FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-6451
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Summit Bancorp.
- --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1903313
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Carnegie Center, P.O. Box 2066, Princeton, New Jersey 08543-2066
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(Address of principal executive offices) (Zip Code)
(609) 987-3200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
As of July 31, 1996 there were 93,725,953 shares
of common stock, $1.20 par value, outstanding.
<PAGE>
SUMMIT BANCORP.
FORM 10-Q
INDEX
Part I. Financial Information. Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996, December 31, 1995 and June 30, 1995.........2
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1996 and 1995..........3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995....................4
Consolidated Statements of Shareholders' Equity -
Six Months Ended June 30, 1996 and 1995....................5
Consolidated Average Balance Sheets With Resultant
Interest and Rates -
Six Months Ended June 30, 1996 and 1995...................6
Notes to Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................9
Part II. Other Information.
Item 1. Legal Proceedings...................................17
Item 4. Submission of Matters to a Vote of Security Holders.18
Item 5. Other Information...................................20
Item 6. Exhibits and Reports on Form 8-K....................21
Signatures.......................................................22
Exhibit Index....................................................23
1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS.
- ------------------------------
<TABLE>
SUMMIT BANCORP.
CONSOLIDATED BALANCE SHEETS
Unaudited
(dollars in thousands)
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------- ------------ ------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 1,317,647 $ 1,337,718 $ 1,344,387
Federal funds sold and securities purchased under agreements to resell 62,517 161,650 183,868
------------- ------------ ------------
Total cash and cash equivalents 1,380,164 1,499,368 1,528,255
Interest bearing deposits with banks 21,269 18,329 13,288
Trading account securities 16,271 28,637 42,700
Securities available for sale 2,370,337 2,408,065 925,056
Securities held to maturity:
U.S. Government and Federal agencies 1,594,937 1,261,172 2,456,811
States and political subdivisions 253,856 271,621 333,479
Other securities 1,460,725 1,514,287 1,933,386
------------- ------------ ------------
Total securities held to maturity 3,309,518 3,047,080 4,723,676
Loans (net of unearned discount):
Commercial 5,402,011 5,321,047 5,259,333
Residential mortgage 3,633,411 3,296,818 2,908,839
Commercial mortgage 2,391,417 2,315,384 2,233,322
Consumer 3,322,828 3,086,325 2,819,591
------------- ------------ ------------
Total loans 14,749,667 14,019,574 13,221,085
Less: Allowance for loan losses 276,017 279,034 290,366
------------- ------------ ------------
Net loans 14,473,650 13,740,540 12,930,719
Premises and equipment 212,337 206,691 210,401
Assets held for accelerated disposition 5,055 16,650 30,044
Accrued interest receivable 106,252 132,441 119,703
Other real estate owned, net 23,262 24,295 37,252
Due from customers on acceptances 17,799 26,740 20,101
Other assets 450,873 388,099 371,601
------------- ------------ ------------
Total Assets $ 22,386,787 $ 21,536,935 $ 20,952,796
============= ============ ============
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 3,817,786 $ 3,873,801 $ 3,731,503
Interest bearing deposits:
Savings and time deposits 13,590,365 13,373,864 12,943,148
Commercial certificates of deposit $100,000 and over 790,315 707,438 510,978
------------- ------------ ------------
Total deposits 18,198,466 17,955,103 17,185,629
Commercial paper 48,734 38,503 45,947
Other borrowed funds 1,512,624 1,004,053 1,252,686
Long-term debt 392,863 424,862 522,890
Accrued interest payable 47,507 45,567 53,985
Bank acceptances outstanding 17,799 26,740 20,101
Accrued expenses and other liabilities 309,013 239,791 243,234
------------- ------------ ------------
Total liabilities 20,527,006 19,734,619 19,324,472
Shareholders' equity:
Preferred stock without par value:
Series B: Authorized 1,200,000; issued and outstanding 600,166 in
1996 and 1995, adjustable-rate cumulative, $50 stated value 30,008 30,008 30,008
Series C: Authorized 800,000; issued and outstanding 504,481 in
1996 and 1995, adjustable-rate cumulative, $25 stated value 12,612 12,612 12,612
Common stock par value $1.20:
Authorized 130,000,000 shares; issued and outstanding 93,712,791
at June 30, 1996; 88,471,028 at December 31, 1995 and
85,719,170 at June 30, 1995 112,455 106,165 102,863
Surplus 874,976 826,788 742,308
Retained earnings 838,416 821,579 745,010
Net unrealized gain (loss) on securities, net of tax (8,686) 5,164 (4,477)
------------- ------------ ------------
Total shareholders' equity 1,859,781 1,802,316 1,628,324
------------- ------------ ------------
Total Liabilities and Shareholders' Equity $ 22,386,787 $ 21,536,935 $ 20,952,796
============= ============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
SUMMIT BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(dollars in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 591,315 $ 554,215 $ 296,186 $ 280,794
Interest on securities held to maturity:
Taxable 93,449 135,011 46,705 68,041
Tax-exempt 9,356 11,663 4,561 5,751
Interest on securities available for sale 76,535 31,014 37,324 15,364
Interest on Federal funds sold and securities
purchased under agreements to resell 1,613 3,968 498 3,256
Interest on trading account securities 919 804 351 538
Interest on deposits with banks 412 375 221 146
----------- ----------- ----------- -----------
Total interest income 773,599 737,050 385,846 373,890
Interest Expense
Interest on savings and time deposits 242,920 228,530 119,319 120,211
Interest on commercial certificates of deposit
$100,000 and over 20,901 18,464 10,360 9,466
Interest on borrowed funds 55,677 59,756 28,057 29,501
----------- ----------- ----------- -----------
Total interest expense 319,498 306,750 157,736 159,178
----------- ----------- ----------- -----------
Net interest income 454,101 430,300 228,110 214,712
Provision for loan losses 31,000 33,150 15,500 16,950
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 423,101 397,150 212,610 197,762
Non-Interest Income
Service charges on deposit accounts 47,837 42,345 24,381 21,325
Service and loan fee income 20,695 15,948 10,126 8,700
