industrial
Lines of credit		409,848	20.8			375,737	19.0			301,163	16.9			218,097	15.1			207,562	17.4
Term		139,791	7.1			150,059	7.6			169,829	9.5			169,296	11.7			129,513	10.8
Demand		1,591	0.1			2,112	0.1			374	0.0			1,199	0.1			972	0.1
Residential
1-4 family		167,132	8.5			175,503	8.9			159,306	8.9			150,733	10.4			116,829	9.8
Multi- family		37,514	1.9			33,536	1.7			22,717	1.3			30,097	2.1			34,012	2.8
Consumer
Home equity		95,902	4.8			90,414	4.6			86,295	4.8			78,877	5.5			70,579	5.9
Installment		32,446	1.6			32,719	1.7			32,149	1.8			24,165	1.7			19,078	1.6
Other		11,250	0.6			13,386	0.7			10,101	0.6			9,991	0.6			9,270	0.8
Total	$	1,972,881	100.0	%	$	1,972,840	100.0	%	$	1,782,592	100.0	%	$	1,443,355	100.0	%		1,195,143	100.0	%

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At December 31, 2006 commercial loans represented 82.6% of total loans compared to 82.5% in 2005. We endeavor to maintain a diversified real estate portfolio to protect against a potential downturn in any one business sector. We manage risk associated with our commercial portfolio, including participations, through underwriting policies and procedures, diversification and loan monitoring efforts. Our underwriting standards include requiring independent third party appraisals, periodic property inspections, analyses of the quality and experience of the organization or developer managing each property, and evaluations of the cash flow capability of borrowers to repay loans. In addition to real estate collateral, the majority of our commercial loans are secured by business assets and most are secured by personal guarantees and other assets of the principals.

Commercial real estate loans decreased by $22.0 million, or 2.0% in 2006 to $1.08 billion from $1.10 billion in 2005. The commercial real estate portfolio includes mortgage loans on owner occupied and tenanted investment properties (investor occupied), and construction and development loans. Growth in 2006 was relegated to owner occupied loans, which increased by $32.5 million or 14.4% to $258.3 million at December 31, 2006. Investor and owner occupied commercial mortgages are principally secured by professional office buildings, retail stores, shopping centers and industrial developments, generally with maturities of five to fifteen years. Construction and development loans primarily fund residential and commercial projects, and to a lesser extent, acquisition of land for future development. 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. Generally, construction loans have terms of one to two years, are interest only, and have floating interest rates indexed to the prime rate.

Commercial and industrial loans consist of lines of credit, term loans, and demand loans. Led by an increase of $34.1 million in lines of credit, total commercial and industrial loans grew $23.3 million or 4.4% to $551.2 million at December 31, 2006 compared to $527.9 million for the same period in 2005. Commercial and industrial loans typically consist of loans to finance equipment, inventory, receivables, and other working capital needs of small to mid-size businesses.

The following table provides information by industry classification for our commercial and industrial loan portfolio at December 31, 2006.

Industry Classification (balance in thousands)	Balance		Percent of Balance			Number of Loans
Real estate-related	$	150,782		27.4	%		276
Construction		116,498		21.1			149
Services		112,162		20.3			331
Finance and insurance		55,552		10.1			57
Retail trade		49,715		9.0			159
Manufacturing		23,186		4.2			92
Individuals		21,386		3.9			71
Wholesale trade		10,323		1.9			44
Transportation and public utilities		4,299		0.8			31
Other		7,327		1.3			24
Total	$	551,230		100.0	%		1,234

Our commercial and industrial loan portfolio encompasses a wide variety of industry classifications. At December 31, 2006, the largest concentrations of commercial and industrial loans were in the real estate-related, construction and services industries. Real estate and construction-related loans represented 48.5% of our commercial and industrial loan portfolio. These loans are subject to risks similar to those that impact our commercial real estate loan portfolio. The other significant industry classification is loans to the services industry, which totaled 20.3% of our commercial and industrial loan portfolio at year-end 2006. Loans to the service industry, for example, include loans made to healthcare facilities, professionals and hotels, among many

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others. There are no significant concentrations of loans to any particular sector of the services industry. While we do not believe that these loan concentrations present any undue risk, we will continue to monitor loan concentrations by industry classification and diversify risk as we deem appropriate.

The following table provides information concerning the maturity and interest rate sensitivity of our commercial and industrial and commercial real estate-construction and development portfolios at December 31, 2006.

(in thousands)	Within one year		After one but within five years		After five years		Total
Maturities:
Commercial and industrial	$	298,645	$	227,316	$	25,269	$	551,230
Commercial real estate - construction and development		157,565		69,736		16,906		244,207
Total	$	456,210	$	297,052	$	42,175	$	795,437
Type:
Floating rate loans	$	367,622	$	90,231	$	9,714	$	467,567
Fixed rate loans		88,588		206,821		32,461		327,870
Total	$	456,210	$	297,052	$	42,175	$	795,437

Residential real estate loans are comprised of 1-4 family and multi-family loans. Residential mortgages consist of first liens on owner occupied 1-4 family residences while multi-family loans primarily consist of loans secured by apartment complexes. As a participating seller and servicer of the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) we generally underwrite residential real estate loans to conform with standards required by these agencies. Residential real estate loans decreased $4.4 million or 2.1% to $204.6 million at December 31, 2006 compared to $209.0 million at December 31, 2005. The decline in these loans is primarily due to notably decreasing real estate values, which has slowed overall residential real estate activity. Residential 1-4 family loans represented $167.1 million, or 81.7% of all residential real estate loans at December 31, 2006. In 2006, residential 1-4 family loans declined $8.4 million while multi-family loans grew $4.0 million. Generally, 1-4 family residential real estate loans are made in connection with a broader lending relationship. As such, we are not involved in the sub-prime residential lending market, including home equity loans. At December 31, 2006 residential loans represented only 10.4% of total loans.

Consumer loans increased 2.3% to $139.6 million at year-end 2006 compared to $136.5 million at year-end 2005. Consumer loans include fixed and floating rate home equity loans and lines, indirect auto loans, personal loans and other traditional installment loans. Home equity loans and lines represented 68.7% of total consumer loans at the end of 2006. We underwrite home equity loans to the same credit standards as single family home loans. As a result, our delinquency and loss experience on home equity loans has been excellent. Like the commercial lending portfolio, the majority of our consumer loan portfolio is also secured by collateral.

We believe we can achieve loan origination objectives in 2007 by utilizing our strength as a commercial business lender and continuing to develop the Hunterdon, Middlesex and Somerset lending markets. In addition, we feel by re-energizing our small business initiatives through the use of in-market teams and the introduction of new products and services, such as a new business money market product, a complete array of business checking accounts and the opportunity to use remote deposit capture capabilities, we can establish and cement new relationships. Commercial loan growth will remain an important contributor to enhancing our profitability and franchise value.

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Asset Quality

Commercial lending is one of our most critical functions. While the most profitable part of our business is commercial lending, the risk and complexity of that business is also the greatest. Extending credit to our borrowers exposes YNB to credit risk, which is the risk that the principal balance of a loan and related interest will not be collected due to the inability of the borrower to repay the loan. We seek to manage credit risk by carefully analyzing both the debt service capacity of a borrower and the underlying collateral securing their loan. Through our lending and credit risk functions we continuously review our loan portfolio for credit risk. We manage credit risk in our loan portfolio through written loan policies, which establish underwriting standards and other standards or limits deemed necessary or prudent. These guidelines are determined by our credit approval committee and approved by the Bank’s board of directors.

Nonperforming assets as a percentage of total assets rose to 1.12% at December 31, 2006 compared to 0.63% at the same date in 2005. Since 2004, we have identified certain credits, with some requiring immediate action, as well as other problem credits, which have migrated from an initial designation as a credit that required additional monitoring, to nonaccrual status and, in some cases, being charged off. During this period, we have experienced increased nonperforming asset levels and net loan charge offs, which has produced higher provisions and lower net income.

The following table sets forth nonperforming assets in our loan portfolio by type for the five-year period ended December 31, 2006.

NONPERFORMING ASSETS

	December 31,
(in thousands)	2006		2005		2004		2003		2002
Nonaccrual loans:
Commercial real estate	$	13,211	$	5,762	$	910	$	1,321	$	2,395
Commercial and industrial		8,609		9,899		7,867		8,570		1,143
Residential		3,429		1,588		51		255		1,526
Consumer		108		561		281		35		55
Total nonaccrual loans		25,357		17,810		9,109		10,181		5,119
Restructured loans		—		—		—		—		711
Loans 90 days or more past due:
Commercial real estate		3,283		—		—		—		—
Commercial and industrial		49		—		—		—		—
Residential		382		799		791		362		323
Consumer		4		4		108		97		121
Total loans 90 days or more past due		3,718		803		899		459		444
Total nonperforming loans		29,075		18,613		10,008		10,640		6,274
Other real estate		385		—		—		—		1,048
Total nonperforming assets	$	29,460	$	18,613	$	10,008	$	10,640	$	7,322

For the five-year period ended December 31, 2006, nonperforming assets increased from $7.3 million to $29.5 million. Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming assets increased $10.8 million to $29.5 million at December 31, 2006 compared to $18.6 million at December 31, 2005. Nonperforming assets as a percentage of total loans and other real estate owned were 1.49% at December 31, 2006 compared to 0.94% at December 31, 2005.

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Nonperforming loans consist of loans on a nonaccrual basis, loans whose terms have been restructured because of a deterioration in the financial position of the borrower and loans which are contractually past due 90 days or more as to interest or principal payments and have not been classified as nonaccrual. Nonaccrual loans totaled $25.4 million or 1.29% of total loans at December 31, 2006 compared to $17.8 million or 0.90% of total loans at the same date in 2005. The increase in nonaccrual loans resulted primarily from several credits moving to nonaccrual status in December 2006. Nonaccrual commercial real estate loans accounted for approximately 52% of total nonaccrual loans. The collateral on nonaccrual loans should help to limit our losses on these loans. However, additional loan loss provisions or charge offs could be required for several reasons including the decline in collateral values.

Our policies regarding nonaccrual loans vary by loan type. Generally, commercial loans are placed on nonaccrual 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 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 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. Restructured loans remain on nonaccrual until collectibility improves and a satisfactory payment history is established, generally six consecutive monthly payments.

During 2006, the financial community in our markets became aware of two high profile credits that impacted several banks including us. Those two credits were related to Solomon Dwek and a prominent real estate developer, Kara Homes. Mr. Dwek and certain of his affiliates are defendants in an action seeking to recover funds allegedly improperly transferred to Mr. Dwek from another financial institution. We had several loans outstanding with Mr. Dwek at the time of the court action of approximately $22 million. One of those loans, a line of credit totaling $10 million was secured by a brokerage account consisting of publicly traded securities. As a result of actions taken by the court appointed fiscal agent, we realized $7.4 million from securities sold securing the line and charged off the $2.6 million of the remaining balance. We have an unsecured claim against Mr. Dwek for the amount charged off. Another loan which was secured by real estate collateral, was satisfied following the sale of the real estate collateral by the fiscal agent. At December 31, 2006 we had ten secured loans totaling approximately $12.0 million still outstanding and performing as agreed. The properties securing these loans are tenanted and we believe the fair value of each property exceeds the principal and interest due on the respective loan. During the first quarter of 2007, Mr. Dwek and certain affiliated entities which are YNB borrowers, became involved in voluntary bankruptcy proceedings. A court appointed bankruptcy trustee is now in control of Mr. Dwek’s assets. The trustee indicated that he intends to sell all of Mr. Dwek’s assets during 2007. We believe that a portion of our unsecured claim may be satisfied through these proceedings, although due to the complexity of this matter we are unable to quantify the amount and timing of a recovery, if any. In addition, we had approximately $7.6 million outstanding with Kara Homes when it filed for bankruptcy protection in 2006. One of the two projects, totaling $4.0 million, was sold in the fourth quarter, which resulted in a charge off of $195,000. The remaining project totaling approximately $3.4 million remained in nonaccrual at December 31, 2006. We expect sale of this project through the bankruptcy courts sometime in 2007.

Loans 90 days or more past due and still accruing totaled $3.7 million at December 31, 2006 compared to $803,000 at December 31, 2005. The increase is due to two commercial credits totaling $3.3 million that were past due at year-end 2006 due to maturity as the borrower and the Bank were in the process of extending the credits. These commercial real estate credits were extended during the first quarter of 2007 and are now current. There were no restructured loans at December 31, 2006 or December 31, 2005.

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At December 31, 2006 we had $94.0 million in loans that have exhibited certain weaknesses, which we have determined require additional monitoring or oversight. These credits receive frequent monitoring and although these credits may pose higher risks, do not warrant adverse classification. Additionally, as part of our analysis of the loan portfolio we have determined there were approximately $26.2 million and $19.2 million in potential problem loans at December 31, 2006 and 2005. We define potential problem loans as performing loans classified substandard, which because of well-defined weaknesses may in some cases result in a loan being placed on nonaccrual with the possibility of some principal loss if the weaknesses are not corrected. Including certain performing loans in potential problem loans is not necessarily indicative of expected losses that may occur, but reflects our recognition that these loans carry a higher probability of default. While we make every effort to accurately assess the loan portfolio, we can give no assurance that we have identified all of our potential problem loans.

Over the last several years asset quality has not met our expectations. We have experienced periods of higher levels of nonperforming assets, net loan charge offs and greater provisions, which has negatively impacted financial results. During this period, we have strengthened policies and enhanced critical processes. We continue to aggressively work our nonaccrual loans to maximize our collection of principal and interest and to return these loans to accrual status. Our goal is to return to the higher credit quality profile we experienced in the past. Factors beyond our control, such as adverse economic and business conditions, could result in higher nonperforming asset levels. Additionally, since the majority of our loans are backed by real estate collateral, if it were necessary to liquidate our real estate collateral during a period of reduced real estate values, earnings could be negatively impacted.

Allowance for Loan Losses

We have identified the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is maintained at a level believed adequate to absorb losses inherent in the loan portfolio. Working with an internal credit risk review function, which operates independently of the lending function, we monitor the loan portfolio to identify risks so that an appropriate allowance can be maintained. Our methodology for evaluating the adequacy of the allowance consists of a number of significant elements, which include specific allowances for impaired loans, an allocated allowance for specific loan pools, and an unallocated allowance to cover inherent loan losses within loan pools, which have not been otherwise reviewed or measured on an individual basis. The formal evaluation process for determining the adequacy of the allowance for loan losses takes place quarterly.

As part of our formal process, our commercial lending staff reviews, evaluates and rates our commercial loans at origination based on their respective risks. Risk classifications range from one to nine or from minimal risk to loss. Internal credit risk review staff formally evaluates risk ratings and classifications. Our criticized and classified asset committee, comprised of key executive and senior officers, as well as the credit risk review officer, is responsible for the review and oversight of higher risk performing loans and on nonperforming loans. We define higher risk performing loans to be loans that are exhibiting certain weaknesses and require a higher level of monitoring because of one or more factors such as borrower performance, business conditions, nature of collateral, or other factors. On a quarterly basis, the criticized and classified asset committee also vettes changes in risk ratings, approve strategies regarding problem credits and review impaired loan analyses. The committee will recommend charge offs based on their analyses to the credit approval committee of the Bank’s board of directors. The credit administration staff confirms reserve allocations for all impaired loans each quarter. Reserves associated with these loans are based on a thorough analysis of the most probable sources of repayment, which is normally the liquidation of collateral, but

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could also include discounted future cash flows. For more detailed information on risk classifications please see Note 1E in the Notes to the Consolidated Financial Statements.

A component of the allowance for loan losses is developed from analyzing loan pools based on specific commercial loan categories consisting of groups of borrowers with similar characteristics to better measure the risk in each loan category. The reserve percentage assigned to each risk-rating category within each pool is determined from historical loan loss rates based on an eight quarter rolling trend using migration analysis. In addition, we use our judgment concerning the anticipated impact on credit risk of economic conditions, real estate values, interest rates and business activity. Allocations for the allowance for loan losses are determined after the review described above.

Factors used to evaluate the adequacy of the allowance for loan losses include the amounts and trends of criticized loans and economic data associated with New Jersey’s real estate market. After the conclusion of this evaluation, we present the quarterly review of the loan loss reserve to the board of directors for their approval.Results of regulatory examinations may also impact our allowance for loan losses, as a review of the allowance for loan losses is typically an integral part of the regulatory examination process.

In connection with management’s assessment of our internal control over financial reporting at December 31, 2006, management identified a material weakness related to the risk rating process and resultant determination of the allowance for loan losses and the provision for loan losses, specifically as to ineffective policies and procdures related to the loan risk rating process by loan officers as well as ineffective monitoring and review by credit risk review personnel to identify and resolve discrepancies in risk ratings. As a result, we are requiring additional credit training for our loan officers, have changed personnel within the credit risk review function, enhanced administrative oversight of the credit risk review function and undertaken an expanded review of loan files to confirm appropriate risk ratings. For additional information, see “Management’s Report on Internal Control Over Financial Reporting” in Item 9A of this report.

We provide for probable loan losses inherent in the loan portfolio by a charge to current income to maintain the allowance for loan losses at an adequate level according to our documented allowance adequacy methodology. For additional information on the allowance for loan losses see Notes 1 and 4 in the Notes to the Consolidated Financial Statements.

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The following table provides information regarding loans charged off, loan recoveries, the provision for loan losses and the allowance for loan losses for the five-year period ended December 31, 2006.

ALLOWANCE FOR LOAN LOSSES

	Year Ended December 31,
(in thousands)	2006			2005			2004			2003			2002
Allowance balance, beginning of year	$	22,703		$	20,116		$	17,295		$	16,821		$	13,542
Charge offs:
Commercial real estate		(634	)		—			—			(1,853	)		(78	)
Commercial and industrial		(9,068	)		(7,484	)		(6,556	)		(6,592	)		(719	)
Residential		(663	)		(174	)		(254	)		(251	)		(168	)
Consumer		(307	)		(513	)		(229	)		(293	)		(223	)
Total charge offs		(10,672	)		(8,171	)		(7,039	)		(8,989	)		(1,188	)
Recoveries:
Commercial real estate		100			—			—			—			1
Commercial and industrial		809			18			156			6			11
Residential		6			43			30			—			—
Consumer		267			167			49			97			80
Total recoveries		1,182			228			235			103			92
Net charge offs		(9,490	)		(7,943	)		(6,804	)		(8,886	)		(1,096	)
Provision charged to operations		11,350			10,530			9,625			9,360			4,375
Allowance balance, end of year	$	24,563		$	22,703		$	20,116		$	17,295		$	16,821
Loans, end of year	$	1,972,881		$	1,972,840		$	1,782,592		$	1,443,355		$	1,195,143
Average loans outstanding	$	1,995,515		$	1,880,166		$	1,626,477		$	1,323,243		$	1,085,306
Allowance for loan losses to total loans		1.25	%		1.15	%		1.13	%		1.20	%		1.41	%
Net charge offs to average loans outstanding		0.48			0.42			0.42			0.67			0.10
Nonperforming loans to total loans		1.47			0.94			0.56			0.74			0.52
Nonperforming assets to total assets		1.12			0.63			0.36			0.44			0.33
Nonperforming assets to total loans and other real estate
owned		1.49			0.94			0.56			0.74			0.61
Allowance for loan losses to nonperforming assets		83.38			121.97			201.00			162.55			229.73
Allowance for loan losses to nonperforming loans		84.48	%		121.97	%		201.00	%		162.55	%		268.11	%

The allowance for loan losses is increased by provisions charged to expense. Loans or portions of loans deemed uncollectible are charged off and deducted from the allowance for loan losses, while recoveries of amounts previously charged off, if any, are added to the allowance. Net loan charge offs were $9.5 million for the year ended December 31, 2006, compared to $7.9 million for the same period in 2005. The ratio of net charge offs to average loans was 0.48% for 2006 compared to 0.42% for 2005 and 2004. During 2006, we recorded provisions of $11.4 million to the allowance for loan losses compared to $10.5 million for 2005.

At December 31, 2006, the allowance for loan losses totaled $24.6 million, an increase of $1.9 million or 8.2% from $22.7 million at December 31, 2005. The ratio of the allowance for loan losses to total loans was 1.25%, 1.15% and 1.13%, at December 31, 2006, 2005, and 2004, respectively. It is our assessment, based on our reserve methodology, judgment and analysis, that the allowance was appropriate in relation to the credit risk at December 31, 2006.

We recognize that despite our best efforts to manage credit risk, losses will occur. In times of economic slowdown, either within our markets or nationally, the risk inherent in our loan portfolio may increase. Many of

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our loans are secured by real estate collateral. Any adverse trends in our real estate markets could have a significant negative effect on many of our borrowers and, in turn, on the quality of our loan portfolio and the level of the allowance for loan losses. In addition to economic conditions and other factors, the timing and amount of loan losses will also be dependent on the specific financial condition of our borrowers. While the allowance for loan losses is maintained at a level believed to be adequate for probable losses inherent in the loan portfolio, determination of the allowance is inherently subjective, as it requires management’s estimates, all of which may be susceptible to significant change. Changes in these estimates could impact the provisions charged to expense in future periods.

Allocation of the Allowance for Loan Losses

The following table describes the allocation of the allowance for loan losses among various categories of loans and certain other information as of the dates indicated. The allowance contains an unallocated portion to cover inherent losses within a given loan category which have not been otherwise reviewed or measured on an individual basis and is distributed 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 credit losses inherent in the total loan portfolio. The allocation is made for analytical purposes only 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 category of loans.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

	December 31,
	2006								2005								2004
(in thousands)	Reserve Amount		Percent of Allowance			Percent of Loans to Total Loans			Reserve Amount		Percent of Allowance			Percent of Loans to Total Loans			Reserve Amount		Percent of Allowance			Percent of Loans to Total Loans
Commercial real estate	$	12,598		51.2	%		54.6	%	$	9,028		39.8	%		55.7	%	$	10,312		51.3	%		56.2	%
Commercial and industrial		10,168		41.4			27.9			11,921		52.5			26.8			8,575		42.6			26.4
Residential		1,390		5.7			10.4			1,177		5.2			10.6			611		3.0			10.2
Consumer		407		1.7			7.1			577		2.5			6.9			618		3.1			7.2
Total	$	24,563		100.00	%		100.0	%	$	22,703		100.0	%		100.0	%	$	20,116		100.0	%		100.0	%

	December 31,
	2003								2002
(in thousands)	Reserve Amount		Percent of Allowance			Percent of Loans to Total Loans			Reserve Amount		Percent of Allowance			Percent of Loans to Total Loans
Commercial real estate	$	7,225		41.8	%		53.3	%	$	8,189		48.7	%		50.8	%
Commercial and industrial		8,611		49.7			26.9			6,886		40.9			28.3
Residential		719		4.2			12.5			1,063		6.3			12.6
Consumer		740		4.3			7.3			683		4.1			8.3
Total	$	17,295		100.0	%		100.0	%	$	16,821		100.0	%		100.0	%

Securities

At December 31, 2006 our investment portfolio was comprised of U.S. government securities, agency named mortgage-backed securities, tax-exempt obligations of state and political subdivisions, equity and other securities. There were no securities in the name of any one issuer exceeding 10% of stockholders’ equity, except for securities issued by United States government-sponsored agencies, including mortgage-backed securities issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”).

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The investment portfolio is used principally to manage liquidity, interest rate risk and regulatory capital, and to take advantage of market opportunities that provide favorable returns with limited credit risk. The securities portfolio is generally structured to provide consistent cash flows to enhance liquidity and provide funding for loan growth. Prior to our balance sheet restructure in late 2006, the portfolio was declining as cash flows were used to enhance short-term liquidity and retire called FHLB advances.

At December 31, 2006, the investment portfolio totaled $498.7 million or 19.0% of assets, compared to $830.7 million or 28.1% of assets at December 31, 2005. Agency named mortgage-backed securities (MBS) represented 69.0% of the total investment portfolio at year-end 2006. The balance sheet restructure, from the asset side, consisted primarily of the sale of $295.0 million of callable and non-callable agency bonds with an average yield of 4.46%. The net loss, pre-tax, was approximately $6.5 million. At December 31, 2006 we held no U.S. government-sponsored agency bonds. By selling lower yielding securities and retiring higher cost advances we expect improved financial performance in 2007.

The following tables present the amortized cost and estimated market values of our securities portfolios at December 31, 2006, 2005 and 2004:

SECURITIES AVAILABLE FOR SALE

	December 31,
	2006				2005				2004
(in thousands)	Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
U.S. Treasury obligations	$	4,027	$	3,820	$	4,030	$	3,882	$	2,016	$	1,938
U.S. government-sponsored agencies		—		—		272,350		266,253		236,846		235,441
Mortgage-backed securities
Issued by FNMA/FHLMC		341,892		332,273		412,429		402,333		470,993		470,787
Issued by GNMA		9,629		9,680		11,486		11,293		20,339		20,597
Corporate obligations		34,132		34,897		18,557		19,161		31,723		33,111
Federal Reserve Bank stock		4,156		4,156		3,851		3,851		3,551		3,551
Federal Home Loan Bank stock		17,815		17,815		34,895		34,895		37,100		37,100
Total	$	411,651	$	402,641	$	757,598	$	741,668	$	802,568	$	802,525

INVESTMENT SECURITIES

	December 31,
	2006				2005				2004
(in thousands)	Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
Obligations of state and political
subdivisions	$	94,783	$	96,753	$	87,339	$	88,917	$	76,142	$	77,785
Mortgage-backed securities
Issued by FNMA/FHLMC		1,289		1,284		1,687		1,694		2,115		2,169
Total	$	96,072	$	98,037	$	89,026	$	90,611	$	78,257	$	79,954

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As of December 31, 2006, securities available for sale (AFS) totaled $402.6 million, a decrease of $339.0 million from $741.7 million at December 31, 2005. The decrease was primarily due to the balance sheet restructure. The AFS portfolio represented 80.7% of the total investment portfolio and was primarily comprised of MBS. Decisions to purchase or sell these securities are based on several factors, which include market conditions, changes in interest rates, prepayment risk, liquidity, and asset/liability management strategies.

AFS securities are carried at fair market value, with unrealized gains or losses, net of taxes, reported as a separate component of stockholders’ equity unless a decline in value is deemed to be other-than-temporary, in which case the decline is reported in current period results. The unrealized loss on AFS securities declined to $5.3 million, net of taxes, compared to $10.4 million for the same period in 2005.

Securities that we have the intent and ability to hold to maturity are classified as investment securities and reported at amortized cost or book value. This portfolio is primarily comprised of municipal bonds. Investment securities held to maturity totaled $96.1 million. The increase in held-to-maturity securities was due to a $7.4 million increase in the municipal bond portfolio. We generally purchase “Aaa” rated insured general obligation municipal bonds. Municipal bonds increased to $94.8 million at December 31, 2006, compared to $87.3 million at December 31, 2005. We intend to continue increasing the size of our municipal bond portfolio in 2007 to reduce our effective tax rate and enhance the tax equivalent yield of the investment portfolio.

Our investment strategy during 2006 was based on our overall interest rate risk position. As we entered 2006 almost 50% of our commercial loans were floating rate, offering protection to net interest income in a rising rate environment. As a result, the duration of our investment portfolio was positioned in 2006 to provide protection against falling interest rates. The FOMC stopped raising the Federal funds rate after their June 2006 meeting. During 2006 the composition of our commercial loan portfolio shifted to a more fixed rate profile increasing our risk to rising interest rates. Should the commercial loan portfolio continue to shift to a more fixed rate profile, we would consider shortening the duration of the investment portfolio.

We evaluate all securities with unrealized losses quarterly to determine whether the loss is other than temporary. We have identified the evaluation of losses other than temporary for securities to be a critical accounting policy. At December 31, 2006, we determined that all unrealized losses were temporary in nature. This conclusion was based on several factors, including the strong credit quality of the securities with unrealized losses. We believe that the unrealized losses, in the securities portfolio were caused by changes in interest rates, market credit spreads, and perceived and actual changes in prepayment speeds on MBS. For a discussion of these matters, see Note 3 to the Notes to Consolidated Financial Statements.

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SECURITY MATURITIES AND AVERAGE WEIGHTED YIELDS

SECURITIES AVAILABLE FOR SALE

	December 31, 2006
(in thousands)	After One but within Five Years			After Five but within Ten Years			After Ten Years			Total
U.S. Treasury obligations	$	—		$	3,820		$	—		$	3,820
U.S. government-sponsored agencies
Mortgage-backed securities
Issued by FNMA/FHLMC		—			5,088			327,185			332,273
Issued by GNMA		—			9,680			—			9,680
Corporate obligations		1,000			1,906			31,991			34,897
Federal Reserve Bank stock		—			—			4,156			4,156
Federal Home Loan Bank stock		—			—			17,815			17,815
Total	$	1,000		$	20,494		$	381,147		$	402,641
Weighted average yield computed on a tax equivalent basis		9.22	%		4.74	%		5.15	%		5.15	%

INVESTMENT SECURITIES

	December 31, 2006
(in thousands)	Within One Year			After One but within Five Years			After Five but within Ten Years			After Ten Years			Total
Obligations of state and political subdivisions	$	370		$	3,240		$	14,903		$	76,270		$	94,783
Mortgage-backed securities
Issued by FNMA/FHLMC		—			82			—			1,207			1,289
Total	$	370		$	3,322		$	14,903		$	77,477		$	96,072
Weighted average yield computed on a tax equivalent basis		7.48	%		6.94	%		6.82	%		6.66	%		6.70	%

Mortgage-Backed Securities (MBS)

At December 31, 2006, we had $341.9 million of MBS classified as available for sale and $1.3 million classified as investment securities. All of the mortgage-backed securities we own are issued by FNMA, FHLMC, or the Government National Mortgage Association (GNMA). MBS securities issued by FNMA, FHLMC and GNMA totaled $207.0 million, $136.2 million and $9.6 million, respectively at December 31, 2006. The majority of our MBS portfolio are in 15 and 20 year final maturity MBS with coupons of 5% to 5.50%. These securities have been purchased at or close to par, are well seasoned and are expected to provide stable cash flows in rising or falling interest rates. These securities provide a significant source of liquidity through the monthly cash flow of principal and interest. Cash flows from the mortgage-backed securities portfolio declined to $64.1 million in 2006 compared to $126.1 million in 2005 due to comparatively slower prepayment speeds and the smaller size of the MBS portfolio.

Included in our mortgage-backed securities portfolio at December 31, 2006 were $138.5 million of agency-named collateralized mortgage obligations (CMOs) compared to $165.8 million at December 31, 2005. CMOs had a yield of 4.52% and an unrealized loss of $5.8 million at December 31, 2006.

Like all securities we own, MBS are sensitive to changes in interest rates, increasing and decreasing in market value as interest rates rise and fall. As interest rates rise, cash flows from MBS prepayments generally decline while the duration extends. On the other hand, when interest rates fall, prepayments generally increase, which may reduce the yield on mortgage-backed securities, with reinvestment of the proceeds generally at lower yields.

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Based on our 2007 financial plan we believe there will be limited investment portfolio growth in the coming year. With the composition of our balance sheet weighted towards fixed rate earning assets, our investment portfolio strategy is expected to change in 2007. We would anticipate purchasing securities with shorter-weighted average lives, durations or maturity dates. We will continue to monitor the impact of changes in interest rates, cash flows and duration to investment portfolio performance and adjust our strategy accordingly within asset and liability objectives for 2007.

Deposits

Total deposits reached $2.00 billion at December 31, 2006, an increase of $30.6 million or 1.5% from $1.97 billion for the same time period in 2005. Although net deposit growth was modest in 2006, strong deposit growth in our new branches enabled us to reduce our reliance on FHLB advances and more expensive wholesale deposit funding sources resulting in a stronger liquidity profile. With deposits representing our principal funding source, our focus continued in 2006 to further expand our geographic footprint, strengthen our brand image through marketing initiatives and introduce new products and services with the goal of attracting lower cost core deposits. Bringing our relationship driven brand of banking to new markets and neighborhoods is a critical factor in attracting a lower cost diversified deposit base to fund loans at appropriate margin spreads.

To increase franchise value, we continued to open branch offices in desirable, demographically attractive markets this past year. In 2006, we opened our first branch in Ocean County, New Jersey followed by two additional branches in growing Hunterdon County, New Jersey. We concluded the year by opening new branches in the developing Middlesex and Somerset County markets in Central New Jersey. In January 2007, we opened a new branch facility located in North Brunswick, Middlesex County. Several additional branches are planned for 2007 and into 2008. The generation of deposits through our branch network is preferable to FHLB advances and other higher cost funding alternatives.

The cost of interest bearing deposits increased to 3.62% for 2006 compared to 2.61% in 2005 as we increased rates to compete for deposits in a higher interest rate environment. Although the Federal Open Market Committee stopped raising the key Federal funds rate in the second half of 2006, the impact of an additional 100 basis points to that key short-term rate in the first half of 2006, combined with a fiercely competitive deposit market place throughout 2006 for CDs resulted in the 101 basis point increase in the cost of interest bearing deposits.

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The average balances and average rates of deposits for each of the years 2006, 2005, and 2004 are presented below.

AVERAGE DEPOSIT BALANCES AND RATES

	December 31,
	2006						2005						2004
(in thousands)		Balance	Rate		% of Total			Balance	Rate		% of Total			Balance	Rate		% of Total
Non-interest bearing
demand deposits	$	209,160	—	%	10.5	%	$	209,179	—	%	11.0	%	$	185,443	—	%	11.0	%
Interest bearing
demand deposits		349,523	2.80		17.5			445,492	2.22		23.4			418,772	1.91		24.8
Money market deposits		389,312	3.28		19.5			290,939	1.89		15.3			356,794	1.22		21.1
Savings deposits		209,993	2.33		10.5			248,915	2.17		13.1			104,564	0.55		6.2
Time deposits of $100,000 or more		244,662	4.38		12.2			208,521	3.35		11.0			161,065	2.59		9.6
Other time deposits		596,517	4.46		29.8			497,530	3.30		26.2			460,694	2.66		27.3
Total	$	1,999,167	3.24	%	100.0	%	$	1,900,576	2.32	%	100.0	%	$	1,687,332	1.74	%	100.0	%

 

Average total deposits increased $98.6 million or 5.2% to $2.00 billion for 2006 compared to $1.90 billion for 2005. The average interest rate paid on deposits during 2006 increased 92 basis points to 3.24% compared to 2.32% during 2005. The two principal areas of average growth were in money market deposits and CDs, or time deposits.

Average money market deposits increased $98.4 million during 2006 with the cost of money market deposits increasing to 3.28% from 1.89% in 2005. In the first quarter of 2006, we introduced our Simply Better Money Market product, a competitively priced core deposit product, which completes our suite of Simply Better deposit products. The Simply Better Money Market was showcased in all of our new branches in 2006 and marketed aggressively throughout the year. As a result, we opened 2,924 accounts with $261.6 million in balances, a portion of which came from existing Simply Better Checking and Savings balances.

Average interest bearing demand and savings deposits decreased 21.5% and 15.6%, respectively in 2006. During 2006 the cost of average interest bearing demand and savings deposits rose 58 and 16 basis points to 2.80% and 2.33%, respectively. Simply Better Checking and Simply Better Savings balances decreased $38.9 million and $133.0 million to $66.9 million and $93.7 million, respectively, in 2006. Due to the competitive rate paid on our Simply Better Money Market, we experienced balance shifts from Simply Better Savings and Simply Better Checking into this higher yielding money market product and, to a lesser extent, CDs.

Our success in fostering and establishing new customer relationships is reflected in deposits we have attracted since first introducing Simply Better Checking back in 2004. At December 31, 2006, our Simply Better suite of products balances totaled $422.2 million.

As interest rates increased through the first six months of 2006, CDs remained very popular with depositors. Total average time deposits, consisting of both CDs of $100,000 or more and other time deposits, increased 19.1% or $135.1 million to $841.2 million from $706.1 million in 2005. The CD portfolio’s average months to maturity was approximately eight months at December 31, 2006 and December 31, 2005. The relatively short average maturity and highly competitive deposit marketplace is expected to result in higher costs on new and maturing CDs, which would increase the overall costs of our CDs in 2007. The average cost of time deposits increased 112 basis points in 2006 to 4.44% from 3.32% in 2005. At December 31, 2006 average time deposits represented 42.1% of average total deposits compared to 37.1% during 2005. We anticipate time deposits will represent a larger portion of our deposit base, due principally to competitive factors and customer preference.

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The following table details amounts and maturities for certificates of deposit of $100,000 or more for the years indicated:

	December 31,
(in thousands)	2006		2005
Maturity Range:
Within three months	$	58,271	$	112,754
After three months but within six months		58,004		35,730
After six months but within twelve months		111,395		57,963
After twelve months		20,645		47,346
Total	$	248,315	$	253,793

The average balance of non-interest bearing demand deposits was $209.2 million, the same average balance as reported for 2005. Although average balances were stable, year over year actual balances were down $35.1 million and indicative of the challenges we expect to face in attracting non-interest bearing demand deposits in 2007. The decline in balances for 2006 was due primarily to a decrease in business checking balances. We have analyzed this trend and believe our business customers are actively managing their money through our broad base of interest bearing business deposit product alternatives. The decline in interest-free balances, based on our analysis, does not reflect the loss of business relationships.

To supplement our in-market deposit growth, we have utilized alternative deposit sources, which have typically been more expensive. These sources include Surrogate’s deposits (minor trust accounts), money market balances acquired through an independent third party intermediary (Reserve Funds) and CDs marketed nationally through a computer-based software service. The success in attracting in-market deposits in 2006 has allowed us to reduce these alternative deposit sources. Surrogate’s deposits are acquired through an annual competitive bidding process from various counties in New Jersey. As a result of the 2006 bidding process, at January 2, 2007 we had $80.5 million in Surrogate’s deposits from nine counties in New Jersey. At January 3, 2006, we had $96.7 million in Surrogate’s deposits. Reserve Fund balances, which are priced at a premium over the Federal funds rate, decreased to zero at the end of 2006 compared to $68.3 million at the end of 2005. CDs acquired through the computer-based software service declined $4.4 million to $36.9 million in 2006. Management has found that these funding sources have been dependable management tools for liquidity and funding purposes but typically tend to be more costly than in-market deposits. During 2006 we were able to reduce and replace these funding sources, as discussed above, with comparatively less expensive deposits generated through our retail strategy. From time to time we may utilize these sources in the future to meet liquidity or funding needs.

We view our retail strategy as a longer term plan to attract lower cost deposits enabling us to effectively manage our cost of funds, increase profitability and enhance shareholder value. We have produced exceptional results in many of our new branches with innovative branch opening promotions, attractive product pricing and effective cross-selling of our products and services. For example, our Morrisville, Pennsylvania branch, opened in December 2005, had already accumulated $23.5 million in deposits by year-end 2006. Our first entry into Ocean County early in 2006 produced similar results attracting $16.0 million in deposits in less than a year. Our full suite of Simply Better products and recently introduced array of small business products will allow us, we believe, to maintain and grow deposit balances in our highly competitive markets in 2007.

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Borrowed Funds

Borrowed funds, excluding subordinated debentures, decreased $380.8 million to $337.3 million at December 31, 2006, from $718.1 million at December 31, 2005. The decrease was primarily due to the payoff of $320.0 million of higher cost FHLB advances as part of our fourth quarter balance sheet restructure. To a lesser extent, called advances totaling $60.0 million in 2006 were not replaced. At December 31, 2006, total borrowed funds, excluding subordinated debentures, declined to 12.9% of total assets compared to 24.3% at the same date in 2005.

We are a member of the FHLB of New York and use FHLB advances as an alternative source of funds. FHLB advances totaled $324.0 million at December 31, 2006 compared to $704.0 million at December 31, 2005. During the fourth quarter of 2006, we retired $320.0 million of FHLB advances at an average rate of 5.84%. We also replaced $100.0 million in FHLB advances at an average rate of 5.59% with advances at an average rate of 4.05%. Our advance portfolio at year-end 2006 was all fixed-rate, at a cost of 4.25%. We collateralize FHLB advances by pledging residential and commercial mortgage loans, and securities. At December 31, 2006, we had $105.0 million in advances collateralized by securities and $219.0 million by mortgage loans. As additional commercial and residential mortgage loans qualify as collateral, it is our intent to replace securities collateral with mortgage collateral to further enhance our liquidity profile.

Our FHLB advance position at December 31, 2006 consisted of $314.0 million in callable advances and one $10.0 million advance due in less than 90 days. Of the callable borrowings, $224.0 million have call dates in 2007. Our callable advance portfolio at December 31, 2006 had original terms of ten years and were callable after periods ranging from three months to five years. Based on year-end interest rate levels and our analysis, we anticipate there will be potential calls in 2007 of $91.0 million and an additional $100.0 million in 2008. Call activity will be based on the movement of interest rates. Decisions regarding called advances will be dependent on asset and liability objectives at the time of call. We may use swaps to change the pricing characteristics of our advance portfolio, contingent upon our view of future interest rates and/or opportunities presented by the shape of the yield curve.

Excluding subordinated debentures, borrowed funds averaged $671.7 million in 2006, a decrease of 9.2% from the $740.1 million reported in 2005. The average cost of these funds, driven primarily by FHLB advances, increased 8 basis points to 5.23% during 2006 compared to 5.15% during 2005 due to the call of certain lower cost advances. The expense reduction associated with the retirement and replacement of advances in 2006 will contribute to improved net interest margin performance in 2007.

We believe one of the ongoing benefits we should realize from our retail strategy is a reduced reliance on borrowed funds as we grow our deposit base. Within approved policy guidelines, however, we may continue to use borrowed funds as an alternative funding source to achieve business, and asset and liability, objectives.

Subordinated Debentures

We have obtained a portion of capital needed to support the growth of the Bank and for other purposes through the sale of subordinated debentures of Yardville National Bancorp to subsidiary statutory business trusts of Yardville National Bancorp. These trusts exist for the sole purpose of raising funds through the issuance of trust preferred securities, typically in private placement transactions, and investing the proceeds in the purchase of the subordinated debentures. The interest rate on the subordinated debentures is identical to the interest rate on the trust preferred securities. Subordinated debentures are the sole assets of each trust and each trust is obligated to distribute all proceeds resulting from any redemption of the subordinated debentures, whether voluntary or upon maturity, to holders of its trust preferred securities. Yardville National Bancorp’s obligation with respect to the subordinated debentures, when viewed together with the obligations of each trust with respect to its trust preferred securities, provides a full and unconditional guarantee on a subordinated basis

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by Yardville National Bancorp of the obligations of each trust to pay amounts when due on the trust preferred securities of each respective trust.

The following table sets forth our trust subsidiaries as of December 31, 2006, along with the transaction date, principal amount of subordinated debentures issued, interest rate of subordinated debentures, maturity date of subordinated debentures and date on which redemption of subordinated debentures is permitted.

Name of Trust	Transaction Date	Principal Amount of Subordinated Debentures	Interest Rate for Subordinated Debentures	Maturity Date of Subordinated Debentures	Earliest Date upon which Redemptions are Permitted
(in thousands)
Yardville Capital Trust II	June 2000	$15,464	9.50%	June 22, 2030	June 23, 2010
Yardville Capital Trust III	March 2001	6,190	10.18%	June 8, 2031	June 8, 2011
Yardville Capital Trust IV	February 2003	15,464	Floating rate based	March 1, 2033	March 1, 2008
			on three month LIBOR
			plus 340 basis points
Yardville Capital Trust V	September 2003	10,310	Floating rate based	October 8, 2033	October 8, 2008
			on three month LIBOR
			plus 300 basis points
Yardville Capital Trust VI	June 2004	15,464	Floating rate based	July 23, 2034	July 23, 2009
			on three month LIBOR
			plus 270 basis points
Total		$62,892

The principal use of proceeds for Yardville Capital Trusts II, III, and V were contributed as capital to the Bank to support growth. A portion of the proceeds of Yardville Capital Trust IV were used to retire the subordinated debentures of Yardville Capital Trust in March 2003 with the remainder contributed as capital to the Bank to support growth. The proceeds from Capital Trust VI were used to meet cash flow needs of the holding company, which included contributions of capital to the Bank to support growth. The cost of subordinated debentures increased 116 basis points to 8.73% in 2006 compared to 7.57% in 2005. Floating rate subordinated debentures represented $41.2 million of total subordinated debentures at December 31, 2006 and accounted for the increase in cost as interest rates increased in 2006.

Contractual Obligations, Commitments, Contingent Liabilities,and Off-Balance Sheet Arrangements

The following table presents, as of December 31, 2006, our significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments.

	Payments due by period
(in thousands)	Less than 1 year		1 -3 years		3 -5 years		More than 5 years		Total
Contractual Obligations
Time deposits	$	752,412	$	108,323	$	12,158	$	—	$	872,893
Borrowed funds		92,549		109,129		72,102		63,501		337,281
Subordinated debentures		41,238		—		—		21,654		62,892
Operating lease obligations		3,429		6,501		5,451		19,798		35,179
Lines and letters of credit		476,562		40,331		—		—		516,893
Other long-term liabilities		49		6,980		160		16,643		23,832
Total	$	1,366,239	$	271,264	$	89,871	$	121,596	$	1,848,970

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In the normal course of business, we enter into certain contractual obligations. Such obligations include obligations to make future payments on debt and lease arrangements, as well as payments on deferred compensation and postretirement benefits. We have one capital lease obligation, which is included in borrowed funds. Time deposits are shown at the maturity date.

Borrowed funds and subordinated debentures are shown based on their amortization schedule. Noncallable borrowed funds are shown at the maturity date, while callable borrowed funds and subordinated debentures are shown at either the call date, if a call was deemed likely at December 31, 2006, or otherwise at the maturity date.

We enter into a variety of financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and letters of credit, both of which involve, to varying degrees, elements of risk in excess of the amount reflected in the consolidated financial statements.

Credit risk for letters of credit is managed by limiting the total amount of arrangements outstanding and by applying the same credit policies we apply 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, 2006 and 2005 for commitments to extend credit were $504.9 million and $500.0 million, respectively, and for letters of credit were $37.1 million and $30.3 million, respectively. Commitments to extend credit and letters of credit do not necessarily represent future cash requirements as these commitments may expire without being drawn upon based upon our past historical experience.

Further discussion of our “Other Commitments and Contingent Liabilities” is included in Note 14 of Notes to the Consolidated Financial Statements. In addition, we have commitments and obligations under other postretirement benefit plans as described in Note 10 of Notes to the Consolidated Financial Statements.

Asset and Liability Management

Asset and liability management involves the evaluation, monitoring, and managing of market risk, interest rate risk, liquidity risk and the appropriate use of capital, while maximizing profitability. Our asset and liability committee (ALCO) provides oversight to the asset and liability process. This committee consists of both executive and senior management, and independent members of our board of directors. ALCO recommends policy guidelines regarding exposure to interest rates, and liquidity and capital limits for approval by the Bank’s board of directors. Adherence to these policies is monitored on a monthly basis and decisions related to the management of interest rate risk exposure due to changes in balance sheet composition and/or market interest rates are made when appropriate and agreed to by ALCO and approved by the Bank’s board of directors. One of the primary goals of asset and liability management is to prudently maximize net interest income while maintaining acceptable levels of interest rate risk. The risk to net interest income is derived from the difference in the maturity and repricing characteristics between assets and liabilities. Several factors, including economic and financial conditions, movements in market interest rates and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities.