Trust income 18,812 16,463 9,569 8,131
Securities gains 2,263 5,046 1,506 2,820
Trading account gains 106 667 75 303
Other 31,388 27,439 17,181 14,639
----------- ----------- ----------- -----------
Total non-interest income 121,101 107,908 62,838 55,918
Non-Interest Expenses
Salaries 125,022 124,319 62,030 62,027
Pension and other employee benefits 44,044 44,824 20,117 22,527
Occupancy, net 38,474 34,950 18,233 17,237
Furniture and equipment 31,672 29,862 16,039 15,129
FDIC assessment 2,465 18,626 1,239 9,313
Other real estate owned expenses 4,241 3,702 1,942 1,649
Advertising and public relations 7,932 8,701 4,200 4,479
Restructuring charges 110,700 - - -
Other 67,809 59,707 35,824 29,957
----------- ----------- ----------- -----------
Total non-interest expenses 432,359 324,691 159,624 162,318
----------- ----------- ----------- -----------
Income before income taxes 111,843 180,367 115,824 91,362
Federal and state income taxes 38,718 64,830 40,460 33,092
----------- ----------- ----------- -----------
Net Income $ 73,125 $ 115,537 $ 75,364 $ 58,270
=========== =========== =========== ===========
Net Income Per Common Share $ 0.77 $ 1.34 $ 0.80 $ 0.68
=========== =========== =========== ===========
Average Common Shares Outstanding (in thousands) 93,354 85,386 93,574 85,563
=========== =========== =========== ===========
<FN>
Note: Certain prior period amounts have been reclassified for comparative purposes.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
SUMMIT BANCORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
---------------------------
1996 1995
------------- -------------
<S> <C> <C>
Operating activities
Net income $ 73,125 $ 115,537
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses and other real estate owned 33,204 35,400
Depreciation, amortization and accretion, net 19,502 19,762
Restructuring charges 110,700 -
Gains on sales of trading account securities and securities available for sale (2,369) (5,713)
Gains on sales of mortgages held for sale (1,935) (1,338)
Gains on sales of other real estate owned (869) (1,997)
Proceeds from sales of other real estate owned 13,265 13,147
Proceeds from sales of mortgages held for sale 55,298 31,229
Originations of mortgages held for sale (84,034) (53,904)
Net decrease (increase) in trading account securities 12,472 (7,163)
(Increase) decrease in accrued interest receivable and other assets (5,854) 59,115
(Decrease) increase in accrued interest payable, accrued
expenses and other liabilities (48,479) 41,297
------------- -------------
Net cash provided by operating activities 174,026 245,372
------------- -------------
Investing activities
Proceeds from maturities of securities held to maturity 344,080 419,649
Purchases of securities held to maturity (608,568) (339,261)
Purchases of securities available for sale (317,468) (154,773)
Proceeds from maturities of securities available for sale 246,999 57,546
Proceeds from sales of securities available for sale 86,806 325,635
Net (increase) decrease in interest bearing deposits with banks (2,940) 5,534
Net increase in loans (745,313) (141,105)
Purchases of premises and equipment, net (24,615) (11,298)
------------- -------------
Net cash (used in) provided by investing activities (1,021,019) 161,927
------------- -------------
Financing activities
Net increase (decrease) in demand and savings deposits 125,310 (497,185)
Net increase in time deposits 118,053 705,705
Net increase (decrease) in short-term borrowings 518,802 (264,406)
Principal payments on long-term debt (31,999) (97,085)
Proceeds from issuance of long-term debt - 74,925
Dividends paid (69,948) (45,900)
Proceeds from issuance of common stock for
immaterial pooling acquisitions 48,323 -
Proceeds from issuance of common stock under dividend
reinvestment and other stock plans 19,642 14,674
Repurchase of preferred stock - (5,984)
Other, net (394) (3,944)
------------- -------------
Net cash provided by (used in) financing activities 727,789 (119,200)
------------- -------------
(Decrease) increase in cash and cash equivalents (119,204) 288,099
Cash and cash equivalents at beginning of period 1,499,368 1,240,156
------------- -------------
Cash and cash equivalents at end of period $ 1,380,164 $ 1,528,255
============= =============
Supplemental disclosure of cash flow information
Cash paid:
Interest payments $ 317,558 $ 287,706
Income tax payments 73,545 47,921
Noncash investing activities:
Loans made in conjunction with the sale of other real estate owned 200 2,054
Net transfer of loans to other real estate owned 17,240 12,862
Net transfer of assets (from) to assets held for accelerated disposition (950) 2,765
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
SUMMIT BANCORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unaudited
(dollars in thousands)
<CAPTION>
Net Total
Preferred Common Retained Unrealized Shareholders'
Stock Stock Surplus Earnings Gain (Loss) Equity
-------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 50,008 $ 102,005 $ 730,131 $ 676,281 $ (24,708) $ 1,533,717
Net income - - - 115,537 - 115,537
Cash dividends declared:
Preferred stock - - - (1,421) - (1,421)
Common stock - - - (46,791) - (46,791)
Common stock issued:
Dividend reinvestment and other stock plans
(407,761 shares) - 488 8,668 - - 9,156
Exercise of stock options, net (307,457 shares) - 370 3,509 - - 3,879
Redemption of Series C preferred stock (7,388) - - 1,404 - (5,984)
Change in unrealized gain (loss) on securities,
net of tax - - - - 20,231 20,231
-------- --------- --------- --------- ----------- -----------
Balance, June 30, 1995 $ 42,620 $ 102,863 $ 742,308 $ 745,010 $ (4,477) $ 1,628,324
======== ========= ========= ========= =========== ===========
Balance, December 31, 1995 $ 42,620 $ 106,165 $ 826,788 $ 821,579 $ 5,164 $ 1,802,316
Balances at beginning of period of immaterial
pooled acquisitions (4,353,085 shares) - 5,224 29,612 14,054 (567) 48,323
Net income - - - 73,125 - 73,125
Cash dividends declared:
Preferred stock - - - (1,278) - (1,278)
Common stock - - - (69,064) - (69,064)
Common stock issued:
Dividend reinvestment and other stock plans
(280,657 shares) - 337 10,011 - - 10,348
Exercise of stock options, net (608,021 shares) - 729 8,565 - - 9,294
Change in unrealized gain (loss) on securities,
net of tax - - - - (13,283) (13,283)
-------- --------- --------- --------- ----------- -----------
Balance, June 30, 1996 $ 42,620 $ 112,455 $ 874,976 $ 838,416 $ (8,686) $ 1,859,781
======== ========= ========= ========= =========== ===========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
SUMMIT BANCORP.
CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES
Unaudited
(Tax-equivalent basis, dollars in thousands)
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Federal funds sold and securities purchased
under agreements to resell $ 51,465 $ 1,613 6.30 % $ 127,852 $ 3,968 6.26 %
Interest bearing deposits with banks 15,937 412 5.20 12,758 375 5.93
Trading account securities 34,400 935 5.47 25,672 839 6.59
Securities available for sale 2,480,825 76,535 6.17 931,503 31,721 6.81
Securities held to maturity:
U.S. Government and Federal agencies 1,610,008 49,996 6.21 2,450,363 74,870 6.11
States and political subdivisions 270,360 13,105 9.69 356,611 17,334 9.72
Other securities 1,506,400 44,463 5.90 1,981,355 60,308 6.09
----------- --------- ------- ----------- --------- -------
Total securities held to maturity 3,386,768 107,564 6.35 4,788,329 152,512 6.37
----------- --------- ------- ----------- --------- -------
Loans:
Commercial 5,340,008 221,965 8.36 5,291,176 232,290 8.85
Residential mortgage 3,545,999 131,933 7.44 2,849,211 103,794 7.29
Commercial mortgage 2,434,095 104,440 8.58 2,235,907 100,215 8.96
Consumer 3,206,077 135,319 8.49 2,773,160 120,493 8.76
----------- --------- ------- ----------- --------- -------
Total loans 14,526,179 593,657 8.22 13,149,454 556,792 8.54
----------- --------- ------- ----------- --------- -------
Total interest earning assets 20,495,574 780,716 7.66 19,035,568 746,207 7.91
----------- --------- ------- ----------- --------- -------
Non-interest earning assets:
Cash and due from banks 1,141,418 1,063,877
Allowance for loan losses (290,257) (303,141)
Other assets 799,831 823,251
----------- -----------
Total non-interest earning assets 1,650,992 1,583,987
----------- -----------
Total Assets $22,146,566 $20,619,555
=========== ===========
Liabilities and Shareholders' Equity
Interest bearing liabilities:
Savings deposits $ 8,061,975 100,581 2.51 $ 7,777,097 101,853 2.64
Time deposits 5,590,660 142,339 5.12 5,062,813 126,677 5.05
Commercial certificates of deposit
$100,000 and over 789,150 20,901 5.33 643,800 18,464 5.78
----------- --------- ------- ----------- --------- -------
Total interest bearing deposits 14,441,785 263,821 3.67 13,483,710 246,994 3.69
----------- --------- ------- ----------- --------- -------
Commercial paper 42,858 1,108 5.20 48,408 1,390 5.79
Other borrowed funds 1,481,996 39,206 5.32 1,345,819 39,092 5.86
Long-term debt 403,056 15,363 7.62 519,894 19,274 7.41
----------- --------- ------- ----------- --------- -------
Total interest bearing liabilities 16,369,695 319,498 3.92 15,397,831 306,750 4.02
----------- --------- ------- ----------- --------- -------
Non-interest bearing liabilities:
Demand deposits 3,574,698 3,317,130
Other liabilities 344,049 317,878
----------- -----------
Total non-interest bearing liabilities 3,918,747 3,635,008
Shareholders' equity 1,858,124 1,586,716
----------- -----------
Total Liabilities and Shareholders' Equity $22,146,566 $20,619,555
=========== ===========
Net Interest Income (tax-equivalent basis) 461,218 3.74 % 439,457 3.89 %
======= =======
Tax-equivalent basis adjustment (7,117) (9,157)
--------- ---------
Net Interest Income $ 454,101 $ 430,300
========= =========
Net Interest Income as a Percent of Interest
Earning Assets (tax-equivalent basis) 4.53 % 4.66 %
======= =======
<FN>
Notes: The tax-equivalent adjustment was computed based on a Federal income tax rate of 35% for 1996 and 1995.
Average balances and rates include non-accruing and renegotiated loans.
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
6
<PAGE>
SUMMIT BANCORP.