Market and Interest Rate Risk

Market risk is the risk of loss from adverse changes in market prices and rates. Market risk arises principally from interest rate risk inherent in loans, securities, deposits and borrowings. We seek to manage our asset and liability portfolios to help reduce any adverse impact on net interest income and earnings caused by fluctuating interest rates.

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We are subject to interest rate risk because:

•assets and liabilities may mature or reprice at different times;

•assets and liabilities may reprice at the same time but by different amounts;

•short- and long-term interest rates may change by different amounts;

•the expected life of various assets or liabilities may shorten or lengthen as interest rates change; and

•interest rates may have an indirect impact on loan demand, credit losses and other sources of earnings.

The primary goals of our interest rate risk management process are to control exposure to interest rate risk inherent in our balance sheet, determine the appropriate risk level given our strategic objectives, and manage the risk consistent with limits and guidelines approved by ALCO and our board of directors. These limits and guidelines reflect our tolerance for interest rate risk over both short- and long-term horizons. ALCO meets monthly to discuss pertinent asset and liability topics and issues. On a quarterly basis, we provide a detailed review of our interest rate risk position to the board of directors.

We manage and control interest rate risk by identifying and quantifying interest rate risk exposures through the use of net interest income simulation and economic value at risk models. Both measures may change periodically as the balance sheet composition and underlying assumptions change. Various assumptions are used to produce these analyses, including, but not limited to, the level of new and existing business, loan and investment prepayment rates, deposit flows, interest rate curves and competitive pricing.

We also use a traditional gap analysis that complements the simulation and economic value at risk modeling. The gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates and also does not fully account for embedded options, caps and floors. The gap analysis is prepared based on the maturity and repricing characteristics of interest earning assets and interest bearing liabilities for selected time periods.

Our gap position 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.

Gaps, as a static measurement, cannot capture the effects of embedded options, caps or floors on assets and liabilities. Generally, a financial institution with a positive gap position will most likely experience an increase in net interest income during periods of rising rates and decreases in net interest income during periods of falling interest rates. Included in the analysis of our gap position are certain savings, money markets and interest bearing demand deposits, which are less sensitive to fluctuations in interest rates than other interest bearing sources of funds. In determining the sensitivity of such deposits, we review the movement of our deposit rates relative to market rates over the last 12-months.

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RATE SENSITIVE ASSETS AND LIABILITIES

	December 31, 2006
(in thousands)	Under six months			Six months through one year			More than one year through two years			More than two years through five years			More than ten years and not repricing			Total
Assets
Cash and due from banks	$	—		$	—		$	—		$	—		$	30,355		$	30,355
Federal funds sold and
interest bearing deposits		35,623			—			—			—			—			35,623
Securities available for sale		40,142			25,304			44,926			89,815			202,454			402,641
Investment securities		2,201			2,370			16,197			31,004			44,300			96,072
Loans		692,598			111,238			238,465			641,141			289,439			1,972,881
Other assets, net		—			—			—			—			83,159			83,159
Total Assets	$	770,564		$	138,912		$	299,588		$	761,960		$	649,707		$	2,620,731
Liabilities and Stockholders' Equity
Non-interest bearing demand	$	—		$	—		$	—		$	—		$	197,126		$	197,126
Savings and interest bearing demand		100,608			108,073			36,954			113,016			134,360			493,011
Money markets		115,911			66,765			—			130,795			126,782			440,253
Certificates of deposit of
$100,000 or more		116,275			111,396			17,404			3,240			—			248,315
Other time deposits		193,404			331,370			90,899			8,905			—			624,578
Total deposits		526,198			617,604			145,257			255,956			458,268			2,003,283
Borrowed funds		12,700			81,021			71,042			172,126			392			337,281
Subordinated debentures		40,000			—			—			—			22,892			62,892
Other liabilities		—			—			—			—			31,181			31,181
Stockholders' equity		—			—			—			—			186,094			186,094
Total Liabilities and Stockholders’ Equity	$	578,898		$	698,625		$	216,299		$	428,082		$	698,827		$	2,620,731
Gap		191,666			(559,713	)		83,289			333,878			(49,120	)
Cumulative gap		191,666			(368,047	)		(284,758	)		49,120			—
Cumulative gap to total assets		7.3	%		(14.0	)%		(10.9	)%		1.9	%

As indicated in the table above, our one-year gap position at December 31, 2006 was a negative 10.9% compared to 0.0% at December 31, 2005. Throughout 2006 we maintained a negative gap to better position our balance sheet for improved performance in a stable or modestly declining interest rate environment. Several factors impacted the increasingly negative gap position we experienced. The combination of the shift from existing floating rate commercial loans to fixed rate loans, new borrowers with fixed rate loans and floating rate commercial loans that have reached their caps reduced cash flows and repricings of one year or less on the asset side of the balance sheet. On the liability side, higher balances of CDs maturing within one year increased cash flows one year or less. While the balance sheet restructure had a limited impact on the one year cumulative gap position, the effect of a smaller asset base resulted in a higher gap to asset ratio at year end 2006. Although we believe interest rates are more likely to move lower before moving higher, we expect to reduce the size of the negative gap in 2007 to be prudent based on the uncertainty of future interest rates.

Simulation Modeling

We believe that the simulation of net interest income in different interest rate environments provides a more meaningful measure of our interest rate risk position than gap analysis. Our simulation model measures the

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volatility of net interest income to changes in market interest rates. We dynamically model our interest income and interest expenses over specified time periods under different interest rate scenarios and balance sheet structures. We assess the probable effects on the balance sheet not only of changes in interest rates, but also of possible strategies for responding to them. We measure the sensitivity of net interest income over 12- and 24-month time horizons, based on assumptions established by ALCO and approved by our board of directors. The board has established certain policy limits for the potential volatility of net interest income as projected by our simulation model.

In our base case simulation, the composition of the balance sheet is kept static and interest rates are assumed to be flat or unchanged. Volatility is measured from the base case and is expressed as the percentage change in net interest income, from the base case, over 12- and 24-month periods with a change in interest rates of plus and minus 200 basis points. We model a dynamic yield curve by inverting the curve with rising rates and steepening the curve with falling rates. This is followed by constant rates for year two. ALCO has established a policy that net interest income sensitivity is acceptable if net interest income in the base case scenario is within a -7% change in net interest income in the first twelve months and within -14% change over the two year time frame.

The following table reflects the estimated change in net interest income from the base case scenario for a one-and two-year period based on our December 31, 2006 balance sheet:

	Percentage Change in Net Interest Income
Change in Market Interest Rates	2007			2008
+200 basis points		(0.4	)%		(9.7	)%
Flat		—			—
-200 basis points		0.2	%		5.8	%

Based on our simulation analysis, we believe our interest rate risk position remains fairly balanced over the next 12 months whether we experience either rising or falling interest rates. Our risk position to rising rates in year two increases from the assumed impact of FHLB advances being called and replaced with higher cost funding. Additionally, CD costs will increase as existing CDs mature and are replaced with higher rate CDs. This, combined with the increasing fixed rate profile of our earning asset base, produces less net interest income in year two. Our modeling assumes core deposit rates increase at a slower pace than overall interest rates. If we were required to increase our core deposit rates faster than our model due to competition or other factors our risk to rising rates could be higher. We are evaluating several strategies to address our increased risk exposure to rising rates in year two. Shortening the repricing characteristics of loans or securities, for example, could reduce the risk to higher rates. Lengthening liabilities like CDs with terms greater than one year or replacing FHLB advances with longer terms and less optionality may also reduce net interest income risk to higher rates. Our simulation analysis indicates that our net interest income would increase in a falling rate environment.

We also measure, through simulation analysis, the impact to net interest income based on our 2007 financial plan or growth scenario, in addition to rate ramps, inversions, or rate increases or decreases greater than 2% over 12-and 24-month periods. In our growth scenario we see similar results to net interest income based on our projected balance sheet composition. Due to the assumptions used in preparing our simulation analysis, actual outcomes could differ significantly from the simulation outcomes.

Economic Value at Risk

We measure long-term interest rate risk through the Economic Value of Equity (“EVE”) model. This model involves projecting our asset and liability cash flows to their maturity dates, discounting those cash flows at appropriate interest rates, and then aggregating the discounted cash flows. Our 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

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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. We use 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 our percentage change in EVE in a plus or minus 200 basis point rate shock at December 31, 2006 and 2005. The policy guideline is -25%.

	Percentage Change in EVE
Change in Market Interest Rates (Rate Shock)	2006			2005
+200 basis points		(13	)		(16	)
-200 basis points		(5	)		(14	)

Based on the underlying assumptions, we were within our policy guideline at year-end 2006 and 2005. Our longer-term interest rate risk at December 31, 2006 in both a higher and lower interest rate environment improved as a result of the balance sheet restructure, which included securities sales and FHLB advance redemptions. Our analysis shows that as the remaining advances move closer to their maturity dates and become an even smaller portion of our funding base that their negative impact on our longer term interest rate risk profile will decline over time. A smaller investment portfolio will also contribute to lower longer-term interest rate risk. Continuing to grow our lower cost core deposit base will also contribute to an improving interest rate risk profile. From a longer-term interest rate risk perspective our balance sheet is best positioned to perform better in a lower interest rate environment, the more probable environment in our view. This is due principally to a more fixed rate profile for both loans and securities. With our exposure to higher interest rates we will be initiating strategies to better balance our longer-term interest rate risk position in 2007 while still achieving financial objectives.

Certain shortcomings are inherent in the methodology used in the previously discussed interest rate risk measurements. Modeling changes in the simulation and EVE analyses 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. There are many factors that management evaluates when constructing the assumptions used in short-term and long-term interest rate risk models. One of the most important assumptions involves deposits without fixed maturity dates. These core deposits include non-interest bearing demand, interest bearing demand, savings and money market deposits, and represent a significant portion of our deposit base. We believe these core deposits, as a whole, are less sensitive to changes in interest rates and can effectively fund a portion of our fixed rate earning asset portfolio. The balance of these deposits and the rates paid on them may fluctuate due to changes in market interest rates, competition, or by the fact that customers may add to or withdraw these deposits at any time at no cost. These characteristics and the lack of a maturity date makes modeling these deposits for both simulation and EVE purposes very subjective. A modest change in the maturity term or repricing characteristics can result in very different outcomes. Because each financial institution assigns different repricing and maturity terms to these non-maturity deposits, comparing risk between institutions without understanding the treatment of non-maturity deposits has limited value. Another source of uncertainty reflects the options embedded in many of our financial instruments, which include loans, investments and convertible FHLB advances. To deal with the many uncertainties when constructing either short- or long-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. Assumptions are reviewed periodically and changes are made when deemed appropriate.

Although the models discussed above provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income or economic value of equity and may differ from actual results.

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We believe that any changes to interest rate levels are likely to occur gradually. We continue to monitor our gap position and rate ramp and shock analyses to detect changes to our exposure to fluctuating interest rates. We have the ability to shorten or lengthen maturities on assets, sell securities, enter into derivative financial instruments, or seek funding sources with different repricing characteristics in order to change our asset and liability structure for the purpose of mitigating the effect of interest rate risk changes.

Derivatives

We may use derivatives pursuant to our interest rate risk management strategy. We may enter into hedging transactions that include interest rate swaps, caps and floors for interest rate risk management purposes. Our only hedging positions during 2006 were interest rate swaps. Interest rate swaps are generally used to convert fixed rate assets and liabilities to variable rate assets and liabilities and vice versa. We utilize interest rate swaps that have a high degree of correlation to the related financial instrument. All derivatives are recorded on the balance sheet at fair value with realized and unrealized gains and losses included in the results of operations or in other comprehensive income, depending on the nature and purpose of the derivative transaction. (See Notes 1 and 18 of the Notes to the Consolidated Financial Statements.)

During 2004 we entered into fair value hedges, which initially had the effect of increasing net interest income and modestly enhancing the net interest margin. More importantly, we were able to competitively price two-year CDs to fund our floating rate commercial loan growth and provide protection against falling interest rates. By entering into $125.0 million in notional value pay floating swaps designated as fair value hedges at inception we were able to more closely match the repricing characteristics of the CDs with the loans. We reduced our interest rate risk position as a result of this strategy and achieved a spread of approximately 315 basis points over the entire two year period of the swaps.  These swap positions began maturing in May 2006 with the last position maturing in November 2006. There were no swap positions outstanding at December 31, 2006.

Financial derivatives involve, to some degree, interest rate, market and credit risk. Interest rate swaps represented our only derivative transactions in 2006 and credit risk was limited to the periodic exchange of net interest payments. Not all elements of interest rate, market and credit risk are addressed through the use of financial or other derivatives, and such instruments may be ineffective for their intended purposes due to unanticipated market characteristics, among other reasons.

Liquidity Risk

The objective of effective liquidity management is to meet the cash flow requirements of depositors and borrowers, as well as our operating cash needs at the most reasonable cost. Liquidity risk arises from the possibility we may not be able to satisfy current or future financial commitments or unexpected deposit outflows or other cash needs.

ALCO is responsible for liquidity risk management. This committee recommends liquidity policy guidelines to the board of directors for approval. ALCO reviews forecast liquidity needs and the adequacy of deposits and other alternative funding sources to meet these needs. Each month we present detailed reports to the board on our liquidity position, including compliance with limits and guidelines. As part of liquidity risk management, we have developed a detailed contingency funding plan. On a quarterly basis, ALCO reviews the adequacy of funding in adverse environments due to changes in interest rates, credit markets or other external risks through its contingency funding report.

Through the generation of $115.0 million in deposits from our branches and, to a lesser extent, securities cash flows, we were able to strengthen our liquidity profile in 2006. During 2006 we reduced our reliance on

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several non-traditional funding sources with reductions of $68.3 million in Reserve Funds, $11.0 million in public fund balances, that tend to be more volatile, and CDs obtained through a nationwide computer software-based service. Reserve Funds balances were zero at year-end 2006. We also retired $60.0 million in called FHLB advances. As a result of the balance sheet restructure we reduced the percentage of the securities portfolio pledged to secure FHLB advances, thus improving our liquidity profile.

Traditional sources of liquidity include deposit growth and scheduled amortization and prepayment of loans and principal cash flows from mortgage-backed securities. We emphasize building and retaining customer deposits through the execution of our retail strategy and relationship banking philosophy. Deposit rates and levels are monitored, and trends and significant changes are reported up through our pricing committee. Our pricing committee, a subcommittee of ALCO, is made up of senior officers and makes deposit pricing decisions based on funding needs on a weekly basis consistent with liquidity policy objectives approved by ALCO. We have used and may continue to use borrowed funds to support and enhance liquidity. We also utilize alternative funding sources like Reserve Funds and the nationwide computer software-based service to raise funds to bolster liquidity and fund loan growth. Brokered CD facilities may also be available as another source of liquidity. Mortgage-backed securities represented 70.2% of total securities at December 31, 2006 and generated significant cash flows of approximately $64.1 million during 2006, which strengthened liquidity. After the balance sheet restructure, securities totaled $498.7 million at December 31, 2006. While maturities and scheduled amortization of loans and MBS are generally a predictable source of funds, deposit flows and securities prepayments are greatly influenced by competition and interest rates.

We are eligible to borrow additional funds from the FHLB subject to its stock and 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. Subject to collateral requirements, we also maintained lines of credit totaling approximately $400.0 million at December 31, 2006 with the FHLB and three consistent brokerage firms. We also have the ability to borrow at the Federal Reserve discount window. We also maintain unsecured Federal funds lines totaling $79.0 million with six correspondent banks for daily funding needs.

We pay dividends to stockholders and interest due on subordinated debentures. The principal source of funding for these payments generally comes from dividends from the Bank. Under the agreement with the OCC and the supervisory letter from the Federal Reserve Bank of Philadelphia, prior regulatory approval is required for dividend payments by both the Bank and the holding company. We received approval from both of these regulatory agencies to pay quarterly dividends during 2006 and the first quarter of 2007.

We believe by continuing to execute our retail strategy in 2007 we can attract lower cost core deposits and further strengthen liquidity. We have established reliable secondary sources of liquidity that we can use as needed. Our liquidity profile is further enhanced by consistent cash flows generated by our investment portfolio. Based on projected loan and deposit growth, we anticipate having adequate liquidity to meet our funding goals for 2007.

Capital Management

We manage capital in a highly regulated environment which requires a balance between earning the highest return for stockholders while maintaining sufficient capital levels for proper risk management and satisfying regulatory requirements. Our capital management is designed to generate attractive returns on equity to our stockholders and to assure that we are always well capitalized, or otherwise meet capital targets set by regulatory authorities, while having the necessary capital for our future expansion plans.

A significant measure of the strength of a financial institution is its stockholders’ equity. Stockholders’ equity at December 31, 2006 totaled $186.1 million compared to $177.5 million at December 31, 2005. The

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increase in equity capital in 2006 resulted from a $3.6 million increase in common stock primarily due to the exercise and related tax benefit relating to exercise of stock options, and a $204,000 increase in undivided profits, resulting from net income of $5.3 million less dividend payments of $5.1 million. In addition, equity capital increased $4.3 million due to a reduction in accumulated other comprehensive loss reflecting a $5.0 million reduction in the unrealized loss of available for sale securities, net of tax, partially offset by a $762,000 increase reflecting the funded status of deferred compensation plans. Equity capital also increased $562,000 reflecting a decrease in the balance of unallocated ESOP shares as we allocated shares in 2006.

Our Employee Stock Ownership Plan (ESOP) permits eligible employees to share in our growth through stock ownership. In November 2005, the ESOP purchased 64,175 shares of common stock for approximately $2.3 million. The ESOP funded the transaction by borrowing approximately $2.3 million from an unaffiliated financial institution for a term of four years. In 2006 we reduced the loan balance by $562,000 and allocated 16,043 shares.

The balance of unallocated ESOP shares at December 31, 2006 was $1.7 million. The annual expenses associated with the ESOP were $735,000 in 2006, $693,000 in 2005, and $550,000 in 2004. These expenses include compensation expense, debt service and any adjustment required due to changes in the market value of the shares at time of allocation. The reason for the increase in cost in 2006 compared to 2005, was related to our higher stock price on common shares.

Dividends declared on common stock totaled $0.46 per share for each of 2006 and 2005. The dividend payout ratio was 96.1% for 2006, compared to 23.9% for 2005. The increase in the dividend payout ratio was due to lower earnings, primarily due to the balance sheet restructure discussed previously, while maintaining the same cash dividend per common share in 2006.

Regulatory Capital

We are subject to risk-based capital standards under Federal banking regulations. These banking regulations relate a company’s regulatory capital to the risk profile of its total assets and off-balance sheet items, and provide the basis for evaluating capital adequacy. Under these standards, assets and certain off-balance sheet items are assigned to broad risk categories each with applicable weights. Risk-based capital standards require all banks to have Tier 1 capital of at least 4%, and total capital (including Tier 1 capital) of at least 8%, of risk-adjusted assets. YNB is also subject to leverage ratio requirements. The leverage ratio measures Tier 1 capital to adjusted average assets. Our minimum ratio requirement is 4%.

Tier 1 capital includes stockholders’ equity (adjusted for intangibles and the unrealized gains/losses in securities available for sale) and trust preferred securities. Trust preferred securities are limited to 25% of Tier 1 capital. Any trust preferred securities in excess of the Tier 1 limit are included in total capital. Total capital is comprised of all of the components of Tier 1 capital plus the allowance for loan losses subject to certain restrictions.

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The following table sets forth the Company’s regulatory capital ratios at December 31, 2006, 2005 and 2004:

	December 31,
	2006			2005			2004
Leverage ratio		8.8	%		8.3	%		7.6	%
Tier 1 risk-based capital ratio		11.2			10.8			10.1
Total risk-based capital ratio		12.3			11.8			11.4

Under the capital adequacy guidelines, a well capitalized financial institution must maintain a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a leverage ratio of at least 5%.

Due to our agreement with the OCC, the Bank is no longer considered “well capitalized” for certain regulatory purposes. This capital category does not, however, constitute an accurate representation of the Bank’s general financial condition or prospects. In addition, under the agreement, the Bank has to achieve and maintain a total risk-based capital ratio of at least 10.75%, a Tier 1 risk-based capital ratio of at least 9.75% and a leverage ratio of at least 7.50%. Comparatively flat commercial loan growth allowed us to restructure our balance sheet, despite the loss incurred, and still exceed higher risk-based capital and leverage ratio requirements. In November 2005, to help ensure meeting the higher capital and leverage ratios initially established by the formal agreement, we completed a private equity placement to a select number of accredited investors, of approximately $8.7 million, substantially all of which was contributed to the Bank.

We were in compliance with all required capital ratios at December 31, 2006. Our 2007 financial plan reflects the economic benefits we expect to realize resulting from our fourth quarter balance sheet restructure. We anticipate that we will continue to exceed all applicable capital requirements under the agreement during 2007.

Earnings Analysis for Prior Year

(2005 compared to 2004)

YNB generated double digit increases in net income and earnings per share in a competitive market and challenging regulatory environment in 2005. We earned net income of $20.9 million or $1.89 per diluted share for the year ended December 31, 2005, compared to $18.5 million or $1.71 per diluted share for the year ended December 31, 2004. This represented an increase of 13.0% and 10.5%, respectively. The improved financial performance in 2005 was primarily attributable to solid net interest income growth of $12.5 million, principally due to commercial loan growth and an improving net interest margin. Partially offsetting the improvement was a $7.0 million increase in non-interest expense and higher income tax expense.

Net Interest Income

Net interest income, on a tax equivalent basis, increased 17.7% to $85.2 million for 2005, compared to $72.4 million for 2004. The increase was primarily attributable to the increased volume and rate on average loans, partially offset by the higher volume and cost of interest bearing deposits. In 2005, interest income rose to $170.3 million from $139.9 million in 2004, primarily due to higher interest income on loans. Offsetting the increase in interest income was the greater average balance of interest bearing liabilities, principally interest bearing deposits and increased average costs due to the higher interest rate environment. As a result, interest expense increased $17.9 million.

The net interest margin, on a tax equivalent basis, increased 7.8% or 22 basis points to 3.05% for the twelve months ended December 31, 2005 compared with 2.83% for the same period in 2004. By effectively pricing our commercial loans and attracting a lower cost mix of deposits in new and existing markets we moved our tax equivalent margin higher in 2005.

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Average interest earning assets increased $236.2 million or 9.2% to $2.79 billion in 2005 from $2.56 billion in 2004. Led by loans, and to a lesser extent securities, the yield on average interest earning assets increased 62 basis points to 6.09% for 2005. Accordingly, interest income rose 21.7% in 2005 compared to 2004.

Loans averaged $1.88 billion for 2005, an increase of $253.7 million or 15.6% compared to $1.63 billion for 2004. Interest and fees on loans increased $27.2 million or 27.0%, as loan yields increased by 61 basis points to 6.79% from 6.18% for 2004. The principal factor driving loan yields higher in 2005 was our floating rate commercial loan portfolio, typically tied to the prime rate of interest. In 2005, the average prime rate increased to 6.19% compared to 4.35% in 2004. As the prime rate of interest increased during 2005 our loan yield moved higher.

Based on the repricing characteristics of our balance sheet during 2005, we purchased mortgage-backed securities with modestly longer durations at or close to par. Although average securities declined $19.4 million during 2005, the purchase of longer duration securities resulted in the securities portfolio yield increasing to 4.74%, 35 basis points higher than 2004. Interest on securities increased $2.2 million from 2004 and contributed to higher net interest income levels.

Average interest bearing liabilities rose $198.6 million to $2.49 billion, while overall funding costs rose 48 basis points to 3.49% during 2005 or only 24% of the 200 basis point increase in the Federal funds rate during that same period. Due to the higher volume and increased rate of average interest bearing liabilities interest expense increased 25.9% to $87.1 million for 2005 compared to $69.1 million for 2004.

We continued executing our retail strategy in 2005, expanding our geographic footprint while attracting lower cost core deposits. In 2005, average savings, money market and interest bearing demand deposits grew $105.2 million or 12.0% to $985.3 million, principally due to growth in our Simply Better Savings product. To a lesser extent, average time deposits increased $84.3 million or 13.6% to $706.1 million in 2005 compared to $621.8 million in 2004. Interest expense on interest bearing deposits rose $14.8 million or 82.7% of the total increase in interest expense on average interest bearing liabilities due to competition and the higher interest rate environment. The growth in average non-interest bearing demand deposits of $23.7 million or 12.8% to $209.2 million in 2005 contributed positively to our net interest margin.

Average borrowed funds and subordinated debentures increased $2.0 million and $7.2 million, respectively, while related interest costs increased by 26 and 91 basis points to 5.15% and 7.57%, respectively. During 2004 and into 2005, we replaced floating rate Federal Home Loan Bank advances with fixed rate advances as interest rates were rising. This strategy limited the increase in the cost of these funds, which had a positive impact on net interest income and the margin in 2005. We had $62.9 million in subordinated debentures, of which $41.2 million had floating interest rates tied to spreads over LIBOR, which is the principal cause for the increase in interest expense of $1.0 million as interest rates rose during 2005.

Provision for Loan Losses

The provision for loan losses for the year ended December 31, 2005 was $10.5 million compared to $9.6 million for 2004. The higher provision is primarily the result of the increased level of net charge offs.

Non-interest Income

Non-interest income, excluding net securities gains, declined modestly by $54,000 or 0.8% to $6.6 million for 2005 compared to $6.7 million for 2004. The decline was principally due to lower service charge income related to lower overdraft activity partially offset by increased other service fee income, related to increased loan prepayment penalties.

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Non-interest Expense

In 2005, non-interest expense totaled $49.6 million, an increase of $6.9 million or 16.3%, compared to $42.7 million in 2004. The largest increases in non-interest expense in 2005 were primarily in salaries and employee benefits, occupancy and marketing expenses. To a lesser extent, audit and examination fees, outside services and processing fees, and attorneys’ fees also contributed to higher non-interest expenses in 2005.

Salaries and employee benefits increased $4.2 million or 17.8% to $27.7 million for the year ended December 31, 2005 compared to $23.5 million for the same period in 2004. Staffing additions from our continued branch expansion, and enhanced regulatory compliance and risk management both contributed to the increase in salaries and employee benefits expense. Benefits expense increased 20.1% principally due to higher health benefits costs and payroll taxes associated with the increase in full time employees. Net occupancy expense increased $651,000 or 15.2% to $4.9 million in 2005 from $4.3 million in 2004 principally due to costs associated with our branch expansion, including rent, taxes and maintenance costs. Marketing expenses increased 25.8% to $2.2 million in 2005 compared to $1.8 million in 2004 as we continued to promote our products and services, new branches and brand image.

Outside services and processing expenses, audit and examination fees, and attorneys’ fees increased 19.6%, 28.2% and 68.4%, respectively. The increase in outside services and processing fees resulted from increased consulting costs related to regulatory compliance. The higher audit and examination fees primarily resulted from costs associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Attorney fees increased due to costs associated with problem loan workout, various regulatory compliance issues and shareholder relations.

Our efficiency ratio finished 2005 at 54.69% compared to 54.19% in 2004. Our efficiency ratio for 2005 was basically unchanged as expenses associated with our retail strategy, additional expenses associated with our growth, and to a lesser extent, the costs associated with meeting regulatory requirements were in line with our growth in net interest income.

Income Taxes

The provision for Federal and state income taxes was $9.6 million for 2005, an increase of $1.7 million when compared to $7.9 million for 2004. The provisions for income taxes in 2005 and 2004 were at effective rates of 31.5% and 29.9%, respectively. The increase in the effective tax rate resulted from the greater percentage increase in taxable income compared to tax-free income.

Recent Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140” (Statement 155). Statement 155 amends the guidance in FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Statement 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, thereby eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. Statement 155 is effective for all financial instruments acquired, issued, or subject to a remeasurement date after the beginning of a company’s first fiscal year that begins after September 15, 2006, or January 1, 2007 for the Company. The adoption of Statement 155 did not have an impact on the Company’s consolidated financial statements.

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In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140” (Statement 156). Statement 156 requires recognition of a servicing asset or liability at fair value each time an obligation is undertaken to service a financial asset by entering into a servicing contract. Statement 156 also provides guidance on subsequent measurement methods for each class of separately recognized servicing assets and liabilities and specifies financial statement presentation and disclosure requirements. This statement is effective for fiscal years beginning after September 15, 2006, or January 1, 2007 for the Company. The Company had elected to continue amortizing mortgage servicing rights over the estimated lives of the underlying loans. As a result, the adoption of this standard did not impact the Company’s consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” Specifically, the interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006, or January 1, 2007 for the Company. The Company evaluated the impact of FIN 48 on all tax positions and determined that there is no material impact of adopting FIN 48 upon any recognized tax positions as of December 31, 2006. See Note 9, “Income Taxes,” in the Notes to the Consolidated Financial Statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (Statement 157). Statement 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosure requirements for fair value measurements. Statement 157 does not require any new fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007, or January 1, 2008 for the Company. The Company is currently evaluating the impact of Statement 157 on the consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R).” Statement 158 requires employers to recognize the overfunded or underfunded status of defined benefit pension and postretirement plans as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which changes occur through other comprehensive income, in addition to expanded disclosure requirements. The standard requires employers to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet, for fiscal years ending after December 15, 2008, or December 31, 2008 for the Company. All other requirements of the standard are effective for employers with defined benefit pension or postretirement plans that issue publicly traded equity securities, for fiscal years ending after December 15, 2006, or December 31, 2006 for the Company. As of December 31, 2006, the Company adopted Statement 158 on a prospective basis, resulting in a reclassification of the Company’s Pension Plan and Postretirement Plan liabilities. For details related to the Company’s adoption of Statement 158, see Note 10, “Employee Benefit Plans,” in the Notes to the Consolidated Financial Statements.

In September 2006, the FASB ratified Emerging Issues Task Force (EITF) 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (EITF 06-4). EITF 06-4 addresses accounting for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods. EITF 06-4 requires that the post-retirement benefit aspects of an endorsement-type split-dollar life insurance arrangement be recognized as a liability by the employer and that the obligation is not settled upon entering into an insurance arrangement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, or January 1, 2008 for the Company. The Company is currently evaluating the impact of EITF 06-4 on the consolidated financial statements.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115(SFAS 159).SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value and amends SFAS 115 to, among other things, require certain disclosures for amounts for which the fair value option is applied. Additionally, this Statement provides that an entity may reclassify held-to-maturity and available-for-sale securities to the trading account when the fair value option is elected for such securities, without calling into question the intent to hold other securities to maturity in the future. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Company has not completed its assessment of SFAS 159 and the impact, if any, on the consolidated financial statements.

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Quarterly Financial Data (Unaudited)

	Three Months Ended
(in thousands, except per share data)	December 31			September 30		June 30		March 31
2006
Interest income	$	47,188		$	48,881	$	47,688	$	45,774
Interest expense		26,460			27,711		26,669		24,561
Net interest income		20,728			21,170		21,019		21,213
Provision for loan losses		5,075			2,125		1,800		2,350
Non-interest income		(4,410	)		1,714		1,793		1,661
Non-interest expense		29,433			13,386		14,306		13,378
(Loss) income before income tax (benefit) expense		(18,190	)		7,373		6,706		7,146
Income tax (benefit) expense		(7,902	)		2,045		1,649		1,978
Net (loss) income	$	(10,288	)	$	5,328	$	5,057	$	5,168
Earnings per share - basic	$	(0.94	)	$	0.49	$	0.46	$	0.47
Earnings per share - diluted		(0.94	)		0.47		0.45		0.46
2005
Interest income	$	45,911		$	43,754	$	41,569	$	39,033
Interest expense		24,177			22,865		20,843		19,169
Net interest income		21,734			20,889		20,726		19,864
Provision for loan losses		4,830			2,100		2,100		1,500
Non-interest income		1,804			2,042		1,927		1,717
Non-interest expense		12,571			12,933		12,240		11,858
Income before income tax expense		6,137			7,898		8,313		8,223
Income tax expense		1,804			2,546		2,677		2,610
Net income	$	4,333		$	5,352	$	5,636	$	5,613
Earnings per share - basic	$	0.40		$	0.50	$	0.53	$	0.53
Earnings per share - diluted		0.39			0.48		0.51		0.51

Item 7A. Quantitative and Qualitative DisclosuresAbout Market Risk.

The information furnished with respect to this Item is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is set forth in Item 7 of this report.

Item 8. Financial Statements and SupplementaryData.

The information furnished with respect to this Item is contained in our financial statements included in Item 15 of this report and the quarterly financial data included in Item 7 of this report.

Item 9. Changes In and Disagreements With Accountantson Accounting and Financial Disclosure.

None.

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Item 9A. Controls and Procedures.

a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended, the “Exchange Act” is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information we are required to disclose in our Exchange Act reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of December 31, 2006. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting as of December 31, 2006, as described below.

b) Management’s Report on Internal Control Over FinancialReporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is a process designed to provide reasonable assurance regarding the preparation of published financial statements in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on the assessment as of December 31, 2006 the Company did not maintain effective internal control over financial reporting due to existence of a material weakness related to the risk rating process and resultant determination of the allowance for loan losses and the provision for loan losses. Specifically, the following control deficiencies contributed to the material weakness:

·   Ineffective policies and procedures related to the loan risk rating process by loan officers. Specifically, the Company’s policies and procedures did not provide for effective updating of risk ratings on seasoned loans.

·   Ineffective monitoring and review by credit risk review personnel to identify and resolve discrepancies in risk ratings on seasoned loans as compared to the Company’s standard risk rating matrix.

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As a result of the material weakness noted above, material misstatements were present in the Company’s allowance for loan losses and provision for loan losses in the preliminary 2006 consolidated financial statements. Adjustments were recorded to correct such balances prior to the issuance of the 2006 consolidated financial statements.

The Company’s independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on management’s assessment of our internal control over financial reporting as of December 31, 2006. This report appears on page 68.

c) Changes to Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management has taken remedial actions with respect to the identified material weakness. We are requiring additional credit training for our loan officers, as well as updating and strengthening our credit policies and procedures manual. We have changed personnel within the credit risk review function, enhanced administrative oversight of the credit risk review function and undertaken an expanded review of loan files to confirm appropriate risk ratings.

Limitations of Effectiveness of Controls

We note that any system of internal controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the internal control system will be met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of inherent limitation in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

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d) Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Yardville National Bancorp and subsidiaries:

We have audited management’s assessment, included on pages 66-67, Item 9A(b), “Management’s Report on Internal Control Over Financial Reporting,” that Yardville National Bancorp and subsidiaries (the “Company”) did not maintain effective internal control over financial reporting as of December 31, 2006, because of the effect of the material weakness identified in management’s assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management of the Company is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of its assessment, the Company has identified a material weakness in internal control over financial reporting as of December 31, 2006 related to the risk rating process and resultant determination of the allowance for loan losses and provision for loan losses. Specifically, the following control deficiencies contributed to the material weakness:

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·   Ineffective policies and procedures related to the loan risk rating process by loan officers. Specifically, the Company’s policies and procedures did not provide for effective updating of risk ratings on seasoned loans.

·   Ineffective monitoring and review by credit risk review personnel to identify and resolve discrepancies in risk ratings on seasoned loans as compared to the Company’s standard risk rating matrix.

As a result of the material weakness noted above, material misstatements were present in the Company’s allowance for loan losses and provision for loan losses in the preliminary 2006 consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of Yardville National Bancorp and subsidiaries as of December 31, 2006 and 2005, 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, 2006. The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2006 consolidated financial statements, and this report does not affect our report dated March 30, 2007, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that Yardville National Bancorp and subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

(KPMG SIGNATURE)

Short Hills, New Jersey

March 30, 2007

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Item 9B. Other Information.

None.

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PART III

Item 10.Directors, Executive Officers and Corporate Governance.

Directors

Our certificate of incorporation and by-laws provide that the number of directors will not be less than five or more than twenty-five and permits the exact number to be determined from time to time by the board. The board has fixed the number of directors at twelve. The directors of the Company also serve as directors of the Bank.

Pursuant to our certificate of incorporation, the directors of the Company are divided into three classes, as nearly equal in number as possible, and each class has a three-year term. Class terms expire on a rolling basis, so that typically one class of directors is elected each year. In November 2006, Christopher S. Vernon resigned and, consistent with the board’s past practices, the number of directors constituting the entire board was reduced from thirteen to twelve. The board’s nominating and governance committee will make a recommendation regarding the current size and composition of the board, as well as recommendations for director candidates to be nominated by the board, in accordance with its charter. Additional information regarding the director nominees will be included in our proxy statement for the 2007 annual meeting of shareholders.

Information about our current board of directors is contained below.

Elbert G. Basolis, Jr. Age: 45 Director Since: 1996Term Expires: 2007

Elbert G. Basolis, Jr. has served as Vice Chairman of the Board of the Company and the Bank since 2002. Mr. Basolis is President and an Owner of Garrison Enterprise Inc., an underground utility contracting business, established in 1963.

Anthony M. Giampetro, M.D. Age: 71 Director Since: 1994Term Expires: 2007

Anthony M. Giampetro, M.D. is a physician in private practice.

Patrick M. Ryan Age: 62 Director Since: 1992Term Expires: 2007

Patrick M. Ryan has served as the Chief Executive Officer of both the Company and the Bank since November 1992 and served as the President of both the Company and the Bank from November 1992 until January 2006. Mr. Ryan is a past member of the Federal Reserve Bank of Philadelphia’s Community Bank Advisory Council and currently serves on the Board of Governors of Rutgers, the State University of New Jersey, and the Board of Trustees of the New Jersey Bankers Association.

Martin Tuchman Age: 66 Director Since: 2000Term Expires: 2007

Martin Tuchman has served as the Chairman of the Board and Chief Executive Officer of Interpool, Inc., a chassis and leasing company, since 1993.

F. Kevin Tylus Age: 52 Director Since: 1992 Term Expires: 2007

F. Kevin Tylus has served as the President of the Company and the Bank since January 2006 and as the Chief Operating Officer of the Company and the Bank since February 2005. Mr. Tylus also served as Senior Executive Vice President of the Company and the Bank between October 2004 and January 2006, and served as Chief Administrative Officer from October 2004 to January 2005. Prior to joining the Bank, Mr. Tylus served as Regional President of Great-West Life and Annuity from January 2003 to September 2004, and Subsidiary President and Corporate Senior Vice President of CIGNA Corporation from November 1999 to December 2002.

Jay G. Destribats Age: 72 Director Since: 1990Term Expires: 2008

Jay G. Destribats has served as the Chairman of the Board of both the Company and the Bank since 1990. He also was a Partner in the law firm now known as Destribats, Campbell, DeSantis, Magee and Staub (Counselors at Law) until July 1999 and is now Of Counsel.

Gilbert W. Lugossy Age: 71 Director Since: 1991Term Expires: 2008

Gilbert W. Lugossy served as a member of the New Jersey State Parole Board from April 1990 to April 1997 and is now retired.

James E. Bartolomei Age: 47 Director Since: 2004Term Expires: 2008

James E. Bartolomei is the managing partner of Bartolomei Pucciarelli, LLC, a CPA firm.

Robert L. Workman Age: 44 Director Since: 2004Term Expires: 2008

Robert L. Workman is currently the owner and a senior partner of Workman & Skertic, a CPA firm.

Samuel D. Marrazzo Age: 59 Director Since: 2003Term Expires: 2009

Samuel D. Marrazzo is the owner and operator of Marrazzo’s Thriftway in Robbinsville, New Jersey and Marrazzo’s Market in Ewing, New Jersey. Mr. Marrazzo is also a member of the Executive Committee of Retail Marketing Group, LLC, an organization of supermarket owners with oversight responsibility for negotiation and implementation of supply agreements worth more than $120 million per year.

Louis R. Matlack, Ph.D. Age: 72 Director Since: 1997Term Expires: 2009

Louis R. Matlack, Ph.D. was a Principal of Matlack Mediation, a mediation services firm, from 1988 to 2000 and is now retired. Prior to founding his mediation services firm, he was an executive at Scott Paper Company for 12 years and President and CEO of George D. Wetherill & Co., Inc. for five years prior to that.

George D. Muller Age: 63 Director Since: 2005Term Expires: 2009

George D. Muller is the President of Flemington Glass Enterprises, Inc. He formerly served as a director of Flemington National Bank & Trust for 20 years, and as its chairman for three years. Before joining the YNB Board, he was chairman of the Business Development Board of Carnegie Bank. He currently provides consulting services for Riedel Crystal, a glass company, and serves as a Freeholder of Hunterdon County, New Jersey.

No director was select pursuant to any arrangement or understanding between him and any other person or persons.

No director, other than Martin Tuchman and Robert L. Workman, both of whom are directors of Interpool, Inc., is a director of any company other than YNB with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, naming such company.

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Executive Officers

The following table sets forth the name and age of each current executive officer of the Company and the Bank. Select biographical information concerning these individuals appears below the table. The executive officers are appointed to their respective offices annually.

Name	Age	Position
Jay G. Destribats	72	Chairman of the Board of Directors of the Company and the Bank
Patrick M. Ryan	62	Chief Executive Officer of the Company and the Bank
F. Kevin Tylus	52	President and Chief Operating Officer of the Company and the Bank
Stephen F. Carman	50	Vice President and Treasurer of the Company and Executive Vice President and Chief Financial Officer of the Bank
Edward J. Dietzler	42	First Senior Vice President and Capital Markets Officer of the Bank
Timothy J. Losch	56	Executive Vice President and Chief Market Development and Community Relations Officer of the Bank
Stephen R. Walker	63	Executive Vice President and Chief Information Officer of the Bank
Brian K. Gray	44	First Senior Vice President and Chief Retail Services and Marketing Officer of the Bank
Howard N. Hall	47	Assistant Treasurer of the Company and First Senior Vice President and Investments and Financial Planning Officer of the Bank
Daniel J. O’Donnell	44	Secretary of the Company and Executive Vice President and Chief Legal Officer of the Bank
Joanne C. O’Donnell	48	First Senior Vice President and Chief Credit Administration Officer of the Bank
John P. Samborski	62	First Senior Vice President and Chief Lending Officer of the Bank
Patrick L. Ryan	31	First Senior Vice President and Market Manager of the Bank

See page 71 for a description of the business background of Messrs. Destribats, Ryan and Tylus.

Stephen F. Carman has served as Vice President of the Company since November 2002 and Treasurer of the Company since May 1992. He has served as Executive Vice President and Chief Financial Officer of the Bank since November 1992 and served as Secretary of the Company from May 1992 to April 2002.

Edward J. Dietzler has served as First Senior Vice President and Capital Markets Officer of the Bank since April 2004 and served as Senior Vice President and Capital Markets Officer of the Bank from May 2003 to April 2004. Prior to joining the Bank, Mr. Dietzler served as Director of Risk Management of GMAC Mortgage Company from 1997 to 2003.

Timothy J. Losch has served as Executive Vice President and Chief Market Development and Community Relations Officer of the Bank since February 2005 and served as Executive Vice President and Chief Operating Officer from June 1997 to January 2005.

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Stephen R. Walker has served as Executive Vice President and Chief Information Officer of the Bank since January 2003 and served as First Senior Vice President and Chief Information Officer from June 2002 to December 2002. Prior to joining the Bank, he served at Merrill Lynch as First Vice President and Chief Technology Officer from 2000 to 2002.

Brian K. Gray has served as First Senior Vice President and Chief Retail Services and Marketing Officer of the Bank since January 2006. He served as First Senior Vice President and Retail Banking and Marketing Officer of the Bank from October 2003 to December 2005, as Senior Vice President and Retail Banking and Marketing Officer of the Bank from January 2003 to September 2003 and as Senior Vice President and Marketing Officer of the Bank from January 2001 to December 2002.

Howard N. Hall has served as Assistant Treasurer of the Company since April 2002 and as First Senior Vice President and Investments and Financial Planning Officer of the Bank since March 2005. He served as First Senior Vice President and Investments Officer from January 2003 to March 2005 and as First Senior Vice President and Controller of the Bank from February 2000 to January 2003.

Daniel J. O’Donnell has served as Secretary of the Company since April 2002 and as Executive Vice President and Chief Legal Counsel of the Bank since July 2005. He served as First Senior Vice President and General Counsel of the Bank from January 2003 to July 2005 and as Senior Vice President and General Counsel of the Bank from January 2001 to December 2002.

Joanne C. O’Donnell has served as First Senior Vice President and Chief Credit Administration Officer of the Bank since April 2005. She served as Senior Vice President and Chief Credit Administration Officer of the Bank from April 2004 to March 2005, as Senior Vice President and Credit Administration Manager of the Bank from October 2003 to April 2004 and as Vice President and Credit Department Manager of the Bank from January 1999 to September 2003.

John P. Samborski has served as First Senior Vice President and Chief Lending Officer of the Bank since April 2004. He served as First Senior Vice President and Credit Officer of the Bank from January 2003 to April 2004 and as Senior Vice President and Credit Officer of the Bank from October 2001 to January 2003. Prior to joining the Bank, Mr. Samborski served as Vice President of Citizens Bank of New Hampshire from August 1991 to October 2001.

Patrick L. Ryan has served as First Senior Vice President and Market Manager since November 2006. He served as Senior Vice President and Strategic Planning, Corporate Development and Emerging Markets Manager of the Bank from January 2006 to October 2006. He served as Senior Vice President and Strategic Planning Officer of the Bank from January 2005 to December 2005. Prior to joining the Bank, he served as a consultant for Bain and Company from September 2003 to December 2004 after graduating from the Tuck School of Business at Dartmouth in June 2003. Prior to business school, he worked as a Business Development Associate at Medsite, Inc. in 2000 and 2001. Patrick L. Ryan is the son of director and Chief Executive Officer Patrick M. Ryan.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities (“ten-percent holders”) to file reports of ownership and changes in ownership with the SEC. Officers, directors and ten-percent holders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2006, each of the Company’s officers, directors and greater than ten-percent holders complied with all Section 16(a) filing requirements applicable to him or it, except that one report on Form 4 was untimely filed in 2006 by Elbert G. Basolis, Jr. (reporting two acquisitions of shares through our Dividend Reinvestment Plan, in which Mr. Basolis had a direct interest, and two acquisitions of shares as part of a distribution of shares from Garrison Enterprises, Inc., in which Mr. Basolis had direct and indirect interests) and one report on Form 4 was untimely filed in 2006 by Eugene C. McCarthy (reporting three acquisitions by exercise of stock options and three sales of shares).

Code of Ethics

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and other senior financial officers. Our code of ethics is posted in the “Investor,” or “Investor Relations,” section on our Internet web site, www.ynb.com.

Director Nominee Procedures

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors. A shareholder who wishes to nominate any individual as a director shall notify the Secretary of the Company at 2465 Kuser Road, Hamilton, New Jersey 08690 by registered mail, return receipt requested. Any such notice by a shareholder shall specify (a) the name of the shareholder who will make the nomination or on whose behalf the nomination will be made, (b) the names of all other shareholders who are acting directly or indirectly with the nominating shareholder or have an understanding directly or indirectly with the nominating shareholder, (c) the number of shares which the shareholder reasonably anticipates may be voted in favor of the nominee, and (d) the name, address and business background of any nominee.

Audit Committee

Our board of directors has designated an audit committee for the purpose of overseeing our accounting and financial reporting processes and audits of our financial statements. As of the date of this annual report, the members of the audit committee are Mr. Bartolomei, who serves as chairperson, Mr. Workman, who serves as vice chairperson, and Messrs. Matlack and Muller. Our board of directors has determined that Mr. Bartolomei is an “audit committee financial expert,” as defined under applicable SEC rules, is independent, as independence for audit committee members is defined in applicable Nasdaq rules, and that Mr. Bartolomei possesses the requisite “financial sophistication” required under applicable Nasdaq rules.

Item 11.Executive Compensation.

Compensation Discussion and Analysis

Our Compensation Philosophy

Our compensation philosophy starts from the premise that the success of the Company depends, in large part, on the dedication and commitment of the people we place in key operating positions to drive our business strategy. We strive to satisfy the demands of our business model by providing our management team with incentives tied to the successful implementation of our corporate objectives. However, we recognize that the Company operates in a competitive environment for talent. Therefore, our approach to compensation considers the full range of compensation techniques that enable us to compare favorably with our peers as we seek to attract and retain key personnel.

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We ground our compensation philosophy on three basic principles:

·   Meeting the Demands of the Market -- Our goal is to compensate our employees at competitive levels that position us as an employer of choice among our peers who provide similar financial services in the markets we serve.

·   Aligning with Shareholders - We use equity compensation as a component of our compensation mix to develop a culture of ownership among our key personnel and to align their individual financial interests with the interests of our shareholders.

·   Driving Performance - We structure compensation around the attainment of company-wide financial and individual performance targets that return positive results to our bottom line.

We use specific compensation decisions to communicate desired results to our key personnel, to influence the process of decision making among our key personnel to produce the desired results and to reward key personnel when they achieve the desired results. We believe this approach creates accountability for the individual performance of key personnel within the structure of our business plan by allowing management to understand the basis upon which their performance will be evaluated.

Our compensation program relies on four primary elements: (i) base compensation or base salary; (ii) cash-based, short-term incentive compensation; (iii) equity-based, long-term incentive compensation and (iv) executive benefits and perquisites. We believe that we can meet the objectives of our compensation philosophy by achieving a balance among these four elements that is competitive with our industry peers and creates appropriate incentives for our management team. To achieve the necessary balance, our Compensation Committee works closely with nationally recognized independent compensation consultants (see below) who provide their special expertise on competitive compensation practices and help us to benchmark our compensation program to our peers and to “best practices” in our sector.

Base Compensation. The salaries of our executive and other officers are reviewed at least annually to assess their performance, to evaluate our competitive position on base pay and to make any necessary adjustments. Our goal is to maintain salary levels for our officers at a level consistent with base pay received by those in comparable positions at our peers. To further that goal, we obtain peer group information from our independent compensation consultants (see below). We also evaluate salary levels at the time of promotion or other change in responsibilities. Individual performance and retention risk are also considered as part of our annual assessment. Typically, salary adjustments occur in January or at other appropriate times during the year.

Short-Term Cash-Based Incentive Compensation. Our current short-term incentive program is a cash-based plan that is designed to reward the attainment of annual company-wide financial objectives at specified levels and individual performance relative to the specific tasks we expect an officer to accomplish during the year. All award levels are expressed as a percentage of base compensation. Our objective is to drive annual performance at both the Company and individual levels to the highest attainable levels by establishing threshold, target and maximum goals tied to increasing levels of incentive compensation. We establish Company and individual targets, taking into account our annual budget and management’s strategic objectives for the year. We assess the attainment of individual targets by considering actual results against specific targeted objectives, whether the objective represented a significant stretch for the individual and organization and whether unanticipated circumstances, either positive or negative, affected the outcome. In general, our intent is not to exercise discretion in the determination of awards. However, in appropriate circumstances, the Compensation Committee may take into account external or extraordinary factors that influenced or affected a specific outcome, whether relating to a Company or individual target, and make adjustments that reflect an equitable result. A more detailed discussion of the 2006 program follows later in this Compensation Discussion and Analysis.

Long-Term Equity-Based Compensation. Our long-term incentive compensation program is designed to align our management with shareholder interests and focuses our management team on the long-term performance of the Company. By increasing the equity holdings of our management team, we provide them with a continuing stake in our long-term success. The frequency, nature and size of awards under our equity-based program are based on a number of factors including competitive practice, executive performance, Company performance and the expense to the Company.

Retirement Benefits; Employee Welfare Benefits We offer our employees tax-qualified retirement and savings plans. Our primary retirement vehicles include our employee stock ownership plan and our 401(k) plan;however, effective for 2007, our named executive officers are no longer eligible to participate in the employee stockownership plan. In addition to retirement programs, we provide our employees with coverage under medical, dental, life insurance and disability plans on terms consistent with industry practice. We also provide employees with access to a flexible spending plan to pay their share of the cost of such coverage on a pre-tax basis. Certain of our officers, including our CEO and COO, have entered into split dollar life insurance agreements that provide additional life insurance protection while employed by the company.

Our named executive officers also participate in our Second Amended and Restated Supplemental Executive Retirement Plan, as amended, referred to as our “SERP,” which provides benefits based on a stated percentage of the participating officer’s final average cash compensation. Upon termination of employment at or after a specified normal retirement age, which ranges from age 60 to age 70 depending on the individual participant, the participant will receive a retirement benefit equal to a specified percentage (ranging from 20% to 60% depending on the individual participant) of his average cash compensation in the three calendar years out of the current year and the five years proceeding his retirement that produce the highest average, provided that such amount may not exceed the amount determined as of the date a participant attains his normal retirement age without regard to whether he remains employed after such date. The benefit is payable, at the participant’s election, in the form of 180 monthly installment payments or an actuarially equivalent lump sum and each participant has elected the lump sum. If a participant terminates employment prior to normal retirement age, the normal retirement benefit would be reduced proportionately to reflect the participant’s age and years of participation in the SERP as of his termination date. No benefits are payable under the SERP if a participant’s employment is terminated for cause.

Under our SERP, in the event of a participant’s death while in active service with the Company or the Bank, his beneficiaries would be entitled to receive a benefit calculated as if the participant had attained normal retirement age prior to his death. If a participant dies after payments under the SERP have begun, his beneficiaries would receive all remaining payments. In the event of a participant’s disability while employed by the Bank, the SERP would provide him with a monthly payment through his normal retirement date equal to 100 percent of his final average compensation reduced by social security disability benefits and benefits payable under the Bank’s long-term disability program. The SERP disability benefit would be reduced to the normal retirement benefit percentage when the disabled participant reaches his normal retirement date.

If, during the three-year period following a change in control of the Company (as defined in the SERP), a participant’s employment is involuntarily terminated or the participant voluntarily terminates employment in certain circumstances that amount to a constructive termination, the participant would be entitled to receive the normal retirement benefit without regard to his age and service at termination and based on his final average compensation prior to termination. Under the SERP, events constituting a constructive termination include a reduction in the participant’s position, authority, compensation or benefits or a required relocation of his place of employment more than 35 miles from its location prior to the change in control.

Additional information regarding the SERP is included below in the Pension Benefits table and the related footnotes, as well as the “Payments Upon Termination or Change-In-Control.”

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Perquisites. We provide certain of our officers, including our named executive officers with perquisites that further their ability to promote the Company’s business interests in our markets and to reflect competitive practices for similarly situated officers employed by our peers. We review these perquisites periodically and make adjustments as necessary.

Role of the Compensation Committee

We rely on the Compensation Committee to develop the broad outline of our compensation program and to monitor the success of the program in achieving the objectives of our compensation philosophy. The Committee, which consists of four independent directors, is also responsible for the administration of our compensation programs and policies, including the administration of our cash- and stock-based incentive plans.

The Committee operates under the mandate of a formal charter that establishes a framework for the fulfillment of the Committee’s responsibilities. The Committee and the Board review the Charter annually to ensure that the scope of the Charter is consistent with the Committee’s designated role. Under the Charter, the Committee is charged with general responsibility for the oversight and administration of our compensation program. The Charter vests in the Committee principal responsibility for determining the compensation of the CEO based on the Committee’s evaluation of his performance. The Charter also authorizes the Committee to engage consultants and other professionals without management approval to the extent deemed necessary to discharge its responsibilities.

During 2006, the Compensation Committee met 13 times, including 13 executive sessions attended by Committee members only. The members of the Committee included George D. Muller, Chairperson, Elbert G. Basolis, Jr., James E. Bartolomei and Anthony M. Giampetro, MD.

Peer Group Analysis

A critical element of our compensation process and a key driver of specific compensation decisions for our management team is a comparative analysis of our compensation mix and levels relative to a peer group of publicly traded financial institutions. A guiding principle of our compensation philosophy is the maintenance of a competitive compensation program relative to the companies with which we compete for talent. In 2006, our peer group was selected with the assistance of our independent compensation consultants on the basis of a several factors, including geographic proximity, size, and operating characteristics.

Role of the Compensation Consultant

Since 2005, the Compensation Committee has worked with independent compensation consultants at Pearl Meyer & Company, a division of Clark Consulting, to benchmark our compensation program against our peers and to afford us their expertise in structuring our compensation program. The Committee has also retained Muldoon Murphy & Aguggia, LLP as counsel to the Committee to provide executive compensation and benefits advice. These advisors are retained directly by the Committee and serve at the pleasure of the Committee. From time to time, the Committee also reviews with Pearl Meyer consultants developments in the compensation area to ensure that our program is consistent with prevailing practice in our industry. During 2006, Pearl Meyer prepared a comprehensive executive compensation review that covered all aspects of compensation for our senior management team, including CEO, CFO and other named executive officers. In 2006, representatives of Pearl Meyer attended four Committee meetings, either in person or by telephone.

Role of Management

Our CEO and other named executive officers develop recommendations regarding the appropriate mix and level of compensation for their subordinates. The recommendations consider the objectives of our compensation philosophy and the range of compensation programs authorized by the Compensation Committee. The CEO meets with the Compensation Committee to discuss the recommendations and also reviews with the Committee his recommendations concerning the compensation of our other named executive officers. Our CEO does not participate in Committee discussions or the review of Committee documents relating to the determination of his compensation.

Tax and Accounting Considerations

In consultation with our advisors, we evaluate the tax and accounting treatment of each of our compensation programs at the time of adoption and on an annual basis to ensure that we understand the financial impact of each program on the Company. Our analysis includes a review of recently adopted and pending changes in tax and accounting requirements. As part of our review, we consider modifications and/or alternatives to existing programs to take advantage of favorable changes in the tax or accounting environment or to avoid adverse consequences. During 2006, we continued to consider the implications of two significant developments in the tax and accounting area - the new Section 409A rules applicable to nonqualified deferred compensation and the revised accounting treatment for equity compensation under FAS 123R. We are continuing to implement changes in plan design or compensation practices to address these developments as they are interpreted and put in practice.

To preserve maximum flexibility in the design and implementation of our compensation program, we have not adopted a formal policy that requires all compensation to be tax deductible for purposes of Section 162(m) of the Internal Revenue Code, which limits the deductibility of certain compensation paid to our named executive officers. However, to the greatest extent possible, it is our intent to structure our compensation programs in a tax efficient manner for the Company.

Employment Agreements

We currently maintain employment agreements with key management personnel, including our named executive officers that provide for the payment of severance benefits in specified circumstances. A detailed description of the terms of those agreements and the severance benefits payable to each named executive officers is set forth below in the “Discussion of Summary Compensation and Grant of Plan-Based Awards Tables.” However, in May 2006, the Board of Directors provided notice to our named executive officers that the term of their existing agreements, which established an initial three-year term with automatic one-year extensions absent prior notice from either party, would not be extended beyond the expiration of the current term. All of the agreements will expire in approximately 18 months. The Board’s action, which followed a review of the terms of the agreements by the Compensation Committee, did not reflect any specific evaluation of the performance of the affected officers. Rather, the Board determined, consistent with the Committee’s recommendation, that it would be in the best interests of the Company and its shareholders, to develop an agreement based on uniform terms that better reflected the Company’s current compensation philosophy. Specifically, The Board believed that the existing agreements did not provide the Board and the Compensation Committee with sufficient flexibility to vary the nature or scope of an executive’s role and the components of an executive’s compensation package from year-to-year based on changes in the Company’s needs and/or the executive’s performance. It is expected that at some point prior to the expiration of the existing agreements, a new form of employment agreement will be developed for our executive officers containing terms that are mutually agreeable to the Company and the named executive officers.

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Stock Compensation Grant and Award Practices; Timing Issues

Our Compensation Committee considers whether to make stock option grants and/or award other forms of equity on an annual basis, typically in conjunction with the annual review process for our officers. However, grants or awards may be made at other times during the year based on specific circumstances such as a new hire, a specific contractual commitment or a change in position or responsibility. The Compensation Committee considers the recommendations of our CEO and other executive officers with respect to awards contemplated for their subordinates. However, the Committee is solely responsible for the development of the schedule of grants or awards made to the CEO and the other executive officers.

As a general matter, the Compensation Committee’s process is independent of any consideration of the timing of the release of material nonpublic information, including with respect to the determination of grant dates or the stock option exercise prices. Similarly, the Company has never timed the release of material nonpublic information with the purpose or intent to affect the value of executive compensation. In general, the release of such information reflects long-established timetables for the disclosure of material nonpublic information such as earnings reports or, with respect to other events reportable under federal securities laws, the applicable requirements of such laws with respect to timing of disclosure.

We set the exercise price of stock options solely by reference to the applicable provisions of our stock compensation plans. Under our current plan, which was approved by shareholders in 2005, the exercise price of an option is equal to closing sale price of our stock on the grant date. The grant date is generally the date of Committee action. To date, no awards have been made under our current equity plan.

Stock Ownership Requirements

We have not adopted formal stock ownership requirements for our senior officers and Board members beyond the minimum requirements applicable under federal banking regulations. As a practical matter, our officers and directors hold significant interests in our stock, which they have accumulated through participation in stock compensation programs and individual purchases. See “Ownership of Certain Beneficial Owners and Management.” However, we will continue to evaluate the practices among our peer companies with respect to stock ownership guidelines to assess the current state of “best practices” regarding such guidelines.

2006 Compensation Program Highlights

Base Salary Adjustments

In 2006, consistent with our continuing emphasis on variable compensation as a significant component of total compensation, the base annual salaries of our named executive officers were maintained without increase except for Mr. O'Donnell. During 2006 Mr. O'Donnell was promoted and his salary was adjusted to reflect his promotion, additional responsibilities and to make his salary commensurate with industry peer levels. In 2007, Mr. Ryan and Mr. Destribat's base annual salary was maintained without increase while Mr. Tylus, Mr. Carman and Mr. O'Donnell received minimum or cost-of-living adjustments. 

2006 Short-Term Incentive Program

In 2006, we revised our cash-based, short-term incentive program to emphasize a reward based on a weighted mix of financial and individual performance objectives. We developed the program in consultation with our Pearl Meyer consultants, taking into account the findings of their review of competitive practices among our peers and industry best practices. While specific bonus targets had been utilized in prior years, the Committee determined that a formal program based on the attainment of pre-established financial and individual performance objectives would better serve the objectives of the Company’s overall compensation philosophy. The program established reward opportunities based on the attainment of target levels for each objective. Under the 2006 program, the attainment of targeted levels of a key financial measure -- earnings per

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share (“EPS”) -- accounted for 75% and 60% of the total award for our CEO and our President/COO, respectively. The balance of the award, or 25% and 40%, respectively, was tied to the attainment of individual performance objectives. Similar financial and individual performance targets were established for each of our other named executive officers. With respect to the EPS metric, the Committee designated a target level and then established a minimum threshold for bonus eligibility 10% below the target and a “stretch” target for enhanced bonus opportunities at 20% over the EPS target. Individual performance targets for our named executive officers focused on a series of strategic and operational initiatives.

In January 2007, the Compensation Committee exercised its discretionary authority to adjust the applicable financial performance target to eliminate the short-term impact on earnings of actions taken in the fourth quarter of 2006 to restructure the Company’s balance sheet. The Committee determined that, without an adjustment to the 2006 financial performance target, the incentive value of the plan would be significantly diminished for key management personnel who took the steps necessary to reposition the Company for higher financial performance over the long-term and that the willingness of key personnel to undertake similar strategic initiatives in the future could be compromised.

In January 2007, the Committee evaluated the Company’s financial performance relative to the adjusted EPS target and the performance of our named executive officers relative to their individual performance goals. A key consideration in the Committee’s evaluation was the rate of progress toward full compliance with the requirements of the Bank’s supervisory agreement with the Office of the Comptroller of the Currency. The agreement, which was entered in August 2005, focused on certain deficiencies in operations and management oversight and required corrective action within specific guidelines mandated by the OCC. Accordingly, based on the adjusted financial performance objectives and the Committee’s evaluation of each executive’s individual performance, the Committee authorized the payment of a portion of the awards based on the achievement of certain individual performance goals. Company performance goals were not achieved. The Committee exercised its discretion to bifurcate the portion of the awards related to individual performance by providing for payment of 60% to 85% of the total award during the first quarter of 2007 and making payment of the balance of the award contingent on the attainment of certain additional Company performance goals, namely the termination of the Bank’s formal agreement with the OCC, by December 31, 2007. If those goals are not achieved, the balance of the award will be forfeited.

2006 Long-Term Incentive Program

We did not make any equity compensation awards to our named executive officers in 2006. This decision reflected the Compensation Committee’s determination that consideration of equity awards for senior management should be postponed pending further progress toward compliance with the requirement’s of the Bank’s supervisory agreement. In addition, the Committee concluded that it would be in the best interests of the Company to allow adequate time to evaluate the impact of revised accounting rules for equity compensation, to analyze trends in prevailing practices among our peers, and to develop a strategy for delivering equity compensation in a cost-efficient manner. However, we believe that the absence of awards in 2006 reflects the convergence of specific circumstances, and we expect that equity compensation will remain an important component of our long-term incentive strategy in future years.

Named Executive Officers

Our principal executive officer is Patrick M. Ryan, Chief Executive Officer, and our principal financial officer is Stephen F. Carman, Executive Vice President and Chief Financial Officer. During 2006, the three most highly compensated executive officers other than Messers. Ryan and Carman were Messrs. Tylus, Destribats and O’Donnell. Messers. Ryan, Carman, Tylus, Destribats and O’Donnell are sometimes referred to as the “named executive officers.”

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The following tables set forth certain information regarding the compensation of our named executive officers.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(1)	All Other Compensation ($)(2)	Total ($)
Patrick M. Ryan	2006	460,000	27,600	948,294	22,613	1,458,507
Chief Executive Officer of the Company and the Bank
Stephen F. Carman	2006	202,000	22,725	110,445	15,008	350,178
Vice President and Treasurer of the Company, Executive Vice President and Chief Financial Officer of the Bank
F. Kevin Tylus	2006	315,000	46,856	279,572	195,857	837,285
President and Chief Operating Officer of the Company and the Bank
Jay G. Destribats	2006	270,000	4,536	1,266,759	31,176	1,572,471
Chairman of the Company and the Bank
Daniel J. O’Donnell	2006	185,000	29,563	22,907	12,197	249,667
Secretary of the Company, Executive Vice President and Chief Legal Counsel of the Bank

(1)   For Messrs. Ryan, Carman, Destribats and O’Donnell, the amounts set forth reflect the aggregate change in the actuarial present value of the named executive officer’s accumulated benefit under our SERP from December 31, 2005 to December 2006. For Mr. Tylus, the amount set forth includes $273,027 as a result of the aggregate change in the actuarial present value of Mr. Tylus’s accumulated benefit under our SERP from December 31, 2005 to December 2006. For this purpose, in accordance with SEC rules, the present value was determined using the same assumptions applicable for valuing SERP benefits for purposes of our financial statements. See “Pension Benefits” below. The balance of the amount set forth for Mr. Tylus is $6,545 attributable to above-market earnings on Mr. Tylus’s balance under the Directors’ Deferred Fee Plan, which results from the period during which Mr. Tylus was a non-employee director. Under the terms of the Directors’ Deferred Fee Plan, interest is credited at the prime rate plus two percent. During 2006, interest was credited at 9.25%.   The change in pension value for the named executive officers includes the impact of SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements 87, 88, 106, and 132(R) (Statement No. 158). The primary goal of the new rule is to "recognize the Funded Status of a Plan on the Balance Sheet, rather than the footnotes." The one time adjustment to the "Accrued Liability" as the result of adopting Statement No. 158 is: $331,073 for Mr. Ryan, $23,048 for Mr. Carman, $16,194 for Mr. Tylus and $951,462 for Mr. Destribats. Mr. O'Donnell was not affected by Statement No. 158.

(2)   All other compensation consists of the following amounts.

Name and Principal Position	Year	Company Matching 401(k) Contributions	Group Term Replacement Insurance(a)	ESOP(b)	Payments For Unused Sick and Vacation	Other Contractual Payments(c)	Perquisites(d)	Compensation ($)
Patrick M. Ryan	2006	7,500	3,207	8,368	3,538	-	-	22,613
Stephen F. Carman	2006	6,230	463	6,761	1,554	-	-	15,008
F. Kevin Tylus	2006	7,500	-	8,368	2,423	167,000	10,566	195,857
Jay G. Destribats	2006	5,631	7,014	8,368	-	-	10,163	31,176
Daniel J. O’Donnell	2006	5,637	368	6,192	-	-	-	12,197

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(a)   The amounts indicated represent the current economic value of the premiums paid by the Company, which premiums will be recovered by us in the future when such insurance policies mature.

(b)   The amounts indicated represent an estimate of the value of the shares of common stock to be allocated to the named executive officers under our Employee Stock Ownership Plan for the 2006 fiscal year based on an estimate of the number of shares to be allocated to each named executive officer multiplied by the closing price of the Company’s common stock on December 31, 2006.

(c)   Represents an amount payable to Mr. Tylus under the terms of his employment agreement. See the discussion below the 2006 Grant of Plan-Based Awards table, below.

(d)   Mr. Tylus’s perquisites consist of $7,565 country club dues and $3,001 for personal use of Company automobiles. Mr. Destribats’s perquisites consist of $8,807 country club dues and $1,356 for personal use of Company automobiles.

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2006 Grants of Plan-Based Awards

		Estimated Future Payouts
		Under Non-Equity Incentive
		Plan Awards
Name and	Grant	Threshold	Target	Maximum
Principal Position	Date	($)	($)	($)
Patrick M. Ryan	10/17/06	138,000	184,000	230,000
Stephen F. Carman	10/17/06	45,450	60,600	75,750
F. Kevin Tylus	10/17/06	82,845	110,250	137,970
Jay G. Destribats	10/17/06	30,510	40,500	50,760
Daniel J. O’Donnell	10/17/06	41,625	55,500	69,375

Discussion of Summary Compensation and Grant of Plan-Based Awards Tables

We have written employment agreements with each of our named executive officers. The employment agreements are substantially similar; each provides for a three year term, renewable annually on an automatic basis unless one of the parties provides at least sixty days notice of non-renewal. Commencing in May 2006, the Company and the Bank notified each of the named executive officers that his employment agreement would not be automatically extended beyond the scheduled expiration of its current term. The Company’s Compensation Committee and Board approved the notices to the executive officers in an effort to improve the Company’s compensation practices. Specifically, the Compensation Committee and Board believe the Company will now have more clearly defined opportunities to review the executive officers’ employment agreements and make any modifications appropriate to further the Company’s compensation goals and objectives. As a result of the Company’s notices, each such employment agreement will expire at the end of its current term during 2008.

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The employment agreements provide for the payment of base salary and for each named executive officer’s participation in bonus programs and employee benefit plans, as well as for reimbursement for business expenses and an automobile allowance. In addition, Mr. Tylus’s agreement provides him with compensation for certain benefits which he agreed to forego as a result of his decision to leave his former employer and join the Company. During 2006, Mr. Tylus received a cash payment of $167,000 pursuant to this provision of his agreement. The payment is included in the Summary Compensation Table above in other compensation. Mr. Tylus is scheduled to receive equal payments in 2007 and 2008, in cash or restricted stock at the discretion of the Company.

The employment agreements require the named executive officers to devote their full time, attention, skill and efforts to the faithful performance of their duties; however, the named executive officers may serve as directors of or hold other offices or positions with organizations that do not present conflicts of interest with the Company, the Bank or their affiliates. In addition, the named executive officers agree to maintain the confidentiality of non-public information related to Bank operations and finances. Upon a termination of employment “without just cause” or “with good reason” (as discussed below), the named executive officers’ obligations of loyalty and confidentiality remain in effect and the named executive officers further agree not to serve as directors, officers or employees of any competing financial institutions within fifty miles from the main office of the Bank, nor to interfere with the Bank’s or the Company’s relationship with existing employees, for a period of six months following such termination. See “Potential Payments Upon Termination or Change-In-Control,” below, for additional information regarding amounts payable upon termination.

During 2006, the Compensation Committee of our Board of Directors developed a non-equity incentive plan for our named executive officers and other executive officers. The plan was finalized and target awards were determined in October 2006. Target awards were based on attaining Company and individual performance goals for 2006, as well as Company performance goals that continued into 2007. The 2006 Company performance goals were not achieved. Mr. Destribats achieved the threshold level of individual goals; Messrs. Ryan and Carman achieved the target level of individual goals and Messrs. Tylus and O’Donnell achieved the stretch level of individual goals. As discussed above under the heading “2006 Short-Term Incentive Program” in the “Compensation Discussion and Analysis,” above, only a portion of these amounts were fully earned in 2006, as the balance of such amounts remained subject to the achievement of Company performance goals during 2007. Only the portions earned in 2006 are reflected in the Summary Compensation Table, above.

Outstanding Equity Awards At December 31, 2006

	Number of
	Securities
	Underlying
	Unexercised	Option	Option
	Options (#)	Exercise	Expiration
Name	Exercisable	Price ($)	Date
Patrick M. Ryan	52,926	$17.20	2/4/2008
	70,856	$10.94	12/20/2010
Stephen F. Carman	32,800	$17.20	2/4/2008
	20,000	$10.94	12/20/2010
F. Kevin Tylus	25,000	$29.80	10/7/2014
Jay G. Destribats	41,000	$17.20	2/4/2008
	50,000	$10.94	12/20/2010
Daniel J. O’Donnell	6,000	$12.06	1/2/2011

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2006 Pension Benefits

Name	Plan Name (1)	Number of Years Credit Service (#)(2)	Present Value of Accumulated Benefit ($)(3)
Patrick M. Ryan	SERP	12	2,679,819
Stephen F. Carman	SERP	3	454,537
F. Kevin Tylus	SERP	1	297,167
Jay G. Destribats	SERP	12	2,641,888
Daniel J. O’Donnell	SERP	1	22,907

(1) The above table provides estimates of the present value of benefits the Executives have accumulated under the Second Amended and Restated Supplemental Executive Retirement Planof Yardville National Bank, as of December 31, 2006.

(2) The number years of credit service reflects the number of years since the named executive officers’ respective eligibility dates. Each of the named executive officers has a greater number of years of service to the Company and the Bank.

(3) The present value of accumulated benefits is determined based on the respective named executive officer’s estimated retirement benefit at normal retirement age, which is equal to a specified percentage (ranging from 40% to 60% depending on the individual participant) of the named executive officer’s average cash compensation in the three calendar years out of the then-current year and the five years proceeding his retirement that produce the highest average. The benefit is payable, at the participant’s election, in the form of 180 monthly installment payments or an actuarially equivalent lump sum. As each participant has elected the lump sum the present value of accumulated benefits assumes a lump sum payment. A 5.5% discount factor was used in determining the present value of accumulated benefits.

Potential Payments Upon Termination or Change-In-Control

Upon the death of a named executive officer during the employment agreement term, his estate would receive any compensation due through the last day of the calendar month of death. In the event of a named executive officer’s retirement in accordance with the Company’s or the Bank’s existing retirement plans, the employment agreement would terminate with no further payments made to the named executive officer pursuant to his contract. If the named executive officer became disabled, he would receive any disability benefits provided for under his SERP. However, if the SERP was no longer in effect, the agreement would provide a disability benefit of 100% of monthly base salary and continued coverage under all benefit plans in which the named executive officer participated prior to his disability. Disability payments and benefits would continue through the earliest of the named executive officer’s death, attainment of age 65, or the third anniversary of his termination of employment. Disability payments would be reduced, however, by any benefits payable under any other disability programs sponsored by the Company or the Bank.

The Company or the Bank may terminate a named executive officer at any time for “just cause” (as defined in the employment agreements), subject to the named executive officer’s right to appear, with counsel, before the Board prior to such termination. The named executive officer would receive no severance payments or benefits under the employment agreement upon his termination for just cause. The named executive officer may voluntarily terminate his employment upon the provision of 60 days notice, but upon such termination, he would receive only his compensation and vested benefits through the date of termination.

Under the employment agreements, the named executive officers would receive certain severance benefits upon termination by the Bank or the Company without just cause or upon voluntary termination “with good reason.” “Good reason,” as defined under the employment agreements, includes any of the following: (1) a material reduction in the named executive officer’s responsibilities, authority, or reporting structure within the Company or the Bank; (2) assignment of duties inconsistent with the named executive officer’s skills and experience; (3) failure to be nominated or renominated to the Board (applicable only to Messrs. Destribats, Ryan and Tylus); (4) reduction in salary or benefits contrary to the terms of the employment agreement, or a reduction in salary or benefits following a change in control (as defined in the employment agreement); (5) a termination of benefit plans or of the named executive officer’s participation in such plans (outside of a good faith, across-the-board reduction of general application) in a manner that effectively reduces their aggregate value; and (6) a requirement that the named executive officer relocate by more than 35 miles from the current main office of the Bank. In addition, during the period beginning on the effective date of a change in control and continuing for one year thereafter, the named executive officer may voluntarily terminate employment for any reason and such termination will be treated as a termination with good reason. Upon involuntary termination without just cause, or upon termination with good reason, the named executive officer would receive a severance payment equal to his annual base salary and bonus for the remaining term of the agreement, with the amount determined by reference to his highest annual base salary during any of the twelve months preceding termination and his highest cash bonus during any of the three years preceding termination. The named executive officer also would continue to participate in Company or Bank-sponsored health and welfare benefit plans, or receive the cash equivalent of such coverage, for a period of thirty-six months.

If the Company or the Bank terminate the named executive officer without just cause, or if the executive terminates employment with good reason within the period beginning six months before and ending three years after a change in control, the named executive officer would receive a severance payment equal to three times the sum of his highest annual base salary and highest bonus paid during the preceding three calendar years. The named executive officer would also continue to receive health and welfare benefit coverage, or the cash equivalent, for thirty-six months following termination of employment. In the event that payments made to the named executive officer under the employment agreements result in an “excess parachute payment” as defined under Section 280G of the Internal Revenue Code, an excise tax would be imposed on the named executive officer and the Company would be denied a deduction for such excess amounts. Under the employment agreements, the Company would indemnify the named executive officer for any such excise taxes and any additional income, employment, and excise taxes imposed as a result of the initial tax indemnification. The Company and the Bank would also indemnify the named executive officers with respect to any legal claims arising from their employment or Board service, if applicable, for a six-year period following termination of the employment agreements. Although the Company and the Bank are jointly liable for any payments due, the Company also guarantees the Bank’s payment obligations under the employment agreements.

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Name	Termination Event	Lump Sum Severance ($)	Continued Salary and Bonus ($)	Continued Health and Life Insurance Coverage (present value) ($)	Incremental Pension Benefit (present value) ($)	Tax Gross-up Payment ($)	Total ($)
Patrick M. Ryan	Death	0	0	0	1,098,147	0	1,098,147
	Disability	0	0	25,014	2,230,894	0	2,255,908
	Voluntary	0	0	0	290,091	0	290,091
	Without Cause or For Good Reason	0	1,945,429	30,053	290,091	0	2,265,572
	Change in Control	2,213,607	0	30,053	961,268	911,631	4,116,559
Stephen F. Carman	Death	0	0	0	699,164	0	699,164
	Disability	0	0	30,053	1,963,745	0	1,993,797
	Voluntary	0	0	0	48,063	0	48,063
	Without Cause or For Good Reason	0	624,862	30,053	48,063	0	702,978
	Change in Control	711,000	0	30,053	579,122	376,976	1,697,150
F. Kevin Tylus	Death	0	0	0	3,410,166	0	3,410,166
	Disability	0	0	30,053	6,550,730	0	6,580,783
	Voluntary	0	0	0	16,900	0	16,900
	Without Cause or For Good Reason	0	1,244,468	30,053	16,900	0	1,291,420
	Change in Control	1,416,018	0	30,053	3,065,151	1,781,718	6,292,939
Jay G. Destribats	Death	0	0	0	196,364	0	196,364
	Disability	0	0	0	0	0	0
	Voluntary	0	0	0	196,364	0	196,364
	Without Cause or For Good Reason	0	1,200,279	0	196,364	0	1,396,643
	Change in Control	1,365,738	0	0	196,364	544,328	2,106,431
Daniel J. O'Donnell	Death	0	0	0	959,510	0	959,510
	Disability	0	0	30,053	2,629,008	0	2,659,060
	Voluntary	0	0	0	0	0	0
	Without Cause or For Good Reason	0	551,608	30,053	0	0	581,660
	Change in Control	643,689	0	30,053	843,487	653,011	2,170,239

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Director Compensation

The following table sets for certain information regarding the compensation of our directors.

2006 Director Compensation

Name	Fees Earned or Paid in Cash ($)(1)	Option Awards ($)(2)	Change in Pension Value And Nonqualified Deferred Compensation Earnings ($)(3)	All Other Compensation ($)(4)	Total ($)
James E. Bartolomei	61,900	14,416	3,147	20,950	100,413
Elbert G. Basolis, Jr.	50,100	14,416	15,693	25,050	105,259
Anthony M. Giampetro, MD	50,400	14,416	13,558	16,000	94,374
Gilbert W. Lugossy	52,800	14,416	8,574	13,200	88,990
Samuel D. Marrazzo	35,200	14,416	-	-	49,616
Louis R. Matlack	48,600	14,416	11,166	16,000	90,182
George D. Muller	71,701	14,416	339	8,488	94,944
Martin Tuchman	48,500	14,416	9,724	24,250	96,890
Christopher S. Vernon(5)	31,500	14,416	6,294	13,750	65,960
Robert L. Workman	54,900	14,416	4,126	27,450	100,892

(1) Includes amounts deferred under the Directors’ Deferred Fee Plan.

(2) The amounts shown in this column reflect the dollar amount recognized for financial statement purposes for the fiscal year ended December 31, 2006 in accordance with FAS 123(R). The assumptions used in the calculation of this amount are included in Footnote 1 to our audited financial statements for the fiscal year ended December 31, 2006 included in our Annual Report on Form 10-K filed with the SEC on March 30, 2007. At December 31, 2006, our non-employee directors had outstanding, exercisable options to purchase shares of the Company’s common stock as follows: Mr. Bartolomei: 6,000 shares; Mr. Basolis: 12,000 shares; Dr. Giampetro: 6,000 shares; Mr. Lugossy 12,000 shares; Mr. Marrazzo: 9,000 shares; Mr. Matlack: 12,000 shares; Mr. Muller: 6,000 shares; Mr. Tuchman: 12,000 shares; Mr. Vernon: 12,000 shares; and Mr. Workman: 6,000 shares.

(3) Represents the above-market earnings on balances under the Directors’ Deferred Fee Plan. Under the terms of the Directors’ Deferred Fee Plan, interest is credited at the prime rate plus two percent annually. During 2006, interest was credited at 9.25%.

(4) Represents the Company’s match of 50% of fees deferred by directors under the Directors’ Deferred Fee Plan.

(5) Mr. Vernon resigned from the Board of Directors on November 16, 2006.

Our non-employee directors are compensated through a combination of retainers and meeting fees. Directors who are also employees of the company do not receive additional compensation for service on the Board. Non-employee directors also participate in our 2003 Stock Option Plan for Non-Employee Directors, referred to as the “2003 Director Plan,” and are eligible to participate in our 2005 Equity Incentive Plan. In accordance with the terms of the 2003 Director Plan, each non-employee director on the day following our annual meeting of shareholders received an option to purchase 3,000 shares of the Company’s common stock. The level and mix of director compensation is revised by the Compensation Committee on a periodic basis to ensure consistency with the objectives of our overall compensation philosophy. Our review of director compensation also considers the increased liability of directors at publicly traded companies due to changes in the regulatory environment and the heightened scrutiny of corporate governance practices. Accordingly, certain

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directors, receive additional compensation to reflect their service as committee chairs. In addition to the foregoing, our directors may participate in our Directors’ Deferred Fee Plan, which is an elective deferred compensation program which allows each director to defer some or all of their current cash compensation. Directors who elect to defer current compensation receive a matching contribution from the Company of 50% of the amount deferred. Deferral account balances are credited with interest at the prime rate plus two percent.

During 2006, non-employee directors of the Company were paid $100 for each Company Board of Directors meeting attended which was not held on the same day as a Bank Board of Directors meeting, a fee of $1,000 per Bank Board of Directors meeting and an annual retainer fee of $20,000. With respect to meetings of committees of the Board of the Company or the Bank, non-employee member were paid $400 per meeting and chairpersons were paid $500 per meeting, with the exception of the members of the Audit Committee, who were paid $500 per month and the Audit Committee chairperson, who was paid $750 per meeting. On July 26, 2006, the board of directors of the Bank approved a monthly fee of $2,500 for services to be provided by Mr. Muller, as Chairman of the Bank’s Compliance Committee, which services are anticipated to include weekly meetings with management, and the board of directors of the Company approved an annual fee of $6,000 for services to be provided by Mr. Bartolomei as Chairman of the Company’s Audit Committee. The approved fees are in lieu of the additional fees which would have been payable to Messrs. Muller and Bartolomei as Chairman of the Compliance Committee and Audit Committee, respectively.

Compensation Committee Interlocks and Insider Participation

George D. Muller, Elbert G. Basolis, Jr., James E. Bartolomei and Anthony M. Giampetro, M.D. served as members of the Compensation Committee during 2006. None of Dr. Giampetro and Messrs. Basolis, Bartolomei and Muller have served as executives of the Company. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members.

Compensation Committee Report

The compensation committee of our board of directors has reviewed and discussed the “Compensation Discussion and Analysis” set forth above with our management and, based on such review and discussions, the compensation committee recommended to our board of directors that the “Compensation Discussion and Analysis” set forth above be included in this annual report on Form 10-K.

SUBMITTED BY THE COMPENSATION COMMITTEE

George D. Muller, Chairperson

Anthony M. Giampetro, M.D., Vice Chairperson

James E. Bartolomei

Elbert G. Basolis, Jr.

March 26, 2007

The foregoing Compensation Committee Report shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, notwithstanding any general statement contained in any such filing incorporating this annual report on Form 10-K by reference, except to the extent the Company incorporates such report by specific reference.

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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table sets forth information, as of the end of the fiscal year ended December 31, 2006, with respect to compensation plans under which the Company is authorized to issue shares of Common Stock.

Plan Category	Number of Shares to Be Issued upon Exercise of Outstanding Options, Warrants and Rights		Weighted-average Exercise Price of Outstanding Options, Warrants and Rights	Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column
Equity compensation plans approved by security holders(1)	755,335	$	18.13	708,554
Equity compensation plans not approved by security holders	—		—	—
Total	755,335	$	18.13	708,554

____________

(1) These plans consist of the Yardville National Bancorp 1997 Stock Option Plan, the 2003 Director Plan and the 2005 Equity Incentive Plan.

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Security Ownership of Certain Beneficial Owners and Management

The following table shows, as of March 22, 2007, the number of shares of Common Stock beneficially owned by:

•   each person who is known by us to be the beneficial owner of more than five percent of the Common Stock outstanding;

•   each director;

•   each named executive officer (as that term is defined on page __ of this annual report, under the heading “Named Executive officers”); and

•   our directors and all of our executive officers as a group.

Name of Beneficial Owner (1)	Number of Shares Beneficially Owned (2)(3)(4)	Percent of Common Stock (5)
Lawrence B. Seidman (6)	993,435	8.97%
Private Capital Management (7)	553,658	5.00%
Jeffrey L. Gendell (8)	743,086	6.71%
Jay G. Destribats (9)	194,384	1.74%
Patrick M. Ryan (10)	415,822	3.71%
F. Kevin Tylus (11)	228,417	2.06%
Stephen F. Carman (12)	84,567	*
Daniel J. O’Donnell	7,078	*
James E. Bartolomei	10,131	*
Elbert G. Basolis, Jr. (13)	64,002	*
Anthony M. Giampetro, M.D. (14)	64,919	*
Gilbert W. Lugossy (15)	25,579	*
Samuel D. Marrazzo	37,491	*
Louis R. Matlack, Ph.D. (16)	60,315	*
George D. Muller (17)	11,480	*
Martin Tuchman (18)	588,591	5.28%
Robert L. Workman (19)	10,472	*
Directors and executive officers as a group (22 persons) (20)	1,706,984	14.65%

* Less than 1%

(1) Unless otherwise indicated, the address of each person identified below is c/o Yardville National Bancorp, 2465 Kuser Road Hamilton, New Jersey 08690.

(2) The number of beneficially owned shares includes shares over which the named person, directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote, or direct the voting of, such security; or investment power, which includes the power to dispose of, or to direct the disposition of, such security. All shares of a named person are deemed to be subject to that person’s sole voting and investment power unless otherwise indicated.

(3) Includes shares subject to options granted under the Company’s stock option plans exercisable within sixty (60) days of March 17, 2006, as follows: Mr. Destribats - 91,000 shares; Mr. Ryan - 123,782 shares; Mr. Tylus - 25,000 shares; Mr. Carman - 52,800 shares; Mr. O’Donnell - 6,000 shares; Mr. Bartolomei - 6,000 shares; Mr. Basolis, Jr. - 12,000 shares; Dr. Giampetro - 6,000 shares; Mr. Lugossy - 12,000 shares; Mr. Marrazzo - 9,000 shares; Mr. Matlack - 12,000 shares; Mr. Muller - 6,000 shares; Mr. Tuchman - 12,000 shares; Mr. Workman - 6,000 shares, and all directors and executive officers as a group — an aggregate of 524,732 shares.

(4) Includes shares in the Yardville National Bank Employee Stock Ownership Plan Trust (the “ESOP”) as follows: Mr. Destribats - 4,252 shares for his own account (and 48,132 shares over which Mr. Destribats, as a trustee of the ESOP, shares voting rights with Mr. Ryan and Mr. Tylus); Mr. Ryan - 4,252 shares for his own account (and 48,132 shares over which Mr. Ryan, as a trustee, shares voting rights with Mr. Destribats and Mr. Tylus); Mr. Tylus 222 shares for his own account (and 48,132 shares over which Mr. Tylus, as a trustee shares voting rights with Mr. Destribats and Mr. Tylus) Mr. Carman - 3,455 shares for his own account; and Mr. O’Donnell - 1,120 shares for his own account;  

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(5) Shares of the Common Stock which a person has a right to acquire pursuant to the exercise of stock options and warrants held by that person that are exercisable within 60 days of March 22, 2006 are deemed to be outstanding for the purpose of computing the percentage ownership of that person, but are not deemed outstanding for computing the percentage ownership of any other person.

(6) Information with respect to beneficial ownership is based on a Schedule 13D/A filed with the SEC on February 15, 2007 by Lawrence B. Seidman and certain of his affiliates. The address of Lawrence B. Seidman is 100 Misty Lane, Parsippany, New Jersey 07054.

(7) Information with respect to beneficial ownership is based on a Schedule 13G/A filed with the SEC on February 14, 2007 Private Capital Management’s address is 8889 Pelican Bay Blvd., Naples, Florida 34108.

(8) Information with respect to beneficial ownership is based on a Form 13F filed with the SEC on February 13, 2006 by Jeffrey L. Gendell and certain of his affiliates. The business address of Jeffrey L. Gendell is 55 Railroad Avenue, 3rd Floor, Greenwich, Connecticut 06830.

(9) Includes 3,000 shares held by Mr. Destribats’ spouse.

(10) Includes 1,287 shares held by Mr. Ryan as custodian for his children, 55 shares held by Mr. Ryan’s son, and 6,224 shares held by Mr. Ryan’s spouse as to which Mr. Ryan disclaims beneficial ownership.

(11) Includes 143,233 shares held jointly with Mr. Tylus’ spouse, 1,584 shares owned by Mr. Tylus’ spouse as to which Mr. Tylus disclaims beneficial ownership and 3,381 shares held by Mr. Tylus as custodian for his children.

(12) Includes 3,037 shares held jointly with Mr. Carman’s spouse and 225 shares held by Mr. Carman as custodian for his child.

(13) Includes 24,448 shares held as executor for the estate of Elbert G. Basolis, Sr. and 94 shares held by Mr. Basolis, Jr. and his spouse as custodians for their children.

(14) Includes 9,986 shares held in the name of Bellarmino-Giampetro-Scheuerman pension plan.

(15) Includes 3,234 shares held jointly with Mr. Lugossy’s spouse.

(16) Includes 6,199 shares held in the Matlack Family Trust under which Mr. Matlack is a co-trustee.

(17) Includes 400 shares held jointly with Mr. Muller’s spouse.

(18) Includes 2,000 shares held by the Tuchman Foundation, 15,300 shares in a retirement account in the name of Mr. Tuchman’s spouse and 50,000 shares issuable upon exercise of stock warrants held by Mr. Tuchman. Mr. Tuchman’s address is 211 College Road East, Princeton, New Jersey 08540.

(19) Includes 1,836 shares held by Mr. Workman’s spouse and 200 shares held by Mr. Workman’s son.

(20) Includes executive officers as in effect on March 22, 2007 and does not include changes in management since that date.

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Item 13.Certain Relationships and Related Transactions, and Director Independence.

The Bank has made, and it is expected that it will continue to make in the future, loans to our directors and executive officers and their family members, and to firms, corporations, and other entities in which they and their family members maintain interests. None of these loans were nonaccrual, past due, restructured or potential problems at December 31, 2006. All such loans were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Company or the Bank and, in the opinion of management, did not involve more than the normal risk of collectibility or present other unfavorable features.

The following is a summary of additional material relationships or transactions with the Company’s directors, nominees for director, executive officers and their affiliates.

•   In April 2000, the Bank signed a five-year lease with 3 five-year renewal options for its branch in Marrazzo’s Thriftway in West Trenton, New Jersey. The lease automatically renews unless the Company provides written notice to the landlord at leaset 90 days prior to the end of the initial or renewal term. The Company evaluates several factors in determining whether to renew a branch lease including, the financial performance of the branch, cost of the new lease in relation to current rates for comparable properties as well as availability of superior locations in the immediate market area. The current term expires March 31, 2010. The aggregate amount of all periodic payments due on or after January 1, 2006 through the expiration of the current term is $105,850 not including any additional common area maintenance expenses. The property is owned by Serenity Point LLC, a limited liability company of which Mr. Marrazzo, a director of the Company and the Bank, is the sole member. Mr. Marrazzo also owns and operates Marrazzo’s Thriftway. The lease was executed prior to Mr. Marrazzo becoming a member of the Board.