Notes to Consolidated Financial Statements
(Unaudited)
1.) Basis of Presentation
The accompanying financial statements reflect, in the opinion of
management, all normal, recurring adjustments necessary to
present fairly the financial position of Summit Bancorp. (the
"Company"), the results of its operations, changes in
shareholders' equity and changes in its cash flows. The
financial statements presented, in all material respects, comply
with the current reporting requirements of supervisory
authorities. For additional information and disclosures required
under generally accepted accounting principles, reference is
made to the registrant's 1995 Annual Report on Form 10-K.
2.) Acquisitions
On March 1, 1996, UJB Financial Corp. completed its acquisition
of The Summit Bancorporation, and changed its name to Summit
Bancorp. This acquisition was accounted for as a pooling of
interests and all financial information has been restated to
reflect the combined results of operations. On January 16, 1996,
The Summit Bancorporation acquired Garden State Bancshares, Inc.
("Garden State") and on February 23, 1996, UJB Financial Corp.
acquired The Flemington National Bank and Trust Company
("Flemington"). Both of these acquisitions were accounted for as
poolings of interests. However, because these acquisitions were
considered immaterial to Summit Bancorp., the Flemington and
Garden State transactions were recorded as adjustments to
beginning shareholders' equity at January 1, 1996, without
restating the consolidated financial statements for 1995 and
prior.
On July 11, 1995, UJB Financial Corp. completed the purchase
acquisition of Bancorp New Jersey, Inc. Bancorp New Jersey had
total assets of $504.5 million, loans of $290.4 million and
deposits of $450.0 million.
On May 22, 1996, the Company announced a definitive merger
agreement to acquire Central Jersey Financial Corporation. On
July 16, 1996 the Company also announced its intentions to
purchase Summit Common Stock in the open market up to the
amount, approximately 2.3 million shares, expected to be needed
for issuance in connection with the Central Jersey acquisition.
3.) Earnings Per Common Share
Earnings per common share is calculated by dividing net income,
less the dividends on the adjustable-rate cumulative preferred
stock, by the average daily number of
7
<PAGE>
common shares outstanding during the period. Common stock
equivalents are not included in the calculation as they have
no material dilutive effect.
4.) Recent Accounting Pronouncements
In May 1995 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS")
No.122, "Accounting for Mortgage Servicing Rights." This
Statement requires capitalization of the value of rights to
service mortgage loans for others, whether those rights were
acquired through purchase or origination. SFAS No. 122 also
requires that capitalized mortgage servicing rights be evaluated
for impairment based on their fair value with any adjustments
recognized through a valuation allowance. Effective January 1,
1996, SFAS No. 122 was adopted and capitalization of originated
mortgage servicing rights began. All capitalized mortgage
servicing rights, both originated and purchased, are evaluated
for impairment on a quarterly basis. The impact of adopting SFAS
No. 122 during 1996 was immaterial.
In October 1995 the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This Statement encourages use of a
fair value based method of accounting for stock-based
compensation plans while allowing continued use of the intrinsic
value method of accounting prescribed by Accounting Principles
Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." Entities electing to continue using the APB No. 25
method of accounting must make pro forma disclosures of net
income and earnings per share as if the fair value based method
of accounting, as defined in SFAS No. 123, had been applied.
The accounting and disclosure requirements for SFAS No. 123 are
effective for fiscal years beginning after December 15, 1995.
Summit Bancorp. continues accounting for stock-based
compensation under APB No. 25 and will include the pro forma
disclosures required by SFAS No. 123 in financial statements
issued for fiscal years beginning January 1, 1996.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------------------
FINANCIAL CONDITION
June 30, 1996 versus December 31, 1995
Total assets at June 30, 1996 were $22.4 billion, an increase of
$849.9 million or 3.9 percent from year-end 1995. The increase
in total assets was primarily related to the first quarter
acquisitions of Garden State Bancshares, Inc. ("Garden State")
and The Flemington National Bank and Trust Company
("Flemington"). These acquisitions represented approximately
$597.7 million of this increase.
Securities held to maturity at June 30, 1996 were $3.3 billion,
an increase of $262.4 million or 8.6 percent from year-end 1995.
The increase from year-end 1995 was the result of $105.9
million from the two acquisitions and $502.7 million in
purchases, partially offset by $344.1 million in maturities.
At June 30, 1996, the aggregate market value of the
held-to-maturity portfolio was $3.2 billion. The aggregate
market value at December 31, 1995 was $3.0 billion.
At June 30, 1996, securities available for sale amounted to $2.4
billion. These securities decreased $37.7 million or 1.6 percent
from year-end 1995, and comprised $2.0 billion of U.S.
Government and Federal agency securities and $369.4 million of
other securities, predominately corporate collateralized
mortgage obligations. For the first six months of 1996, $317.5
million of securities were purchased. These purchases were
offset by maturities of $247.0 million and sales of $87.8
million.
At June 30, 1996, total loans amounted to $14.7 billion and
increased $730.1 million or 5.2 percent from year-end 1995. The
acquisitions of Garden State and Flemington accounted for $399.3
million of this increase. Residential mortgage loans increased
$336.6 million or 10.2 percent, and commercial mortgage loans
increased $76.0 million or 3.3 percent from December 31, 1995.
The Garden State and Flemington acquisitions contributed $188.6
million to residential mortgage loans and $132.6 million to the
commercial mortgage loan increase. Consumer loans increased
$236.5 million or 7.7 percent from year-end 1995 to $3.3
billion. Commercial loans at June 30, 1996, increased $81.0
million or 1.5 percent from year-end 1995.
Total deposits were $18.2 billion at June 30, 1996, an increase
of $243.4 million or 1.4 percent from December 31, 1995. This
increase was primarily due to the Garden State and Flemington
acquisitions. Demand deposits decreased $56.0 million or 1.4
percent from year-end 1995 to $3.8 billion. Savings and time
deposits increased $216.5 million or 1.6 percent from December
31, 1995 to $13.6 billion.