•   In January 2005, the Bank signed a five-year lease with two five-year renewal options for its maintenance department center. To renew the lease, the Company must provide written notice to the landlord at least 3 months prior to the expiration date of the initial or renewal term. The Company evaluates several factors in determining whether to renew this lease including the need for a maintenance center and costs of comparable locations in relation to the costs of the existing location. This property is owned by Lalor Storage LLC, a limited liability company of which Christopher S. Vernon, a former director of the Company and the Bank, is a 75% owner. The aggregate amount of all periodic payments due on or after January 1, 2006 through the expiration of the current term is approximately $244,000 inclusive of related common area maintenance expenses. On November 16, 2006, Director Vernon voluntarily resigned from the boards of director of both the Company and the Bank.

•   In January 2006, the Bank signed a one-year lease effective December 1, 2005 for a temporary location for its Cream Ridge Branch located in Plumsted Township, New Jersey. This temporary lease terminated upon the Bank’s move to a full service branch located on a pad site adjacent to the temporary location. Both facilities are owned by Vernon Holdings 101837 LLC. Christopher S. Vernon, a former director of the Company and the Bank, has a 100% ownership interest in Vernon Holdings 101837 LLC. The aggregate amount of all periodic payments due on or after January 1, 2006 through the expiration of the temporary lease was $31,350 including additional common area maintenance expenses. On September 15, 2006 the Bank signed a lease with Vernon Holdings 101837, LLC for its permanent branch location in the Cream Ridge Mews Shopping Center in Plumsted Township, New Jersey. This lease provides for an initial term of ten years, as well as two options for renewal terms of five years each. To renew the lease, the Company must provide written notice to the landlord at least 6 months prior to the expiration date of the initial or renewal ter. The Company evaluates several factors in determining whether to renew a branch lease including, the financial performance of the branch, cost of the new lease in relation to current rates for comparable properties as well as availability of superior locations in the immediate market area. During the first year of the lease, the Bank is obligated to pay monthly fixed rent of $6,250. In each subsequent lease year during the initial term, the fixed rent will increase in proportion to the Consumer Price Index and in each lease year during any renewal terms, will increase by three percent. Throughout the initial term and any renewal terms, the Bank shall be obligated to pay or reimburse the landlord for all real estate taxes and insurance premiums allocated to the leased premise as well as utilities and maintenance expenses. The aggregate amount of all periodic payments due on or after January 1, 2006 through the expiration of the existing term is approximately $899,250 not including a share of common area expenses. On November 16, 2006, Director Vernon voluntarily resigned from the boards of director of both the Company and the Bank.

•   In January 2005, Patrick L. Ryan, the son of Patrick M. Ryan, the Chief Executive Officer of the Holding Company and the Bank, joined the Bank in the position of Senior Vice President and Strategic Planning Officer. In November 2006, Patrick L. Ryan was promoted to First Senior Vice President and Market Manager. His employment agreement with the Bank includes a base salary of $152,000 together with benefits consistent with those provided to other officers of the same level.

Review, Approval or Ratification of Transactions with Related Persons

The Company’s policies and procedures for the review, approval, or ratification of transactions with related persons are divided into two categories based on the type of transaction. All loans to related persons are covered by written policies and procedures designed to meet the requirements of Federal Reserve Board Regulation O. All other transactions with related persons are covered by separate written policies and procedures.

The policies and procedures regarding loans to related persons, or to firms, corporations, and other entities in which they maintain interests, are designed to ensure that such loans are subject to the same credit standards and terms as loans to unrelated persons, comply with all regulatory limits and reporting requirements and do not involve more than the normal risk of repayment or provide other unfavorable features. The Bank’s board of directors is responsible for applying such policies and procedures.

The policies and procedures regarding all other transactions with related persons, or to firms, corporations, and other entities in which they maintain interests, are designed to ensure that such transactions are legal, are beneficial to the Company, pose no ethical questions or conflicts of interest and are consistent with safe and sound banking practices. With respect to fees or other payments to persons, or to firms, corporations, and other entities in which they maintain interests, such fees or payments must be appropriate based on the type, level, quality and value of the goods or services being received, compensate the provider only for goods and services that meet legitimate needs of the Company and be made only to providers with the requisite expertise. The audit committee is responsible for applying the policies and procedures regarding all transactions other than loans.

As noted above, in November 2006, Patrick L. Ryan was promoted to First Senior Vice President and Market Manager. His promotion and salary were reviewed in accordance with the Bank’s regular procedures for promotions and salary increases for officers of his level. The audit committee did not review his promotion or salary increase.

Director Independence

Our Board of Directors has determined that directors James E. Bartolomei, Elbert G. Basolis, Jr., Anthony M. Giampetro, Gilbert W. Lugossy, Samuel D. Marrazzo, Louis R. Matlack, George D. Muller, Martin Tuchman and Robert L. Workman are independent in compliance with Nasdaq listing standards. In addition, each member of our audit committee was determined to be independent in compliance with the additional, more stringent requirements applicable to audit committee members under Nasdaq listing standards. The members of the Board of Directors who have been determined to be not independent are Jay G. Destribats, Patrick M. Ryan and F. Kevin Tylus.

89

Item 14.Principal Accounting Fees and Services.

The following table presents the aggregate fees, billed or expected to be billed, for the years ended December 31, 2006 and 2005 for professional audit services rendered by KPMG LLP for the audit of the Company’s annual financial statements for those years. Also presented are fees billed for other services rendered by KPMG LLP.

Fee Category	2006 Fees ($)	2005 Fees ($)
Audit Fees (1)	650,000	471,000
Audit-Related Fees (2)	30,000	25,000
Tax Fees (3)	—	—
All Other Fees (4)	7,500	7,500
Total Fees	687,500	503,500

(1) Audit Fees consist of fees billed for professional services rendered by KPMG for the audits of the Company’s financial statements and internal control over financial reporting as of and for the fiscal years ended December 31, 2006 and 2005 and the review of the Company’s quarterly reports on Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

(2) Audit-Related Fees consist of fees billed for professional services rendered for audit-related services including consultations on other financial accounting and reporting related matters.

(3) No tax services were rendered by KPMG.

(4) All Other Fees consist of fees billed for all other services not included above.

The Audit Committee’s Charter includes a formal policy concerning the pre-approval of audit and non-audit services (including the fees and terms thereof) to be provided by the independent registered accounting firm of the Company, subject to the de minimis exception for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended, which are approved by the Audit Committee prior to the completion of the audit. The policy requires that all services to be performed by KPMG LLP, including audit services, audit-related services and permitted non-audit services, be pre-approved by the Audit Committee. The Chairperson of the Audit Committee is authorized to execute any engagement letter or agreement with KPMG LLP for and on behalf of the Company. All services rendered by KPMG LLP are permissible under applicable laws and regulations, and the Audit Committee pre-approved all audit, audit-related and non-audit services performed by KPMG LLP during fiscal 2006. The Audit Committee has considered whether the provision of services after the audit services (as specified above) is compatible with maintaining KPMG LLP’s independence and has determined that provision of such services has not adversely affected KPMG LLP’s independence.

90

PART IV

Item 15.Exhibits, Financial Statement Schedules.

Financial Statements

For a list of the Financial statements filed herewith, see the Index to Financial Statements on page F-1. No schedules are included with the financial statements because the required information is inapplicable or is presented in the financial statements or notes thereto.

Exhibits

The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page E-1.

91

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	YARDVILLE NATIONAL BANCORP
	By:	Patrick M. Ryan
		Patrick M. Ryan
		Chief Executive Officer
March 30, 2007

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Jay G. Destribats	Chairman of the Board and Director	March 30, 2007
Jay G. Destribats
/s/ Patrick M. Ryan	Director and Chief Executive Officer	March 30, 2007
Patrick M. Ryan
/s/ F. Kevin Tylus	Director, President and Chief Operating Officer	March 30, 2007
F. Kevin Tylus
/s/ Stephen F. Carman	Vice President, Treasurer, Principal Financial Officer and Principal Accounting Officer	March 30, 2007
Stephen F. Carman
/s/ James E. Bartolomei	Director	March 30, 2007
James E. Bartolomei
/s/ Elbert G. Basolis, Jr.	Director	March 30, 2007
Elbert G. Basolis, Jr.
/s/ Anthony M. Giampetro	Director	March 30, 2007
Anthony M. Giampetro
/s/ Gilbert W. Lugossy	Director	March 30, 2007
Gilbert W. Lugossy
/s/ Samuel D. Marrazzo	Director	March 30, 2007
Samuel D. Marrazzo
/s/ Louis R. Matlack	Director	March 30, 2007
Louis R. Matlack

92

/s/ George D. Muller	Director	March 30, 2007
George D. Muller
/s/ Martin Tuchman	Director	March 30, 2007
Martin Tuchman
/s/ Robert L. Workman	Director	March 30, 2007
Robert L. Workman

INDEX TO FINANCIAL STATEMENTS

Description	Page
Consolidated Statements of Condition at December 31, 2006 and 2005	F-2
Consolidated Statements of Income for each of the years ended December 31, 2006, 2005 and 2004	F-3
Consolidated Statements of Changes in Stockholders’ Equity for each of the years ended December 2006, 2005 and 2004	F-4
Consolidated Statements of Cash Flows for each of the years ended December 31, 2006, 2005 and 2004	F-5
Notes to Consolidated Financial Statements	F-6
Report of Independent Registered Public Accounting Firm	F-37

F -1

Yardville National Bancorp and Subsidiaries

Consolidated Statements of Condition

	December 31,
(in thousands, except share data)	2006			2005
ASSETS:
Cash and due from banks	$	30,355		$	52,686
Federal funds sold		3,265			10,800
Cash and Cash Equivalents		33,620			63,486
Interest bearing deposits with banks		32,358			16,408
Securities available for sale		402,641			741,668
Investment securities (market value of $98,037 in 2006 and $90,611 in 2005)		96,072			89,026
Loans		1,972,881			1,972,840
Less: Allowance for loan losses		(24,563	)		(22,703	)
Loans, net		1,948,318			1,950,137
Bank premises and equipment, net		12,067			11,697
Other real estate owned		385			—
Bank owned life insurance		49,651			46,152
Other assets		45,619			38,157
Total Assets	$	2,620,731		$	2,956,731
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits
Non-interest bearing	$	197,126		$	232,269
Interest bearing		1,806,157			1,740,448
Total Deposits		2,003,283			1,972,717
Borrowed funds
Securities sold under agreements to repurchase		10,000			10,000
Federal Home Loan Bank advances		324,000			704,000
Subordinated debentures		62,892			62,892
Obligation for Employee Stock Ownership Plan (ESOP)		1,688			2,250
Other		1,593			1,870
Total Borrowed Funds		400,173			781,012
Other liabilities		31,181			25,544
Total Liabilities	$	2,434,637		$	2,779,273
Commitments and Contingent Liabilities
Stockholders' equity
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common Stock: no par value
Authorized 20,000,000 shares
Issued 11,250,592 shares in 2006 and 11,095,331 shares in 2005		108,728			105,122
Surplus		2,205			2,205
Undivided profits		86,100			85,896
Treasury stock, at cost: 180,594 shares		(3,160	)		(3,160	)
Unallocated ESOP shares		(1,688	)		(2,250	)
Accumulated other comprehensive loss		(6,091	)		(10,355	)
Total Stockholders' Equity		186,094			177,458
Total Liabilities and Stockholders' Equity	$	2,620,731		$	2,956,731

See Accompanying Notes to Consolidated Financial Statements.

F -2

Yardville National Bancorp and Subsidiaries

Consolidated Statements of Income

	Year Ended December 31,
(in thousands, except per share amounts)	2006			2005		2004
Interest Income:
Interest and fees on loans	$	148,190		$	127,684	$	100,506
Interest on deposits with banks		1,979			1,027		371
Interest on securities available for sale		34,304			36,983		35,282
Interest on investment securities:
Taxable		85			109		137
Exempt from Federal income tax		4,138			3,734		3,221
Interest on Federal funds sold		835			730		347
Total Interest Income		189,531			170,267		139,864
Interest Expense:
Interest on savings account deposits		27,461			20,757		12,929
Interest on certificates of deposit of $100,000 or more		10,706			6,992		4,165
Interest on other time deposits		26,626			16,432		12,269
Interest on borrowed funds		35,117			38,114		36,071
Interest on subordinated debentures		5,491			4,759		3,711
Total Interest Expense		105,401			87,054		69,145
Net Interest Income		84,130			83,213		70,719
Less provision for loan losses		11,350			10,530		9,625
Net Interest Income After Provision for Loan Losses		72,780			72,683		61,094
Non-Interest Income:
Service charges on deposit accounts		2,840			2,819		3,134
Securities (losses) gains, net		(6,523	)		862		1,297
Income on bank owned life insurance		1,799			1,651		1,766
Other non-interest income		2,642			2,158		1,782
Total Non-Interest Income		758			7,490		7,979
Non-Interest Expense:
Salaries and employee benefits		29,800			27,654		23,476
Occupancy expense, net		6,016			4,934		4,283
Equipment expense		3,297			3,173		3,123
Loss on redemption of FHLB advances		15,271			—		—
Other non-interest expense		16,119			13,841		11,767
Total Non-Interest Expense		70,503			49,602		42,649
Income before income tax (benefit) expense		3,035			30,571		26,424
Income tax (benefit) expense		(2,230	)		9,637		7,899
Net Income	$	5,265		$	20,934	$	18,525
Earnings Per Share:
Basic	$	0.48		$	1.97	$	1.77
Diluted		0.46			1.89		1.71

See Accompanying Notes to Consolidated Financial Statements.

F -3

Yardville National Bancorp and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

	Year Ended December 31, 2006, 2005 and 2004
(in thousands, except share amounts)	Common Shares		Common Stock		Surplus		Undivided Profits			Treasury Stock			Unallocated ESOP Shares			Accumulated Other Comprehensive Income(Loss)			Total
BALANCE, December 31, 2003		10,439,261	$	90,079	$	2,205	$	56,152			(3,160	)	$	(755	)	$	(964	)	$	143,557
Net income								18,525												18,525
Unrealized gain - securities available for
sale, net of tax of $958																	1,779			1,779
Less reclassification of realized net gain on
sale of securities available for sale, net of
tax of $454																	(843	)		(843	)
Total comprehensive income																				19,461
Cash dividends paid ($0.46 per share)								(4,817	)											(4,817	)
ESOP fair value adjustment				163																163
Common stock issued:
Exercise of stock options		54,487		965																965
Dividend reinvestment plan		16,871		451																451
ESOP shares allocated														378						378
BALANCE, December 31, 2004		10,510,619	$	91,658	$	2,205	$	69,860		$	(3,160	)	$	(377	)	$	(28	)	$	160,158
Net income								20,934												20,934
Unrealized loss - securities available for
sale, net of tax of $5,258																	(9,767	)		(9,767	)
Less reclassification of realized net gain on
sale of securities available for sale, net of
tax of $302																	(560	)		(560	)
Total comprehensive income																				10,607
Cash dividends paid ($0.46 per share)								(4,898	)											(4,898	)
ESOP shares acquired		64,175		2,250										(2,250	)					—
ESOP fair value adjustment				307																307
Common stock issued:
Common shares issued		235,401		8,717																8,717
Exercise of stock options and related tax benefit		93,404		1,669																1,669
Option acceleration expense				147																147
Dividend reinvestment plan		11,138		374																374
ESOP shares allocated														377						377
BALANCE, December 31, 2005		10,914,737	$	105,122	$	2,205	$	85,896		$	(3,160	)	$	(2,250	)	$	(10,355	)	$	177,458
Net income								5,265												5,265
Unrealized gain - securities available
for sale, net of tax of $543																	786			786
Reclassification of realized net loss on sale
of securities available for sale, net of tax
benefit of $2,283																	4,240			4,240
Total comprehensive income																				10,291
Adjustment to recognize funded status of
deferred compensation
plan, net of tax benefit of $526																	(762	)		(762	)
Cash dividends paid ($0.46 per share)								(5,061	)											(5,061	)
ESOP fair value adjustment				43																43
Common stock issued:
Exercise of stock options and related
tax benefit		140,068		2,938																2,938
Exercise of stock warrants		3,500		42																42
Stock option expense				169																169
Dividend reinvestment plan		11,693		414																414
ESOP shares allocated														562						562
BALANCE, December 31, 2006		11,069,998	$	108,728	$	2,205	$	86,100		$	(3,160	)	$	(1,688	)	$	(6,091	)	$	186,094

See Accompanying Notes to Consolidated Financial Statements.

F -4

Yardville National Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

	Year Ended December 31,
(in thousands)	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	5,265		$	20,934		$	18,525
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		11,350			10,530			9,625
Depreciation		2,514			2,558			2,355
ESOP fair value adjustment		43			307			163
Option expense		169			147			—
Amortization of deposit intangible		204			204			204
Amortization and (accretion) on securities		(324	)		4			1,652
Loss (gain) on sales of securities available for sale		6,523			(862	)		(1,297	)
Loss on redemption of FHLB advance		15,271			—			—
Gain on sale of bank branch		—			—			(5	)
Writedown and loss on sale of other real estate		118			—			—
Increase in other assets		(12,122	)		(6,906	)		(296	)
Increase in other liabilities		5,638			5,515			1,262
Net Cash Provided by Operating Activities		34,649			32,431			32,188
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits with banks		(15,950	)		24,889			(20,745	)
Purchase of securities available for sale		(34,702	)		(194,349	)		(446,025	)
Maturities, calls and paydowns of securities available for sale		81,234			142,656			240,415
Proceeds from sales of securities available for sale		293,197			97,513			202,139
Proceeds from maturities and paydowns of investment securities		3,519			2,113			6,297
Purchase of investment securities		(10,547	)		(12,874	)		(15,853	)
Purchase of bank owned life insurance assets		(1,700	)		—			—
Net increase in loans		(10,033	)		(198,191	)		(346,041	)
Expenditures for bank premises and equipment		(2,884	)		(3,174	)		(1,125	)
Proceeds from sale of bank branch		—			—			641
Net Cash Provided by (Used by) Investing Activities		302,134			(141,417	)		(380,297	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, money market, and savings deposits		(30,738	)		(8,896	)		277,082
Net increase in certificates of deposit		61,304			171,609			49,113
Proceeds from borrowed fund		30,015			89,749			103,000
Paydowns of borrowed fund		(426,125	)		(125,409	)		(87,950	)
Proceeds from issuance of subordinated debentures		—			—			15,464
Proceeds from issuance of common stock		2,814			13,010			1,416
Tax Benefit from stock option exercises		580			296			152
(Increase) decrease in unallocated ESOP shares		562			(1,873	)		378
Dividends paid		(5,061	)		(4,898	)		(4,817	)
Net Cash (Used by) Provided by Financing Activities	$	(366,649	)	$	133,588		$	353,838
Net (decrease) increase in cash and cash equivalents	$	(29,866	)	$	24,602		$	5,729
Cash and cash equivalents as of beginning of year		63,486			38,884			33,155
Cash and Cash Equivalents as of End of Year	$	33,620		$	63,486		$	38,884
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	108,018		$	83,020		$	69,266
Income taxes		7,097			13,854			7,304
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of building with capitalized leases				$	650		$	—
Transfers from loans to other real estate, net of charge offs		502			—			—

See Accompanying Notes to Consolidated Financial Statements.

F -5

Years Ended December 31, 2006, 2005 and 2004

Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Yardville National Bancorp is a bank holding company, which conducts a general commercial and retail banking business through its principal operating subsidiary, The Yardville National Bank (the Bank), a nationally chartered banking institution. The Bank provides a broad range of lending, deposit and other financial products and services with an emphasis on commercial real estate and commercial and industrial loans to small to mid-sized businesses and individuals. Our existing and targeted markets are located in the corridor between New York City and Philadelphia. At December 31, 2006, we operated 32full-service branches including 18branches in our primary market of Mercer County, New Jersey. We have expanded our franchise into the demographically attractive markets of Hunterdon, Somerset, Middlesex, and Ocean Counties in New Jersey and Bucks County in Pennsylvania. The Bank is subject to competition from other financial institutions and non-bank providers of financial services. Yardville National Bancorp and the Bank are both subject to the regulation by certain Federal agencies and undergo periodic examinations by those regulatory authorities.

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. 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 statements of condition and revenues and expenses for the periods. 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 subsidiary, the Bank, and the Bank’s wholly owned direct and indirect subsidiaries (collectively, the Company). All significant inter-company accounts and transactions have been eliminated in consolidation. Under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) the following subsidiaries have not been consolidated: Yardville Capital Trust, Yardville Capital Trust II, Yardville Capital Trust III, Yardville Capital Trust IV, Yardville Capital Trust V and Yardville Capital Trust VI.

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. Securities that the Company has the positive intent and ability to hold to maturity are classified as investment securities and carried at amortized cost. Securities that may be sold in response to, or in anticipation of, changes in interest rates, liquidity needs or other factors and marketable equity securities are classified as available-for-sale and carried at market value. The premium or discount adjustments are recognized as adjustments to interest income, on a level yield basis. Gains and losses on dispositions are included in earnings using the specific identification method. The unrealized gains and losses on these securities are reported, net of applicable taxes, in accumulated other comprehensive income (loss), a component of stockholders’ equity. All securities with unrealized losses are evaluated quarterly to determine whether the

F -6

unrealized losses are other than temporary. If an unrealized loss is determined to be other than temporary, the security is written down to its market value with the loss recognized in the consolidated statements of income. We have identified the evaluation of losses other than temporary for securities to be a critical accounting policy.

Debt securities that are purchased and held primarily for the purpose of being sold in the near term are classified as trading. Trading securities are carried at market value with realized and unrealized gains and losses reported in non-interest income. There were no trading securities at December 31, 2006 or 2005.

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. A loan is considered past due when a payment has not been received in accordance with its contractual terms. Generally, commercial loans are placed on 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. Commercial loans are generally charged off after an analysis is completed which indicates that collectibility of the full principal balance is in doubt. Consumer loans are generally charged off after they become 120 days past due. Mortgage loans are not generally placed on 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. Mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding principal balance. 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 value.

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 a loan. The provision is based on management’s estimates and actual losses may vary from these estimates. 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 to reserve against probable losses inherent in the loan portfolio. 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, and due to the factors listed above. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and the valuation of other real estate. Such agencies may require the Company 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 has identified the allowance for loan losses to be a critical accounting policy. The Company utilizes a system to rate substantially all loans based on their respective risk. Consumer and residential mortgage loans are evaluated as a group with only those loans that are delinquent evaluated separately. The primary emphasis in the risk rating system is on commercial real estate and commercial and industrial loans, due to the greater credit risk they entail compared to residential mortgage and consumer loans.

Risk is measured by use of a matrix, which is customized to measure the risk of each loan type. The reserve percentage assigned to each risk-rating category is determined quarterly from historical loan loss rates, based on an eight-quarter rolling trend using migration analysis. Commercial risk ratings of 1 to 5 are considered to be acceptable and correspond to loans rated as minimal, modest, better than average, average and acceptable. At December 31, 2006, the following reserve percentages were applied. Loans with acceptable risk were reserved at a range of 0.35% to 1.50%. Risk ratings of between 6 and 9 are considered higher than acceptable risk and correspond to loans rated as special mention, substandard, doubtful and loss. Due to the higher level of risk, these loans were reserved at a range of 3.75% to 100%. Loans with a risk rating of 9 are considered to be a loss

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and would be reserved at 100%. At December 31, 2006, there were no 9 rated loans. In setting the reserve percentage for each risk rating, management uses a computer software program to perform migration analysis to determine historic loan loss experience. In addition, management relies on its judgment concerning the anticipated impact on credit risk of economic conditions, real estate values, interest rates and level of business activity.

At December 31, 2006, residential mortgage loans were assigned an individual risk reserve percentage of 0.01% due to the strong secured nature of these loans and the historically low level of losses experienced with this loan type. Multi-family residential loans are included in commercial real estate loans for reserve analysis purposes.

Consumer loans include home equity loans, installment loans and all other loans. At December 31, 2006, home equity loans were assigned reserve percentages of 0.01% for the lowest risk to 0.19% for the highest risk. This range is reflective of the strict underwriting standards and the historically low level of losses experienced with these loans. All other secured consumer loans, primarily automobile loans, are reserved at a range of 0.39% to 3.46%. The higher reserve percentages assigned to these loans reflect the greater risk and higher historical losses. Unsecured consumer loans are reserved at a range of 2.51% to 3.46%.

The company has defined the population of impaired loans to be all nonaccrual commercial real estate and commercial and industrial loans. 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 Company 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 charges to income.

F. Bank Premises, Equipment and Leases. Bank premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis 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.

The Company leases certain branch facilities and office space for varying periods under lease agreements. Most of the leases are non-cancellable operating leases with fixed rental payments, expiring over the next 5 to 20 years and contain renewal provisions. Leases that are determined to be “capital leases” following Statement of Financial Accounting Standards No. 13 “Accounting for Leases” (FAS 13), are recognized on the balance sheet at the lower of the present value of the minimum lease payments or the fair market value of the leased property. The asset value is amortized over the initial base lease term. Leases that are determined to be “operating leases” under FAS 13 are not capitalized thus their periodic rental payments with respect to these lease contracts are expensed as incurred. With regard to subsequent leasehold improvement expenditures made on either capitalized or operating leases, they are depreciated over the shorter of the existing term/option period or the economic deemed life of the improvement.

G. Other Real Estate (ORE). ORE comprises real properties acquired through foreclosure or deed in lieu of foreclosure in partial or total satisfaction of 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

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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 of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of enactment. Management has identified the accounting for income taxes to be a critical accounting policy.

I. Stock-Based Compensation. In the first quarter of 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment,” using the modified-prospective transition method. The Company recognizes compensation expense under SFAS No. 123 (R) using the straight-line method over the requisite service period. The requisite service period is the period an employee is required to provide service in order to vest in the award, which cannot extend beyond the retirement eligible date. The Company has elected to adopt the alternative transition method provided in the Financial Accounting Standards Board Staff Position No. FAS 123 (R) 3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” for calculating the tax effects of stock-based compensation under SFAS No. 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of tax effects of employee stock-based compensation awards that are outstanding and fully vested upon the adoption of SFAS No. 123 (R).

The Company has three share-based compensation plans under which incentive and nonqualified stock options, restricted stock and other stock based awards may be granted periodically to certain employees and directors. The options are granted at an exercise price equal to the fair value of the underlying shares at the date of grant, vest based on continued service with the Company for a specified period, generally five years with a maximum term of ten years for employees. Options under the plan for non-employee directors vest immediately and typically have five-year terms. While the Company has a plan that allows for the granting of restricted stock and other stock based awards, no restricted stock or other stock based awards has been granted from the plan as of December 31, 2006.

The Company uses the Black-Scholes option-pricing model to determine the fair value of options at the date of grant. The Black-Scholes, option-pricing model requires several inputs, including the stock price volatility, expected term and dividend rate. Changes in input assumptions can materially affect the fair value estimates.

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Prior to the adoption of SFAS No. 123 (R) the Company applied APB Opinion No. 25 in accounting for its stock option plans and, accordingly, no compensation cost had been recognized for stock options in the consolidated financial statements prior to adoption. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

	For the Year Ended December 31,
(in thousands)	2005		2004
Net income as reported:	$	20,934	$	18,525
Deduct: Total stock-based employee compensation expense determined
under fair value based methods for all awards, net of related tax effects		1,297		952
Pro forma net income	$	19,637	$	17,573
Earnings per share
Basic:
As reported	$	1.97	$	1.77
Pro forma		1.85		1.68
Diluted:
As reported	$	1.89	$	1.71
Pro forma		1.78		1.62

The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model. The table below lists the weighted average assumptions used for grants in 2006, 2005 and 2004, respectively. The Company determined the expected life of options granted in 2006 based on the guidance provided in SEC's Staff Accounting Bulletin No. 107 relating to FAS 123R Share Based Payments due to the limited experience of exercises in our director stock option plan. The Black-Scholes option pricing model requires the use of highly subjective assumptions, including expected stock price volatility, which if changed, can materially affect fair value estimates.

	For the Year Ended December 31,
	2006			2005			2004
Number of options granted		42,000			84,000			77,500
Expected annual dividend rate	$	0.46		$	0.46		$	0.46
Risk free rate		5.0	%		4.1	%		3.6	%
Expected average option life (years)		3.2			6.3			6.8
Expected volatility		23.4	%		30.2	%		32.5	%
Weighted average fair value of options granted	$	5.65		$	9.32		$	10.45

On December 21, 2005, upon the recommendation of the Company’s compensation committee, the Company’s board of directors accelerated the vesting of all unvested stock options outstanding under the Yardville National Bancorp 1997 Stock Option Plan, providing that such stock options shall become fully vested on December 30, 2005. Such options were granted during the 2001 through 2005 calendar years. The acceleration included stock options held by two executive vice presidents as well as other officers of the Company. There were no options accelerated for any non-employee member of the board of directors as all outstanding options held by board members were vested under their respective normal vesting schedule.

Prior to accelerating the vesting of the affected stock options, the Company’s board of directors determined such acceleration was in the best interests of the Company and its shareholders in order to reduce the impact of recording non-cash compensation upon the adoption of SFAS No. 123R. Options covering 93,740 shares of the Company’s common stock, or less than one percent of the shares then outstanding, were affected by the acceleration. The weighted average exercise price of the accelerated stock options was $24.24 and based on the closing price of the Company’s common stock on the date of acceleration ($34.65), all of the accelerated stock options would have economic value to the holders. The Company estimates that, as a result of the acceleration, pre-tax compensation expense related to the options ofapproximately $252,000, $215,000, $151,000, $97,000

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and $32,000, which otherwise would have been recognized in the Company’s consolidated statements of income for the years ended December 31, 2006, 2007, 2008, 2009 and 2010, respectively, will not be recognized.

Concurrent with the option vesting acceleration on December 21, 2005, the Company recorded an expense of $147,000 in salaries and employee benefits expense.

The Company granted 42,000 options in 2006. The options granted consisted of 30,000 options granted to non-employee directors that vested immediately and 12,000 options granted to employees that vest over five years. The expense on the granted directors’ options was $144,000 and was expensed immediately. The year to date total expense on options was $169,000. At December 31, 2006, there was $69,000 in unamortized option expense that will be expensed over the next four years.

J. Earnings Per Share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income available to stockholders by the weighted average number of shares outstanding, adjusted for common stock equivalents outstanding during the period accounted for under the treasury stock method.

Weighted average shares for the basic net income per share computation for the years ended December 31, 2006, 2005, and 2004 were 10,948,000, 10,609,000 and 10,455,000, respectively. For the diluted net income per share computation, common stock equivalents of 402,000, 448,000 and 406,000 are included for the years ended December 31, 2006, 2005, and 2004, respectively. Common stock equivalents that were antidilutive were 12,000, 24,000 and 7,000 in 2006, 2005, and 2004, respectively.

K Comprehensive Income. Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes items recorded directly to equity, such as unrealized gains and losses on securities available for sale, net of taxes. Comprehensive income is presented in the consolidated statements of changes in stockholders’ equity.

L. Intangible Assets. Intangible assets of the Company consist primarily of a core deposit intangible. Core deposit intangibles represent the intangible value of depositor relationships assumed in purchase acquisitions and are amortized on a straight-line basis over a period of ten years, and the unamortized balance is evaluated for impairment on a quarterly basis.

M. Derivative Financial Instruments. Derivative financial instruments are recorded at fair value as either assets or liabilities in the Statements of Condition. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for instruments with similar characteristics. The Company designates a derivative as held for trading or hedging purposes when it enters into a derivative contract. Derivatives designated as held for trading activities are included in the Company’s trading portfolio with changes in fair value reflected in trading account profits. The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives, strategies for undertaking various hedge transactions, and the methodology for measuring ineffectiveness as required by SFAS 133. Additionally, the Company uses regression analysis at the hedge’s inception and quarterly thereafter to assess whether the derivative used in its hedging transaction is expected to be or has been highly effective in offsetting changes in the fair value or cash flows of the hedged items. The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value in earnings.

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The Company uses its derivatives designated for hedging activities as either fair value or cash flow hedges. Fair value hedges are used to limit the Company’s exposure to changes in the fair value of its fixed rate interest earning assets or interest bearing liabilities due to interest rate volatility. Cash flow hedges are used to minimize the variability of cash flows of interest bearing assets or liabilities caused by interest rate fluctuations. Changes in the fair value of derivatives designated as highly effective as hedges are recorded in earnings or other comprehensive income, depending on whether the hedging relationship satisfies the criteria for a fair value or cash flow hedge, respectively. Hedge ineffectiveness and gains and losses on the excluded component of a derivative in assessing hedge effectiveness are recorded in earnings.

If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the difference between a hedged item’s then carrying amount and its face amount is recognized into income over the original hedge period. Similarly, if a derivative instrument in a cash flow hedge is terminated or the hedge designation removed, related amounts accumulated in other comprehensive income are reclassified into earnings over the original hedge period during which the hedged item affects income.

N Segment Reporting. Substantially all of the Company’s business is conducted through the Bank and involves the delivery of loan and deposit products to customers. The Company makes operating decisions and assesses performance based on an ongoing review of these banking operations, which constitute the only operating segment for financial reporting.

O. Reclassification. Certain reclassifications have been made in the consolidated financial statements for 2005 and 2004 to conform to the classification presented in 2006.

2. CASH AND DUE FROM BANKS

The Company maintains various deposits with other banks. As of December 31, 2006 and 2005, the Company maintained sufficient cash on hand to satisfy Federal regulatory requirements.

3. SECURITIES

The amortized cost and estimated market value of securities available for sale are as follows:

	December 31,
		2006									2005
(in thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
U.S. Treasury obligations		$	4,027	$	—	$	(207	)	$	3,820	$	4,030	$	—	$	(148	)	$	3,882
U.S. government-sponsored agencies			—		—		—			—		272,350		—		(6,097	)		266,253
Mortgage-backed securities
Issued by FNMA/FHLMC			341,892		51		(9,670	)		332,273		412,429		107		(10,203	)		402,333
Issued by GNMA			9,629		236		(185	)		9,680		11,486		—		(193	)		11,293
Corporate obligations			34,132		926		(161	)		34,897		18,557		656		(52	)		19,161
Federal Reserve Bank stock			4,156		—		—			4,156		3,851		—		—			3,851
Federal Home Loan Bank stock			17,815		—		—			17,815		34,895		—		—			34,895
Total		$	411,651	$	1,213	$	(10,223	)	$	402,641	$	757,598	$	763	$	(16,693	)	$	741,668

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The amortized cost and estimated market value of investment securities are as follows:

	December 31,
		2006									2005
(in thousands)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
Obligations of state and
political subdivisions		$	94,783	$	2,140	$	(170	)	$	96,753	$	87,339	$	1,973	$	(395	)	$	88,917
Mortgage-backed securities
Issued by FNMA/FHLMC			1,289		2		(7	)		1,284		1,687		14		(7	)		1,694
Total		$	96,072	$	2,142	$	(177	)	$	98,037	$	89,026	$	1,987	$	(402	)	$	90,611

The amortized cost and estimated market value of securities available for sale and investment securities as of December 31, 2006 by contractual maturity are shown below. The contractual maturity of Federal Reserve Bank stock, Federal Home Loan Bank stock and other equity securities, which lack maturity dates, are shown as due after ten years. Expected maturities may 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

(in thousands)	Amortized Cost		Estimated Market Value
Due after 1 year through 5 years	$	1,000	$	1,000
Due after 5 years through 10 years		6,027		5,726
Due after 10 years		53,103		53,962
Subtotal		60,130		60,688
Mortage-backed securities
Issued by FNMA/FHLMC		341,892		332,273
Issued by GNMA		9,629		9,680
Total	$	411,651	$	402,641

INVESTMENT SECURITIES

(in thousands)	Amortized Cost		Estimated Market Value
Due in 1 year or less	$	370	$	371
Due after 1 year through 5 years		3,240		3,312
Due after 5 years through 10 years		14,903		15,379
Due after 10 years		76,270		77,691
Subtotal		94,783		96,753
Mortgage-backed securities
Issued by FNMA/FHLMC		1,289		1,284
Total	$	96,072	$	98,037

Proceeds from sale of securities available for sale during 2006, 2005, and 2004 were $293.2 million, $97.5 million and $202.1 million, respectively. Gross gains of $13,000, $1,090,000, and $1,663,000 were realized on those sales in 2006, 2005, and 2004, respectively. Gross losses of $6,536,000, $228,000 and $366,000 were realized on those sales in 2006, 2005 and 2004, respectively.

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Securities with a carrying value of approximately $174.8 million as of December 31, 2006 were pledged to secure public deposits and for other purposes as required or permitted by law. As of December 31, 2006, FHLB stock with a carrying value of $17.8 million was held by the Company as required by the FHLB.

The following tables provide additional information regarding securities with unrealized losses at December 31, 2006.

SECURITIES AVAILABLE FOR SALE

	December 31, 2006
	Less than 12 months					12 months or longer					Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury obligations	$	—	$	—		$	3,820	$	(207	)	$	3,820	$	(207	)
Mortgage-backed securities
Issued by FNMA/FHLMC		9,350		(38	)		317,146		(9,632	)		326,496		(9,670	)
Issued by GNMA		—		—			6,874		(185	)		6,874		(185	)
Corporate obligations		9,762		(68	)		1,906		(93	)		11,669		(161	)
Total	$	19,112	$	(106	)	$	329,746	$	(10,117	)	$	348,859	$	(10,223	)

INVESTMENT SECURITIES

	December 31, 2006
	Less than 12 months					12 months or longer					Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Obligations of state and political
subdivisions	$	6,172	$	(80	)	$	8,170	$	(90	)	$	14,342	$	(170	)
Mortgage-backed securities
Issued by FNMA/FHLMC		82		(1	)		231		(6	)		313		(7	)
Total	$	6,254	$	(81	)	$	8,401	$	(96	)	$	14,655	$	(177	)

The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. At December 31, 2006, the Company determined that all unrealized losses were temporary in nature. This conclusion was based on several factors, including the strong credit quality of the securities with unrealized losses, the performing nature of these securities, and the low level and short time frame of the unrealized losses. Management believes that the unrealized losses in the securities portfolios were caused by changes in interest rates, market credit spreads, and perceived and actual changes in prepayment speeds on mortgage-backed securities.

At December 31, 2006, our securities portfolios included 21 issues that had unrealized losses of less than twelve months. These issues included four agency named mortgage-backed securities, including Collateralized Mortgage Obligations (CMOs), four corporate bond issues and 13 obligations of state and political subdivisions (tax-free municipal bonds), all of which had an investment grade rating at the time of purchase and at year end. The Company has the intent and ability to hold these securities until the price recovers.

At December 31, 2006, our securities portfolios included 132 issues that had unrealized losses of 12 months or longer. Two issues were U.S. Treasury bonds, 113 were issues of agency named mortgage-backed securities, including CMOs, and 16 were tax-free municipal bonds, all of which had an investment grade rating at the time of purchase and at year-end. The remaining issue was a fixed rate corporate bond issued by a financial institution. The Company has the intent and ability to hold these securities until the price recovers.

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In the fourth quarter of 2006, the Company sold approximately $295.0 million in securities available for sale at a pre-tax loss of $6.5 million. The purpose of selling these securities was to provide liquidity to retire FHLB advances principally collateralized with these securities. This transaction was done to enhance future period earnings and to reduce interest rate risk. We determined to use security sales to fund this transaction because it was the most cost effective way of reaching our goals. The Company believes this was a one-time event and has no future plans to further reduce its FHLB advances through security sales. Absent the transaction we would have continued to hold the securities in our AFS portfolio.

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows comparative year-end detail of the loan portfolio and includes unamortized deferred fees of $2.5 million and $3.1 million at December 31, 2006 and 2005, respectively:

	December 31,
(in thousands)	2006		2005
Commercial real estate	$	1,077,407	$	1,099,374
Commercial and industrial		551,230		527,908
Residential		204,646		209,039
Consumer		139,598		136,519
Total loans	$	1,972,881	$	1,972,840

Residential mortgage loans held for sale amounted to $367,000 and $396,000 as of December 31, 2006 and 2005, respectively. These loans are accounted for at the lower of aggregate cost or market value and are included in the table above. At December 31, 2006, approximately $364.9 million of loans were pledged as collateral under borrowing arrangements with the FHLB.

The Company originates and sells mortgage loans to FNMA and FHLMC. Generally, servicing on such loans is retained by the Company. As of December 31, 2006 and 2005, loans serviced for FNMA and FHLMC were $4.3 million and $5.8 million, respectively.

The Company 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 Company. None of these loans were past due or on nonaccrual status as of December 31, 2006 and 2005. Included in the 2006 reduction amount in the table below are $54.5 million in loans from three directors who resigned. Directors Lorraine Buklad and Sidney L. Hofing resigned on December 31, 2005 and Director Christopher S. Vernon resigned November 16, 2006.

The following table summarizes activity with respect to such loans:

	Year Ended December 31,
(in thousands)	2006		2005
Balance as of beginning of year	$	71,333	$	63,273
New loans		4,736		18,227
Repayments and other changes		57,137		10,167
Balance as of end of year	$	18,932	$	71,333

The majority of the Company’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 significant portion of the total portfolio is secured by real estate. The principal areas of exposure are

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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)	2006			2005			2004
Balance as of beginning of year	$	22,703		$	20,116		$	17,295
Loans charged off		(10,672	)		(8,171	)		(7,039	)
Recoveries of loans charged off		1,182			228			235
Net charge offs		(9,490	)		(7,943	)		(6,804	)
Provision charged to operations		11,350			10,530			9,625
Balance as of end of year	$	24,563		$	22,703		$	20,116

The detail of loans charged off is as follows:

	Year Ended December 31,
(in thousands)	2006			2005			2004
Commercial real estate	$	(634	)	$	—		$	—
Commercial and industrial		(9,068	)		(7,484	)		(6,556	)
Residential		(663	)		(174	)		(254	)
Consumer		(307	)		(513	)		(229	)
Total	$	(10,672	)	$	(8,171	)	$	(7,039	)

Nonperforming assets include nonperforming loans and other real estate. The nonperforming loan category includes loans on which accrual of interest has been discontinued (nonaccrual), loans 90 days past due or more on which interest is still accruing, and restructured loans. Nonperforming loans as a percentage of total loans was 1.47% at December 31, 2006 and 0.94% at December 31, 2005.

A summary of nonperforming assets follows:

	December 31,
(in thousands)	2006		2005
Nonaccrual loans:
Commercial real estate	$	13,211	$	5,762
Commercial and industrial		8,609		9,899
Residential		3,429		1,588
Consumer		108		561
Total nonaccrual loans	$	25,357	$	17,810
Loans past due 90 days or more:
Commercial real estate	$	3,283	$	—
Commercial and industrial		49		—
Residential		382		799
Consumer		4		4
Total loans past due 90 days or more		3,718		803
Total nonperforming loans		29,075		18,613
Other real estate owned		385		—
Total nonperforming assets	$	29,460	$	18,613

F -16

The Company has defined the population of impaired loans to be all nonaccrual commercial real estate and commercial and industrial 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, 2006 and 2005 was $21.8 million and $15.7 million, respectively. The related allowance for loan losses on these loans as of December 31, 2006 and 2005 was $3.9 million and $5.8 million, respectively. At December 31, 2006 and 2005 all impaired loans had a related allowance for loan losses. The average recorded investment in impaired loans during 2006, 2005, and 2004 was $16.5 million, $10.1 million and $10.6 million, respectively. There was no interest income recognized on impaired loans in 2006, 2005, and 2004 while the loans were impaired. There are no commitments to lend additional funds to debtors whose loans are nonperforming.

Additional income before income taxes amounting to approximately $1,600,000 in 2006, $825,000 in 2005 and $600,000 in 2004 would have been recognized if interest on all nonaccrual loans had been recorded based upon original contract terms.

5. BANK PREMISES, EQUIPMENT AND LEASES

The following table represents comparative information for premises, equipment and leases:

	December 31,
(in thousands)	2006		2005
Land and improvements	$	341	$	359
Buildings and improvements		9,186		8,784
Furniture and equipment		17,320		16,427
Leased property under capital leases		650		650
Construction in process		1,234		235
Total		28,731		26,455
Less accumulated depreciation		16,664		14,758
Bank premises and equipment, net	$	12,067	$	11,697

Depreciation expense on bank premises and equipment included in non-interest expense in the consolidated statements of income was $2.5 million, $2.6 million and $2.4 million for 2006, 2005, and 2004, respectively.

F -17

At December 31, 2006, the Company leased various banking offices, its corporate offices, its operations center and maintenance center where future minimum rental payments applicable to non-cancellable capital and operating leases are as follows:

	Year Ended December 31,
(in thousands)	Capital Leases		Operating Leases
2007	$	78	$	3,429
2008		78		3,327
2009		85		3,174
2010		86		2,796
2011		86		2,655
Thereafter		658		19,798
Total minimum lease payments	$	1,070	$	35,179
Less: amounts representing interest		468
Present value of net minimum lease payments	$	602

Total lease rental expense was $3.0 million, $2.6 million, and $2.3 million for the years ended December 31, 2006, 2005, and 2004, respectively.

6. DEPOSITS

Total deposits consist of the following:

	December 31,
(in thousands)	2006		2005
Non-interest bearing demand deposits	$	197,126	$	232,269
Interest bearing demand deposits		340,722		375,630
Money market deposits		440,253		254,721
Savings deposits		152,289		298,508
Certificates of deposit of $100,000 or more		248,315		253,793
Other time deposits		624,578		557,796
Total	$	2,003,283	$	1,972,717

Approximately $1.5 million and $1.1 million of deposit overdrafts have been reclassified as loans as of December 31, 2006 and 2005, respectively.

A summary of certificates of deposit by maturity is as follows:

	December 31,
(in thousands)	2006		2005
Within one year	$	752,412	$	589,590
One to two years		108,323		190,588
Two to three years		5,868		18,393
Three to four years		4,344		7,581
Four to five years		1,946		5,437
Total	$	872,893	$	811,589

F -18

In December 2003, the Bank purchased the Lawrence, New Jersey branch of First Savings Bank, a subsidiary of First Sentinel Bancorp. Under the terms of the agreement, the Bank assumed approximately $38.0 million in deposits and purchased the land and building. In March 2004 the Company entered into a sale lease back transaction on the acquired land and building, which resulted in an immaterial gain. The primary purpose of the branch purchase was to continue to expand the Bank’s branch network and increase deposits. The Company recognized a core deposit intangible of approximately $2.0 million. This core deposit intangible is being amortized over a ten-year period using a straight-line methodology. Under SFAS No. 142 “Goodwill and Other Intangible Assets” intangible assets, having finite useful lives, are separately recognized and amortized over their estimated useful lives. Intangible assets with finite useful lives are reviewed for impairment on a quarterly basis. Core deposit intangible amortization was $204,000 in each of 2006, 2005 and 2004. At December 31, 2006 the balance in core deposit intangible, which is included in other assets in the accompanying consolidated statements of condition, was approximately $1.4 million. The estimated annual amortization expense per year for the years of 2007 through 2011 is $204,000.

7. BORROWED FUNDS

Borrowed funds include securities sold under agreements to repurchase, FHLB advances, subordinated debentures and obligation for ESOP. Other borrowed funds consist of Federal funds purchased, capital leases and Treasury tax and loan deposits.

The Company maintains Federal funds purchased lines of credit with six correspondent banks totaling $79.0 million with no balances outstanding at December 31, 2006. Subject to collateral requirements, the Company also maintains lines of credit with the FHLB and three brokerage firms totaling approximately $400.0 million at December 31, 2006.

The following table presents comparative data related to borrowed funds of the Company at and for the years ended December 31, 2006, 2005, and 2004.

	December 31,
(in thousands)	2006			2005			2004
Securities sold under agreements to repurchase	$	10,000		$	10,000		$	10,000
FHLB advances		324,000			704,000			742,000
Subordinated debentures		62,892			62,892			62,892
Obligation for ESOP		1,688			2,250			377
Capitalized lease obligations		602			618			—
Other		991			1,252			753
Total	$	400,173		$	781,012		$	816,022
Maximum amount outstanding at any month end	$	716,921		$	824,392		$	816,022
Average interest rate on year-end balance		5.13	%		5.50	%		5.15	%
Average amount outstanding during the year	$	734,548		$	802,967		$	793,828
Average interest rate for the year		5.53	%		5.34	%		5.01	%

There were $10.0 million in securities sold under agreements to repurchase with an expected maturity over 90 days at December 31, 2006. The outstanding repurchase agreement is callable with an original maturity date of ten years and an original call date of one year. Due to the call provision, the expected maturity could differ from the contractual maturity.

F -19

The FHLB advances as of December 31, 2006 mature as follows:

	December 31,
(in thousands)	2006
One year or less	$	10,000
Over two years to three years		8,000
Over three years to four years		72,000
Over five years		234,000
Total	$	324,000

The outstanding amount includes $314.0 million in callable advances with original maturity dates of ten years and original call dates of three months to five years. After an advance’s original call date it is callable quarterly. Due to the call provisions of these advances, expected maturities could differ from contractual maturities.

In the fourth quarter of 2006, the Company prepaid $320.0 million in FHLB advances with an average rate of 5.84% and replaced $100.0 million of FHLB advances at an average rate of 5.59% with FHLB advances at an average rate of 4.05%. The Company incurred a pre-tax loss of $15.3 million in these two transactions. The Company funded the prepayment primarily through the sale of approximately $295.0 million in securities with an average rate of 4.46% and incurred a pre-tax loss of $6.5 million.

Interest expense on borrowed funds is comprised of the following:

	Year Ended December 31,
(in thousands)	2006		2005		2004
Securities sold under agreements to repurchase	$	623	$	623	$	655
FHLB advances		34,249		37,338		35,381
Subordinated debentures		5,491		4,759		3,711
Obligation for ESOP		159		25		28
Interest on capitalized leases		61		111		—
Other		25		17		7
Total	$	40,608	$	42,873	$	39,782

8.SUBORDINATED DEBENTURES (COMPANY-OBLIGATED MANDATORILYREDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUSTS)

The Company has obtained a portion of funds needed to support the growth of the Bank through the sale of subordinated debentures (“subordinated debentures”) of Yardville National Bancorp to subsidiary statutory business trusts of Yardville National Bancorp (“trusts”). These trusts exist for the sole purpose of raising funds through the issuance of trust preferred securities (“trust preferred securities”), typically in private placement transactions, and investing the proceeds in the purchase of subordinated debentures of Yardville National Bancorp. The interest rate on the subordinated debentures is identical to the interest rate on the trust preferred securities. Subordinated debentures are the sole assets of each trust and each trust is obligated to distribute all proceeds of a redemption of the subordinated debentures, whether voluntary or upon maturity, to holdersof its trust preferred securities. Yardville National Bancorp’s obligation with respect to the subordinated debentures, when viewed together with the obligations of each trust with respect to its trust preferred securities, provides a full and unconditional guarantee on a subordinated basis by Yardville National Bancorp of the obligations of each trust to pay amounts when due on the trust preferred securities of each respective trust.

F -20

For the year ended December 31, 2006, the Company’s trusts, along with the transaction date, principal amount of subordinated debentures issued, interest rate of subordinated debentures, maturity date of subordinated debentures and commencement date for redemption of subordinated debentures were comprised of the following:

Name of Trust	Transaction Date	Principal Amount of Subordinated Debentures	Interest Rate for Subordinated Debentures	Maturity Date of Subordinated Debentures	Earliest Date upon which Redemptions are are Permitted
(in thousands)
Yardville Capital Trust II	June 2000	$15,464	9.50%	June 22, 2030	June 23, 2010
Yardville Capital Trust III	March 2001	6,190	10.18%	June 8, 2031	June 8, 2011
Yardville Capital Trust IV	February 2003	15,464	Floating rate based	March 1, 2033	March 1, 2008
			on three month LIBOR
			plus 340 basis points
Yardville Capital Trust V	September 2003	10,310	Floating rate based	October 8, 2033	October 8, 2008
			on three month LIBOR
			plus 300 basis points
Yardville Capital Trust VI	June 2004	15,464	Floating rate based	July 23, 2034	July 23, 2009
			on three month LIBOR
			plus 270 basis points
Total		$62,892

At December 31, 2006 subordinated debentures supported payment of $1,892,000 in equity securities and $61,000,000 in trust preferred securities.

The principal use of proceeds for Yardville Capital Trusts II, III and V were contributed as capital to the Bank to support growth. A portion of the proceeds of Yardville Capital Trust IV was used to retire the subordinated debentures of Yardville Capital Trust in March 2003 with the remainder contributed as capital to the Bank to support growth. The proceeds from Yardville Capital Trust VI were used to meet cash flow needs of the holding company, which included contributions as capital to the Bank to support growth.

9. INCOME TAXES

Income taxes reflected in the consolidated financial statements for 2006, 2005, and 2004 are as follows:

	Year Ended December 31,
(in thousands)	2006			2005			2004
Federal:
Current	$	2,181		$	12,287		$	8,629
Deferred		(2,344	)		(3,049	)		(1,208	)
State:
Current		515			768			622
Deferred		(2,582	)		(369	)		(144	)
Total tax (benefit) expense	$	(2,230	)	$	9,637		$	7,899

F -21

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 2006 and 2005, are as follows:

	December 31,
(in thousands)	2006			2005
Deferred tax assets:
Allowance for loan losses	$	9,370		$	9,275
Nonaccrual loans		220			76
Deferred compensation		3,347			2,714
Post retirement benefits		737			620
State tax credits		1,316			1,154
State net operating losses		3,005			900
Prepayment penalty		1,485			—
Depreciation		125			853
Deferred income		2			—
Accumulated other comprehensive loss		4,206			5,575
Other		175			—
Total gross deferred tax assets	$	23,988		$	21,167
Valuation allowance		(1,316	)		(1,154	)
Deferred tax liabilities:
Deferred income		—			(847	)
Unamortized discount accretion		(386	)		(463	)
Prepaid expenses		(228	)		(210	)
Deferred loan costs		(280	)		(272	)
Total deferred tax liability		(894	)		(1,792	)
Net deferred tax assets	$	21,778		$	18,221

The Company 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. A valuation allowance has been recorded at December 31, 2006 and 2005 for the state tax credits as management has determined that it is more likely than not that the Company will not generate sufficient state taxable income in order to utilize these credits. However, management believes, based upon current information, that it is more likely than not that there will be sufficient taxable income in future years to realize the remaining net deferred tax assets for Federal tax purposes. However, there can be no assurance regarding the level of earnings in the future.

In February 2006, the Division of Taxation of the State of New Jersey adopted new regulations relating to the dividends paid by Real Estate Investment Trusts (REITs). Dividends received from a REIT are now ineligible for inclusion in the New Jersey dividends received deduction for corporations. This regulation applies to dividends paid on or after February 6, 2006. The Company believes, based on actions taken in 2005, that this new regulation will not have a material impact on its financial condition or results of operations.

F -22

A reconciliation of the tax expense computed by multiplying pre-tax accounting income by the statutory Federal income tax rate of 35% for 2006, 2005, and 2004 is as follows:

	Year Ended December 31,
(in thousands)	2006			2005			2004
Income tax expense at statutory rate	$	1,063		$	10,700		$	9,248
State income taxes, net of Federal benefit		(1,344	)		260			310
Changes in taxes resulting from:
Tax-exempt interest		(1,400	)		(1,284	)		(1,082	)
Tax-exempt non-interest income		(630	)		(578	)		(618	)
Non-deductible expenses		193			249			220
Stock options		9			—			—
Other		(121	)		290			(179	)
Total income tax (benefit) expense	$	(2,230	)	$	9,637		$	7,899

10. BENEFIT PLANS

Retirement Savings Plan. The Company has a 401(k) plan, which covers substantially all employees. Under the terms of the plan, after one year of service, the Company provided a matching contribution of 50% of each participant’s contribution, up to 6% of his or her base compensation, for 2006, 2005, and 2004. The plan permits all eligible employees to make contributions to the plan of up to the maximum deferral limit in effect in the calendar year. Employer contributions to the plan amounted to $400,000 in 2006, $381,000 in 2005, and $363,000 in 2004.

Postretirement Benefits. The Company 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 $317,000 in periodic postretirement benefit costs under FASB Statement No. 106 in 2006, $186,000 in 2005 and $243,000 in 2004. The actuarial present value of benefit obligations was approximately $1.8 million in 2006 and $1.5 million in 2005.

Other Benefit Plans. The Company has a salary continuation plan for key executives. The plan provides for either yearly retirement benefits to be paid over a specified period or a lump sum payout based on the election choice of the participant. On December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—An Amendment of SFAS No. 87, 88, 106 and 132R.” This new standard requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status measured as the difference between the fair value of plan assets and the benefit obligation; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize as a component of other comprehensive income, net of tax, the changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. SFAS No. 158 does not change how an employer determines the amount of net periodic benefit cost. The plan’s under-funded status at December 31, 2006 was approximately $1.3 million recorded, net of the tax benefit, to bring the present value of the benefits accrued under this plan as of December 31, 2006 to approximately $6.7 million. As of December 31, 2005 the present value of the benefits accrued under this plan were $3.9 million. The present value is included in other liabilities in the accompanying consolidated statements of condition. The plan’s compensation expense of approximately $1,488,000, $989,000 and $455,000 is included in the accompanying consolidated statements of income for the years ended December 31, 2006, 2005 and 2004, respectively.

F -23

In addition, the Company has a director deferred compensation plan for its non-employee board members and an officer group life insurance plan for certain officers that includes a postretirement benefit. The present value of the benefits accrued under these plans as of December 31, 2006 and 2005 was approximately $2.8 million and $2.7 million, respectively, and is included in other liabilities in the accompanying consolidated statements of condition. The plans’ compensation expense of approximately $708,000, $786,000 and $1,133,000 is included in the accompanying consolidated statements of income for the years ended December 31, 2006, 2005, and 2004, respectively.

In connection with the benefit plans, the Company has purchased life insurance policies on the lives of the executives, directors, and divisional officers. The Company is the owner and beneficiary of the policies. The Company has entered into split dollar arrangements with certain executives, which share death benefit proceeds with those executives. The cash surrender values of the policies were approximately $49.7 million and $46.2 million as of December 31, 2006 and 2005, respectively.

In September 2006 the Financial Accounting Standard’s Board Emerging Issues Task Force (EITF) issue No. 06-4 Accounting for Deferred Compensation and Post Retirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements stated that Companies should recognize a liability for the future benefits relating to post retirement benefits of split dollar life insurance arrangements in accordance with Statement 106. The EITF believes that a liability has not been settled through the purchase of a typical split dollar life insurance arrangement. The effective date for this accounting is for fiscal years beginning after December 15, 2007.

Stock Option Plans. The Company maintains stock option plans for both officers and directors. Common shares issued relating to the exercise of stock options are obtained from authorized shares. 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 options to purchase 1,070,000 shares of the Company’s common stock at option prices to be no less than the fair market value of the stock on the date such options are granted. Options typically have a seven to ten-year term and vest ratably over a five-year period. At December 31, 2006, there were 78,554 shares available for grant under the 1997 Plan.

In June 2003, the stockholders approved a non-qualified stock option plan for non-employee directors (the 2003 Directors Plan). The 2003 Directors Plan allows for the granting of options to purchase 250,000 shares of the Company’s common stock at an option price to be no less than the fair market value of the stock on the date such options are granted. Options granted under this plan vest immediately and have a term not to exceed ten years. The plan provides for a grant of 3,000 options per year to each non-employee director who is a director on the day immediately after each annual meeting of stockholders. In addition, the plan allows for the granting of stock options to new non-employee directors. At December 31, 2006, there were 130,000 shares available for grant under the 2003 Director Plan.

In June 2005, the stockholders approved an equity incentive plan for employees and directors (the 2005 Plan). The 2005 Plan allows for granting of options, restricted stock awards and other stock-based awards with respect to 500,000 shares of the Company’s common stock. Of the 500,000 shares of the Company’s common stock available in the plan, up to 250,000 may be granted in the form of restricted stock. Option terms are limited to a maximum of 10 years. The vesting terms of options or restricted stock granted under this plan are determined by a committee designated by the Company’s board of directors to oversee this plan. No options or restricted stock awards have been made from this plan as of December 31, 2006. At December 31, 2006 there were 500,000 shares available for grant under the 2005 plan.

F -24

The tables below list the activity in the Company’s stock option plans for each of the years in the three-year period ended December 31, 2006:

1997 Plan	Shares		Weighted Average Exercise Price
Balance, December 31, 2003		886,478	$	14.45
Shares:
Granted		47,500		28.51
Exercised		51,487		14.38
Expired		52,120		19.00
Balance, December 31, 2004		830,371	$	14.97
Shares:
Granted		48,000		34.37
Exercised		90,404		14.56
Expired		14,584		28.00
Balance, December 31, 2005		773,383	$	15.98
Shares:
Granted		12,000		35.32
Exercised		125,068		15.95
Expired		980		11.70
Balance, December 31, 2006		659,335	$	16.34
Shares exercisable as of December 31, 2006		647,334	$	15.99

2003 Director Plan	Shares		Weighted Average Exercise Price
Balance, December 31, 2003		24,000	$	18.96
Shares:
Granted		30,000		24.54
Exercised		3,000		24.54
Balance, December 31, 2004		51,000	$	21.91
Shares:
Granted		36,000		34.25
Exercised		3,000		34.23
Balance, December 31, 2005		84,000	$	27.31
Shares:
Granted		30,000		36.34
Exercised		15,000		24.25
Expired		3,000		34.25
Balance, December 31, 2006		96,000	$	30.39
Shares exercisable as of December 31, 2006		96,000	$	30.39

F -25

The table below lists information on stock options outstanding as of December 31, 2006:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares Outstanding		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Number of Shares Exercisable at Period End		Weighted Average Exercise Price
$9.50 - $11.22		273,811		3.82	$	10.93		273,811	$	10.93
$11.25 - $17.68		266,874		1.64		16.55		266,874		16.55
$18.47 - $24.54		76,900		4.29		21.19		76,900		21.19
$24.85- $36.34		137,750		5.69		33.81		125,750		33.66
		755,335		3.43	$	18.13		743,334	$	17.85

Cash received from stock option exercises for the years ended December 31, 2006, 2005 and 2004 was $2.4 million, $1.4 million and $813,000, respectively. The associated tax benefit realized relating to stock option exercises for the years ended December 31, 2006, 2005 and 2004 was $580,000, $296,000 and $152,000, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $2.8 million, $1.8 million and $679,000, respectively.

11. COMMON STOCK

On November 3, 2005, the Company completed a private placement of 235,401 shares of its common stock. The common stock was offered at a price of $37.06 per share and generated gross proceeds of $8.7 million. Net proceeds after offering costs were $8.7 million and were contributed to the Bank to support asset growth and compliance with regulatory capital levels.

On December 18, 2002, the Company completed the sale of 2,300,000 shares of its common stock in an underwritten public offering. The common stock was offered at a price of $16.25 per share and generated gross proceeds of $37.4 million. Net proceeds after the underwriting discount and other offering costs were $34.3 million. Of the net proceeds, $33.0 million was contributed to the Bank to support asset growth.

On June 23, 2000, the Company completed the private placement of 68,500 units, each unit consisting of 10 shares of common stock and one common stock purchase warrant. The warrants have an expiration date of June 23, 2010 and a purchase price of $12.00 per share. During 2006, there were 3,500 units exercised leaving 65,000 units outstanding at December 31, 2006 relating to this offering.

On October 15, 2003, the Company filed a registration statement for a new Dividend Reinvestment and Stock Purchase Plan and offered reinvestment of dividends starting with the fourth quarter 2003 dividend. In conjunction with the reinvestment of dividends, the Company issued 11,693, 11,138 and 16,871 shares for the years ended December 31, 2006, 2005 and 2004, respectively.

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. Shares purchased by the ESOP are held in a suspense account pending allocation among participants as the loan is repaid.

In November 2005, the ESOP purchased 64,175 shares of common stock for approximately $2,250,000. The ESOP funded the transaction by borrowing $2,250,000 from an unaffiliated financial institution. The remaining balance of this loan at December 31, 2006 was $1,688,000.

F -26

ESOP compensation expense is recognized based on the fair value of the stock when it is committed to be released. Compensation expense amounted to $576,000, $668,000, and $522,000 for the years ended December 31, 2006, 2005, and 2004, respectively. The fair value of unallocated shares at December 31, 2006 was $1.8 million. The number of unallocated shares at December 31, 2006 was 48,132. The number of shares allocated as of December 31, 2006 was 210,899.

Unallocated shares are deducted from common shares outstanding for earnings per share purposes with shares that are committed to be released during the year added back intoweighted average shares outstanding.

12. OTHER NON-INTEREST EXPENSE

Other non-interest expense included the following:

	Year Ended December 31,
(in thousands)	2006		2005		2004
Marketing	$	2,212	$	2,224	$	1,768
Audit and examination fees		1,607		1,323		1,032
Outside services and processing		1,497		1,773		1,483
Attorneys' fees		1,295		662		393
Communication and postage		1,094		981		938
Stationery and supplies		1,089		941		757
Directors and committee fees		1,045		1,004		1,355
FDIC insurance premium		909		259		239
Insurance		568		563		509
Real estate appraisal fees		299		134		33
Amortization of subordinated debentures expense		273		272		251
Deposit intangible amortization		204		204		204
ORE expense		148		79		5
Other		3,879		3,422		2,800
Total	$	16,119	$	13,841	$	11,767

13. RELATED PARTY TRANSACTIONS

The Company has had and expects to have transactions in the ordinary course of business with many of its directors, senior officers and other affiliates (and their associates) on substantially the same terms as those prevailing for comparable transactions with others. For additional information on credit transactions, see Note 4 - Loans and Allowance for Loan Losses. Listed below is a summary of other material relationships or transactions with the Company’s directors, senior officers and other affiliates.

In January 2005, Patrick L. Ryan, the son of Patrick M. Ryan, the Chief Executive Officer of the Holding Company and the Bank, joined the Bank in the position of Senior Vice President and Strategic Planning Officer. In November 2006, Patrick L. Ryan was promoted to First Senior Vice President and Market Manager. His employment agreement with the Bank includes a base salary of $152,000 together with benefits consistent with those provided to other officers of the same level.

In January 2006, the Bank signed a one-year lease effective December 1, 2005 for a temporary location for its Cream Ridge Branch located in Plumsted Township, New Jersey. This temporary lease terminated upon the Bank’s move to a full service branch located on a pad site adjacent to the temporary location. Both facilities are owned by Vernon Holdings 101837 LLC. Christopher S. Vernon, a former director of the Company and the Bank, has an ownership interest in Vernon Holdings 101837 LLC. Under the terms of the temporary lease, the

F -27

Bank paid approximately $3,500 per month, which does not include any common area maintenance expenses. On September 15, 2006 the Bank signed a lease with Vernon Holdings 101837, LLC for its permanent branch location in the Cream Ridge Mews Shopping Center in Plumsted Township, New Jersey. This lease provides for an initial term of ten years, as well as two options for renewal terms of five years each. During the first year of the lease, the Bank is obligated to pay monthly fixed rent of $6,250. In each subsequent lease year during the initial term, the fixed rent will increase in proportion to the Consumer Price Index and in each lease year during any renewal terms, will increase by three percent. Throughout the initial term and any renewal terms, the Bank shall be obligated to pay or reimburse the landlord for all real estate taxes and insurance premiums allocated to the leased premise as well as utilities and maintenance expenses. On November 16, 2006, Director Vernon voluntarily resigned from the boards of director of both the Company and the Bank.

In January 2005, the Bank signed a five-year lease with two five-year renewal options for its maintenance department center. This property is owned by Lalor Storage LLC, a limited liability company of which Christopher S. Vernon, a former director of the Company and the Bank, is a member. Under the terms of the lease, the Bank is required to pay $4,984 per month, which includes any common area maintenance expenses. On November 16, 2006, Director Vernon voluntarily resigned from the boards of director of both the Company and the Bank.

In April 2000, the Bank signed a five-year lease with three five-year renewal options for its branch in Marrazzo’s Thriftway in West Trenton, New Jersey. The property is owned by Serenity Point LLC, a limited liability company of which Mr. Marrazzo, a director of the Company and the Bank, is a member. Mr. Marrazzo also owns and operates Marrazzo’s Thriftway. Under the terms of the lease, which was executed prior to Mr. Marrazzo becoming a member of the Board, the Bank is obligated to pay approximately $2,200 per month, which included any common area maintenance expenses.

Except as described in Note 4 - Loans and Allowance for Loan Losses and above, there were no new material loan relationships established in 2006.

14. OTHER COMMITMENTS AND CONTINGENT LIABILITIES

The Company 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, 2006 and 2005 for commitments to extend credit were $504.9 million and $500.0 million, respectively. Letters of credit include standby letters of credit and commercial letters of credit. At December 31, 2006 and 2005, the contract amounts were $37.1 million and $30.3 million, respectively.

As part of its normal course of business, the Company issues standby letters of credit as part of an overall lending relationship. These standby letters of credit are primarily related to performance guarantees on real estate development. At December 31, 2006 and 2005, the amount of standby letters of credit outstanding (and the maximum liability of the Company) were $35.7 million and $28.2 million, respectively. The Company typically obtains collateral to secure standby letters of credit. At December 31, 2006 and 2005, collateral securing standby letters of credit was $32.2 million and $22.1 million, respectively, and is available to offset potential losses.

F -28

Commitments to extend credit and letters of credit may expire without being drawn upon and, therefore, the total commitment amounts do not necessarily represent future cash flow requirements.

       The Company 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. In March 2006, certain shareholders of the Company commenced an action in the Superior Court of New Jersey against the Bank, its directors and certain former directors. The plaintiffs sought to have the Company’s by-law regarding director qualifications invalidated, to have certain individuals qualified to serve as directors and to have four members of the Company’s board of directors stand for election at the 2006 annual meeting of shareholders. In December 2006, the court upheld the validity of the director qualification by-law, the disqualification of one of the plaintiffs from service on our board of directors and the results of the election at our 2006 annual meeting of shareholders. However, the court concluded that the board lacked compelling justification to reduce the size of the board and granted plaintiffs reimbursement for the cost of the proxy contest and the reasonable costs of the initial order to show cause phase of the litigation. Plaintiffs have claimed costs of approximately $162,000. In management’s judgment, the Company’s consolidated financial condition and results of operations will not be adversely affected by the final outcome of any of these pending legal proceedings.

15. REGULATORY MATTERS

The Company and the Bank are subject to risk-based capital guidelines administered by Federal banking agencies. The guidelines are designed to make regulatory capital requirements more sensitive to risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under the guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with applicable weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and certain off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk-based capital to total risk-weighted assets of 8%, maintain a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and Tier 1 capital to average total assets of 4%. Capital amounts and classifications are also subject to qualitative judgment by Federal banking agencies concerning components, risk weightings and other factors. Failures to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the consolidated financial statements.

F -29

The following tables presents the Company’s and Bank’s actual capital amounts and ratios:

	Per Regulatory Guidelines
	Actual					Minimum					"Well Capitalized"
(amounts in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2006:
Company
Total capital (to risk-weighted assets)	$	276,336		12.3	%	$	180,254		8.0	%	$	225,318		10.0	%
Tier 1 capital (to risk-weighted assets)		251,772		11.2			90,127		4.0			135,191		6.0
Tier 1 capital (to average assets)		251,772		8.8			114,040		4.0			142,550		5.0
Bank
Total capital (to risk-weighted assets)	$	250,972		11.2	%	$	179,250		8.0	%	$	224,062		10.0	%
Tier 1 capital (to risk-weighted assets)		226,408		10.1			89,625		4.0			134,437		6.0
Tier 1 capital (to average assets)		226,408		8.0			113,786		4.0			142,233		5.0
As of December 31, 2005:
Company
Total capital (to risk-weighted assets)	$	269,898		11.8	%	$	182,717		8.0	%	$	228,396		10.0	%
Tier 1 capital (to risk-weighted assets)		247,195		10.8			91,358		4.0			137,037		6.0
Tier 1 capital (to average assets)		247,195		8.3			118,916		4.0			148,644		5.0
Bank
Total capital (to risk-weighted assets)	$	248,817		10.9	%	$	181,767		8.0	%	$	227,208		10.0	%
Tier 1 capital (to risk-weighted assets)		226,114		9.9			90,883		4.0			136,325		6.0
Tier 1 capital (to average assets)		226,114		7.6			118,662		4.0			148,327		5.0

On August 31, 2005, the Bank entered into a formal agreement with the OCC regarding the conduct of certain of its operations, maintaining specified capital levels, obtaining prior approvals of dividend payments, and addressing other concerns identified in the OCC’s Report of Examination for the examination that commenced on January 3, 2005. In addition, the agreement requires the Bank to achieve and maintain a total risk-based capital ratio of at least 10.75%, a Tier 1 risk-based capital ratio of at least 9.75% and a leverage ratio of at least 7.50%. The Company completed an $8.7 million private offering of its common stock in November 2005, of which substantially all of the proceeds were contributed to the Bank in order to ensure compliance with all required capital ratios and the Bank was in compliance with all required capital ratios at December 31, 2006.

Under the agreement, the Bank is not deemed to be “well capitalized” for certain regulatory purposes. Such capital category may not, however, accurately represent the Bank’s general financial condition or prospects. In addition, as a result of this agreement, the Company has elected to decertify as a financial holding company under the Bank Holding Company Act. The Company is not currently engaged in any activities for which it is required to be a financial holding company.

In January 2006, the Company received a supervisory letter from its primary regulator the Federal Reserve Bank of Philadelphia. That letter requires that the Company obtain prior approval before declaring and paying dividends to shareholders. The Federal Reserve Bank of Philadelphia approved each quarterly dividend payment in 2006. In February 2007, the Federal Reserve Bank of Philadelphia approved the first quarter dividend payment to shareholders.

F -30

The principal source of funds for the Company is dividends from the Bank. There are various legal and regulatory limits on the extent to which banking subsidiaries can finance or otherwise provide funds to their holding companies. Permission from the Office of the Comptroller of the Currency (OCC) 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 OCC, for that year, combined with its retained net profits for the two preceding years. In addition, if the Company were to defer payments on the subordinated debentures used to fund payments on its trust preferred securities, it would be unable to pay dividends on its common stock until the deferred payments were made. The retained net profits of the Bank available for dividends were approximately $15.3 million as of December 31, 2006.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 “Disclosure About Fair Value of Financial Instruments” (SFAS 107) requires the Company to disclose the estimated fair value for its financial instruments. Fair value estimates are made at a specific point in time, based on relevant market data and information about the financial instruments. SFAS 107 has no effect on the financial position or results of operations in the current year or any future period. Furthermore, the fair values disclosed under SFAS 107 are not representative of the total value of the Company. 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.

Interest Bearing Deposits with Banks. For interest bearing deposits with banks, the carrying amount was considered to be a reasonable estimate of fair value.

Securities Available for Sale and InvestmentSecurities. The fair value of securities, including 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 real estate, commercial and industrial, 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 Company’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.

F -31

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 Company 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.

Subordinated Debentures. For subordinated debentures, the fair value was based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for subordinated debentures having similar credit and maturity terms.

The estimated fair values of the Company’s financial instruments are as follows:

	December 31, 2006
(in thousands)	Carrying Value		Fair Value
Financial Assets:
Cash and cash equivalents	$	33,620	$	33,620
Interest bearing deposits		32,358		32,358
Securities available for sale		402,641		402,641
Investment securities		96,072		98,307
Loans, net		1,948,318		1,946,783
Financial Liabilities:
Deposits		2,003,283		1,999,597
Borrowed funds		337,281		336,442
Subordinated debentures		62,892		65,321

	December 31, 2005
(in thousands)	Carrying Value		Fair Value
Financial Assets:
Cash and cash equivalents	$	63,486	$	63,486
Interest bearing deposits		16,408		16,408
Securities available for sale		741,668		741,668
Investment securities		89,026		90,611
Loans, net		1,950,137		1,934,274
Financial Liabilities:
Deposits		1,972,717		1,966,351
Borrowed funds		718,120		737,296
Subordinated debentures		62,892		66,007

The fair value of commitments to extend credit and letters of 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, is not included above.

F -32

Limitations. Fair value estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’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 unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

F -33

17. PARENT COMPANY INFORMATION

The condensed financial statements of the parent company only are presented below:

Condensed Statements of Condition

	Year Ended December 31,
(in thousands)	2006		2005
Assets:
Cash	$	16,356	$	13,633
Securities available for sale		5,992		5,328
Investment in subsidiaries		221,394		217,366
Other assets		8,401		6,992
Total Assets	$	252,143	$	243,319
Liabilities and Stockholders' Equity:
Other liabilities	$	1,469	$	719
Obligation for ESOP		1,688		2,250
Subordinated debentures		62,892		62,892
Stockholders' equity		186,094		177,458
Total Liabilities and Stockholders' equity	$	252,143	$	243,319

Condensed Statements of Income

	Year Ended December 31,
(in thousands)	2006			2005			2004
Operating Income:
Dividends from subsidiary	$	10,207		$	9,832		$	3,970
Interest income		174			154			113
Other income		721			402			405
Total Operating Income		11,103			10,388			4,488
Operating Expense:
Interest expense		5,650			4,784			3,738
Other expense		2,527			1,828			1,306
Total Operating Expense		8,177			6,612			5,044
Income (loss ) before taxes and equity in undistributed income of subsidiaries		2,926			3,776			(556	)
Federal income tax benefit		(2,371	)		(1,917	)		(1,439	)
Income before equity in undistributed income of subsidiaries		5,296			5,693			883
Equity in undistributed income of subsidiaries		(31	)		15,241			17,642
Net Income	$	5,265		$	20,934		$	18,525

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Condensed Statements of Cash Flows

	Year ended December 31,
(in thousands)	2006			2005			2004
Cash Flows from Operating Activities:
Net Income	$	5,265		$	20,934		$	18,525
Adjustments:
(Increase) decrease in other assets		(808	)		4,615			(7,881	)
Equity in undistributed income of subsidiaries		31			(15,241	)		(17,642	)
Increase in other liabilities		200			440			329
Net Cash Provided by (Used in) Operating Activities		4,688			10,748			(6,669	)
Cash Flows from Investing Activities:
Purchase of securities available for sale		(297	)		—			(3,449	)
Investment in subsidiaries		—			(20,150	)		—
Net Cash Used by Investing Activities		(297	)		(20,150	)		(3,449	)
Cash Flows from Financing Activities:
(Decrease) increase in obligation for ESOP		(562	)		1,873			(378	)
Proceeds from issuance of subordinated debentures		—			—			15,464
Proceeds from shares issued		3,955			11,137			1,794
Dividends paid		(5,061	)		(4,898	)		(4,817	)
Net Cash (Used in) Provided by Financing Activities		(1,668	)		8,112			12,063
Net increase (decrease) in cash		2,723			(1,290	)		1,945
Cash as of beginning of year		13,633			14,923			12,978
Cash as of end of year	$	16,356		$	13,633		$	14,923

18. DERIVATIVE FINANCIAL INSTRUMENTS

The use of derivative financial instruments creates exposure to credit risk. This credit risk relates to losses that would be recognized if the counterparties fail to perform their obligations under the contracts. To mitigate this exposure to nonperformance, the Company only deals with counterparties of good credit standing and establishes counterparty credit limits. As part of the Company’s interest rate risk management process, the Company periodically enters into interest rate derivative contracts. Interest rate derivative contracts are typically used to limit the variability of the Company’s net interest income that could result due to shifts in interest rates. These derivative interest rate contracts may include interest rate swaps, caps, and floors and are used to modify the repricing characteristics of specific assets and liabilities. At December 31, 2005 the Company’s position in derivative contracts consisted entirely of interest rate swaps. The Company had no derivative contracts outstanding at December 31, 2006.

F -35

The following table details the interest rate swaps and associated hedged liabilities outstanding as of December 31, 2005.

Maturity	Hedged	Notional	Swap Fixed	Swap Variable
(dollars in thousands)	Liability	Amounts	Interest Rates	Interest Rates
Pay floating Swaps
2006	Time Deposits	$125,000	3.10% - 2.73%	4.31% - 4.42%

During 2004, the Company issued two-year fixed-rate certificates of deposit to fund loan growth and generate liquidity. In conjunction with the certificate of deposit issuance, the Company entered into $125.0 million in pay floating swaps designated as fair value hedges that were used to convert fixed rate two year final maturity time deposits to variable rates indexed to one month and three month LIBOR, based on common notional amounts and maturity dates. The pay floating swaps changed the repricing characteristics of the certificates of deposit from fixed rate to floating rate. The result was a better match between the repricing characteristics of the certificates of deposit with floating rate commercial loans the Company made in 2004. These transactions increased interest expense by approximately $1,530,000 for the year ended December 31, 2006 and by approximately $412,000 for the year ended December 31, 2005. The amount of hedge ineffectiveness recorded in non-interest expense in the consolidated statements of income on these transactions for the year ended December 31, 2005 was less than $1,000. The fair value of the pay floating swaps outstanding at December 31, 2005 was $1,442,000 and was recorded in other liabilities in the consolidated statements of condition. The Company had no derivative contracts outstanding at December 31, 2006.

F -36

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Yardville National Bancorp:

We have audited the accompanying consolidated statements of condition of Yardville National Bancorp and subsidiaries (the “Company”) as of December 31, 2006 and 2005, 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, 2006. These consolidated financial statements are the responsibility of the Company’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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 30, 2007 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

(KPMG SIGNATURE)

Short Hills, New Jersey

March 30, 2007

EXHIBIT INDEX

Exhibit Number		Description
3.1	(A)	Restated Certificate of Incorporation of the Company, as corrected by the Certificate of Correction thereto filed on July 6, 1995 and as amended by the Certificate of Amendment thereto filed on March 6, 1998.
3.2	(B)	Certificate of Amendment to the Restated Certificate of Incorporation of the Company filed on June 6, 2003.
3.3	(C)	Amended and Restated By-Laws of the Company
4.1	(D)	Specimen Share of Common Stock
4.2		The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Series A 9.50% Junior Subordinated Deferrable Interest Debentures due June 22, 2030: (i) Amended and Restated Declaration of Trust dated June 23, 2000, among the Registrant, The Bank of New York, as property trustee, and the Administrative Trustees of Yardville Capital Trust II; (ii) Indenture dated as of June 23, 2000, between the Registrant and The Bank of New York, as trustee, relating to the Registrant’s Series A 9.50% Junior Subordinated Deferrable Interest Debentures due June 22, 2030; and (iii) Series A Capital Securities Guarantee Agreement dated as of June 23, 2000, between the Registrant and The Bank of New York, as trustee, relating to the Series A Capital Securities of Yardville Capital Trust II.
4.3		The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Series A 10.18% Junior Subordinated Deferrable Interest Debentures due June 8, 2031: (i) Amended and Restated Declaration of Trust dated March 28, 2001, among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust III; (ii) Indenture dated as of March 28, 2001, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Series A 10.18% Junior Subordinated Deferrable Interest Debentures due June 8, 2031; and (iii) Series A Capital Securities Guarantee Agreement dated as of March 28, 2001, between the Registrant and Wilmington Trust Company, as trustee, relating to the Series A Capital Securities of Yardville Capital Trust III.
4.4		The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due March 1, 2033: (i) Amended and Restated Declaration of Trust dated February 19, 2003, among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust IV; (ii) Indenture dated as of February 19, 2003, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due March 1, 2033; and (iii) Capital Securities Guarantee Agreement dated as of February 19, 2003, between the Registrant and Wilmington Trust Company, as trustee, relating to the Floating Rate Capital Securities of Yardville Capital Trust IV.
4.5		The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due October 8, 2033: (i) Amended and Restated Declaration of Trust among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust V; (ii) Indenture between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due October 8, 2033; and (iii) Capital Securities Guarantee Agreement between the Registrant and Wilmington Trust Company, as trustee, relating to the Floating Rate Capital Securities of Yardville Capital Trust V.
4.6		The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due July 23, 2034: (i) Amended and Restated Declaration of Trust among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust VI; (ii) Indenture between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due July 23, 2034; and (iii) Capital Securities Guarantee Agreement between the Registrant and Wilmington Trust Company, as trustee, relating to the Floating Rate Capital Securities of Yardville Capital Trust VI.

E -1

Exhibit Number		Description
10.1	(E)	Employment Contract between the Bank and Kathleen O. Blanchard*
10.2	(F)	Employment Agreement among Registrant, the Bank, and Stephen F. Carman*
10.3	(F)	Employment Agreement among Registrant, the Bank, and Jay G. Destribats*
10.4		Employment Agreement between the Bank and Edward J. Dietzler*
10.5	(E)	Employment Contract between the Bank and Brian K. Gray*
10.6	(E)	Employment Contract between the Bank and Howard N. Hall*
10.7	(F)	Employment Agreement among Registrant, the Bank, and Timothy J. Losch*
10.8	(G)	Employment Contract between the Bank and Daniel J. O’Donnell*
10.9	(H)	Employment Contract between the Bank and Joanne C. O’Donnell*
10.10	(F)	Employment Agreement among Registrant, the Bank, and Patrick M. Ryan*
10.11		Employment Agreement between the Bank and Patrick L. Ryan*
10.12	(E)	Employment Contract between the Bank and John P. Samborski*
10.13	(I)	Employment Agreement among Registrant, the Bank, and F. Kevin Tylus*
10.14	(F)	Employment Agreement among Registrant, the Bank, and Stephen R. Walker*
10.15	(E)	Second Amended and Restated Supplemental Executive Retirement Plan*
10.16	(B)	Amendment to the Second Amended and Restated Supplemental Executive Retirement Plan
10.17	(J)	Amendment to the Second Amended and Restated Supplemental Executive Retirement Plan
10.18		Amendment to the Second Amended and Restated Supplemental Executive Retirement Plan
10.19	(A)	1988 Stock Option Plan*
10.20	(K)	Directors’ Deferred Fee Plan*
10.21	(L)	1997 Stock Option Plan and Form of Stock Option Agreement*
10.22		Amended and Restated Yardville National Bank Employee Stock Ownership Plan*
10.23	(M)	Yardville National Bancorp 2003 Stock Option Plan for Non-Employee Directors*
10.24		Yardville National Bancorp 2003 Stock Option Plan for Non-Employee Directors — Form of Stock Option Agreement*
10.25	(N)	2005 Equity Incentive Plan*
10.26	(E)	Real property lease between Crestwood Construction, LLC and the Bank dated May 25, 1998
10.27		Real property lease between Danch Farm, LLC and the Bank dated January 18, 2006
10.28	(O)	Real property sublease between the Bank and Samuel Marrazzo and Margaret Marrazzo, predecessors in interest to Serenity Point LLC, for our branch located at 1400 Parkway Avenue, Ewing, New Jersey
10.29	(E)	Real property lease between the Bank and Lalor Storage LLC for our maintenance center
10.30	(B)	Real property lease between the Bank and Vernon Holdings 101837 LLC for the lease of our temporary location at 403 Route 539, Cream Ridge, New Jersey
10.31	(P)	Real property lease between the Bank and Vernon Holdings 101837 LLC for the lease of our branch located at 403 Route 539, Cream Ridge, New Jersey
10.32	(E)	Yardville National Bank’s Change in Control Severance Compensation Plan*
21		List of Subsidiaries of the Registrant
23		Consent of KPMG, LLP
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Vice President and Treasurer
32.1		Section 1350 Certification of Chief Executive Officer
32.2		Section 1350 Certification of Vice President and Treasurer
99.1	(Q)	Agreement by and between the Bank and the Office of the Comptroller of the Currency

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Exhibit Number	Description
(A)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the SEC on May 2, 2003
(B)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with the SEC on March 16, 2006
(C)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 25, 2006, filed with the SEC on January 31, 2006
(D)	Incorporated by reference to the Registrant’s Registration Statement on Form SB-2 (Registration No. 33-78050)
(E)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the SEC on March 31, 2005
(F)	Incorporated by reference to Amendment No. 1 to the Registrant’s Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 2004, filed with the SEC on December 13, 2004
(G)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, filed with the SEC on November 9, 2005
(H)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005, filed with the SEC on August 15, 2005
(I)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004, filed with the SEC on November 9, 2004
(J)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2006, filed with the SEC on August 9, 2006
(K)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed with the SEC on March 15, 2004
(L)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-28193), filed with the SEC on May 30, 1997
(M)	Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A for the 2003 Annual Meeting of Shareholders, filed with the SEC on April 30, 2003
(N)	Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A for the 2005 Annual Meeting of Shareholders, filed with the SEC on May 6, 2005
(O)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004, filed with the SEC on May 10, 2004
(P)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006, filed with the SEC on November 9, 2006
(Q)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 31, 2005, filed with the SEC on September 2, 2005
*	Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K.

EX-10.4

EXHIBIT 10.4

EMPLOYMENT AGREEMENT

FOR FIRST SENIOR VICE PRESIDENTS

THIS AGREEMENT (the “Agreement”), made this 1st day of February, 2005, by and between YARDVILLE NATIONAL BANK (the “Bank”) and Edward J. Dietzler (the “Officer”). References to “the Company” herein shall refer to YARDVILLE NATIONAL BANCORP, a New Jersey corporation (the “Company”) and the holding company for the Bank.

W I T N E S S E T H

WHEREAS, the Bank desires to retain the services of the Officer as an employee of the Bank; and

WHEREAS, the Officer and the Bank (desire to enter into an employment agreement setting forth the terms and conditions of the continuing employment of the Officer and the related rights and obligations of the parties.

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereby agree as follows:

1.Employment. The Bank shall employ the Officer as a First Senior Vice President/Capital Markets Officer of the Bank. The Officer shall render such administrative and management services as are customarily provided by persons employed in similar officer capacities and shall have such other powers and duties as the Chief Executive Officer or the Board may prescribe from time to time.

2.Location and Facilities. The Bank will furnish the Officer with the working facilities and staff customary for officers with the title and duties set forth in Section 1 and as are necessary for the performance of the Officer’s duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices.

3.Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the first anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

b. On each anniversary date of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended automatically for an additional one (1) year period without action by any party provided, however, that neither the Bank nor the Officer shall have given written notice at least sixty (60)

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days prior to such anniversary date of their election not to extend the term of the Agreement.

4.Base Compensation.

a. The Bank agrees to pay the Officer during the term of this Agreement a base salary at the rate of $125,000.00 per year, payable in accordance with customary payroll practices.

b. The Executive Management Committee of the Bank shall review annually the rate of the Officer’s base salary based upon factors they deem relevant, and may maintain, increase or decrease the Officer’s base salary.

c. In the absence of action by the Executive Management Committee, the Officer shall continue to receive base salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Executive Management Committee under the provisions of this Section 4.

5.Bonuses. Officer shall be entitled to participate in any discretionary bonuses or other incentive compensation programs that may be awarded from time to time to senior management employees, pursuant to bonus plans or otherwise.

6.Benefit Plans. The Officer shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, and retirement plans, stock compensation plans and other benefit programs and arrangements as may be approved from time to time for the benefit of Bank employees.

7.Vacation and Leave.

a. The Officer may take vacations and other leave in accordance with Bank policy for senior officers, or otherwise as approved by the Board.

b. In addition to paid vacations and other leave, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his duties for such additional periods of time and for such valid and legitimate reasons as the Bank may determine in its discretion. Further, the Bank may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Bank, in its discretion, may determine.

8.Expense Payment and Reimbursements. The Officer shall be reimbursed for all reasonable out-of-pocket business expenses incurred in connection with services performed under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank.

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9.This Section 9 has been intentionally left blank.

10.Loyalty and Confidentiality.

a. During the term of this Agreement: (i) the Officer shall devote the requisite time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, unfavorably affect the performance of the Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) the Officer shall not engage in any business or activity contrary to the business affairs or interests of the Bank or any of its subsidiaries or affiliates.

b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that of the Bank or any of its subsidiaries or affiliates, or, solely as a passive, minority investor, in any business.

c. The Officer agrees to maintain the confidentiality of any and all information concerning the operations or financial status of the Bank; the names or addresses of any borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Bank to which the Officer may be exposed during the course of the Officer’s employment with the Bank. The Officer further agrees that, unless required by law or specifically permitted by the Board in writing, the Officer will not disclose to any person or entity, either during or subsequent to employment with the Bank, any of the above-mentioned information which is not generally known to the public, nor shall the Officer employ such information in any way other than for the benefit of the Bank or any of its subsidiaries or affiliates.

11.Termination and Termination Pay. Subject to Section 12 of this Agreement, the Officer’s employment under this Agreement may be terminated in the following circumstances:

a. Death. The Officer’s employment under this Agreement shall terminate upon the Officer’s death during the term of this Agreement, in which event the Officer’s estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month of death.

b. Retirement. Notwithstanding anything in this Agreement to the contrary, this Agreement shall terminate upon the Officer’s retirement and will be subject to any retirement benefit plan or plans provided for under Section 6 of this Agreement or otherwise.

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c.Disability.

i. The Bank or the Officer may terminate the Officer’s employment after having established the Officer’s Disability. For purposes of this Agreement, “Disability” means the Officer’s suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Officer, or by the Social Security Administration, to be a disability rendering the Officer totally and permanently disabled. The Bank shall determine in good faith whether or not the Officer is disabled for purposes of this Agreement. As a condition to any benefits, the Bank may require the Officer to submit proof of the carrier’s or the Social Security Administration’s determination of disability.

ii. In the event of such Disability, the Officer’s obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall continue to receive one-hundred percent (100%) of the Officer’s monthly base salary (at the annual rate in effect on the date of termination) through the earlier of the date of the Officer’s death, the date the Officer attains age 65 or the date which is six (6) months after the Officer’s termination date. Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to the Officer under any other disability program sponsored by the Bank.

iii. In addition, during any period of Disability for which the Officer is receiving payments under this Section 11(c), the Officer and the Officer’s dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) under which the Officer participated prior to the Disability, on the same terms as if the Officer were actively employed through the earlier of the date of the Officer’s death, the date the Officer attains age 65 or the date which is six (6) months after the Officer’s termination date.

d.Just Cause.

i. The Bank may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate the Officer’s employment with the Company or the Bank, respectively, at any time, for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause, except for previously vested benefits. Termination for “Just Cause” shall mean termination because of, in the good faith determination of the Bank, the Officer’s:

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(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or

(7) Material breach of any provision of this Agreement.

e. Voluntary Termination by the Officer. In addition to the Officer’s other rights to terminate employment under the Agreement, the Officer may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Bank, in which case the Officer shall receive only compensation, vested rights and employee benefits up to the date of termination.

f.Without Just Cause.

i. In addition to termination pursuant to Sections 11(a) through 11(e), the Bank may, by means of written notice, immediately terminate the Officer’s employment at any time for a reason other than Just Cause (a termination “Without Just Cause”).

ii. Subject to Section 12 hereof, in the event of termination under this Section 11(f), the Officer shall be entitled to receive the annual base salary that would have been paid for the remaining term of the Agreement, including any renewals or extensions thereof, determined by reference to the highest annual rate of base salary in effect pursuant to Section 4 of this Agreement in any of the twelve (12) months immediately preceding the Officer’s termination date. The sum due under this Section 11(f) shall be paid in one lump sum within thirty (30) calendar days of the Officer’s termination.

iii. Notwithstanding the foregoing, a reduction in base salary or a reduction or elimination of the Officer’s participation in or benefits under one or more benefit plans that occurs as part of a good faith, overall reduction in salary

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or a reduction or elimination of plans or benefits provided thereunder, provided such reduction or elimination applies to all participants in a non-discriminatory manner (except as such discrimination may be necessary to comply with law), shall not constitute a material breach of this Agreement, provided that benefits of the same type or to the same general extent as those offered under the plan prior to reduction or elimination are not available to other officers of the Bank or its affiliates, or any company that controls either of them, under a plan or plans under which the Officer is not entitled to participate.

iv.Notwithstanding anything in this Agreement to the contrary, during the six (6) month period beginning on the effective date of a Change in Control (as defined in Section 12(a)), the Officer may voluntarily terminate employment under this Agreement for any reason and such termination shall constitute termination Without Just Cause.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or the Officer pursuant to Section 11(f) and continuing until the six (6) month anniversary of the effective date of such termination, (i) the Officer’s obligations under Section 10(c) of this Agreement will continue in effect; and (ii) the Officer shall not interfere with the relationship between the Bank and any of its employees, agents, customers or representatives.