9
<PAGE>
Commercial certificates of deposit $100,000 and over were
$790.3 million, an increase of $82.9 million or 11.7 percent
compared to December 31, 1995.
Borrowed funds, including commercial paper and long-term debt,
at June 30, 1996 increased $486.8 million or 33.2 percent from
December 31, 1995 to $2.0 billion. The increase in borrowed
funds was primarily used to prefund investment activity during
the first quarter of 1996.
Total shareholders' equity increased $57.5 million or 3.2
percent from December 31, 1995 to $1.9 billion. Contributing to
this increase, in addition to earnings and other equity
activity, were the effects of the Garden State and Flemington
pooling acquisitions as of January 1, 1996 which added $48.3
million to shareholders' equity. As of June 30, 1996, the
unrealized loss on securities, net of tax, recorded in equity
amounted to $8.7 million, compared to an unrealized gain of $5.2
million at year-end 1995. On May 22, 1996, the Company
announced a definitive merger agreement to acquire Central
Jersey Financial Corporation.
Capital ratios for June 30, 1996, as compared to select prior
periods are shown in the following table.
June 30, Dec. 31, June 30,
1996 1995 1995
-------- -------- --------
Select Capital Ratios:
- -----------------------
Leverage ratio 8.01% 7.97% 7.69%
Tier I capital 10.75 10.75 10.49
Total capital 13.42 13.46 13.25
Non-performing Loans and Other Real Estate Owned
At June 30, 1996, total non-performing loans and other real
estate owned (OREO) were $197.0 million, a decline of $61.1
million or 23.7 percent, from the prior year. Compared to
December 31, 1995, non-performing loans and OREO decreased $15.8
million. Non-performing loans at June 30, 1996, were $173.8
million and represented 1.18 percent of total loans, compared to
$220.8 million, or 1.67 percent a year ago, and $188.5 million,
or 1.34 percent, at December 31, 1995. These loans declined
$47.1 million from June 30, 1995 which was due in part to a
$12.7 million sale of 133 non-performing loans during the
second quarter of 1996. OREO, net of a $13.9 million reserve,
amounted to $23.3 million at June 30, 1996, a decline of 37.6
percent from $37.3 million a year ago, and 4.3 percent from
$24.3 million at year-end 1995.
10
<PAGE>
Allowance for Loan Losses
The allowance for loan losses at June 30, 1996 was $276.0
million or 1.87 percent of loans, compared to $279.0 million or
1.99 percent of loans at December 31, 1995 and $290.4 million or
2.20 percent of loans at June 30, 1995. For the six months
ended June 30, 1996, net charge offs were $40.4 million, or .56
percent of average loans compared to $48.1 million, or .74
percent of average loans in the first six months of 1995. For
the three months ended June 30, 1996, net charge offs were $20.1
million, or .55 percent of average loans compared to $23.5
million, or .72 percent of average loans in the second quarter
of 1995.
Transactions in the allowance for loan losses are shown in the
following table (dollars in thousands):
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Balance, January 1 $ 279,034 $305,330
Allowance acquired through immaterial
poolings of interest 6,342 -
Provision charged to expense 31,000 33,150
--------- ---------
316,376 338,480
--------- ---------
Net charge offs:
Loans charged off 51,870 59,516
Less recoveries 11,511 11,402
--------- ---------
Net loans charged off 40,359 48,114
--------- ---------
Balance, June 30 $ 276,017 $ 290,366
========= =========
11
<PAGE>
RESULTS OF OPERATIONS
For the second quarter of 1996, the Company reported net income
of $75.4 million or $.80 per share compared to net income of
$58.3 million or $.68 per share earned during the second quarter
of 1995. Net income for the six months ended June 30, 1996 was
$73.1 million compared to $115.5 million for the first half of
1995. On a per common share basis, net income for the six
months ended June 30, 1996 was $.77 compared to $1.34 for the
same period in 1995.
The results for the six months ended June 30, 1996 included
restructuring charges of $110.7 million (pre-tax). This
included merger-related charges of $89.0 million for The Summit
Bancorporation, $7.9 million for Garden State and $4.3 million
for Flemington. Also included was $9.5 million related to
branch-closing expenses recorded in conjunction with the
announced agreement to open 70 in-store supermarket branches.
Excluding these restructuring charges, operating earnings were
$143.1 million or $1.52 per share for the six months ended June
30, 1996.
Interest income on a tax-equivalent basis was $780.7 million for
the six months ended June 30, 1996, an increase of $34.5
million, or 4.6 percent, compared to the prior year period. For
the six months ended June 30, 1996, interest earning assets
averaged $20.5 billion, an increase of $1.5 billion, or 7.7
percent. This increase in interest earning assets contributed
$78.5 million to interest income. Offsetting this volume
increase in interest income, was a $44.0 million decrease due to
the decline in interest rates. The average prime rate for the
second quarter of 1996 declined approximately 75 basis points
from the prior year period.
Interest expense increased $12.7 million, or 4.2 percent, for
the six months ended June 30, 1996 compared to the same period
in 1995. For the six months ended June 30, 1996 interest
bearing liabilities averaged $16.4 billion, an increase of $1.0
billion, or 6.3 percent, from the prior year period. This
increase in interest bearing liabilities contributed $30.1
million to interest expense offset by a decrease of $17.4
million due to the decline in interest rates.
Net interest income on a tax-equivalent basis was $461.2 million
for the six months ended June 30, 1996, an increase of $21.8
million, or 5.0 percent, compared to the same period in 1995.