12.Termination in Connection with a Change in Control.

a.“Change in Control”means any one of the following events occurs:

i. Merger: the Company merges into or consolidates with another corporation, or merges another corporation into the Company and, as a result, less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation;

ii. Acquisition of Significant Share Ownership: a report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner(s) of 25% or more of a class of the Company’s voting securities, but this clause (ii) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns fifty percent (50%) or more of its outstanding voting securities;

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iii. Change in Board Composition: during any period of two consecutive years, individuals who constitute the Company’s or the Bank’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s or the Bank’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least three-fourths (¾) of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period; or

iv. Sale of Assets: The Company sells to a third party all or substantially all of its assets.

b. If, within the period beginning six (6) months prior to and ending two (2) years after a Change in Control, the Bank shall terminate the Officer’s employment Without Just Cause, the Bank shall, within thirty (30) calendar days of the Officer’s termination of employment, make a lump-sum cash payment to the Officer in an amount equal to two times the Officer’s highest annual rate of base salary during the two (2) year period preceding the effective date of the Change in Control. This cash payment shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period.

13.Indemnification and Liability Insurance.

a. Indemnification. The Bank agrees to indemnify the Officer (and the Officer’s heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations, against any and all expenses and liabilities reasonably incurred by the Officer in connection with or arising out of any action, suit, or proceeding in which the Officer may be involved by reason of having been a director or Officer of the Bank or any of its subsidiaries or affiliates (whether or not the Officer continues to be a director or Officer at the time of incurring any such expenses or liabilities). Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs, attorneys’ fees and the costs of reasonable settlements, such settlements to be approved by the Board, if such action is brought against the Officer in the Officer’s capacity as an officer or director of the Bank or any of its subsidiaries or affiliates. Indemnification for expenses shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification otherwise prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of the Officer is required under this Section 13, the Bank shall provide the Officer (and the Officer’s heirs, executors, and administrators) with coverage under a directors’ and officers’

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liability policy at the expense of the Bank, at least equivalent to the coverage provided to directors and senior officers of the Bank.

14.Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement, the Bank and the Officer agree that there is no adequate remedy at law for such breach, and further, that the Bank shall be entitled to injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under Section 12 of this Agreement.

15.Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor that acquires, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company or the Bank.

b. Since the Bank is contracting for the Officer’s unique and personal skills, the Officer shall be precluded from assigning or delegating any rights or duties hereunder without first obtaining the written consent of the Bank.

16.No Mitigation. The Officer shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking new employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment.

17.Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch office of the United States Postal Service, by registered or certified mail, postage prepaid, addressed to the Bank at its principal business office and to the Officer at the Officer’s home address as maintained in the records of the Bank.

18.Joint and Several Liability; Payments by the Company and the Bank. To the extent permitted by law, the Company shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank’s obligations hereunder, provided, however, that the Company shall not be required by this Agreement to pay the Officer a base salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill its obligations to the Officer for such payments.

19.No Plan Created by this Agreement. The Officer and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provisions of this Agreement are intended to, or shall be deemed to, create any “plan” for purposes of the Employee Retirement Income Security Act of 1974 (ERISA) or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or

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administrative filing, hearing, or process that such a plan was created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

20.Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as otherwise specifically provided for herein.

21.Applicable Law. Except to the extent preempted by federal law, the laws of the State of New Jersey shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

22.Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the remaining provisions hereof.

23.Headings. Headings contained herein are for convenience of reference only.

24.Entire Agreement. This Agreement, together with any understandings or modifications agreed to in writing by the parties, shall constitute the entire agreement among the parties with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6. This agreement supercedes and replaces in its entirety any previous employment agreements between or among the Bank, the Company and the Officer.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.

Attest:	YARDVILLE NATIONAL BANK
	By:	/s/F. Kevin Tylus
/s/Kathleen Fone	Title:	SEVP & Chief Operating Officer
Witness
	YARDVILLE NATIONAL BANCORP
	By:	/s/F. Kevin Tylus
/s/Kathleen Fone	Title:	President
Witness
/s/Kathleen Fone		/s/Edward J. Dietzler
Witness		Edward J. Dietzler
		First Senior Vice President

EX-10.11

EXHIBIT 10.11

EMPLOYMENT AGREEMENT

FOR FIRST SENIOR VICE PRESIDENTS

THIS AGREEMENT (the “Agreement”), made this 3rd day of November, 2006, by and between YARDVILLE NATIONAL BANK (the “Bank”) and Patrick L. Ryan (the “Officer”). References to “the Company” herein shall refer to YARDVILLE NATIONAL BANCORP, a New Jersey corporation (the “Company”) and the holding company for the Bank.

W I T N E S S E T H

WHEREAS, the Bank desires to retain the services of the Officer as an employee of the Bank; and

WHEREAS, the Officer and the Bank (desire to enter into an employment agreement setting forth the terms and conditions of the continuing employment of the Officer and the related rights and obligations of the parties.

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereby agree as follows:

1.Employment. The Bank shall employ the Officer as a First Senior Vice President/Market Manager of the Bank. The Officer shall render such administrative and management services as are customarily provided by persons employed in similar officer capacities and shall have such other powers and duties as the Chief Executive Officer or the Board may prescribe from time to time.

2.Location and Facilities. The Bank will furnish the Officer with the working facilities and staff customary for officers with the title and duties set forth in Section 1 and as are necessary for the performance of the Officer’s duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices.

3.Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the first anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

b. On each anniversary date of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended automatically for an additional one (1) year period without action by any party provided, however, that neither the Bank nor the Officer shall have given written notice at least sixty (60)

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days prior to such anniversary date of their election not to extend the term of the Agreement.

4.Base Compensation.

a. The Bank agrees to pay the Officer during the term of this Agreement a base salary at the rate of $152,000.00 per year, payable in accordance with customary payroll practices.

b. The Executive Management Committee of the Bank shall review annually the rate of the Officer’s base salary based upon factors they deem relevant, and may maintain, increase or decrease the Officer’s base salary.

c. In the absence of action by the Executive Management Committee, the Officer shall continue to receive base salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Executive Management Committee under the provisions of this Section 4.

5.Bonuses. Officer shall be entitled to participate in any discretionary bonuses or other incentive compensation programs that may be awarded from time to time to senior management employees, pursuant to bonus plans or otherwise.

6.Benefit Plans. The Officer shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, and retirement plans, stock compensation plans and other benefit programs and arrangements as may be approved from time to time for the benefit of Bank employees.

7.Vacation and Leave.

a. The Officer may take vacations and other leave in accordance with Bank policy for senior officers, or otherwise as approved by the Board.

b. In addition to paid vacations and other leave, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his duties for such additional periods of time and for such valid and legitimate reasons as the Bank may determine in its discretion. Further, the Bank may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Bank, in its discretion, may determine.

8.Expense Payment and Reimbursements. The Officer shall be reimbursed for all reasonable out-of-pocket business expenses incurred in connection with services performed under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank.

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9.This Section 9 has been intentionally left blank.

10.Loyalty and Confidentiality.

a. During the term of this Agreement: (i) the Officer shall devote the requisite time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, unfavorably affect the performance of the Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) the Officer shall not engage in any business or activity contrary to the business affairs or interests of the Bank or any of its subsidiaries or affiliates.

b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that of the Bank or any of its subsidiaries or affiliates, or, solely as a passive, minority investor, in any business.

c. The Officer agrees to maintain the confidentiality of any and all information concerning the operations or financial status of the Bank; the names or addresses of any borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Bank to which the Officer may be exposed during the course of the Officer’s employment with the Bank. The Officer further agrees that, unless required by law or specifically permitted by the Board in writing, the Officer will not disclose to any person or entity, either during or subsequent to employment with the Bank, any of the above-mentioned information which is not generally known to the public, nor shall the Officer employ such information in any way other than for the benefit of the Bank or any of its subsidiaries or affiliates.

11.Termination and Termination Pay. Subject to Section 12 of this Agreement, the Officer’s employment under this Agreement may be terminated in the following circumstances:

a. Death. The Officer’s employment under this Agreement shall terminate upon the Officer’s death during the term of this Agreement, in which event the Officer’s estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month of death.

b. Retirement. Notwithstanding anything in this Agreement to the contrary, this Agreement shall terminate upon the Officer’s retirement and will be subject to any retirement benefit plan or plans provided for under Section 6 of this Agreement or otherwise.

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c.Disability.

i. The Bank or the Officer may terminate the Officer’s employment after having established the Officer’s Disability. For purposes of this Agreement, “Disability” means the Officer’s suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Officer, or by the Social Security Administration, to be a disability rendering the Officer totally and permanently disabled. The Bank shall determine in good faith whether or not the Officer is disabled for purposes of this Agreement. As a condition to any benefits, the Bank may require the Officer to submit proof of the carrier’s or the Social Security Administration’s determination of disability.

ii. In the event of such Disability, the Officer’s obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall continue to receive one-hundred percent (100%) of the Officer’s monthly base salary (at the annual rate in effect on the date of termination) through the earlier of the date of the Officer’s death, the date the Officer attains age 65 or the date which is six (6) months after the Officer’s termination date. Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to the Officer under any other disability program sponsored by the Bank.

iii. In addition, during any period of Disability for which the Officer is receiving payments under this Section 11(c), the Officer and the Officer’s dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) under which the Officer participated prior to the Disability, on the same terms as if the Officer were actively employed through the earlier of the date of the Officer’s death, the date the Officer attains age 65 or the date which is six (6) months after the Officer’s termination date.

d.Just Cause.

i. The Bank may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate the Officer’s employment with the Company or the Bank, respectively, at any time, for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause, except for previously vested benefits. Termination for “Just Cause” shall mean termination because of, in the good faith determination of the Bank, the Officer’s:

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(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or

(7) Material breach of any provision of this Agreement.

e. Voluntary Termination by the Officer. In addition to the Officer’s other rights to terminate employment under the Agreement, the Officer may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Bank, in which case the Officer shall receive only compensation, vested rights and employee benefits up to the date of termination.

f.Without Just Cause.

i. In addition to termination pursuant to Sections 11(a) through 11(e), the Bank may, by means of written notice, immediately terminate the Officer’s employment at any time for a reason other than Just Cause (a termination “Without Just Cause”).

ii. Subject to Section 12 hereof, in the event of termination under this Section 11(f), the Officer shall be entitled to receive the annual base salary that would have been paid for the remaining term of the Agreement, including any renewals or extensions thereof, determined by reference to the highest annual rate of base salary in effect pursuant to Section 4 of this Agreement in any of the twelve (12) months immediately preceding the Officer’s termination date. The sum due under this Section 11(f) shall be paid in one lump sum within thirty (30) calendar days of the Officer’s termination.

iii. Notwithstanding the foregoing, a reduction in base salary or a reduction or elimination of the Officer’s participation in or benefits under one or more benefit plans that occurs as part of a good faith, overall reduction in salary

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or a reduction or elimination of plans or benefits provided thereunder, provided such reduction or elimination applies to all participants in a non-discriminatory manner (except as such discrimination may be necessary to comply with law), shall not constitute a material breach of this Agreement, provided that benefits of the same type or to the same general extent as those offered under the plan prior to reduction or elimination are not available to other officers of the Bank or its affiliates, or any company that controls either of them, under a plan or plans under which the Officer is not entitled to participate.

iv.Notwithstanding anything in this Agreement to the contrary, during the six (6) month period beginning on the effective date of a Change in Control (as defined in Section 12(a)), the Officer may voluntarily terminate employment under this Agreement for any reason and such termination shall constitute termination Without Just Cause.

In that event, the Officer shall be entitled to the Change in Control payment (that is, the lump-sum cash payment equal to two (2) times the Officer’s highest annual rate of base salary during the two (2) year period prior to the effective date of the Change In Control, required under Section 12 (b) herein.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or the Officer pursuant to Section 11(f) and continuing until the six (6) month anniversary of the effective date of such termination, (i) the Officer’s obligations under Section 10(c) of this Agreement will continue in effect; and (ii) the Officer shall not interfere with the relationship between the Bank and any of its employees, agents, customers or representatives.

12.Termination in Connection with a Change in Control.

a.“Change in Control”means any one of the following events occurs:

i. Merger: the Company merges into or consolidates with another corporation, or merges another corporation into the Company and, as a result, less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation;

ii. Acquisition of Significant Share Ownership: a report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in

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concert has or have become the beneficial owner(s) of 25% or more of a class of the Company’s voting securities, but this clause (ii) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns fifty percent (50%) or more of its outstanding voting securities;

iii. Change in Board Composition: during any period of two consecutive years, individuals who constitute the Company’s or the Bank’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s or the Bank’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least three-fourths (¾) of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period; or

iv. Sale of Assets: The Company sells to a third party all or substantially all of its assets.

b. If, within the period beginning six (6) months prior to and ending two (2) years after a Change in Control, the Bank shall terminate the Officer’s employment Without Just Cause, the Bank shall, within thirty (30) calendar days of the Officer’s termination of employment, make a lump-sum cash payment to the Officer in an amount equal to two times the Officer’s highest annual rate of base salary during the two (2) year period preceding the effective date of the Change in Control. This cash payment shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period.

13.Indemnification and Liability Insurance.

a. Indemnification. The Bank agrees to indemnify the Officer (and the Officer’s heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations, against any and all expenses and liabilities reasonably incurred by the Officer in connection with or arising out of any action, suit, or proceeding in which the Officer may be involved by reason of having been a director or Officer of the Bank or any of its subsidiaries or affiliates (whether or not the Officer continues to be a director or Officer at the time of incurring any such expenses or liabilities). Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs, attorneys’ fees and the costs of reasonable settlements, such settlements to be approved by the Board, if such action is brought against the Officer in the Officer’s capacity as an officer or director of the Bank or any of its subsidiaries or affiliates. Indemnification for expenses shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification otherwise prohibited by applicable law or

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regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of the Officer is required under this Section 13, the Bank shall provide the Officer (and the Officer’s heirs, executors, and administrators) with coverage under a directors’ and officers’ liability policy at the expense of the Bank, at least equivalent to the coverage provided to directors and senior officers of the Bank.

14.Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement, the Bank and the Officer agree that there is no adequate remedy at law for such breach, and further, that the Bank shall be entitled to injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under Section 12 of this Agreement.

15.Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor that acquires, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company or the Bank.

b. Since the Bank is contracting for the Officer’s unique and personal skills, the Officer shall be precluded from assigning or delegating any rights or duties hereunder without first obtaining the written consent of the Bank.

16.No Mitigation. The Officer shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking new employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment.

17.Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch office of the United States Postal Service, by registered or certified mail, postage prepaid, addressed to the Bank at its principal business office and to the Officer at the Officer’s home address as maintained in the records of the Bank.

18.Joint and Several Liability; Payments by the Company and the Bank. To the extent permitted by law, the Company shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank’s obligations hereunder, provided, however, that the Company shall not be required by this

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Agreement to pay the Officer a base salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill its obligations to the Officer for such payments.

19.No Plan Created by this Agreement. The Officer and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provisions of this Agreement are intended to, or shall be deemed to, create any “plan” for purposes of the Employee Retirement Income Security Act of 1974 (ERISA) or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

20.Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as otherwise specifically provided for herein.

21.Applicable Law. Except to the extent preempted by federal law, the laws of the State of New Jersey shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

22.Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the remaining provisions hereof.

23.Headings. Headings contained herein are for convenience of reference only.

24.Entire Agreement. This Agreement, together with any understandings or modifications agreed to in writing by the parties, shall constitute the entire agreement among the parties with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6. This agreement supercedes and replaces in its entirety any previous employment agreements between or among the Bank, the Company and the Officer.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.

Attest:	YARDVILLE NATIONAL BANK
	By:	/s/F. Kevin Tylus
/s/Kathleen Fone	Title:	President & Chief Operating Officer
Witness
	YARDVILLE NATIONAL BANCORP
	By:	/s/F. Kevin Tylus
/s/Peter Cahill	Title:	President
Witness
/s/Fay Horrocks		/s/Patrick L. Ryan
Witness		Patrick L. Ryan
		First Senior Vice President

EX-10.18

EXHIBIT 10.18

THIRD AMENDMENT TO THE

SECOND AMENDED AND RESTATED

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

WHEREAS, the Yardville National Bank (the “Bank”) maintains the Second Amended and Restated Supplemental Executive Retirement Plan (the “SERP”) for the benefit of certain senior officers;

WHEREAS, the Board of Directors of the Bank has the authority to amend the SERP pursuant to Article 9 therein;

WHEREAS, the Board of Directors has determined that it is appropriate to make certain changes to the SERP’s provisions for determining Normal Retirement Benefits, as set forth in Section 3.1 of the SERP.

NOW, THEREFORE, effective as of October 25, 2006 and retroactively applicable to any Participant who has already reached his or her Normal Retirement Date, the SERP is hereby amended to provide for the following:

1. Section 3.1 of the SERP is revised in its entirety to read as follows:

“Normal Retirement Benefit. Except as provided in Section 6.2, upon retirement from the Company at his or her Normal Retirement Date, a Participant shall be entitled to receive an annual retirement benefit equal to his or her Target Benefit. Except as provided in Section 6.2, upon retirement from the Company after his or her Normal Retirement Date, a Participant shall be entitled to receive an annual retirement benefit equal to his or her Target Benefit determined as of his or her Normal Retirement Date and adjusted for interest from the Participant’s Normal Retirement Date to the date the Participant’s employment terminates at a rate of five percent (5%), compounded annually.”

2.Section 3.2(b) of the SERP is revised in its entirety to read as follows:

“Time of Payment. Installment payments shall be made in equal amounts on a monthly basis commencing on the Normal Retirement Date or the actual date of retirement if the Participant defers his retirement beyond the Normal Retirement Date. A lump sum payment, if elected, shall be paid within 90 days following the Participant’s termination of employment. The Company may withhold from any payment any income tax or other amounts as required by law.”

3. The SERP, as amended by the foregoing changes, is hereby amended and confirmed in all respects.

EX-10.22

EXHIBIT 10.22

Yardville National Bank

Employee Stock Ownership Plan

Effective January 1, 2007

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Yardville National Bank

Employee Stock Ownership Plan

Table of Contents

	Page
ARTICLE I	2
DEFINITIONS	2
“Account”	2
“ESOP Stock Account”	2
“ESOP Cash Account”	2
“Account Balance”	2
“Acquisition Loan”	2
“Administrator”	3
“Affiliated Company”	3
“Alternate Payee”	3
“Benefits Committee”	3
“Board of Directors”	3
“Break in Service”	4
“Code”	4
“Company”	4
“Compensation”	5
“Covered Employee”	5
“Credited Service”	5
“Direct Rollover”	6
“Distributee”	6
“Effective Date”	6
“Election Period”	6
“Eligible Employee”	6
“Eligible Retirement Plan”	7
“Eligible Rollover Distribution”	7
“Employee”	7
“Entry Date”	7
“ERISA”	7
“ESOP Stock”	8
“Financed Shares”	8
“Hour of Service”	8
“Leased Employee”	9
“Limitation Year”	9
“Loan Suspense Account”	9
“Normal Retirement Date”	9
“Participant”	9
“Participating Company”	9
“Plan”	9

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“Plan Year”	9
“Qualified Domestic Relations Order”	9
“Qualified Participant”	10
“Required Beginning Date”	10
“Spouse”	10
“Total Disability”	10
“Trust”	10
“Trust Agreement”	10
“Trust Investment Committee”	10
“Trustee”	10
“Valuation Date”	10

ARTICLE II
PARTICIPATION		12
2.1	Participation	12
2.2	Participation Not Guarantee of Employment	13
2.3	Beneficiary Designation	13
2.4	Participation After Reemployment	13
2.5	Data	14
2.6	Credit for Military Service	14
ARTICLE III
PLAN CONTRIBUTIONS		15
3.1	Participating Company Contributions	15
3.2	Participant Contributions	15
3.3	Trust	15
3.4	Timing of Contributions	16
ARTICLE IV
ALLOCATION OF PARTICIPATING COMPANY
CONTRIBUTIONS AND FORFEITURES		17
4.1	Allocation	17
4.2	Maximum Allocation	17
ARTICLE V
PARTICIPANTS’ ACCOUNTS		19
5.1	Separate Accounting	19
5.2	Investment of Trust	19
5.3	Valuation	20
5.4	Adjustment of Accounts	20
5.5	Accounting for Allocations.	22
5.6	Restricted Assets	22
5.7	Participant Statements	22
5.8	Registration of Securities.	22
5.9	Voting Of Employer Stock	23

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5.10	Tender or Exchange Offer	24
5.11	Acquisition Loans	24
5.12	Restrictions on Allocations	26
5.13	Dividends on ESOP Stock	27
ARTICLE VI
VESTING AND DISTRIBUTION OF ACCOUNT BALANCES		29
6.1	Retirement or Total Disability	29
6.2	Death	29
6.3	Termination of Employment other than as a Result of Death, Retirement or Total Disability.	29
6.4	Forfeitures and Restoration of Forfeited Amounts upon Reemployment	30
6.5	Mode of Distribution	31
6.6	Pre-Retirement Diversification Rights	33
6.7	Timing of Benefit Distributions	34
6.8	Valuation for Distribution	37
6.9	Direct Rollover	38
6.10	Minimum Distribution Requirements On or After January 1, 2003	38
ARTICLE VII
DEATH BENEFITS		45
7.1	Beneficiary	45
7.2	Form of Payment	45
ARTICLE VIII
MANAGEMENT OF FUNDS		46
8.1	Designation of Trustee	46
8.2	Exclusive Benefit	46
8.3	No Interest in Trust	46
8.4	Trust Investment Committee	46
ARTICLE IX
ADMINISTRATION		47
9.1	Administrator	47
9.2	Benefits Committee	47
9.3	Ministerial Functions	47
9.4	Duties and Powers of Benefits Committee	47
9.5	Functioning of Benefits Committee	48
9.6	Disputes	48
9.7	Indemnification	49
9.8	Expenses	50
ARTICLE X
AMENDMENT AND TERMINATION		51
10.1	Power of Amendment and Termination	51

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10.2	Merger	51
10.3	Change in Control.	52
ARTICLE XI
TOP-HEAVY PROVISIONS			53
11.1	General.		53
11.2	Definitions		53
11.3	Minimum Contribution for Non-Key Employees		56
11.4	Change in Vesting Schedule		58
11.5	Social Security		58
11.6	Adjustment to Maximum Allocation Limitation		58
11.7	Modification of Top-Heavy Rules		59
ARTICLE XII
RIGHTS OF ALTERNATE PAYEES			61
12.1	General		61
12.2	Death Benefits		61
ARTICLE XIII
GENERAL PROVISIONS			62
13.1	Source of Benefits		62
13.2	Alienation of Benefits		62
13.3	Facility of Payment		62
13.4	Interest and Dividends on Distributions		62
13.5	Applicable Law		62
Schedule A
Participating Companies			A-1
Schedule B
Trust Investment Committee Charter			B-1

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ARTICLE I

DEFINITIONS

Except where otherwise clearly indicated by context, the masculine pronoun shall include the feminine and the singular shall include the plural, and vice versa. Any term used in the Plan without an initial capital letter that is used in a provision of the Code with which this Plan must comply to meet the requirements of section 401(a) of the Code shall be interpreted as having the meaning used in such provision of the Code, if necessary for the Plan to comply with such provision.

“Account” means the entries maintained in the records of the Trustees which represent the Participant’s interest in the Trust. The term “Account” shall refer, as the context requires, to any or all of the following:

“ESOP Stock Account”— the Account to which is credited ESOP Stock allocated to a Participant under the Plan attributable to Company contributions, as adjusted for distributions, earnings, losses and expenses attributable thereto, to the extent held in the form of ESOP Stock.

“ESOP Cash Account”— the Account to which are credited Company contributions allocated to a Participant under the Plan, as adjusted for distributions, earnings, losses and expenses attributable thereto, to the extent held in any form other than ESOP Stock.

“Account Balance” means, for each Participant, the aggregate credit standing to his Account.

“Acquisition Loan” means a loan or other extension of credit used by the Trustee to finance the acquisition of ESOP Stock, as set forth in Section 5.11.

“Administrator” means the Company.

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“Affiliated Company” means (a) any subsidiaries of the Company (or companies under common control with the Company) which are members of the same controlled group of corporations as the Company, as determined under section 414(b) of the Code; (b) any member of an affiliated service group, as determined under section 414(m) of the Code, of which the Company is a member; and (c) any trades or businesses under common control with the Company, as determined under section 414(c) of the Code. “50% Affiliated Company” means an Affiliated Company described in (a) or (c) above, but applied as if the phrase “more than 50%” were substituted for the phrase “at least 80%” each time it appears in section 1563(a) of the Code.

“Alternate Payee” means any Spouse, former Spouse, child or other dependent of a Participant who is recognized by a domestic relations order (within the meaning of section 414(p)(1)(B) of the Code) as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant.

“Benefits Committee” means the person or persons appointed by the Board of Directors to supervise the administration of the Plan pursuant to Article IX.

“Board of Directors” means the board of directors of the Company.

“Break in Service” means any Plan Year during which an Employee receives credit for not more than 500 Hours of Service. Notwithstanding the foregoing, if an Employee is absent from work by reason of pregnancy, childbirth, or adoption, or for purposes of the care of such Employee’s child immediately after birth or adoption, such Employee shall be credited, solely for purposes of this Section, with the Hours of Service which otherwise would have been credited to such individual for such absence or, if such hours cannot be determined, at the rate of eight hours per normal workday, except that the total number of hours counted as Hours of

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service for this purpose will not exceed 501. The hours described in this Section shall be treated as Hours of Service:

(a)only in the Plan Year in which the absence from work begins, if an Employee would be prevented from incurring a Break in Service in such Plan Year solely because the period of absence is treated as Hours of Service under this Section; or

(b)in any other case, in the immediately following Plan Year.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” means Yardville National Bank, and its successors.

“Compensation”

(a)In General. Except as otherwise provided in this definition, the term ‘Compensation’ means an Employee’s base pay for each calendar year ending with or within a Plan Year and which is includible in the Employee’s gross income for federal income tax purposes. The term ‘Compensation’ shall include amounts deferred or contributed under a salary reduction agreement with a Participating Company and excludible from gross income for federal income tax purposes pursuant to section 125 or 402(g) of the Code, and all compensation reductions to which the Participant has consented for the purpose of providing “qualified transportation fringe benefits” under section 132(f)(4) of the Code. Amounts excludible from gross income for federal income tax purposes pursuant to section 125 of the Code include any amounts not available to an Employee in cash in lieu of group health coverage because the Employee is unable to certify that he or she has other health coverage. An amount will be treated as an amount deferred or contributed under Code section 125 only if the Participating Company does not request or collect information regarding the Employee’s other health coverage as part of the enrollment process for the health plan. Except as otherwise provided

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above with respect to amounts excludible from gross income under section 402(g) of the Code, the term ‘Compensation’ shall not include contributions to this Plan or any other contributions by or on behalf of the Employee to any other plan of deferred compensation.

(b)Statutory Limit on Compensation. For Plan years beginning on and after January 1, 2007, only the first $225,000 of a Participant’s Compensation, as adjusted for cost-of-living increases in accordance with section 401(a)(17) of the Code, will be considered for any purpose of the Plan.

“Covered Employee” means any Employee who is employed by a Participating Company other than:

(a) an Employee who is covered by a collective bargaining agreement, unless such agreement specifically provides for participation hereunder;

(b)an individual who is an Employee solely by reason of being a Leased Employee; or

(c)beginning January 31, 2007, an Employee who is employed by the Company with a title which includes executive vice president, or any other title considered to be senior to the title of executive vice president.

“Credited Service” means that portion of an Employee’s employment with the Company and all Affiliated Companies which is used to calculate the Employee’s vesting status hereunder. An Employee shall earn one year of Credited Service for each Plan Year beginning on or after the Effective Date during which he is credited with 1000 Hours of Service.

“Direct Rollover” means a payment by the Plan to an Eligible Retirement Plan specified by the Distributee.

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“Distributee” means a Participant or a Participant’s surviving spouse or Alternate Payee.

“Effective Date” means January 1, 2007.

“Election Period” means, with respect to any Participant, the 90-day period immediately following the end of (1) the Plan Year in which such Participant becomes a Qualified Participant and (2) each of the five succeeding Plan Years.

“Eligible Employee” means an Employee who has become an Eligible Employee as set forth in Article II, whether or not he is a Participant, and who has remained a Covered Employee at all times thereafter.

“Eligible Retirement Plan” means:

(a) an individual retirement account described in section 408(a) of the Code;

(b) an individual retirement annuity described in section 408(b) of the Code;

(c) a qualified trust described in section 401(a) of the Code; and

(d) an annuity plan described in section 403(a) of the Code.

Paragraphs (c) and (d) shall not apply if the distributee of an Eligible Rollover Distribution is the Participant’s surviving spouse.

Notwithstanding the foregoing, for distributions made after December 31, 2001, an Eligible Retirement Plan shall also mean an annuity contract described in section 403(b) of the Code and an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such

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plan from this Plan. The definition of Eligible Retirement Plan, including paragraphs (c) and (d), shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in section 414(p) of the Code.

“Eligible Rollover Distribution” means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code section 401(a)(9); and any hardship distribution described in Code section 401(k)(2)(B)(i)(IV).

“Employee” means any individual employed by the Company or any Affiliated Company, including officers, shareholders or directors who are employees. An individual who is not otherwise employed by the Company or an Affiliated Company shall be deemed to be an Employee of the Company if he is a Leased Employee with respect to the Company or an Affiliated Company.

“Entry Date” means January 1st or July 1st.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ESOP Stock” means the common stock of Yardville National Bancorp, par value $.01 per share, or such other security that meets the requirements of section 409(l) of the Code.

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“Financed Shares” means shares of ESOP Stock acquired by the Trustee with the proceeds of an Acquisition Loan.

“Hour of Service” means an hour for which:

(a)an Employee is directly or indirectly paid or entitled to payment by the Company or an Affiliated Company for the performance of employment duties;

(b)an Employee is entitled, either by award or agreement, to back pay from the Company or an Affiliated Company, irrespective of mitigation of damages;

(c)an Employee is directly or indirectly paid or entitled to payment by the Company or an Affiliated Company on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.

There shall be excluded from the foregoing those periods during which payments are made or due under a plan maintained solely for the purpose of complying with applicable workers’ compensation, unemployment compensation, or disability insurance laws. No more than 501 Hours of Service shall be credited under Subsection (c) on account of any single continuous period during which no duties are performed, except to the extent otherwise provided in this Plan. An Hour of Service shall not be credited where an Employee is being reimbursed solely for medical or medically-related expenses.

Hours of Service shall be credited in accordance with the rules set forth in U.S. Department of Labor Reg. § 2530.200b-2(b) and (c).

“Leased Employee” means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person (“leasing organization”) has performed services for the recipient (or for the recipient and related persons

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determined in accordance with Code section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed by such persons under the primary direction and control of the recipient.

“Limitation Year” means the Plan Year.

“Loan Suspense Account” means an account established to hold Financed Shares pending repayment of the Acquisition Loan used to purchase such Financed Shares.

“Normal Retirement Date” means a Participant’s 65th birthday.

“Participant” means an individual for whom an Account is maintained under the Plan.

“Participating Company” means the Company and each of the Affiliated Companies listed on Schedule A that, with the consent of the Board of Directors, adopts the Plan for the benefit of its Eligible Employees.

“Plan” means the Yardville National Bank Employee Stock Ownership Plan as set forth in this plan document and the Trust Agreements, and, as it may be amended from time to time.

“Plan Year” means the 12-consecutive-month period extending from January 1st and ending December 31st.

“Qualified Domestic Relations Order” means a domestic relations order (within the meaning of section 414(p)(1)(B) of the Code) which creates or recognizes the existence of an Alternate Payee’s rights to, or assigns to an Alternate Payee the right to receive all or a portion of the benefits payable with respect to a Participant under the Plan, and is determined by the Benefits Committee to satisfy the requirements of section 414(p) of the Code.

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“Qualified Participant” means a Participant who has attained age 55 and who has completed 10 years of participation in the Plan.

“Required Beginning Date” means the earlier of the dates determined under (a) or (b) where:

(a)is the later of (1) the 60th day after the close of the Plan Year in which the Participant reaches Normal Retirement Date, or (2) the 60th day after the close of the Plan Year in which the Participant terminates employment with the Company and all Affiliated Companies; and

(b)is April 1st of the calendar year following the later of (1) the calendar year in which the Participant reaches age 70½, or (2) the calendar year in which the Participant terminates employment with the Company and all Affiliated Companies; provided, however, that clause (2) shall not apply with respect to a Participant who is a 5-percent owner (as defined in section 416(i)(1)(B)(i) of the Code) of the Company or any Affiliated Company.

“Spouse” means the person to whom a Participant is married as of the date of reference.

“Total Disability” means a physical or mental condition of such severity and probable prolonged duration as to entitle the Participant to disability retirement benefits under the Federal Social Security Act.

“Trust” means the fund established for this Plan, administered under the Trust Agreement and out of which benefits payable under this Plan will be paid.

“Trust Agreement” means any agreement and declaration of trust executed under this Plan.

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“Trust Investment Committee” means the person or persons appointed by the Board of Directors to exercise the responsibilities assigned to such Committee under the Plan and Trust Agreement. The operation of the Trust Investment Committee shall be governed by the Charter attached as Schedule B and incorporated herein by reference.

“Trustee” means the corporate trustee(s) and/or any group of one or more individuals collectively appointed by the Board of Directors, to act as trustee, pursuant to the terms of the Plan and Trust Agreement.

“Valuation Date” means the last day of each Plan Year and each interim date on which the Trust Investment Committee determines that a valuation of the Trust shall be made.

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ARTICLE II

PARTICIPATION

2.1Participation.

2.1.1Each Covered Employee as of the Effective Date who has reached the first anniversary of his employment with a Participating Company as of the Effective Date shall become an Eligible Employee as of the Effective Date. Each other Covered Employee shall become an Eligible Employee on the Entry Date next following nearest the first anniversary of his commencement of employment with the Company, provided he is a Covered Employee as of such Entry Date.

2.1.2If an individual is not a Covered Employee as of the Entry Date or next following the first anniversary of his commencement of employment with the Company, he shall become an Eligible Employee as of the next following Entry Date on which he is a Covered Employee.

2.1.3Except as otherwise provided in this Section 2.1.3, an Eligible Employee shall share in contributions and forfeitures under Section 4.1 for a Plan Year only if he receives Compensation, is credited with 1,000 or more Hours of Service for such Plan Year and is a Covered Employee on the last day of such Plan Year. An Eligible Employee who is not a Covered Employee on the last day of a Plan Year solely on account of layoff, leave of absence approved in writing in advance by the Participating Company, military leave to the extent that his right to rehire is protected by law, or transfer approved by the Company to any Affiliated Company that is not a Participating Company shall share in contributions and forfeitures under Section 4.1 for such Plan Year only if he receives Compensation and is credited with 1,000 or more Hours of Service for such Plan Year. Notwithstanding the foregoing, an Eligible Employee who is not a Covered Employee on the last day of a Plan Year solely on account of death, Total

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Disability or termination of employment on or after Normal Retirement Date during such Plan Year shall share in contributions and forfeitures under Section 4.1 without regard to whether he is credited with 1,000 or more Hours of Service for such Plan Year.

2.2Participation Not Guarantee of Employment. Participation in the Plan does not constitute a guarantee or contract of employment and will not give any Employee the right to be retained in the employ of the Company or an Affiliated Company.

2.3Beneficiary Designation. Upon becoming a Participant in the Plan, an Employee may designate, in the manner specified by the Benefits Committee and in accordance with Section 7.1, a beneficiary or beneficiaries to whom his Account Balance shall be paid in the event of his death. A Participant may change his beneficiary designation at any time by written notice to the Benefits Committee in a form approved by the Benefits Committee.

2.4Participation After Reemployment.

2.4.1An individual who is a Participant, who terminates employment with the Company and all Affiliated Companies and is subsequently reemployed by a Participating Company as a Covered Employee shall again become an Eligible Employee as of his reemployment date, provided that such individual is so reemployed before incurring his fifth consecutive Break in Service.

2.4.2An individual who is a Participant, who terminates employment with the Company and all Affiliated Companies employment at a time when he has a nonforfeitable interest in his Account Balance and who is subsequently reemployed by a Participating Company as a Covered Employee shall again become an Eligible Employee as of his reemployment date, whether or not such individual is so reemployed before incurring his fifth consecutive Break in Service.

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2.4.3An individual who is a Participant, who terminates employment with the Company and all Affiliated Companies at a time when he has no nonforfeitable interest in his Account Balance under the Plan and who subsequently becomes an Employee after incurring five consecutive Breaks in Service shall be treated as a new Employee for purposes of determining his eligibility to participate and of calculating Credited Service under the Plan.

2.5Data. Each Employee shall furnish to the Benefits Committee such data as the Benefits Committee may consider necessary for the determination of the Employee’s rights and benefits under the Plan and shall otherwise cooperate fully with the Benefits Committee in the administration of the Plan.

2.6Credit for Military Service. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with section 414(u) of the Code.

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ARTICLE III

PLAN CONTRIBUTIONS

3.1Participating Company Contributions. Subject to the conditions and limitations of the Plan, for each Plan Year the Company (or such other Participating Companies as the Board of Directors shall designate) shall contribute to the Trust cash equal to, or ESOP Stock having an aggregate fair market value equal to, such amount, if any, as the Board of Directors shall determine by resolution; provided, however, that the contribution for any Plan Year shall not exceed the lesser of the maximum amount deductible by the Company for Federal income tax purposes, or the maximum amount which may be credited that year in accordance with the contribution limitation provisions of Section 4.2. To the extent provided in an Acquisition Loan between the Company and the Trust pursuant to which the Company lends to the Trust amounts attributable to the proceeds of a loan between the Company and an unrelated third-party lender and intended for the acquisition of ESOP Stock by the Trust, the Company’s payment of principal and interest pursuant to such loan shall be treated as the contribution of cash to the Trust pursuant to this Section 3.1, and the repayment of such Acquisition Loan as described in Section 5.11.2.

3.2Participant Contributions. No Participant shall be required or permitted to make any contributions to the Plan.

3.3Trust.

3.3.1The contributions deposited in the Trust in accordance with this Article shall constitute a fund held for the benefit of Participants and their eligible beneficiaries under and in accordance with this Plan. No part of the principal or income of the Trust shall be used for, or diverted to, any purpose other than the exclusive benefit of such Participants and their eligible beneficiaries (including necessary administrative costs); provided that in the case of

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a contribution made (1) as a mistake of fact, (2) for which a tax deduction is disallowed, in whole or in part, by the Internal Revenue Service, or (3) which is conditioned upon the initial qualification of the Plan under section 401(a) of the Code, if the Plan is the subject of an adverse determination with respect to its initial qualification, the Participating Company that made such contribution shall be entitled to its refund.

3.3.2Any refund of contributions described in Section 3.3.1 must be made within one year (1) after payment of a contribution made as a mistake of fact, (2) after disallowance of the tax deduction, to the extent of such disallowance, or (3) of the date on which the initial qualification of the Plan is denied by the Internal Revenue Service, but only if the application for determination is made by the time prescribed by law for filing the Company’s federal income tax return for the taxable year in which the Plan is adopted or such later date as may be permitted by applicable Treasury Regulation or other applicable administrative pronouncements, as the case may be.

3.4Timing of Contributions. Participating Company contributions for any Plan Year under this Article shall be made no later than the last date on which amounts so paid may be deducted for federal income tax purposes for the taxable year of the employer in which the Plan Year ends. All contributions hereunder are expressly conditioned upon their deductibility for federal income tax purposes.

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ARTICLE IV

ALLOCATION OF PARTICIPATING COMPANY

CONTRIBUTIONS AND FORFEITURES

4.1Allocation. Each Participating Company contribution, plus any forfeitures arising during the Plan Year and any amount held in suspense in accordance with Section 4.2.2, shall be allocated as of the last day of the Plan Year for which the contribution is made to the Account of each Eligible Employee who is entitled to share in such contribution under Section 2.1.3 in the proportion that his Compensation for that portion of the Plan Year during which he was an Eligible Employee bears to such Compensation of all such Eligible Employees for the Plan Year.

4.2Maximum Allocation.

4.2.1Notwithstanding anything in this Article to the contrary, in no event shall amounts allocated to a Participant’s Account under this Plan and any other defined contribution plan maintained by the Company or a 50% Affiliated Company exceed the limitations set forth in section 415 of the Code, which are hereby incorporated by reference into the Plan.

4.2.2If the amounts otherwise allocable to the Account of a Participant under this Plan and any other defined contribution plan maintained by the Company or a 50% Affiliated Company would exceed the limitation set forth in section 415(c) of the Code as a result of the reallocation of forfeitures, a reasonable error in estimating the Participant’s compensation or such other circumstances as permitted by law, the excess amount shall be held in a suspense account by the Trustee until the following Plan Year (or any succeeding Plan Years), at which time such amount shall be allocated in the manner described in Section 4.1 before any contributions by the Company may be made for such Plan Year. Amounts held in the suspense account shall share in investment gains and losses of the Trust.

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4.2.3Notwithstanding anything in this Plan to the contrary, the maximum allocation provisions of this Section shall be construed in accordance with the requirements of section 415 of the Code and the regulations promulgated thereunder.

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ARTICLE V

PARTICIPANTS’ ACCOUNTS

5.1Separate Accounting. Separate Accounts shall be maintained for each Participant. These Accounts shall represent the Participant’s individual interest in the Trust.

5.2Investment of Trust. Except as otherwise provided in Sections 6.6 and 5.4.4, the assets of the Trust shall be primarily invested in ESOP Stock. The Trustee shall invest contributions that are not applied to the payment of principal and interest on any Acquisition Loan in ESOP Stock, except that subject to the direction of the Trust Investment Committee, the Trustee shall be authorized to invest a portion of such contributions received in other securities as a reserve for the payment of administrative expenses and cash distributions. The Trustee shall be specifically authorized to invest in interest-bearing deposit accounts or certificates of deposit of any affiliate of the Trustee. The Trustee shall also be authorized to invest contributions not applied to the payment of principal and interest on any Acquisition Loan and income received on Plan assets in other securities pending investment in ESOP Stock or pending distribution to Participants. The Trustee shall be authorized to invest cash amounts held in Participants’ ESOP Cash Account, representing dividends previously paid with respect to shares of ESOP Stock allocated to Participants’ ESOP Stock Account, in ESOP Stock, which such ESOP Stock shall thereafter be held in the ESOP Stock Account of each such Participant. In accordance with the directions of the Trust Investment Committee, shares of ESOP Stock may be purchased from any Company shareholder or from the Company or an Affiliated Company. All purchases of ESOP Stock by the Trustee shall be made only as directed by the Trust Investment Committee. The Trust Investment Committee may direct the Trustee to sell shares of ESOP Stock to any person (including the Company or an Affiliated Company). Except as otherwise provided in Section

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6.6, the Trust Investment Committee may direct the Trustee to hold up to 100% of assets allocated to Participants’ Accounts in ESOP Stock.

5.3Valuation. The value of the Trust shall be computed by the Trustee as of the close of business of each Valuation Date on the basis of the fair market value of the assets of the Trust. All valuations of ESOP Stock shall be made in accordance with section 401(a)(28)(C) of the Code, section 3(18) of ERISA, and applicable regulations issued under such sections.

5.4Adjustment of Accounts. As of each Valuation Date, the following adjustments shall be made to each Participant’s Account, in the order described below.

5.4.1The Account of each Participant shall be charged with all distributions and payments made to him, or on his behalf, since the last preceding Valuation Date that have not been charged previously, including payments by the Trustee in accordance with Section 5.13 of cash dividends paid with respect to shares of ESOP Stock allocated to the Participant’s ESOP Stock Accounts.

5.4.2Any appreciation, depreciation, gains or losses experienced by the Trust shall be allocated among and correspondingly credited to or charged against each Participant’s ESOP Stock Accounts and ESOP Cash Accounts, respectively, in proportion to the balance in each of such Accounts as of such Valuation Date, after the application of Section 5.4.1.

5.4.3Any cash dividends paid by the Company with respect to Shares of ESOP Stock allocated to a Participant’s ESOP Stock Account which are not applied to the repayment of any Acquisition Loan shall be credited to the ESOP Cash Account of such Participant.

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5.4.4If dividends paid on shares of ESOP Stock that have not been allocated to Participants’ ESOP Stock Accounts are applied to the repayment of any Acquisition Loan, then shares will be released from the Loan Suspense Account as described in Section 5.11.3 and allocated to each Eligible Employee’s ESOP Stock Account as a Company contribution in accordance with Section 4.1.

5.4.5If dividends paid on shares of ESOP Stock that have been allocated to Participants’ ESOP Stock Accounts (regardless of whether such shares were acquired with the proceeds of an Acquisition Loan) are applied to the repayment of any Acquisition Loan, the shares thereby released from the Loan Suspense Account shall be allocated directly to the ESOP Stock Account of each Participant for whose benefit the dividends would otherwise have been allocated. If the fair market value of the shares so allocated to each Participant’s Account is less than the amount of the dividend that would otherwise have been allocated to such Account, then contributions and/or forfeitures will be allocated to such Participant’s Account until the total allocation made pursuant to this Section 5.4.5 is equal to the amount of the dividend that would otherwise have been allocated to such Account. Any allocation of ESOP Stock made under this Section 5.4.5 shall be made for the Plan Year in which the dividend would otherwise have been allocated.

5.4.6Contributions and forfeitures shall be allocated to each Eligible Employee’s Account in accordance with Section 4.1; provided, however, that to the extent that such contributions or forfeitures are applied to the repayment of any Acquisition Loan, then shares will be released from the Loan Suspense Account as described in Section 5.11.3 and allocated to each Eligible Employee’s ESOP Stock Account as a Company contribution in accordance with Section 4.1.

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5.4.7Each Participant’s ESOP Stock Account shall be credited with the shares of ESOP Stock, if any, that have been purchased with amounts from his corresponding ESOP Cash Account since the last preceding Valuation Date, and such ESOP Cash Account shall be charged with the amount of cash, or the value of such other Plan assets, if any, used to purchase such shares of ESOP Stock.

5.5Accounting for Allocations. The Benefits Committee shall establish or provide for the establishment of accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants’ Accounts. From time to time, such procedures may be modified for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan and the provisions of this Article.

5.6Restricted Assets. Financed Shares which are pledged as collateral for an Acquisition Loan as provided in Section 5.11 shall not be considered part of the Trust for purposes of determining the Trust’s income and appreciation or depreciation for a valuation period. Such Financed Shares shall be considered part of the Trust for such purposes only after they are released from the Loan Suspense Account and allocated to Accounts under Section 5.11.

5.7Participant Statements. Each Participant will be entitled to an annual statement showing the additions to and subtractions from his or her account since the last Valuation Date and the fair market value of his Account as of the current Valuation Date.

5.8Registration of Securities. If the Trustee invests any part of the Trust, pursuant to the directions of the Trust Investment Committee, in ESOP Stock and the Trust Investment Committee thereafter directs the Trustee to dispose of such investment, or any part thereof, under circumstances which, in the opinion of counsel for the Trustee, require registration

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of the securities under the Securities Act of 1933 or the registration or qualification of the securities under the Blue Sky laws or other laws of any state of states, the Company will take any and all such action as may be necessary or appropriate to effect such registration or qualification.

5.9Voting Of Employer Stock. The Trustee will vote shares of ESOP Stock in accordance with this Section 5.9.

5.9.1If the Company has a registration-type class of securities (as described in section 409(e)(4) of the Code), each Participant (or beneficiary of a deceased Participant) to whose account shares of ESOP Stock have been allocated will, as a named fiduciary (within the meaning of section 403(a)(2) of ERISA), have the right to direct the Trustee as to the voting of such ESOP Stock.

5.9.2If the Company does not have a registration-type class of securities (as described in section 409(e)(4) of the Code), the following voting procedure will apply:

5.9.2.1Each Participant (or beneficiary of a deceased Participant) to whose account shares of ESOP Stock have been allocated will, as a named fiduciary (within the meaning of section 403(a)(2) of ERISA), have the right to direct the Trustee as to the voting of such ESOP Stock with respect to any of the following corporate matters involving the Company or any Affiliated Company: (i) mergers or consolidations; (ii) recapitalizations; (iii) reclassifications; (iv) liquidations; (v) dissolutions; (vi) sales of substantially all assets of a trade or business; or (vii) such similar transactions as may be prescribed in Treasury Regulations.

5.9.2.2The Trust Investment Committee will, as a named fiduciary (within the meaning of section 403(a)(2) of ERISA), direct the Trustee as to the voting of all shares of ESOP Stock with respect to corporate matters not described in Section 5.9.2.1.

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5.9.3 Shares of ESOP Stock that have not been allocated and shares of ESOP Stock that have been allocated but for which no direction is received pursuant to Sections 5.9.1 or 5.9.2.1 will be voted by the Trustee in identical proportion to the votes of shares of ESOP Stock for which direction has been received pursuant to Sections 5.9.1 or 5.9.2.1

5.9.4The Company shall furnish such proxy materials to the Trustee as are necessary to effectuate the voting procedures described in this Section.

5.10Tender or Exchange Offer. ESOP Stock that becomes the subject of a tender or exchange offer will be tendered or exchanged by the Trustee in accordance with this Section 5.10.

5.10.1Each Participant (or beneficiary of a deceased Participant) to whose account shares of ESOP Stock have been allocated will, as a named fiduciary (within the meaning of section 403(a)(2) of ERISA), have the right to direct the Trustee as to the tender or exchange of such ESOP Stock.

5.10.2Shares of ESOP Stock that have not been allocated and shares of ESOP Stock that have been allocated but for which no direction has been received pursuant to Sections 5.10.1 will be tendered or exchanged by the Trustee in identical proportion to the shares of ESOP Stock for which direction has been received pursuant to Sections 5.10.1.

5.11Acquisition Loans. The Trust Investment Committee may, from time to time, direct the Trustee to incur one or more Acquisition Loans to finance the acquisition of ESOP Stock for the Trust or to repay a prior Acquisition Loan, subject to the following provisions.

5.11.1An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, and shall not be payable on demand. An Acquisition Loan may be

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secured by pledge of Financed Shares acquired with the proceeds of such Acquisition Loan, or with the proceeds of a prior Acquisition Loan which is being refinanced and repaid with the proceeds of such current Acquisition Loan. No other assets of the Plan or Trust may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against any other Plan or Trust assets. If the lender is a party in interest under ERISA, the Acquisition Loan must provide for a transfer of Trust assets upon default only upon and to the extent of the failure of the Trust to meet the payment schedule of the Acquisition Loan.

5.11.2Payments of principal and/or interest on any Acquisition Loan shall be made by the Trustee only from Company contributions paid in cash to enable the Trustee to repay such loan or from earnings attributable to such contributions. In addition, the Trust Investment Committee may direct the Trustee to apply any cash dividends received by the Trustee on shares of ESOP Stock (whether or not allocated to Participants’ Accounts) to pay principal and interest on an Acquisition Loan; provided, however, that dividends paid on such shares may be used to repay only an Acquisition Loan the proceeds of which were used to acquire such shares for the Trust. In the event that the Trustee is unable to make payments of principal and/or interest on an Acquisition Loan when due, the Trust Investment Committee may direct the Trustee to sell any Financed Shares that have not been allocated to Participants’ Accounts or to obtain an Acquisition Loan in an amount sufficient to make such payments.

5.11.3Any pledge of Financed Shares must provide for the release of shares so pledged as payments are made on the Acquisition Loan by the Trustee. Financed Shares shall initially be credited to the Loan Suspense Account and shall be transferred for allocation to Participants’ ESOP Stock Accounts as payments are made on the Acquisition Loan by the Trustee. The number of shares so released shall bear the same relationship to the number

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of Financed Shares held immediately before release for any Plan Year as the amount of principal and interest paid for such year bears to the total amount of principal and interest to be paid for such year and all following years.

5.12Restrictions on Allocations.

5.12.1Notwithstanding any other provision in this Plan, if shares of ESOP Stock are sold to the Plan by a Company shareholder in a transaction for which such shareholder elects nonrecognition treatment pursuant to section 1042 of the Code, no assets attributable to such Stock may be allocated, during the nonallocation period, to the Account of any of the following:

5.12.1.1the selling shareholder;

5.12.1.2any person who is related to that shareholder (within the meaning of section 267(b) of the Code), but excluding lineal descendants of such shareholder as long as no more than five percent of the aggregate amount of all ESOP Stock sold by such shareholder in a transaction to which Code section 1042 applies is allocated to such lineal descendants; or

5.12.1.3any other person who owns (after application of section 318(a) of the Code), more than 25 percent in value of outstanding securities of the Company at any time during the 1-year period ending on the date of sale of such ESOP Stock.

Further, no allocation of contributions may be made to the Accounts of persons described in Sections 5.12.1.1 through 5.12.1.3 unless additional allocations are made to other Participants, in accordance with the provisions of sections 401(a) and 410 of the Code. The nonallocation period is the period beginning on the date of sale and ending 10 years thereafter, or

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if later, on the date of the allocation attributable to the final payment on the Acquisition Loan incurred with respect to the sale.

5.12.2 In the event that the Company shall become an S Corporation, as defined in section 1361 of the Code, then, notwithstanding any other provision in the Plan and pursuant to section 409(p) of the Code, no portion of the assets of the Plan attributable to (or allocable in lieu of) employer securities, as defined in section 409(l) of the Code, may, during a nonallocation year, accrue under the ESOP, or be allocated directly or indirectly under any plan of the Company (including the ESOP) meeting the requirements of section 401(a) for the benefit of any disqualified person.

5.12.2.1 For purposes of this Section 5.12.2, “nonallocation year” means any Plan Year of the Plan if, at any time during such Plan Year, the ESOP holds ESOP stock in an S Corporation and disqualified persons own at least 50 percent of the outstanding shares of stock in the Company. For purposes of this Section 5.12.2.1, the rules of section 409(p)(3)(B) of the Code shall apply in determining ownership.

5.12.2.2. For purposes on this Section 5.12.2, the term “disqualified person” has the meaning described in Treasury Regulation 1.409(p)-1T(d) or any successor provision.

5.13Dividends on ESOP Stock. Any cash dividends paid with respect to shares of ESOP Stock allocated to Participants’ ESOP Stock Accounts which are not applied to the repayment of any Acquisition Loan may, as determined by the Company, be (1) paid by the Company directly in cash to the Participants for whose benefit such ESOP Stock is held under the Plan, (2) paid to the Trustee and distributed by the Trustee to the Participant no later than 90

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days after the end of the Plan Year in which paid to the Trustee or (3) paid to the Trustee and invested in accordance with Section 5.2.

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ARTICLE VI

VESTING AND DISTRIBUTION OF ACCOUNT BALANCES

6.1Retirement or Total Disability. Any Participant whose employment with the Company and all Affiliated Companies terminates (1) on or after his Normal Retirement Date or (2) at any time because of Total Disability shall be deemed to have retired under the Plan and shall be entitled to receive his entire Account Balance as provided in Sections 6.5 and 6.7.

6.2Death. If a Participant’s employment with the Company and all Affiliated Companies terminates as a result of his death, his beneficiary shall be entitled to receive his entire Account Balance as provided in Sections 6.5 and 6.7. If distributions have begun before the date of the Participant’s death, distributions shall continue to be made to the Participant’s beneficiary on the same basis as in effect before the Participant’s death.

6.3Termination of Employment other than as a Result of Death, Retirement or Total Disability. Any Participant whose employment with the Company and all Affiliated Companies terminates for any reason other than under Sections 6.1 and 6.2 shall be entitled to receive his nonforfeitable interest in his Account Balance as provided in Section 6.5. Except as otherwise provided in Section 11.4, a Participant shall vest in his Account Balance in accordance with the following schedule:

Years of Credited Service			Nonforfeitable Percentage
after January 1, 1999			of Account Balance
	less than 1	0
	1	20
	2	40
	3	60
	4	80
	5 or more	100

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6.4Forfeitures and Restoration of Forfeited Amounts upon Reemployment.

6.4.1If a Participant who has terminated employment does not thereafter complete an Hour of Service before the end of the Plan Year in which occurs the earlier of:

6.4.1.1the date on which he receives a distribution of the nonforfeitable portion of his Account; or

6.4.1.2the date on which he incurs his fifth consecutive Break in Service,

his Account shall be closed, and any forfeitable portion of his Account shall be forfeited. For purposes of this Section 6.4.1, a Participant who has a termination of employment at a time when his nonforfeitable interest in the Plan is zero shall be deemed to have received a distribution of his entire Account on the date of such termination of employment. Notwithstanding anything in the Plan to the contrary, any forfeiture of a portion of a Participant’s account shall be made in accordance with Treasury Regulation 54.4975-11(d)(4) or any successor provision.

6.4.2If a Participant who has received (or who was deemed to have received) a distribution described in Section 6.4.1.1, whereby any part of his Account has been forfeited, becomes an Employee again prior to incurring five consecutive Breaks in Service, the amount so forfeited shall be restored to his new Account. Unallocated contributions or forfeitures will be used to fund the restoration of Accounts pursuant to this Section 6.4.2; provided, however, that if such unallocated contributions and forfeitures are insufficient for this purpose, additional Participating Company contributions will be made to fund such restorations. If forfeitures for a Plan Year exceed the amount necessary for the restoration of accounts pursuant to this Section 6.4.2, such excess shall be allocated as an additional Participating Company contribution in accordance with Section 4.1.

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6.5Mode of Distribution.

6.5.1Except as otherwise provided in this Article VI, the nonforfeitable portion of a Participant’s Account, valued in accordance with Section 6.8, shall be paid to him or applied for his benefit in substantially equal periodic installments over a period of five years, plus one additional year (but not more than five additional years) for each $180,000 (or such higher amount as may be applicable under section 409(o) of the Code), or portion thereof by which such Account Balance exceeds $915,000 (or such higher amount as may be applicable under section 409(o) of the Code). The undistributed portion of the Employee’s Account shall continue to be invested as provided in the Plan.

6.5.2 Notwithstanding Section 6.5.1, effective for all distributions made on or after January 31, 2007, a Participant, or his or her Beneficiary, may elect to receive the nonforfeitable portion of such Participant’s Account, valued in accordance with Section 6.8, in the form of a single sum payment, provided that such election is made (i) in accordance with procedures established from time to time by the Plan Administrator and (ii) not later that the date that distributions to the Participant, or his or her Beneficiary, are required to begin in accordance with Section 6.7.

6.5.3 Notwithstanding Section 6.5.1 or Section 6.5.2, if a Participant’s nonforfeitable interest in his Account Balance is $1,000 or less ($5,000 for distributions made prior to March 28, 2005), his Account shall be distributed in a single sum payment. Notwithstanding the foregoing, for distributions made after December 31, 2002, the value of a Participant’s nonforfeitable interest in his Account Balance shall be determined without regard to that portion of the Account Balance that is attributable to rollover contributions (and earnings

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allocable thereto) within the meaning of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code.

6.5.4 The distribution of a Participant’s nonforfeitable interest in his ESOP Cash Account shall be made in cash. The distribution of a Participant’s nonforfeitable interest in his ESOP Stock Account shall be made in whole shares of ESOP Stock and in cash equal to the value of any fractional share. Notwithstanding the foregoing, if shares of ESOP Stock are not traded on an established market, a Participant (or beneficiary, if applicable) shall have the right to receive a cash distribution in lieu of shares of ESOP Stock.

6.5.5 If the distribution is made in shares of ESOP Stock and such shares are not traded on an established market, the former Participant (or his beneficiary, if applicable) will have the right to sell such shares to the Company at a price equal to their fair market value as of the last Valuation Date preceding the exercise of such right, as determined by an independent appraiser in accordance with section 401(a)(28) of the Code. Such right, known as a “put option,” may be exercised at any time during the two option periods described below. The first put option period shall be a period of 60 days commencing on the date the ESOP Stock is distributed to the Participant or beneficiary. If the put option is not exercised within that period, it will temporarily lapse. Upon the close of the Plan Year in which such temporary lapse of the put option occurs, the Trustee shall establish the value of the ESOP Stock, as determined by an independent appraiser, and shall notify each Participant (or beneficiary) who did not exercise the put option during the first option period of the revised value of the ESOP Stock. The second period during which the put option may be exercised shall commence on the date such notice of revaluation is given and shall permanently terminate 60 days thereafter.

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6.5.6 Financed Shares distributed to a Participant (or his beneficiary) shall be subject to a right of first refusal as provided in this Section 6.5.6, if such Financed Shares are not publicly traded at the time the right of first refusal may be exercised. Financed Shares distributed to a Participant (or his beneficiary) shall not be transferable to any person other than the Plan or the Company unless (i) the Participant or beneficiary receives a good faith written offer for the purchase of such Financed Shares from a person other than the Plan or the Company; (ii) the Participant or beneficiary provides written notice to the Trust Investment Committee of the receipt of such offer in a form reasonably acceptable to the Trust Investment Committee; (iii) such written notice includes a copy of such offer and a description of the terms and conditions of such offer; and (iv) the Plan fails to purchase such Financed Shares before the close of the 14th day following the Trust Investment Committee’s receipt of such written notice. In exercising its right of first refusal under this Section 6.5.6, the Plan may not purchase Financed Shares for an amount less than the greater of (A) the purchase price and other terms offered by the offeror for such Financed Shares or (B) the value of such Financed Shares as determined pursuant to Treasury Regulation § 54.4975-11(d)(5). The Trust Investment Committee shall immediately notify the Board of Directors of its receipt of a written notice from a Participant or beneficiary of any offer to purchase Financed Shares that are subject to the right of first refusal hereunder, and of its intentions regarding the exercise of such right of first refusal. If the Trust Investment Committee notifies the Board of Directors on behalf of the Plan that the Plan shall decline to exercise such right, the Company shall have the right to exercise such right to the same extent as the Plan, provided that such right must be exercised before the close of the 14th day following the Trust Investment Committee’s receipt of the Participant’s or beneficiary’s

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notice of such offer. Such notice shall be deemed received on the date actually received by the Trust Investment Committee.

6.6Pre-Retirement Diversification Rights. The Benefits Committee shall establish a procedure pursuant to which, during an Election Period, each Qualified Participant may direct the Trustee as to the investment of the value (determined as of the immediately preceding Valuation Date) of at least 25% of the number of shares of ESOP Stock credited to his Account. The amount with respect to which a Qualified Participant may direct the investment during any Election Period subsequent to the Qualified Participant’s initial Election Period shall be determined by multiplying the number of shares of ESOP Stock credited to his Account by 25% (or, with respect to a Participant’s final election, 50%), reduced by the aggregate number of shares subject to any prior elections by such Qualified Participant pursuant to this Section. The procedure established by the Benefits Committee may provide that the Qualified Participant may direct the investment of the amount determined pursuant to this Section by instructing the Trustee to:

6.6.1distribute such amount to him within ninety (90) days after the Election Period;

6.6.2if the Benefits Committee selects three or more investment options other than ESOP Stock for purposes of this Section, to invest such amount, within ninety (90) days after the Election Period, in one or more of such investment options; or

6.6.3if the Company maintains another qualified defined contribution plan that permits participant direction of investments, to transfer such amount, within ninety (90) days after the Election Period, to such other plan.

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The procedure established by the Benefits Committee, and the effectuation of a Qualified Participant’s elections made pursuant to such procedure, shall comply with section 401(a)(28) of the Code.

6.7Timing of Benefit Distributions.

6.7.1Special Distribution Rules. The following special distribution rules shall supersede the general distribution rules of Sections 6.7.2 through 6.7.3:

6.7.1.1Required Beginning Date. Notwithstanding any other provision of the Plan, benefits to a Participant (or to a Participant’s beneficiary following the Participant’s death before benefits have begun to be paid), shall begin to be paid not later than the Required Beginning Date.

6.7.1.2Small Dollar Cash-Outs. If the value of the nonforfeitable Account Balance of a Participant who separates from service to the Company and all Affiliated Companies is $1,000 or less ($5,000 for distributions made prior to March 28, 2005), his Account Balance shall be distributed in a single sum as soon as administratively practicable following the Participant’s separation from service.

6.7.1.3Financed Shares. Except for distributions subject to Sections 6.7.1.1 and 6.7.1.2 and notwithstanding any other Plan provision, to the extent a Participant’s Account Balance holds Financed Shares, distributions shall not begin before the Acquisition Loan with respect to such Financed Shares has been repaid in full.

6.7.1.4Required Consent to Distribution. Except for distributions (i) subject to Section 6.7.1.2, (ii) payable following a Participant’s death or (iii) payable following a Participant’s Normal Retirement Date, no distribution will be made without the Participant’s consent. Moreover, for such consent to be valid, it must be given not more than 90

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days before the date as of which distributions begin. If a Participant does not consent to a distribution of his nonforfeitable interest in his Account Balance at the time that it first becomes distributable, such nonforfeitable interest shall continue to be held in the Plan until the earlier of: (i) the close of the Plan Year in which the Participant reaches Normal Retirement Date or dies, or (ii) as soon as practicable following such time as the Participant submits a written request for such distribution to the Benefits Committee.

6.7.2Normal Retirement, Total Disability or Death.

6.7.2.1Normal Retirement or Total Disability. Except as otherwise provided in Section 6.7.1, distributions with respect to a Participant who separates from service to the Company and all Affiliated Companies on or after his Normal Retirement Date or on account of a Total Disability shall begin as soon as administratively practicable following such separation from service, but not later than the close of the Plan Year following the Plan Year during which such separation from service occurs.

6.7.2.2Death. If a Participant separates from service to the Company and all Affiliated Companies because of death, but the commencement of the distribution is delayed beyond the close of the Plan Year following the Plan Year during which such separation from service occurs because of the application of Section 6.7.1.3 (regarding the effect of the existence of an Acquisition Loan on the timing of distributions), then, notwithstanding any other provision of this Article VI to the contrary:

(i)if (and to the extent that) the Participant’s beneficiary is a person or entity that is not the Participant’s surviving spouse, distribution with respect to such Participant shall be made in a single sum as soon as practicable following the

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repayment of the Acquisition Loan in full, or, if earlier, by the last day of the calendar year which contains the fifth anniversary of the Participant’s date of death; and

(ii)if (and to the extent that) the Participant’s beneficiary is the Participant’s spouse, distribution with respect to such Participant shall be paid in the form described in Section 6.5.1, unless, effective January 31, 2007, the Participant’s beneficiary elects otherwise in accordance with Section 6.5.2, and shall begin to be paid as soon as practicable following the repayment of the Acquisition Loan, or, if earlier, the date the Participant would have attained age 70½.

6.7.3Other Separation From Service. Except as otherwise provided in Section 6.7.1, distributions with respect to a Participant who separates from service to the Company and all Affiliated Companies before his Normal Retirement Date and not as a result of his Total Disability or death, shall begin as soon as administratively practicable following the fifth anniversary of such separation from service, but not later than the close of the sixth Plan Year beginning after such separation from service, provided that distributions shall not begin under this Section 6.7.3 if the Participant is reemployed by the Company or an Affiliated Company before such Participant’s Account has begun to be distributed in accordance with Section 6.7. Notwithstanding anything in this Section 6.7.3 to the contrary, effective January 31, 2007, if a Participant who separates from service to the Company and all Affiliated Companies before his Normal Retirement Date, and not as a result of his Total Disability or death, elects to receive his benefit in the form of a single sum payment in accordance with Section 6.5.2, such distribution may begin as soon as administratively possible following: (i) such election if such election is made prior to March 15^th of the Plan Year in which the Participant elects such distribution; or (ii) the 90^th day after the close of the Plan Year in which the Participant elects

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such distribution if such election is made on or after March 15^th of the Plan Year in which the Participant elects such distribution; but in any event, not later than the close of the sixth Plan Year beginning after such separation from service, provided that distributions shall not begin under this Section 6.7.3 if the Participant is reemployed by the Company or an Affiliated Company before such Participant’s Account has begun to be distributed in accordance with Section 6.7.

6.8Valuation for Distribution. For the purposes of paying the amounts to be distributed to a Participant or his beneficiaries under the provisions of this Article, the value of a Participant’s Account shall be determined in accordance with Article V as of the Valuation Date immediately preceding the date of payment and shall be adjusted for any contributions or forfeitures which have been allocated to the Participant’s Account since that Valuation Date.

6.9Direct Rollover. Notwithstanding any provision of the Plan, a Distributee may elect, at the time and in the manner prescribed by the Benefits Committee, to have any portion of an Eligible Rollover Distribution paid directly to the Eligible Retirement Plan specified by that Distributee as a Direct Rollover.

6.10Minimum Required Distributions On or After January 1, 2003. With respect to distributions under the Plan made on or after January 1, 2003, the Plan will apply the minimum distribution requirements of Code §401(a)(9) in accordance with the Treasury regulations under Code §401(a)(9) as described in this Section 6.10. The requirements of this Section 6.10 will take precedence over any inconsistent provisions of the Plan. Notwithstanding the other provisions of this Section 6.10, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b) of the Tax Equity and Financial Responsibility Act (TEFRA).

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6.10.1Time and Manner of Distribution.

6.10.1.1 Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

6.10.1.2 Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(i) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant dies, or by December 31 of the calendar year in which the Participant would have attained age 70½, if later.

(ii) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(iii) If there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(iv) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 6.10.1.2, other than Section 6.10.1.2(i), will apply as if the surviving spouse were the Participant.

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For purposes of this Section 6.10.1.2 and Section 6.10.3, unless Section 6.10.1.2(iv) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If Section 6.10.1.2(iv) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 6.10.1.2(i). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 6.10.1.2(i)), the date distributions are considered to begin is the date distributions actually commence.

6.10.1.3 Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning date, as of the first distribution calendar year distributions will be made in accordance with Section 6.10.2 and Section 6.10.3. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations.

6.10.2Required Minimum Distributions During Participant’s Lifetime.

6.10.2.1 Amount of Required Minimum Distribution for Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(i) the quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in section

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1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

(ii) if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

6.10.2.2 Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 6.10.2 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

6.10.3Required Minimum Distributions After Participant’s Death.

6.10.3.1 Death On or After Date Distributions Begin.

6.10.3.1.1 Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:

(i) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

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(ii) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(iii) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

6.10.3.1.2 No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

6.10.3.2 Death Before Date Distributions Begin.

6.10.3.2.1 Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by

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the remaining life expectancy of the Participant’s designated beneficiary, determined as provided in Section 6.10.3(1).

6.10.3.2.2 No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

6.10.3.2.3 Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 6.10.1.2(i), this Section 6.10.3.2 will apply as if the surviving spouse were the Participant.

6.10.4Definitions.

a. Designated Beneficiary. The individual who is designated as the beneficiary under Section 2.3 of the Plan and is the designated beneficiary under Code Section 401(a)(9) and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.

b. Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 6.10.1.2. The required minimum distribution for the

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Participant’s first distribution calendar year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that distribution calendar year.

c. Life expectancy. Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations.

d. Participant’s account balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

e. Required Beginning Date. The Required Beginning Date specified in Section 6.7.1.1 of the Plan.

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ARTICLE VII

DEATH BENEFITS

7.1Beneficiary. Following the death of a married Participant, his entire Account Balance shall be paid to his surviving spouse unless the Participant has designated a different beneficiary in the manner prescribed by the Benefits Committee pursuant to Section 2.3, and (i) the Participant’s Spouse has consented to that designation in writing, in an instrument that acknowledges the effect of the designation and that is witnessed by a representative of the Benefits Committee or by a notary public, or (ii) the Benefits Committee concludes that such consent cannot be obtained because the Participant has no Spouse or because the Spouse cannot be located or because such consent is not required under such circumstances as are prescribed by governmental regulations. If the Participant is not married on the date of his death, his beneficiary shall be the person or persons designated by him pursuant to Section 2.3. Any portion of the Participant’s Account Balances which is undisposed of due to the failure to designate a beneficiary or to the failure of the designated beneficiary or Spouse to survive the Participant shall be paid to the Participant’s estate.

7.2Form of Payment. Death benefits shall be payable in the form described in Section 6.5.

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ARTICLE VIII

MANAGEMENT OF FUNDS

8.1Designation of Trustee. The Trust Investment Committee shall name and designate a Trustee and shall enter into a Trust Agreement with such Trustee on behalf of the Participating Companies. The Trust Investment Committee shall have the power to amend the Trust Agreement, remove any Trustee, and designate a successor Trustee, as provided in the Trust Agreement. All of the assets of the Plan shall be held by the Trustee for use in accordance with this Plan in providing for the benefits hereunder.

8.2Exclusive Benefit. Prior to the satisfaction of all liabilities under the Plan in the event of termination of the Plan, no part of the corpus or income of the Trust shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their beneficiaries except as expressly provided in this Plan and in the Trust Agreement.

8.3No Interest in Trust. No person shall have any interest in or right to any part of the assets or income of the Trust, except to the extent expressly provided in this Plan and in the Trust Agreement.

8.4Trust Investment Committee. The Trust Investment Committee shall be the named fiduciary with respect to management and control of Plan assets held by the Trustee and shall have exclusive and sole responsibility for investment thereof in accordance with the Trust Agreement and the provisions of the Plan. The Trustee shall have the exclusive and sole responsibility for the custody of Plan assets held by it in accordance with the Trust Agreement and the provisions of the Plan, for following the directions of the Trust Investment Committee and of Participants as required by the Plan and Trust Agreement, and for selecting short-term investment funds for the investment of cash balances held by the Trust.

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ARTICLE IX

ADMINISTRATION

9.1 Administrator. The Company shall control and manage the operation of the Plan and shall be the Plan Administrator.

9.2 Benefits Committee. The Company shall delegate its discretionary authority and control with respect to Plan administration to the Benefits Committee, which Benefits Committee shall consist of not less than three persons who will serve at the pleasure of the Board of Directors. The Benefits Committee members may be, but need not be, employees of the Company or members of the Trust Investment Committee. They shall be entitled to reimbursement of expenses but to no compensation for their service on the Benefits Committee. Any reimbursement of expenses of the Benefits Committee shall be paid directly by the Company.

9.3 Ministerial Functions. The Benefits Committee shall delegate its ministerial duties or functions to such person or persons as the Benefits Committee shall select. Such person or persons shall be responsible for the general administration of the Plan under the policy guidance of the Benefits Committee. Such person or persons may be employees of the Company and shall be compensated for services and expenses by the Company according to its normal employment policies, without special or additional compensation for service hereunder.

9.4 Duties and Powers of Benefits Committee. In addition to the duties and powers described elsewhere hereunder, the Benefits Committee shall have the following specific duties and powers:

9.4.1to enact uniform and non-discriminatory rules, regulations, and procedures necessary or desirable to carry out the provisions of the Plan;

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9.4.2to interpret the provisions of the Plan and to resolve questions or disputes relating to or arising under the Plan;

9.4.3to establish reasonable procedures to determine the qualified status of domestic relations orders which relate to the Plan, as provided in section 414(p) of the Code; and

9.4.4to retain such consultants, accountants, and attorneys as may be deemed necessary or desirable to render statements, reports, and advice with respect to the Plan, and to assist the Benefits Committee in complying with all applicable rules and regulations affecting the Plan. Any consultants, accountants, or attorneys may be the same as those retained by the Company.

9.5 Functioning of Benefits Committee. The Benefits Committee shall keep accurate records and minutes of meetings, interpretations, and decisions. The Benefits Committee shall act by majority vote of its members, and such action shall be evidenced by written documents.

9.6 Disputes.

9.6.1In the event that the Benefits Committee denies, in whole or in part, a claim for benefits by a Participant or his beneficiary, the Benefits Committee shall furnish notice of the denial to the claimant, setting forth (1) the specific reasons for the denial, (2) specific reference to the pertinent Plan provisions on which the denial is based, (3) a description of any additional information necessary for the claimant to perfect the claim and an explanation of why such information is necessary, and (4) appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review. Such notice shall be forwarded to the claimant within 90 days of the Benefits Committee’s receipt of the claim; provided, however,

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that in special circumstances the Benefits Committee may extend the response period for up to an additional 90 days, provided that the Benefits Committee notifies the claimant in writing of the extension and specifies the reason or reasons for the extension.

9.6.2Within 60 days of receipt of a notice of claim denial, a claimant or his duly authorized representative may petition the Benefits Committee in writing for a full and fair review of the denial. The claimant or his duly authorized representative shall have the opportunity to review pertinent documents and to submit issues and comments in writing to the Benefits Committee. The Benefits Committee shall review the denial and shall communicate its decision and the reasons therefor to the claimant in writing within 60 days of receipt of the petition; provided, however, that the Benefits Committee may extend the 60-day response period in special circumstances for up to an additional 60 days. Written notice of the extension shall be sent to the claimant prior to the commencement of the extension.

9.7Indemnification. Each member of the Benefits Committee, the Trust Investment Committee and any other person who is an Employee or director of the Company or an Affiliated Company, or any person serving as Trustee, shall be indemnified by the Company against expenses (other than amounts paid in settlement to which the Company does not consent) reasonably incurred by him in connection with any action to which he may be a party by reason of his performance of administrative functions and duties under the Plan, except in relation to matters as to which he shall be adjudged in such action to be personally guilty of willful misconduct in the performance of his duties. The foregoing right to indemnification shall be in addition to such other rights as the Benefits Committee member or other person may enjoy as a matter of law or by reason of insurance coverage of any kind. Rights granted hereunder shall be

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in addition to and not in lieu of any rights to indemnification to which the Benefits Committee member or other person may be entitled pursuant to the by-laws of the Company.

9.8 Expenses. The expenses incident to the operation of the Plan and the Trust shall be paid or reimbursed from the Trust, unless they are paid directly by the Company and the Company does not seek reimbursement for such payment.

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ARTICLE X

AMENDMENT AND TERMINATION

10.1Power of Amendment and Termination. It is the intention of the Company that this Plan will be permanent. However, the Company reserves the right to amend the Plan or terminate the Plan at any time by action of the Board of Directors or its delegate. Except as expressly provided elsewhere in the Plan, prior to the satisfaction of all liabilities with respect to the benefits provided under this Plan, no such amendment or termination shall cause any part of the monies contributed hereunder to revert to the Company or to be diverted to any purpose other than for the exclusive benefit of Participants and their beneficiaries. Except as otherwise permitted by law, no amendment shall have the effect of retroactively depriving Participants of benefits already accrued under the Plan. In the event of a termination, a partial termination, or a complete discontinuance of contributions, or in the event that the Company is dissolved, liquidated, or adjudicated bankrupt, the interests of the affected Participants, their estates, and their beneficiaries shall be fully vested. Any amendment shall become effective as of the date designated by the Board of Directors.

10.2Merger. The Plan shall not be merged with or consolidated with, nor shall its assets be transferred to, any other qualified retirement plan unless each Participant would receive a benefit after such merger, consolidation, or transfer (assuming the surviving or transferee plan then terminated) which is of equal or greater actuarial value than the benefit he would have received if the Plan had been terminated on the day before such merger, consolidation, or transfer. The Plan shall not accept a transfer of any amounts which would cause the Plan to be a direct or indirect transferee of a plan to which the joint and survivor annuity and pre-retirement survivor annuity requirements of sections 401(a)(11) and 417 of the Code apply.

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10.3Change in Control.

10.2.1In the event of a Change in Control, as defined in Section 10.2.2, the interests of the affected Participants, their estates, and their beneficiaries shall be fully vested.

10.2.2“Change in Control” shall mean:

10.2.2.1the acquisition by any person or group acting in concert of beneficial ownership of forty percent (40%) or more of any class of equity security of Yardville National Bank (the “Bank”) or Yardville National Bancorp (the Bank’s “Holding Company”); or

10.2.2.2the sale of all or substantially all of the assets of the Bank or Holding Company; or,

10.2.2.3any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in sections 10.2.2.1 or 10.2.2.2.

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ARTICLE XI

TOP-HEAVY PROVISIONS

11.1General. The following provisions shall apply automatically to the Plan and shall supersede any contrary provisions for each Plan Year in which the Plan is a Top-Heavy Plan. It is intended that this Article shall be construed in accordance with the provisions of section 416 of the Code.

11.2Definitions. The following definitions shall supplement those set forth in Article I of the Plan:

11.2.1“Aggregation Group” shall mean:

11.2.1.1each plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of the Company or an Affiliated Company in which a Key Employee is a participant,

11.2.1.2each other plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of the Company or an Affiliated Company which enables any plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) and 410 of the Code, and

11.2.1.3each other plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of the Company or an Affiliated Company which is included by the Benefits Committee if the Aggregation Group, including such a plan, would continue to meet the requirements of sections 401(a)(4) and 410 of the Code.

11.2.2“Determination Date” shall mean the last day of the preceding Plan Year or, in the case of the first Plan Year, the last day of such Plan Year.

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11.2.3“Key Employee” shall mean any Employee or former Employee who at any time during the 60-month period ending on the Determination Date is described below. Key Employee shall also include the beneficiaries of such persons. Notwithstanding the foregoing, the number of persons described in Section 11.2.3.2 for the entire 60-month period shall be limited to 10.

11.2.3.1An officer of the Company or an Affiliated Company having annual compensation, as defined in section 414(q) of the Code, from the Company and all Affiliated Companies for a Plan Year during such period greater than fifty percent (50%) of the amount in effect under section 415(b)(1)(A) of the Code for such Plan Year.

11.2.3.2One of the 10 Employees with annual compensation, as defined in section 414(q) of the Code, from the Company and all Affiliated Companies greater than the amount described in section 415(c)(1)(A) of the Code who own (or are considered as owning, within the meaning of section 318 of the Code) the largest interests in the Company or any Affiliated Company, provided that such interest exceeds one-half percent (0.5%) of the total share ownership of the Company or Affiliated Company.

11.2.3.3A five-percent (5%) owner of the Company or any Affiliated Company.

11.2.3.4A one-percent (1%) owner of the Company or any Affiliated Company who has annual compensation, as defined in section 414(q) of the Code, from the Company and all Affiliated Companies which, in the aggregate, is in excess of $150,000.

The above determinations will be made in accordance with section 416(i) of the Code. No more than 50 employees (or, if less, the greater of three employees or ten percent (10%) of the greatest

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number of employees, including Leased Employees, employed by the Company and all Affiliated Companies during the 60-month period ending on the Determination Date) shall be treated as officers, for which purpose employees described in section 414(q)(8) of the Code shall not be taken into account.

11.2.4“Key Employee Ratio” shall mean the ratio for any Plan Year, calculated as of the Determination Date of such Plan Year, determined by comparing the amount described in Section 11.2.4.1 with the amount described in Section 11.2.4.2 after deducting from each such amount any portion thereof described in Section 11.2.4.3.

11.2.4.1The sum of (i) the present value of all accrued benefits of Key Employees under all qualified defined benefit plans included in the Aggregation Group, (ii) the balances in all of the accounts of Key Employees under all qualified defined contribution plans included in the Aggregation Group, and (iii) the amounts distributed from all plans in such Aggregation Group to or on behalf of any Key Employee during the period of five Plan Years ending on the Determination Date, except benefits paid on account of death in excess of the accrued benefit or account balances immediately prior to death.

11.2.4.2The sum of (i) the present value of all accrued benefits of all participants under all qualified defined benefit plans included in the Aggregation Group, (ii) the balances in all of the accounts of all participants under all qualified defined contribution plans included in the Aggregation Group and (iii) the amounts distributed from all plans in such Aggregation Group to or on behalf of any participant during the period of five Plan Years ending on the Determination Date.

11.2.4.3The sum of (i) all rollover contributions (or fund to fund transfers) to the Plan by an Employee from a plan sponsored by an employer which is not the

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Company or an Affiliated Company, (ii) any amount that is included in Sections 11.2.4.1 and 11.2.4.2 for a person who is a Non-Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year, and (iii) any amount that is included in Sections 11.2.4.1 and 11.2.4.2 for a person who had not performed any services for the Company during the five-year period ending on the Determination Date.

11.2.4.4The present value of accrued benefits under all qualified defined benefit plans included in the Aggregation Group shall be determined on the basis of the 1984 Unisex Mortality Table and an interest rate of seven percent (7%).

11.2.5“Non-Key Employee” shall mean any person who is an Employee or a former Employee of the Company or an Affiliated Company in any Plan Year but who is not a Key Employee as to that Plan Year. Non-Key Employee shall also include the beneficiaries of such persons.

11.2.6“Super Top-Heavy Plan” shall mean each plan in an Aggregation Group if, as of the applicable Determination Date, the Key Employee Ratio in the plan exceeds ninety percent (90%), determined in accordance with section 416 of the Code.

11.2.7“Top-Heavy Plan” shall mean each plan in an Aggregation Group if, as of the applicable Determination Date, the Key Employee Ratio exceeds sixty percent (60%), determined in accordance with section 416 of the Code.

11.3Minimum Contribution for Non-Key Employees.

11.3.1In each Plan Year in which the Plan is a Top-Heavy Plan, each Participant who is a Non-Key Employee (except a Participant who is a Non-Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year) and who is actively employed by a Participating Company on the last day of such Plan Year will receive a

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total minimum allocation of Participating Company contributions (including forfeitures) under all plans described in Section 11.2.1.1 and 11.2.1.2 of not less than three percent (3%) of the Participant’s annual compensation, as defined in Treas. Reg. §1.415-2(d). Salary reduction contributions to such plans made on behalf of a Participant shall not be deemed to be Participating Company contributions for the purpose of this Section 11.3.1.

11.3.2The percentage set forth in Section 11.3.1 shall be reduced to the percentage at which contributions, including forfeitures, are made (or are required to be made) for a Plan Year for the Key Employee for whom such percentage is the highest for that Plan Year. This percentage shall be determined for each Key Employee by dividing the contribution for such Key Employee (including salary reduction contributions to such plans made on behalf of such Key Employee) by his compensation, as defined in Treas. Reg. §1.415-2(d), for the Plan Year. All defined contribution plans required to be included in an Aggregation Group shall be treated as one plan for the purpose of this Section; however, this Section shall not apply to any plan which is required to be included in an Aggregation Group if such plan enables a defined benefit plan in the group to meet the requirements of section 401(a)(4) or section 410 of the Code.

11.3.3If a Non-Key Employee described in Section 11.3.1 participates in both a defined benefit plan and a defined contribution plan described in Section 11.2.1.1 and 11.2.1.2, the Company is not required to provide such Employee with both the minimum benefit under the defined benefit plan and the minimum contribution. In such event, the Non-Key Employee shall receive the minimum benefit provided under the defined benefit Top-Heavy Plan.

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11.4Change in Vesting Schedule. Each Participant who has an Hour of Service in any Plan Year beginning on or after the first day of the first Plan Year for which the Plan is a Top-Heavy Plan, shall have a 100 percent nonforfeitable interest in his Account after completing three years of Credited Service.

11.5Social Security. The Plan, for each Plan Year in which it is a Top-Heavy Plan, must meet the requirements of this Article without regard to any Social Security or similar contributions or benefits.

11.6Adjustment to Maximum Allocation Limitation. The following rules shall apply only with respect to Plan Years beginning before January 1, 2000:

11.6.1For each Plan Year in which the Plan is (1) a Super Top-Heavy Plan or (2) a Top-Heavy Plan and the Board of Directors does not make the election described in Section 11.6.2 and for which a similar election has not been made as to another plan in the Aggregation Group, the 1.25 factor in the defined benefit and defined contribution fractions described in sections 415(e)(2) and (e)(3) of the Code shall be reduced to 1.0. The adjustment described in this Section 11.6.1 shall not apply to any Participant during any period in which the Participant earns no additional accrued benefit under any defined benefit plan and has no employer contributions, forfeitures, or voluntary contributions allocated to his accounts under any defined contribution plan.

11.6.2 If, in any Plan Year beginning prior to January 1, 2000 in which the Plan is a Top-Heavy Plan but not a Super Top-Heavy Plan, the Aggregation Group described in Section 11.2.1.1 and 11.2.1.2 also includes a defined benefit plan, the Board of Directors may elect to use a factor of 1.25 in computing the denominator of the defined benefit and defined contribution fractions described in sections 415(e)(2) and (e)(3) of the Code. In the event of

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such an election, the minimum Company contribution described in Section 11.3.1 for each Non-Key Employee who is not covered under a defined benefit plan shall be increased to four percent (4%), and the minimum Company contribution described in Section 11.3.3 for each Non-Key Employee who is covered under a defined benefit plan shall be increased to three percent (3%).

11.7Modification of Top-Heavy Rules.

11.7.1Effective date. This Section 11.7 shall apply for purposes of determining whether the Plan is a top-heavy plan under section 416(g) of the Code for Plan Years beginning on and after January 1, 2002, and whether the Plan satisfies the minimum benefits requirements of section 416(c) of the Code for such years. This Section 11.7 amends Sections 11.2 and 11.3 of the Plan.

11.7.2Determination of top-heavy status.

11.7.2.1 Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the Determination Date was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of section 415(c)(3) of the Code. The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

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11.7.2.2 Determination of present values and amounts. This Section 11.7 (b)(ii) shall apply for purposes of determining the present values of accrued benefits and the amounts of Account Balances of Employees as of the Determination Date.

11.7.2.2.1 Distributions during year ending on the Determination Date. The present values of accrued benefits and the amounts of Account Balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “5-year period” for “1- year period.”

11.7.2.2.2 Employees not performing services during year ending on the Determination Date. The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account.

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ARTICLE XII

RIGHTS OF ALTERNATE PAYEES

12.1General. Except as otherwise provided in this Article, an Alternate Payee shall have no rights to a Participant’s benefit and shall have no rights under this Plan other than those rights specifically granted to the Alternate Payee pursuant to a Qualified Domestic Relations Order. Notwithstanding the foregoing, an Alternate Payee shall have the right to appeal the denial of a claim for any benefits awarded to the Alternate Payee pursuant to a Qualified Domestic Relations Order, as provided in Section 9.6. Any interest of an Alternate Payee in the Account of a Participant, other than an interest payable solely upon the Participant’s death pursuant to a Qualified Domestic Relations Order that provides that the Alternate Payee shall be treated as the Participant’s surviving spouse, shall be separately accounted for by the Trustee in the name and for the benefit of the Alternate Payee.

12.2Death Benefits. Unless a Qualified Domestic Relations Order provides otherwise, an Alternate Payee shall have the right to designate a beneficiary, in the same manner as provided in Section 7.1 with respect to a Participant (except that no spousal consent shall be required), who shall receive benefits payable to the Alternate Payee which have not been distributed at the time of the Alternate Payee’s death. If the Alternate Payee does not designate a beneficiary, or if the beneficiary predeceases the Alternate Payee, benefits payable to the Alternate Payee which have not been distributed at the time of the Alternate Payee’s death shall be paid to the Alternate Payee’s estate.

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ARTICLE XIII

GENERAL PROVISIONS

13.1Source of Benefits. The provisions of the Plan shall not create any obligation or liability of the Company to pay any benefit under the Plan beyond the funds of the Plan available for such payment.

13.2Alienation of Benefits. Except with respect to qualified domestic relations orders pursuant to Code section 414(p), or an amount necessary to satisfy a federal tax levy made pursuant to Code section 6331, payments from and benefits under the Plan are neither alienable nor assignable, and are not subject to attachment by creditors of or through legal processes against any Participant or his beneficiary.

13.3Facility of Payment. If the Administrator deems any person incapable of receiving benefits to which he is entitled by reason of minority, illness, infirmity, or other incapacity, it may direct that payment be made directly for the benefit of such person or to any person selected by the Plan Administrator to disburse it, whose receipt shall be a complete acquittance therefor. Such payments shall, to the extent thereof, discharge all liability of the Administrator, the Company and the party making the payment.

13.4Interest and Dividends on Distributions. The amount of the distribution shall be determined as of the date provided in Article VI, without adjustment for earnings, gains, or losses between such date and the date of actual payment.

13.5Applicable Law. Except as provided by federal law, the Plan shall be governed by and construed in accordance with the laws of the State of New Jersey.

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IN WITNESS WHEREOF, Yardville National Bank, based on action by its Board of Directors, has executed this Plan the 24^th day of January, 2007.

YARDVILLE NATIONAL BANK
By:	/s/Daniel J. O’Donnell
	Daniel J. O’Donnell
Title:	Secretary

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Schedule A to The

Yardville National Bank Employee Stock Ownership Plan

Participating Companies

The following companies have been designated by the Board of Directors of Yardville National Bank as Participating Companies in the Yardville National Bank Employee Stock Ownership Plan (the “Plan”), and have adopted the Plan for the benefit of their eligible employees, effective as of the Effective Date of the Plan:

1. Yardville National Bank

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Schedule B to The

Yardville National Bank Employee Stock Ownership Plan

Trust Investment Committee Charter

1.Background. Eligible employees of Yardville National Bank (the “Company”) and certain of its affiliates participate in the Yardville National Bank Employee Stock Ownership Plan (the “Plan”). The Plan is subject to the special provisions of the Internal Revenue Code, as amended (the “Code”) that apply to plans that are designed primarily to invest in employer securities, and to the fiduciary provisions of Part 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Company’s Board of Directors (the “Board”) has created the Trust Investment Committee (“TIC”) to perform certain investment functions, as enumerated below, with respect to the Plan.