The net interest spread percentage on a tax-equivalent basis
(the difference between the rate earned on average interest
earning assets and the rate paid on average interest bearing
liabilities) was 3.74 percent for the six months ended June 30,
1996 compared to 3.89 percent for the prior year period. Net
interest margin (net interest income on a tax-equivalent basis
as a percentage of average interest earning assets) was 4.53
percent during the first six months of 1996 compared to 4.66
percent during the same period in 1995. The declines in net
interest spread and margin were primarily due to a decline of 25
basis points on interest earning assets resulting from a lower
interest rate environment compared to a decline of 10 basis
points on interest bearing liabilities.
12
<PAGE>
Asset and liability management efforts involve the use of
certain derivative financial instruments. At June 30, 1996, the
notional value of this derivative financial instruments
portfolio consisted of $546.9 million of interest rate swaps and
$30.0 million of interest rate floors. Interest rate swaps are
contractual agreements between two parties to exchange interest
payments at particular intervals. Interest rate floors are
contracts whereby one party pays a fee in exchange for the right
to receive the interest differential when an indexed rate falls
below a strike rate. Both interest rate swaps and interest rate
floors are accounted for as hedges and are not recorded on the
balance sheet. Income or expense related to these instruments is
accrued monthly and recognized as an adjustment to interest
income or interest expense for those balance sheet instruments
being hedged. Hedged transactions resulted in a net interest
income reduction of $1.6 million through the second quarter of
1996, compared to a $5.4 million reduction during the first two
quarters of 1995. The cost to terminate these contracts at June
30, 1996 was $3.7 million compared to $1.1 million at December
31, 1995, and $12.9 million at June 30, 1995.
The provision for loan losses for the second quarter was $15.5
million, compared with $17.0 million for the same period a year
ago. On a year-to-date basis, the provision was $31.0 million,
a decline of $2.2 million or 6.5 percent, compared with the
first half of 1995.
Non-interest income
Non-interest income for the second quarter of 1996 totaled $62.8
million, an increase of $6.9 million, or 12.4 percent, compared
with the second quarter of 1995. Excluding securities gains,
total non-interest income was $61.3 million for the second
quarter of 1996, an increase of $8.2 million, or 15.5 percent,
from the prior year period. For the six months ended June 30,
1996, non-interest income totaled $121.1 million, an increase of
$13.2 million, or 12.2 percent from the prior year period.
For the second quarter of 1996, service charges on deposits were
$24.4 million, an increase of $3.1 million or 14.3 percent
compared with the second quarter of 1995. On a year-to-date
basis, 1996 service charges on deposits accounts have increased
$5.5 million, or 13.0 percent as compared to the same period in
1995. These increases are primarily attributable to higher fees
charged on commercial and personal demand deposits.
Service and loan fee income for the second quarter of 1996
increased $1.4 million, or 16.4 percent, as compared to the
quarter ended June 30, 1995. For the first six months of 1996,
service and loan fee income increased $4.7 million, or 29.8
percent as compared to the same period in 1995. These increases
are primarily due to increases in service and fee income on
mortgage and consumer loans.
13
<PAGE>
Trust fee income for the second quarter of 1996 was $9.6
million, an increase of $1.4 million or 17.7 percent compared
with the second quarter of 1995. During the first six months of
1996, trust fee income increased $2.3 million or 14.3 percent
compared to the prior year period. This increase included the
rise in income on mutual fund fees.
For the second quarter of 1996, net gains of $1.5 million on the
sales and early redemptions of securities were realized
compared with net gains of $2.8 million in the second quarter of
1995. On a year-to-date basis, securities gains were $2.3
million, compared to $5.0 million during the first six months of
1995. For the three months ended June 30, 1996, other income
increased $2.5 million, or 17.4 percent as compared to the
second quarter of 1995. Other income for the first six months
of 1996 increased $4.0 million, or 14.4 percent as compared to
the same period in 1995. These increases are primarily
attributable to increases in ATM and brokerage fees.
Non-interest expense
Non-interest expenses for the second quarter of 1996 totaled
$159.6 million compared to $162.3 for the second quarter of
1995. For the first six months of 1996, non-interest expenses
amounted to $432.4 million, which compared to $324.7 million for
the same period in 1995. Non-interest expenses for the first
six months of 1996 included restructuring charges of $110.7
million, which were incurred in the first quarter of 1996.
Salaries expense for the second quarter of 1996 was $62.0 million,
which remained relatively unchanged from the prior year period. For
the first six months of 1996, salaries expense increased $.7 million
or .6 percent compared to the same period in 1995. This expense remained
flat as the company has begun to realize anticipated cost savings from
the mergers. Pension and other employee benefits for the first six
months of 1996 were $44.0 million, down $.8 million, or 1.7 percent,
compared with the first half of 1995. For the second quarter of
1996, pension and other employee benefits decreased $2.4
million, or 10.7 percent, as compared to the second quarter of
1995. The declines in pension and other employee benefits for
the six months and three months ended June 30, 1996 were
primarily attributable to lower medical insurance, pension and
other post-retirement costs.
Occupancy expenses for the second quarter of 1996 increased $1.0
million, or 5.8 percent, compared to the prior year period. On
a year-to-date basis, occupancy expenses for 1996 increased $3.5
million, or 10.1 percent, as compared to the same period in
1995. These expenses increased due in part to the severe weather
conditions experienced during the first quarter of 1996 and
higher maintenance associated with the additional branch
locations operated during the first six months of 1996.
Furniture and equipment expenses rose $.9 million, or 6.0
percent, in the second quarter of 1996 when compared with the
second quarter of 1995. For the
14
<PAGE>
first six months of 1996, furniture and equipment expenses increased
$1.8 million, or 6.1 percent as compared to the same period in 1995.
These increases are due in part to the increases in depreciation and
lease expense on equipment acquired through the Flemington and Garden
State acquisitions.
For the first six months of 1996 the FDIC assessment expense of
$2.5 million represented a decline of $16.2 million, from the
same period of 1995. For the second quarter of 1996, the FDIC
assessment expense decreased $8.1 million, as compared to the
second quarter of 1995. These decreases are attributable to the
reduction of the FDIC assessment rate on deposits insured under
the Bank Insurance Fund (BIF) from 23 cents per $100 of deposits
to 4 cents per $100 of deposits, effective June 1, 1995.
Other real estate owned expenses were $1.9 million for the
second quarter of 1996, an increase of $.3 million from the
second quarter of 1995. For the second quarter of 1996, other
operating expense increased $5.9 million, or 19.6 percent as
compared to the second quarter of 1995. On a year-to-date
basis, other operating expense was $67.8 million, which
increased $8.1 million, or 13.6 percent as compared to the same
period in 1995. These increases are partially attributable to
increases in acquisition premium amortization, communication and
legal expenses.
LIQUIDITY
Liquidity is the ability to meet the borrowing needs and deposit
withdrawal requirements of customers and support asset growth.
Principal sources of liquidity are deposit generation, access to
purchased funds, maturities and repayments of loans and
investment securities and interest and fee income.
The consolidated statements of cash flows present the change in
cash and cash equivalents from operating, investing and
financing activities. During the first half of 1996, net cash
provided by operating activities totaled $174.0 million.
Contributing to net cash provided by operating activities were
the results of operations adjusted for the restructuring
charges, the provisions for loan losses and other real estate
owned, and proceeds from the sales of mortgages held for sale.
Net cash used in investing activities totaled $1.0 billion and
was the result of investment and loan activity. Net cash
provided by financing activities totaled $727.8 million,
reflecting the increases in time deposits and short-term
borrowings from year-end 1995.
During the first six months of 1996, proceeds of $591.1 million
from maturities in the securities portfolios, including
securities available for sale, an increase of $216.5 million in
savings and time deposits, and an increase of $486.8 million in
borrowed funds contributed to liquidity. Offsetting these
sources, demand deposits declined $56.0 million from year-end
1995. Other uses of funds included an
15
<PAGE>
increase in total loans of $730.1 million, and purchases totaling
$926.0 million of securities, including held to maturity and
available for sale.
Additional liquidity is generated from maturities and principal
repayments in the investment portfolio. Scheduled maturities
and anticipated principal repayments of the held to maturity
portfolio will approximate $305 million throughout the balance
of 1996. In addition, all or part of the securities available
for sale portfolio of $2.4 billion could be sold to provide
liquidity. These sources can be used to meet the funding needs
during periods of loan growth. Liquidity is also available
through additional lines of credit and the ability to incur
additional debt. At June 30, 1996, there were $38.0 million of
short-term lines of credit available for general corporate
purposes, with no outstandings. In addition, the banking
subsidiaries have established lines of credit with the Federal
Reserve Bank and the Federal Home Loan Bank of New York and
other banks which further support and enhance liquidity.
16
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
1. Michael Hochman and Joan Hochman, individually and on behalf
------------------------------------------------------------
of a class of similarly situated depositors v. United Jersey
- ------------------------------------------------------------
Bank and UJB Financial Corp., United States District Court for
- ----------------------------
the District of New Jersey, Civil Action No. 96-916 (MTB).
Complaint filed December 7, 1995; removed to the United States
District Court on February 27, 1996. Reported on Form 10-K for
the period ended December 31, 1995 and on Form 10-Q for the
period ended March 31, 1996. As previously reported, Summit
Bank (formerly United Jersey Bank) and Summit Bancorp. (formerly
UJB Financial Corp.) filed motions for summary judgment on
March 21, 1996. The Plaintiffs filed a cross-motion for summary
judgment on April 23, 1996. Briefing on the motions has been
completed but no decision has been rendered to date by the Court.
2. Annette Loatman on behalf of herself and all others
---------------------------------------------------
similarly situated v. United Jersey Bank, U.S. District Court
- ----------------------------------------
for the District of New Jersey, Civil Action #95CV05258 (JBS),
filed October 4, 1995. Reported on Form 10-K for the period
ended December 31, 1995 and on Form 10-Q for the period ended
March 31, 1996. Summit Bank (formerly United Jersey Bank) filed
a motion to dismiss the complaint against it. On July 29, 1996,
the motion was denied by the Court.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The annual meeting of the shareholders of Summit Bancorp. was
held May 20, 1996. The following is a brief description of each
matter voted on at the annual meeting:
PROPOSAL 1 - ELECTION OF DIRECTORS
- ----------------------------------
The following Directors were nominated for election to the Board
of Directors as Class III Directors for a three year term: S.
Rodgers Benjamin, Robert L. Boyle, Robert G. Cox, Elinor J.
Ferdon, John R. Howell and Joseph M. Tabak. The following
Directors were nominated for election to the Board of Directors
as Class I Directors for a one year term: James C. Brady, Jr.,
Thomas G. Sayles, Jr., and Douglas G. Watson. Orin R. Smith was
nominated for election to the Board of Directors as a Class II
Director for a two year term.
PROPOSAL 2 - AMENDMENTS TO THE 1993 INCENTIVE STOCK AND
- -------------------------------------------------------
OPTION PLAN
-----------
Shareholders were presented with a proposal to approve
amendments to the Summit Bancorp. 1993 Incentive Stock and
Option Plan.