2.Membership. The Board shall appoint the membership of TIC. Unless otherwise determined pursuant to a Board resolution, TIC shall consist of not less than three voting members, including a Chairman, who shall also be appointed by the Board. Members may, but need not be employees of the Company or an affiliate. Members who are employees of the Company or an affiliate shall not be separately compensated for their service to TIC. Other members shall be compensated by the Company as separately agreed to between the Company and such member. Members shall be reimbursed for reasonable out-of-pocket expenses in accordance with the Company’s regular reimbursement policies. Members shall serve on TIC at the pleasure of the Board, and may be removed by the Board at any time, with or without cause. The Chairman, at his discretion, may invite one or more employees of the Company or an affiliate who are not voting members to attend meetings of TIC as non-voting members of TIC.

3.Meetings.

3.1Membership Meetings. TIC shall hold regular meetings of its membership, at least annually, to review the business of the committee and prepare regular reports for the Board. Special meetings shall be held as the Chairman may deem appropriate.

3.2Reports to the Board. The Chairman of TIC shall prepare and deliver an annual written report to the Board, or such committee of the Board as the Board may designate. Such report shall summarize the business of TIC for the preceding year, evaluate the performance of the trustee of the trust established under the Plan and the Plan’s independent valuation advisor for employer securities held by the Plan, and the anticipated short-, medium- and long-term cash needs of the Plan for debt amortization and repurchase of employer securities from eligible employees who separate from service with a nonforfeitable interest in their Plan Accounts. The Chairman of TIC shall make such additional reports and request additional Board or Board committee consideration at such time or times as the Chairman shall deem necessary or appropriate.

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3.3Valuation Advisors. TIC or its members shall conduct such meetings with current or prospective independent valuation advisors, and other consultants and advisors as it may deem appropriate.

4.Jurisdiction. TIC shall have the following responsibilities under the Plan and related trust:

4.1The appointment, retention and termination of an independent valuation advisor to provide valuation reports with respect to employer securities held by the trust;

4.2The appointment, retention and termination of the trustee;

4.3To vote employer securities held by the trust, except to the extent otherwise provided in the Plan and trust;

4.4To decide whether to tender or exchange employer securities held by the trust;

4.5To direct the trustee of the trust to purchase employer securities from the Company and shareholders, to determine the price at which such purchase shall be closed based on the advice of an independent valuation advisor, and, in connection with each such purchase, to approve the terms and conditions under which the trust will finance acquisitions of employer securities; and

4.6To take all other actions and make all other decisions assigned to it under the Plan and trust.

6.Amendment. The Board shall have the authority to amend this Charter.

Adopted this 27th day of January, 1999.

[Corporate Seal]		Yardville National Bank
ATTEST:	/s/Stephen F. Carman	By:	/s/Patrick M. Ryan
	Stephen F. Carman		Patrick M. Ryan
		Title:	Chief Executive Officer

EX-10.24

EXHIBIT 10.24

DIRECTOR NAME:	EXERCISE PRICE:
	NUMBER OF SHARES:

YARDVILLE NATIONAL BANCORP

2003 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

STOCK OPTION AGREEMENT

Yardville National Bancorp, a New Jersey corporation (the “Company”), this [Date Immediately Following Date of Annual Meeting] (the “Option Date”), pursuant to its 2003 Stock Option Plan for Non-Employee Directors (the “Plan”) hereby grants to ______________ (the “Optionee”) an option to purchase shares of the Common Stock, no par value, of the Company (the “Common Stock”) in the amount and on the terms and conditions set forth herein.

1.Incorporation of Plan by Reference. The provisions of the Plan, a copy of which is being furnished herewith to the Optionee, are incorporated by reference herein and shall govern as to all matters not expressly provided for in this Stock Option Agreement (the “Agreement”). Terms not defined herein shall have the meanings set forth in the Plan. In the event of any conflict between the terms of this Agreement and the Plan, the terms of the Plan shall govern.

2.Grant of Option. The Company hereby grants to the Optionee an option (the “Option”) to purchase all or any part of an aggregate of [3,000/other] shares of Common Stock on the terms and conditions set forth herein. The Option is not an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986.

3.Purchase Price. The purchase price of the Common Stock subject to the Option shall be ______________ ($) ______________ per share, subject to adjustment as provided in Paragraph 6 below and subject to the terms and conditions of the Plan.

4.Terms of Option.

a.Vesting. This Option shall be immediately exercisable. Except as otherwise set forth herein, the last date on which the Option may be exercised is ______________, ______________ (“Expiration Date”). Any portion of the Option not exercised by its Expiration Date shall lapse at the close of business on that date and shall be null and void thereafter.

b.Final Termination. Notwithstanding anything to the contrary set forth in Paragraph 4(a), the Option shall no longer be exercisable ten years from the date hereof and or such shorter time as is prescribed in the Plan or in this Agreement.

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c.Restrictions. This Option is subject to all of the terms and conditions set forth in the Plan including, but not limited to, the following:

(1)This Option is not transferable, as provided in Section 7 of the Plan;

(2)If the Optionee ceases to serve as a Director on the Board for any reason other than termination for Cause, this Option shall remain exercisable until the earlier of one year from the date of termination or its Expiration Date, as provided in Section 5(e) of the Plan.

(3)If the Optionee’s service as a Director on the Board is terminated for Cause, this Option shall terminate as of the date of such Optionee’s termination of service, as provided in Section 5(e) of the Plan.

d.Exercise. This Option shall be exercised by notice to the Company in such form as may be prescribed by the Company, accompanied by full payment in cash or check (or shares of Common Stock of the Company), as set forth in Section 5(f) of the Plan.

e.Securities Law Restrictions. The exercise of this Option and the obligations of the Company to issue or transfer shares of Common Stock under the Option shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required including, without limitation, the effectiveness of any registration statement required under the Securities Act of 1933, as amended (the “Act”), and the rules and regulations of any securities exchange or market on which the Common Stock may be listed or traded. The Company is under no obligation to file a registration statement under the Act with respect to the Common Stock issued upon exercise of the Option. As provided by Section 12 of the Plan, no Common Stock shall be issued or transferred in connection with this Option unless and until all legal requirements applicable to the issuance or transfer of such Common Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition the grant of this Option on the Optionee’s undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Common Stock as the Committee shall deem necessary or advisable as a result of any applicable law, regulation or interpretation thereof, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Common Stock issued under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon. If the Common Stock is issued in a transaction exempt from the Act, the shares shall bear the following restrictive legend:

“These shares have not been registered under the Securities Act of 1933. No transfer of the shares may be affected without an opinion of counsel to the Company stating that the transfer is exempt from registration under the Securities Act of 1933 and any applicable state securities laws or that the transfer of the shares is covered by an effective registration statement with respect to the shares.”

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5.Restrictions on Transfer. This Option may not be transferred, assigned, pledged or hypothecated and shall not be subject to execution, attachment or similar process. In the event the terms of this Paragraph 5 are not complied with by the Optionee, or if the Option is subject to execution, attachment or similar process, this Option shall immediately lapse and become null and void.

6.Anti-Dilution Provisions. If prior to the expiration of the Option there shall occur any change in outstanding Common Stock of the Company by reason of any stock dividend, stock split, spinoff, combination or exchange of shares, merger, consolidation, recapitalization, reorganization or the like, and as often as the same shall occur, then the kind and number of shares subject to the Option, or the purchase price per share of Common Stock, or both, shall be adjusted by the Board in such manner as it may deem equitable, the determination of which shall be binding and conclusive.

7.Acceptance of Provisions. The execution of this Agreement by the Optionee shall constitute the Optionee’s acceptance of and agreement to all terms and conditions of the Plan and this Agreement.

8.Notices. All notices and other communications required or permitted under the Plan and this Agreement shall be in writing and shall be given either by (i) personal delivery or regular mail, in each case against receipt, (ii) first class registered or certified mail, return receipt requested or (iii) facsimile transmission. Any such communication shall be deemed to have been given (a) on the date of receipt in the cases referred to in clauses (i) and (iii) of the preceding sentence and (b) on the second day after the date of mailing in the cases referred to in clause (ii) of the preceding sentence. All such communications to the Company shall be addressed to it, to the attention of its Secretary or Treasurer, at its then principal office and to the Optionee at his or her last address appearing on the records of the Company, or in each case, to such other person or address as may be designated by like notice hereunder.

9.Miscellaneous. This Agreement and the Plan contain a complete statement of all the arrangements between the parties with respect to their subject matter, and this Agreement may not be changed except by writing executed by both parties. This Agreement shall be governed and construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed exclusively in New Jersey. The headings of this Agreement are solely for convenience of reference and shall not affect its meaning or interpretation.

By:	______________________________
	Patrick M. Ryan
	Chief Executive Officer
	______________________________
	Optionee

EX-10.27

EXHIBIT 10.27

L E A S E A G R E M E N T

This AGREEMENT, made this this18 day of January 2006, between Danch Farm, LLC, c/o Crestwood Construction, 728 Estates Boulevard, Hamilton, NJ 08619, hereinafter designated as the Landlord, and Yardville National Bank 2465 Kuser Road, Hamilton, NJ 08690, hereinafter designated as the Tenant.

For and in consideration of the covenants herein contained, and upon the terms and conditions herein set forth, Landlord and Tenant agree as follows:

1. PREMISES. The Landlord does hereby lease to the Tenant and the Tenant does hereby rent from the Landlord, the following described premises, hereinafter referred to as "leased premises" or "premises": Part (20,000 square feet) on the third floor of an office building constructed near the intersection of Kuser and Yardville-Hamilton Square Roads in Hamilton Square, New Jersey on Block 2575, 180 in Hamilton Township, Mercer County, New Jersey with accessory, undesignated parking all as set forth on the approved site plan dated ______________ referred to as Exhibit A. The subject property is shown on the Hamilton Township Tax Map as Block 2575, Lot 180.

2. TERM. The term of this lease shall be ten (10) years. The term of this lease and Tenant's obligation to pay rent shall commence on the earlier of the first day of the month following the first full month of occupancy by Tenant or the first day of the month following the first full month after delivery of the leased premises to Tenant. Notice by Landlord to Tenant of substantial completion of Landlord's work on the leased premises, punch list items, and work contingent upon completion of Tenant's own work excepted, shall constitute delivery hereunder. Substantial Completion shall be deemed to have occurred upon the issuance of a Certificate of Occupancy for all of Landlord’s Work.

3. BASIC RENT. The Tenant shall pay to the Landlord, as basic rent for and during the term as follows:

First through fifth year-------$17.00 per sq. foot

Sixth through seventh year------18.00 per sq. foot

Eighth year--------------------$18.50 per sq. foot

Ninth and tenth year-----------$19.00 per sq. foot

Square footage shall be the total gross square footage calculated by measuring the perimeter of the building for each floor. This shall be the same calculation used by the municipality in assessing for taxes.

The first month’s rent is due on signing of this lease.

All rent is due and payable in advance on the first day of each and every month during the term of the lease. Tenant shall pay basic rent, and any additional rent as hereinafter provided, to Landlord at Landlord's above stated address, or at such other place as Landlord may designate in writing, without demand, counterclaim, deduction or setoff.

4. USE. Tenant shall continuously use and occupy the leased premises as an office building only and for no other purpose. This lease is binding on any and all successors to Tenant by way of merger, acquisition or otherwise.

5. CARE. The Tenant shall take good care of the premises and shall maintain the premises in good condition and state of repair ordinary wear and tear excepted. The Tenant shall neither encumber nor obstruct the sidewalks, parking areas and entrances.

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6. SURRENDER. On the last day, or earlier permitted termination of the lease term, Tenant shall quit and surrender the leased premises in good order and condition, ordinary wear and tear excepted. Prior to the expiration of the lease term, the Tenant shall remove all of its furniture, equipment and supplies from the premises, and shall repair any damage caused by such removal. Any property of the Tenant remaining on the premises after the last day of the term of this lease or after the earlier permitted termination of the lease term shall be conclusively deemed abandoned and may be removed or disposed of by Landlord. Tenant shall reimburse Landlord for the reasonable cost of such removal. Tenant shall maintain at Tenant=s cost and expense janitorial or custodial services for the buildings.

7. COMPLIANCE WITH LAWS. The Tenant shall comply with all laws, regulations, requirements and directives of the federal, state, county and municipal authorities applicable to the business to be conducted by the Tenant in the leased premises. Nothing herein shall constitute a representation by the Landlord that any such business other than office use may be conducted in the leased premises, or is permissible under the certificate of occupancy issued for the building of which the leased premises forms a part. Prior to the commencement of opening for business, the Tenant shall, at its expense, and the Landlord shall cooperate in obtaining from the municipality (if required) a C of O or use permit. The Tenant shall promptly comply with all requests, orders, regulations and directives of the Board of Fire Underwriters or insurance companies covering the leased premises for the prevention of fire or other casualty at Tenant's own cost and expense. Tenant represents that it shall not violate any rules or regulations of the occupational safety and health administration. The Tenant shall conduct its business in such a manner, both as regards noise and other nuisances, as will not unreasonably interfere with, annoy, or disturb any other Tenant in the conduct of its business or the Landlord in the management of the property. Landlord will likewise use its best efforts to make sure that no other tenant will interfere with, annoy or disturb the Tenant under this Lease Agreement.

8. SECURITY. The Tenant shall not be required to deposit with the Landlord any security payment

9. ASSIGNMENT, The Tenant shall not assign, mortgage or encumber this lease, nor sublet or sublease the premises or any part thereof, without the prior written consent of the Landlord, which consent shall not be unreasonably withheld. Landlord shall be under no obligation to consent to any use other than the use designated in this Lease not withstanding the Tenant may assign or sublease to an affiliate of the Tenant without the consent of the Landlord. This lease shall be binding upon Tenant and any acquirer or successor of Tenant. Notwithstanding the above, Tenant does not need Landlord=s consent or approval for the sale of Tenant=s stock.

10. NOTICES. All notices required under the terms of this lease shall be given and shall be complete by mailing such notices by certified or registered mail, return receipt requested, to the address of the parties as shown at the head of this lease, or to such other address as may be designated in writing, which notice of change of address shall be given in the same manner. All notices to Tenant may be mailed to the leased premises.

11. SEVERABILITY. The terms, conditions, covenants and provisions of this lease shall be deemed to be severable. If any clause or provision herein contained shall be adjudged to be invalid or unenforceable, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect.

12. INSPECTION. The Tenant agrees that the Landlord and the Landlord's agents, shall have the right to enter into and upon the said premises or any part thereof, at all reasonable hours and upon reasonable notice, while accompanied by a representative of Tenant, for the purpose of examining the same or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. The clause shall not be deemed to be a covenant by the Landlord nor be construed to create an obligation on the part of the Landlord to make such inspection or repairs. Landlord recognizes that the nature of the Tenant’s business may require security so as to deny Landlord access to portions of the premises except in emergency situations under controls acceptable to Tenant.

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13. TAX AND OPERATING PAYMENTS:

For the purposes of this Lease, the following definitions will apply:

•Operating Year - shall mean any calendar year, the whole or any portion of which is included within the term.

•Tax Year - shall mean each calendar year (whether or not such period is fixed as the fiscal year for Taxes (as hereinafter defined) or any component thereof by any Governmental Authority) the whole or any portion of which is within the term. If a fiscal period fixed or any component of Taxes by any Governmental Authority is a period other than a Tax Year, then such component of Taxes shall be averaged over the number of calendar months in such fiscal period and each such monthly portion shall be included in Taxes for the Tax Year in which such calendar month occurs.

•Base Tax and Operating Year - shall mean the Tax and Operating Year commencing on January 1, 2006 and ending December 31, 2006.

•Base Tax and Operating Amount - shall mean the Tax and Operating Expenses for the Base Tax and Operating Year.

•Tenant’s Share - shall mean a fraction (expressed as a percentage, and carried to four decimal places), the numerator of which is the number of rentable square feet contained in the premises and the denominator of which is 60,000. As of the date hereof, Tenant’s Share is one-third.

•Operating Expenses, for any Operating Year, shall be determined in accordance with the provisions of the following paragraphs (A) and (B), sequentially applied:

(A) Operating Expenses shall mean all reasonable expenses paid or incurred by, or on behalf of, Landlord in respect of the operation, management, maintenance and/or repair of the Real Property including, without limitation, (i) the cost of fuel, gas, steam, electricity (excluding electricity furnished to specific tenant premises for which Landlord receives payment directly from the tenant in a manner other than by inclusion in Operating Expenses), heat, ventilation, air conditioning and chilled or condenser water, water, sewer (provided such water and sewer charges are not included in Taxes and are not paid by the Tenant directly) and other utilities, together with any taxes and surcharges on, and fees paid in connection with the calculation and billing of, such utilities; (ii) the cost of painting and/or decorating all areas of the Real Property (excluding, however, any leasable areas of the Building); (iii) the cost of casualty, liability, fidelity, rent and all other insurance regarding the Real Property and/or any property thereon (together with amounts paid or incurred on account of any commercially reasonable deductible therein); (iv) the cost of all supplies, tools, materials and equipment whether by purchase or rental, used in the operation, management, maintenance and/or repair of the Real Property; (v) the cost of security services, glass cleaning, snow and ice removal and garbage and waste collection and/or disposal; (vi) the cost of all interior and exterior landscaping; (vii) the cost of alterations and/or repairs made in or to the Real Property; (viii) reasonable and customary management fees not to exceed 15% times the total Operating Expenses (excluding real estate taxes and insurance); (xiii) all costs, charges and expenses

incurred by Landlord in connection with any change of any company providing electric supply or service, including, without limitation, maintenance, repair, installation and service costs associated therewith; and (xiv) all other fees, costs, charges and expenses properly allocable to the operation, management, maintenance and/or repair of the Real Property, in accordance with then prevailing customs and practices of the commercial office real estate industry in the general vicinity of the Real Property.

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B. Operating Expenses shall not, however, include the following items (1) depreciation of the Building; (2) interest on, and amortization of, Mortgages and other debts; (3) the cost of tenant improvements made for tenant(s) of the Building, including permit, license and inspection fees; (4) brokerage commissions; (5) financing or refinancing costs; (6) the cost of any work or services performed for any tenant(s) of the building (including Tenant), whether at the expense of Landlord or such tenants, to the extent that such work or services either (a) consist of work or services that Landlord is not required to furnish to Tenant under this Lease or (b) are furnished in a manner materially higher in quality than the like work or services which Landlord furnishes to Tenant under this Lease; or (7) Taxes.

•Taxes for any Tax Year shall mean - (A) all real estate taxes, water and sewer rents or charges, school taxes, vault taxes, assessments and special assessments levied, assessed or imposed upon or with respect to the Real Property (as described in Article I hereof) by any Governmental Authority. Taxes shall also include al taxes assessed or imposed upon Landlord with respect to the rents received from the Real Property (but not any general income taxes, gross receipts taxes or corporate franchise taxes, except to the extent provided in the following sentence). If at any time during the Term, the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to or as a substitute for, the whole or any part of the taxes, charges or assessments now levied assessed or imposed, there shall be levied, assessed or imposed a new tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the Real Property or the rents received from the Real Property, then such additional or substitute tax, assessment, levy, imposition, fee or charge shall be included within Taxes for purposes hereof. Finally, Taxes shall also include any payments in lieu of ATaxes@ payable in connection with any tax exemption obtained from any Governmental Authority with respect to the Real Property.

Tenant agrees to pay as additional rent, promptly and without demand, its proportionate share of all real estate taxes, and operating expenses affecting the real estate (land and building) of which the leased premises form a part. The Landlord and Tenant agree that the proportionate share of the above taxes, and operating expenses to be paid by the Tenant, under the terms of this paragraph shall be computed on the basis of the Tenant’s share. Landlord and Tenant further agree that Tenant shall pay its proportionate share of the above taxes, and operating expenses monthly by paying one-twelfth the estimated amount with each basic monthly rent installment in a manner similar to the escrow system used by banks in connection with residential mortgages. Annually Landlord, upon submission of the tax, and operating expenses, shall compute any differences from the estimated monthly payments, notify Tenant of same, and the adjustment of the difference shall be made with the next due installment of the basic monthly rent. Photocopies of the tax bill, and operating expenses, submitted by the Landlord to the Tenant, shall be sufficient evidence of the amount of taxes and operating expenses.

Tenant shall have the right, on an annual basis and at the Tenant’s sole cost, to audit the Operating Expenses charged by the Landlord.

14. QUIET ENJOYMENT. The Landlord represents that the Landlord is the owner of the premises herein leased and has the right and authority to enter into, execute and deliver this lease; and does further covenant that the Tenant on paying the rent and performing the conditions and covenants herein contained, shall and may peaceably and quietly have, hold and enjoy the leased premises for the term aforementioned.

15. MORTGAGE PRIORITY. This lease shall not be a lien against the said premises in respect to any mortgages that may hereafter be placed upon said premises. The recording of such mortgage shall have preference and precedence and be superior and prior in lien to this lease, irrespective of the date of recording. The Tenant agrees to execute any instruments, without cost, which may be deemed necessary or desirable, to effect the subordination of this lease to any such mortgage provided said mortgagee executes a nondisturbance and attornment agreement in a form satisfactory to Tenant. A refusal by the Tenant to execute such instruments shall entitle the Landlord to cancel this lease. The term hereof is expressly limited accordingly.

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16. SIGNS. The Tenant shall not place nor allow to be placed any signs of any kind whatsoever, upon, in or about the leased premises without the prior written consent of the Landlord, which consent will not be unreasonably withheld. Landlord agrees, if required by Tenant, to attach at Tenant's own cost and expense an illuminated sign onto a freestanding sign that may be erected by Landlord. Tenant may erect at Tenant's own cost and expense an illuminated sign on the exterior of the leased premises. All signs herein erected shall be approved, before erection, by the Landlord in writing as to size, location, content and color. Landlord reserves the right to require Tenant to keep signs lighted at night up until a designated hour. Any signs permitted by the Landlord shall at all times conform with all municipal ordinances or other laws and regulations applicable thereto.

17. PARKING. Tenant agrees not to park and to require its employees and other non-customers to refrain from parking any vehicle on Landlord's land in such places as may be designated by Landlord for the use of a particular Tenant, its employees, and others. Said restricted parking areas shall be set forth on the attached site plan and will not be changed following the execution of this Lease unless consented to in writing by the Tenant Landlord and Tenant agree that during the term of this Lease, employees and visitors/customers of Tenant shall be entitled to the non-exclusive use, free of charge but in common with others, of the driveways, foot--ways and parking areas in the subject property of which the leased premises form a part; provided that such use by both Tenant and its customers shall be subject to the limitations of said driveways, foot-ways and parking area to accommodate the same, and provided further, that Landlord shall at all times have full control, management and direction of said driveways, foot-ways and parking areas, and that Landlord shall have the right at any time to change the layout thereof.

18. UTILITIES AND SERVICES:

As used herein, the terms ”Business Hours” shall mean the hours between 8:00 a.m. and 6:00 p.m. on Business Days, and the hours between 8:00 a.m. and 1:00 p.m. on Saturdays (other than Saturdays which re Holidays), and ”Business Days” shall mean all days except Saturdays, Sundays and Holidays. The term ”Holidays” shall mean New Year’s Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the day following Thanksgiving and Christmas. The term ”Building Services” shall mean the services required to be provided to Tenant by Landlord pursuant to this Article 18.

18.l Electricity and Water: Landlord shall furnish reasonable quantities of hot and cold water to the Core Lavatories located on each floor of the premises for core lavatory and cleaning purposes and hot and cold water to the area used by Tenant as a “kitchen or break room”. Landlord shall also furnish electricity for common areas within and without the premises. Tenant shall pay its proportionate share of these charges as common area charges. Tenant’s electricity will be provided through a separate meter for the floor Tenant occupies and Tenant shall be responsible for one-hundred percent of those charges.

18.3: HVAC Services: Landlord, during business hours, shall furnish heat, ventilation and air conditioning (”HVAC”) to the premises as may be reasonably required (except as otherwise provided in this Lease and except for any special requirements of Tenant arising from its particular use of Premises) for reasonably comfortable occupancy of the Premises. All to be billed to Tenant proportionately as a common area charge.

19. LANDLORD'S EXCULPATION. The Landlord shall not be liable for any damage or injury which may be sustained by the Tenant or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or of the electrical, gas, power, refrigeration, sprinkler, air-conditioning or heating systems; or by reason of the elements; or resulting from the carelessness, negligence or improper conduct or of the Landlord or this or any other Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors; or attributable to any interference with, interruption of or failure, beyond the control of the Landlord, of any services to be furnished or supplied by the Landlord. Nor shall Tenant be liable in any such instances or events except for acts of its agents, servants or employees. Notwithstanding the above, if the utility services are interrupted due to no fault of the Tenant but due to the fault of the Landlord for a period of more than ten (10) days, then Tenant will be entitled to an abatement of rent until such time as the utilities are returned to service. Tenant and Landlord both agree to use their best efforts to have the utilities returned to service as soon as possible. In the event the utility or utilities are not restored for a period of six (6) months, then Tenant shall have the right to cancel this Lease Agreement unless the

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non-restoration of services results from the fault of Tenant. Also, Landlord shall not be exculpated from liability resulting from any gross negligence or willful or wanton acts of the Landlord, or any of its agents, employees, guests, licensees, invitees, assignees or successors.

20. LIABILITY INSURANCE. Tenant shall keep in force at its own expense, so long as this Lease remains in effect, public liability insurance in companies acceptable to the Landlord with respect to the premises, in form satisfactory to Landlord covering both Landlord and Tenant with minimum limits of $2,000,000 per person and $5,000,000 per accident and in which the property damage liability shall be not less than $100,000. Tenant will deposit the policy of such insurance or certificates thereof with Landlord within 15 days of occupying said premises.

21. PLATE GLASS. Tenant shall keep in force at its own expense plate glass insurance with respect to the premises insuring against all cracks, damaged and broken plate glass and the replacement thereof. The obligation of the Tenant to carry such insurance shall not relieve the Tenant from the obligation to maintain, repair and replace all plate and other glass in the leased premises.

22. NON-PERFORMANCE BY LANDLORD. This lease and the obligation of the Tenant to pay the rent hereunder and to comply with the covenants and conditions hereof, shall not be affected, curtailed, impaired or excused because of the Landlord's inability to supply any service, by reason of any rule, order regulation or preemption by any governmental entity, authority, department, agency or subdivision or for any delay which may arise by reason of negotiations for the adjustment of any fire or other casualty loss or because of strikes or other labor trouble or for any cause beyond the control of the Landlord. This Section does not apply to Tenant’s remedies following an interruption of utility services as provided in Section 19.

23. REIMBURSEMENT OF LANDLORD. If the Tenant shall fail or refuse to comply with or perform any conditions and covenants of the within lease, the Landlord may, if the Landlord so elects, carry out and perform such conditions and covenants, at the cost and expense of the Tenant, and the said cost and expense shall be payable on demand, or at the option of the Landlord, shall he added to the installment of rent due immediately thereafter, but in no case later than one month after such demand. This remedy shall be in addition to such other remedies as the Landlord may have hereunder by reason of the breach by the Tenant. Landlord’s rights hereunder shall apply only after giving Tenant reasonable notice to cure the covenant or condition alleged to have not been complied with. Likewise, if the Landlord shall fail or refuse to comply or perform any conditions or covenants of the within Lease, the Tenant may, if the Tenant so elects, carry out and perform such conditions or covenants, at the cost and expense of the Landlord, and the said cost and expense shall be deducted from any future rent payable to the Landlord. This remedy shall be in addition to such other remedies as the Tenant may have hereunder by reason of a breach by the Landlord. Tenant’s rights hereunder shall apply only after giving Landlord reasonable notice to cure the covenant or condition alleged to have not been complied with.

24. CONDEMNATION. If the land and premises leased herein, or of which the leased premises are a part, or any portion thereof, shall be taken under eminent domain or condemnation proceeding, or if suit or other action shall be instituted for the taking or condemnation thereof, or if in lieu of any formal condemnation proceedings or actions, the Landlord shall grant an option to purchase and or shall sell and convey the said premises or any portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land and premises or any portion thereof, then this lease shall terminate, and the term hereof shall end as of such date as the Landlord shall fix by notice in writing; and the Tenant shall have no claim or right to claim or be entitled to any portion of any amount which may be awarded as damages or paid as the result of such condemnation proceedings or paid as the purchase price for such option, sale or conveyance in lieu of formal condemnation proceedings. The Tenant agrees to execute and deliver any instruments as may be deemed necessary or required to expedite any condemnation proceedings or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the said lands and premises or any portion thereof. The Tenant covenants and agrees to vacate the said premises, remove all the Tenant's personal property there from and deliver up peaceable possession thereof to the Landlord or to such other party designated by the Landlord in the, aforementioned notice. Failure by the Tenant to comply with any Provisions in this clause shall subject the Tenant to such costs, expenses, damages and losses as the Landlord may incur by reason of the Tenant's breach hereof. Nothing herein shall be

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construed to prevent the Tenant from prosecuting in any condemnation proceedings, a claim for the value of its interest, but in no event shall any award to the Tenant interfere with any award to the Landlord for the value of the land, building, or leasehold.

25. ALTERATION. No alterations, installations, additions, or improvements shall be made, installed or attached to the leased premises, without the written consent of the Landlord which consent shall not be unreasonably withheld. Unless otherwise provided herein, all such alterations, additions or improvements and installations, when made, installed or attached to the said premises, shall belong to and become the property of the Landlord and shall be surrendered with the premises and as part thereof upon the expiration or termination of this Lease. Notwithstanding the above, Tenant is permitted to make any nonstructural improvement inside the leased premises without the Landlord’s consent.

26. FIXTURES. It is agreed that the Tenant shall have the right to install whatever trade equipment, fixtures and inventory as may be deemed necessary by the Tenant for the conduct of the business for which the premises have been leased, subject to compliance with applicable rules and regulations of governmental boards having jurisdiction thereof. Any trade equipment, fixtures or inventory of the Tenant, not removed by the Tenant upon the termination of this Lease, or upon any quitting, vacating or abandonment of the premises by the Tenant, or upon Tenant's eviction, shall be considered as abandoned and the Landlord shall have the right, without notice to the Tenant, to sell or otherwise dispose of the same and shall not be accountable to the Tenant for any part of the proceeds of such sale, if any.

27. LANDLORD'S LIEN. Upon any default by Tenant herein, Landlord shall have a lien and security interest on all trade equipment, f fixtures and inventory of Tenant, in addition to any other remedies that may be available to Landlord.

28. FIRE OR OTHER CASUALTY. In case of fire or other casualty, the Tenant shall give immediate notice to the Landlord. If the premises shall be partially damaged by fire, the elements or other casualty, the Landlord shall repair the same as speedily as practicable, but the Tenant's obligation to pay the rent hereunder shall not cease. If, in the opinion of the Landlord or the Tenant, the premises be so extensively and substantially damaged as to render them untenantable, then the rent shall cease until such time as the premises shall be made tenantable by the Landlord. However, if, in the opinion of the Landlord, the premises be totally destroyed or so extensively and substantially damaged as to require practically a rebuilding thereof, then the rent shall be paid up to the time of such destruction and then and from thenceforth this lease shall come to an end. In no event however, shall the provisions of this clause become effective or be applicable, if the fire or other casualty and damage shall be the result of the carelessness, negligence or improper conduct of the Tenant or the Tenant's employees. In such case, the Tenant's liability for the payment of the rent and the performance of all the covenants, conditions and terms hereof on the Tenant's part to be performed shall continue. If the Tenant shall have been insured against any of the risks herein covered, then the proceeds of such insurance shall be paid over to the Landlord to the extent of the Landlord' s cost and expenses to make the repairs hereunder, and such insurance carriers shall have no recourse against the Landlord for reimbursement. Notwithstanding the above, if the Landlord cannot repair the damages to the leased premises within a six (6) month period, then the Tenant shall have the right to terminate this Lease and the rent shall be due and owing only up until the date of the fire or other casualty.

29. INCREASE IN FIRE INSURANCE RATE. Tenant agrees that in the event the Tenant's use and occupancy of the leased premises, causes, for any reason whatsoever, any additional charge or increase in the rate of insurance on the building of which the leased premises are a part, or in the event the rate of insurance on the building can be decreased by an act of the Tenant, or by his compliance with recommendations of the Landlord, or it Agents, then and in either of such events, the Tenant shall, from time to time immediately upon receipt of notice, do whatever is deemed necessary, and follow whatever recommendations may be made, by the Landlord or its Agents in order that such excess charge or increase in rate of insurance on the building so caused by such tenancy, use or occupancy of the leased premises, by the Tenant may be removed, or the lower rate obtained; or, in event conditions are such that nothing can be done, by way of improvements or otherwise, to remove such extra and additional charge or increase of rate of insurance on the building, or the expense involved is excessive, then the Tenant shall pay the Landlord as

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additional rent the increased or additional cost of such insurance on the building. In determining whether additional insurance costs are the result of Tenant's use and occupancy of the leased premises, a schedule issued by the organization making the insurance rate and showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up the insurance rate.

30. REFUSE. Landlord shall at its own cost and expense maintain a refuse container. Such container shall be adequate in size and structure for the Tenant’s use and kept in good and secure condition. Such container shall be located in an area designated by the Landlord. Tenant: shall not permit undue accumulations of trash, rubbish and other refuse.

31. CLEANLINESS. Tenant agrees to maintain the lease premised, at its own expense, in a clean, orderly and sanitary condition and free of insects, rodents, vermin and other pests. Tenant also agrees not to cause or permit objectionable odors to emanate or be dispelled from the leased premises.

32. TENANT REPAIRS. Tenant agrees to keep the interior of the leased premises in good order and condition at its own expense and to make all necessary repairs and replacements with respect to the leased premises.

33. LANDLORD REPAIRS. Landlord shall maintain the structural portions (which shall constitute the exterior walls, the support columns of the building and the foundation) of the leased premises, but if Landlord is required to make repairs to structural portions by reason of Tenant's negligent acts or omissions to act, Landlord may add the cost of such repairs to the rent which shall thereafter become due. Landlord shall be responsible for the roof, unless damage is caused by the Tenant or Tenant installations. Landlord shall be responsible for all electrical, plumbing, heating and other mechanical installation within the premises and building. Above repairs that are the responsibility of the Landlord shall become part of and be added to the common area expense provided, however, that any capital repairs will be amortized over the useful life of the repair and allocated to the tenants in the building in accordance with that amortization.

34. SITE REVISIONS. The Landlord herein reserves the right at any time to make changes or revisions in the parking areas, to make alterations thereof, additions thereto, and to construct additional buildings as permitted by applicable land use laws and regulations provided such changes, revisions, alterations, additions or construction do not materially impact the Tenant’s use of premises or decrease the number of available parking spaces.

35. DAMAGE. In case of the destruction of or damage of any kind whatsoever to the said premises, caused by the carelessness, negligence or improper conduct on the part of the Tenant or the Tenant's agents, employees, or invitees, the Tenant shall repair the said damage or replace or restore any destroyed parts of the premises, as speedily as possible, at the Tenant's own cost and expense or from insurance proceeds.

36. INDEMNIFICATION:

A. Tenant shall indemnify and hold harmless Landlord from and against any and all claims arising from or in connection with: (a) the conduct or management of the premises or of any business therein, or any work or thing whatsoever done or, any condition created (other than by Landlord) in or about the premises during the Term; (b) any act, omission or negligence of Tenant; (c) any accident, injury or damage whatever (except to the extent caused by Landlord’s negligence) occurring in, at or upon the premises; and (d) and breach or default by Tenant under this Lease; together with all reasonable costs, expenses and liabilities incurred in or in connection with each such claim, or any action or proceeding brought thereon, including all reasonable attorneys’ fees and expenses.

B. Landlord shall indemnify and hold harmless Tenant from and against any and all claims arising from or in connection with: (a) the conduct or management of the Public Areas, or any work or thing whatsoever done, or any condition created (other than by Tenant) in the Public Areas during the Term; (b) any act, omission or negligence of Landlord (other than with respect to conditions in the premises); (c) any accident, injury or damage whatever (except to the extent caused by Tenant’s negligence) occurring in, at or upon the Public Areas; (d) any breach or default by Landlord under this Lease; together with all reasonable costs, expenses and liabilities incurred in or in connection with each such claim, or any action or proceeding brought thereon, including all reasonable attorneys’ fees and

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expenses.

37. LATE PENALTY. Any rent due under the terms of this Lease and not received by the Landlord by the fifth work day of the month in which it is due will be subject to a late penalty of the maximum amount permitted by law, but not to exceed five (5%) percent. The late penalty shall be imposed at the discretion of the Landlord and if so imposed shall be payable by the Tenant on demand of the Landlord. Landlord's failure to impose penalty shall not constitute any waiver of this paragraph. The late penalty shall be deemed additional rent.

38. REMEDIES UPON TENANT'S DEFAULT. If Tenant defaults in fulfilling any of the covenants of this Lease other than the covenants for the payment of rent or additional rent, then in any one or more such events upon the Landlord serving a written five (5) day notice upon Tenant specifying the nature of said default and upon the expiration of said five (5) days, if Tenant shall have failed to comply with or remedy such default or if the said default or omission complained of shall be nature that the same cannot be completely cured or remedial within said five (5) day period, and if Tenant shall not have diligently commenced curing such default within such five (5) day period and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Landlord may serve a written three (3) days’ notice of cancellation of this Lease upon Tenant, and upon the expiration of said three (3) days this Lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this Lease and the term thereof and Tenant shall quit and surrender the demised premises to the Landlord but Tenant shall remain liable for rent and other charges as hereinafter provided.

39. TERMINATION ON DEFAULT. Upon the occurrence of any of the contingencies set forth in the preceding clause, or should the Tenant be adjudicated a bankrupt, insolvent or placed in receivership, or should proceedings be instituted by or against the Tenant for bankruptcy, insolvency, receivership, agreement of composition or assignment for the benefit of creditors, or if this lease or the estate of the Tenant hereunder shall pass to another by virtue of any court proceedings, writ or execution, levy, sale, or by operation of law, the Landlord may, if the Landlord so elects, at any time thereafter, terminate this lease and the term hereof, upon giving to the Tenant or to any trustee, receiver, assignee or other person in charge of or acting as custodian of the assets or property of the Tenant, five days notice in writing, of the Landlord's intention so to do. Upon the giving of such notice, this lease and the term hereof shall end on the date fixed in such notice as if the said date was the date originally fixed in this lease for the expiration hereof; and the Landlord shall have the right to remove all persons, goods, fixtures, and chattels there from, by force or otherwise, without liability for damages. In the event that the relationship of Landlord and Tenant may cease or terminate by reason of the default by the Tenant or by the ejectment of the Tenant by judicial proceedings, or after the abandonment of the premises by the Tenant, it is hereby agreed that the Tenant shall remain liable for rent and costs as stated in above paragraph 38.

40. NON-WAIVER. The various rights, remedies, options and elections of the Landlord, expressed herein, are cumulative, and the failure of the Landlord to enforce strict performance by the Tenant of the conditions and covenants of this lease or to exercise any election or option or to resort or have recourse to any remedy herein conferred or the acceptance by the Landlord of any installment of rent after any breach by the Tenant, in any one or more instances, shall not be construed or deemed to be a waiver or a relinquishment for the future by the Landlord of any such conditions and covenants, options, elections or remedies, but the same shall continue in full force and effect.

41. RIGHT TO EXHIBIT. The Tenant agrees to permit the Landlord and the Landlord's agents to show the premises to persons wishing to rent or purchase the same, and Tenant agrees that on and after 180 days next preceding the expiration of the term hereof, the Landlord or the Landlord's agents shall have the right to place notices on the front of said premises or any part thereof, offering the premises for rent or for sale; and the Tenant hereby agrees to permit the same to remain thereon without hindrance.

42. RULES AND REGULATIONS. Tenant agrees to abide by reasonable rules and regulations established by the Landlord and provided to the Tenant from the Landlord from time to time for the operation of the property owner’s association, if any, premises of which the leased premises form a part. Said rules and regulations to include but not

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limited to a provision for lighting at night. See attached Maintenance Agreement.

43. ABANDONMENT. Tenant shall continuously throughout the term of this Lease conduct and carry on the type of business for which the premises have been leased. Tenant shall not allow the leased premises to become vacant or deserted for a period of more than six (6) months.

44. WAIVER OF JURY TRIAL. Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in connection with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the premises, and/or claim, injury or damage.

45. ENFORCEMENT. Tenant shall pay, upon demand, all of Landlord's reasonable costs, charges and expenses, including the fees of counsel, agents and others retained by Landlord, incurred in enforcing Tenant's obligation to pay the basic and additional rents due under this lease. In actions to enforce any other provision of this Lease, the losing party shall be responsible for the other party’s reasonable costs, charges, expenses and counsel, expert and other fees, incurred in such actions.

46. LOSS OF PROPERTY. Landlord shall not be liable for any loss of property by Tenant from any cause whatsoever, including, but not limited to theft or burglary from the leased premises, and Tenant covenants and agrees to make no claim for any such loss at any time unless due to gross negligence of the Landlord or its agents, employees or invitees.

47. ENTIRE AGREEMENT. This lease contains the entire agreement between the parties, no representative, agent or employee of the Landlord has been authorized to make any representations or promises with reference to the within letting or to vary, alter or modify the terms hereof. No additions, changes or modifications, renewals or extensions hereof, shall be binding unless reduced to writing and signed by the Landlord and the Tenant.

48. ADDITIONAL RENT. Any payments required to be made by Tenant. Whether to Landlord or otherwise, under this lease shall be deemed to be additional rent, whether or not so designated in the lease. Landlord shall be entitled to all remedies available to Landlord of non-payment of rent in the event that Tenant fails to pay any such payment.

49. BROKER. Tenant warrants and represents that it has not dealt or negotiated with any real estate broker or salesperson in connection with this Lease agreement other than Maguire Burke Realtors and that it shall indemnify and hold Landlord harmless from any costs, claims or damages by any other person or firm claiming to have negotiated or brought about this Lease. Landlord recognizes Maguire Burke Realtors as the agent and agrees to pay five percent (5%) of the net base rent during the term hereof to said agent.

50. PHOTOCOPIES. Photocopies bearing original signatures of the parties shall be deemed to be original documents, and the parties hereto and lending institutions may rely upon said photocopies bearing original signatures as such originals.

51. EXECUTION. The submission of this Lease for examination does not constitute a reservation of or option for the premises. This Lease agreement shall become effective only upon execution by both Landlord and Tenant.

52. HEADINGS. The headings contained in the body of this lease agreement are for purposes of identification only, and are not a part of the agreement between the parties.

53. PERSONAL LIABILITY. Notwithstanding anything to the contrary provided in this lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this lease by Landlord, that there shall be absolutely no personal liability on the part of Landlord, its Partners, nor their successors, with respect to any of the terms and conditions of this lease. The Tenant shall look solely to the equity of the Landlord in the Premises for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord of any of the terms and conditions of this lease to be performed by Landlord, such exculpation of liability to be absolute

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and without any exceptions whatsoever.

54. LANDLORD INSTALLATION. Landlord’s work is described in the attached plan prepared by Steve Cohen, Architect.

55. TENANT WORK. Tenant is permitted to enter the leased premises prior to commencement of the lease term in order to prepare the premises, provided however, that such entry does not interfere, impede or disrupt the Landlord nor violate any township ordinances.

The parties hereto have executed this Lease Agreement on the day and year first above written.

As to Landlord:		As to Tenant:
Danch Farm, LLC		Yardville National Bank
By:	/s/ John Klein, III	By:	/s/ Patrick M. Ryan
	John Klein, III		Patrick M. Ryan
			President/CEO

EX-21

EXHIBIT 21

List of Subsidiaries of the Registrant

Yardville National Bancorp Subsidiaries

1. The Yardville National Bank, a national banking association organized under the laws of the United States (the “Bank”)

2. Yardville Capital Trust, a Delaware business trust

3. Yardville Capital Trust II, a Delaware business trust

4. Yardville Capital Trust III, a Delaware business trust

5. Yardville Capital Trust IV, a Delaware business trust

6. Yardville Capital Trust V, a Delaware business trust

7. Yardville Capital Trust VI, a Delaware business trust

The Yardville National Bank Direct and Indirect Subsidiaries

8. Yardville National Investment Corporation, a New Jersey corporation (wholly-owned subsidiary of the Bank)

9. YNB Real Estate Holding Co., Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

10. Brendan, Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

11. YNB Financial Services, Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

12. Nancy Beth, Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

13. YNB Realty, Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

14. Jim Mary, Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

15. YNB Capital Development, Inc., a New Jersey corporation (wholly-owned subsidiary of the Bank)

16. Kuser Capital Corporation, a Delaware corporation (wholly-owned subsidiary of Yardville National Investment Corporation)

17. Kuser Investment Corporation, a Delaware corporation (wholly-owned subsidiary of Yardville National Investment Corporation)

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Yardville National Bancorp:

We consent to the incorporation by reference in the registration statements (No. 333-98076, No. 333-28193, No. 333-71741, No. 333-102932, No. 333-115891 and No. 333-131142) on Form S-8 and registration statements (No. 333-109706 and No. 333-104478 and No. 333-136111) on Form S-3 of Yardville National Bancorp and subsidiaries of our report dated March 30, 2007 with respect to the consolidated statements of condition of Yardville National Bancorp and subsidiaries as of December 31, 2006 and 2005, 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, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports are incorporated by reference in the December 31, 2006 Annual Report on Form10-K of Yardville National Bancorp.

Our report dated March 30, 2007, on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2006, expresses our opinion that Yardville National Bancorp and subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2006 because the effect of a material weakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that there were ineffective policies and procedures related to the loan risk rating process by loan officers. Specifically, the Company’s policies and procedures did not provide for effective updating of risk ratings on seasoned loans and there was ineffective monitoring and review by credit risk review personnel to identify and resolve discrepancies in risk ratings on seasoned loans as compared to the Company’s standard risk rating matrix. This deficiency resulted in material misstatements in the Company’s allowance for loan losses and provision for loan losses in the preliminary 2006 consolidated financial statements, and resulted in more than a remote likelihood that a material misstatement of the Company’s annual or interim consolidated financial statements would not be prevented or detected.

/s/KPMG LLP

Short Hills, New Jersey

March 30, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Patrick M. Ryan, Chief Executive Officer, certify that:

1.I have reviewed this annual report on Form 10-K of Yardville National Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2007	By:	Patrick M. Ryan
	Name:	Patrick M. Ryan
	Title:	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Stephen F. Carman, Vice President and Treasurer, certify that:

1.I have reviewed this annual report on Form 10-K of Yardville National Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2007	By:	Stephen F. Carman
	Name:	Stephen F. Carman
	Title:	Vice President and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Yardville National Bancorp (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick M. Ryan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Patrick M. Ryan

Patrick M. Ryan

Chief Executive Officer

March 30, 2007

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Yardville National Bancorp (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen F. Carman, Vice President and Treasurer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Stephen F. Carman

Stephen F. Carman

Vice President and Treasurer

March 30, 2007