PROPOSAL 3 - INDEPENDENT ACCOUNTANTS
- ------------------------------------
Shareholders were presented with a proposal to ratify the
selection of KPMG Peat Marwick LLP, independent certified public
accountants, to audit the consolidated financial statements of
Summit Bancorp. and its subsidiaries for the year ending
December 31, 1996.
The results of the voting at the annual meeting was as follows:
SHARES
------
PROPOSAL FOR WITHHELD
- -------- --- --------
1 - Election of Directors
S. Rodgers Benjamin 79,113,168 953,789
Robert L. Boyle 79,214,952 852,005
James C. Brady, Jr. 79,226,235 840,722
Robert G. Cox 79,178,428 888,529
Elinor J. Ferdon 79,180,784 886,173
John R. Howell 79,217,040 849,917
Thomas D. Sayles, Jr. 79,177,200 889,757
Orin R. Smith 79,218,226 848,731
Joseph M. Tabak 79,222,297 844,660
Douglas G. Watson 79,116,534 950,423
18
<PAGE>
SHARES
------
FOR AGAINST ABSTAIN
--- ------- -------
2 - Amendments to 1993
Incentive Stock and Option
Plan 75,316,563 3,671,612 1,078,782
3 - Independent Accountants 79,121,200 461,044 484,713
19
<PAGE>
ITEM 5. OTHER INFORMATION.
- --------------------------
On May 22, 1996, the Company announced a definitive merger
agreement to acquire Central Jersey Financial Corporation
(Central Jersey) with shares of Company common stock. Central
Jersey has $468 million in assets with six branches in Middlesex
County, New Jersey. The Merger is expected to be completed in
the fourth quarter of 1996. For a description of the merger,
see the Company's current report on Form 8-K dated May 22, 1996.
On July 16, 1996 the Company also announced its intentions to
purchase Summit Common Stock in the open market up to the
amount, approximately 2.3 million shares, expected to be needed
for issuance in connection with the Central Jersey acquisition.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) Exhibits
----------
(10) C.(i) Summit Bancorp. 1993 Incentive Stock and Option Plan
(incorporated by reference to Attachment A to the
Proxy Statement of Registrant dated April 12, 1996).
(iv) Summit Bancorp. Compensation Committee Interpretations
of Stock Incentive Plans adopted June 19, 1996.
E. Converted Summit Bancorporation Stock Option Plan of
Summit Bancorp. (incorporated by reference to Exhibit
10 to Registration Statement No. 333-02625 on Form S-8,
filed April 17, 1996).
(27) Summit Bancorp. financial data schedule - June 30, 1996
(b) Reports on Form 8-K
-------------------
In a current report on Form 8-K dated March 31, 1996, the
Company under Item 5, Other Events, voluntarily reported on a
combined basis (of UJB Financial Corp. and The Summit
Bancorporation) the results of operations for three months ended
March 31, 1996.
In a current report on Form 8-K dated May 22, 1996, the Company
under Item 5, Other Events, and Item 7, Financial Statements and
Exhibits, reported the execution of an Agreement and Plan of
Merger, dated May 22, 1996, among Central Jersey Financial
Corporation and Summit Bancorp.
In a current report on Form 8-K dated July 16, 1996, the Company
under Item 5, Other Events, and Item 7, Financial Statements and
Exhibits, issued consolidated balance sheets at June 30, 1996,
December 31, 1995, and June 30, 1995 and consolidated statements
of income for the six months and three months ended June 30,
1996 and 1995.
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Summit Bancorp.
---------------
Registrant
DATE: August 14, 1996 BY: /s/ William J. Healy
---------------------------
William J. Healy
Executive Vice President and Comptroller
(Chief Accounting Officer)
22
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- --------------------------------------------------------
(10) C.(i) Summit Bancorp. 1993 Incentive Stock and Option Plan
(incorporated by reference to Attachment A to the Proxy
Statement of Registrant dated April 12, 1996).
(iv) Summit Bancorp. Compensation Committee Interpretations of
Stock Incentive Plans adopted June 19, 1996.
E. Converted Summit Bancorporation Stock Option Plan of Summit
Bancorp. (incorporated by reference to Exhibit 10 to
Registration Statement No. 333-02625 on Form S-8, filed
April 17, 1996).
(27) Summit Bancorp. financial data schedule - June 30, 1996
23
EXHIBIT (10)C.(iv)
SUMMIT BANCORP
COMPENSATION COMMITTEE
INTERPRETATIONS OF STOCK INCENTIVE PLANS
JUNE 19, 1996
Definition of "Retirement"
Where a Summit Bancorp stock incentive plan providing for the grant
of stock options provides that the option will have a specified
exercise period upon termination of employment:
"by reason of the employee's retirement (at such age or upon
such conditions as shall be specified by the Committee or, if
not so specified, at any normal or early retirement date under
such corporation's defined benefit pension plan,"
"retirement" shall be construed to mean a termination of employment
when the employee has met all of the requirements to be eligible to
receive a benefit under the Corporation's defined benefit pension
plan covering that employee.
Tax Withholding - The Summit Bancorporation Plans
A Participant in the converted Stock Incentive Plans of The Summit
Bancorporation may elect to satisfy the Participant's estimated
personal tax liabilities, including any tax withholding
obligations, by the withholding of shares due the Participant as a
result of the taxable event having an aggregate Fair Market Value,
determined as of the date of payment, equal to the amount of the
payment due.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1317647
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<TOTAL-ASSETS> 22386787
<DEPOSITS> 18198466
<SHORT-TERM> 1561358
<LIABILITIES-OTHER> 374319
<LONG-TERM> 392863
0
42620
<COMMON> 112455
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