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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 1-6451
SUMMIT BANCORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-1903313
(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
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 987-3200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.20 par value New York Stock Exchange
7.75% Sinking Fund Debentures due November 1, 1997 New York Stock Exchange
8.625% Subordinated Notes Due December 10, 2002 New York Stock Exchange
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Securities registered pursuant to section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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. [ ]
As of February 20, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant was $4,354,240,767.
As of February 20, 1997, there were 94,317,893 shares of common stock,
$1.20 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Summit Bancorp 1996 Annual Report
to Shareholders (portion) (Parts I, II and IV).
Proxy Statement dated March 7, 1997 (portion) (Parts I and III).
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SUMMIT BANCORP.
Index to Form 10-K
Part I
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Item 1. Business Page
a) General development of business ............................................. 3
b) Financial information about industry segments ............................... 3
c) Narrative description of business ........................................... 3
d) Financial information about foreign and domestic operations
and export sales ......................................................... 12
e) Statistical information ..................................................... 13
Item 2. Properties ...................................................................... 17
Item 3. Legal Proceedings ............................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ............................. 21
Executive Officers of the Registrant ............................................ 22
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ........... 23
Item 6. Selected Financial Data ......................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ...................................................................... 23
Item 8. Financial Statements and Supplementary Data ..................................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ...................................................................... 23
Part III
Item 10. Directors and Executive Officers of the Registrant .............................. 24
Item 11. Executive Compensation .......................................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and Management .................. 24
Item 13. Certain Relationships and Related Transactions .................................. 24
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................ 25
Signatures ...................................................................... 31
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PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
UJB Financial Corp. ("UJB") changed its name to Summit Bancorp. ("Summit"
or the "Company") simultaneously with the acquisition of The Summit
Bancorporation on March 1, 1996. Summit has its corporate office at 301 Carnegie
Center, P.O. Box 2066, Princeton, New Jersey 08543-2066.
Summit, the registrant, commenced operations on October 1, 1970 as a New
Jersey corporation and as a bank holding company registered under the Bank
Holding Company Act of 1956. At December 31, 1996, the Company owned three banks
("bank subsidiaries") and several active non-bank subsidiaries and had total
consolidated assets of $22.7 billion which ranked it as the largest New
Jersey-based bank holding company. The bank subsidiaries engage in a general
banking business, and are as follows: Summit Bank, operating in New Jersey
("Summit Bank NJ"); Summit Bank, operating in Pennsylvania ("Summit Bank PA");
and Central Jersey Savings Bank, SLA. Central Jersey Savings Bank, which was
acquired on December 7, 1996, was merged into Summit Bank NJ on February 7,
1997. The non-bank subsidiaries engage primarily in securities brokerage,
insurance brokerage, venture capital investment, commercial finance lending,
lease financing, asset-based lending production, letter of credit issuance, data
processing, and reinsuring credit life and disability insurance policies related
to consumer loans made by the bank subsidiaries.
For a discussion on the development of the company's business during 1996,
see the "Financial Review" on pages 19 through 29 of the 1996 Annual Report to
Shareholders which is incorporated herein by reference as Exhibit 13.
During the last three years Summit has been an active acquirer of financial
institutions. For information on these acquisitions and the related 1996
restructuring charges, see Note 2 of the Consolidated Financial Statements on
page 39 of the 1996 Annual Report to Shareholders. The details of separate
operations for the March 1, 1996, acquisition of The Summit Bancorporation was
previously disclosed in the 1995 Annual Report to Shareholders. The details of
separate operations for the 1996 acquisitions of Central Jersey Financial
Corporation, The Flemington National Bank and Trust Company and Garden State
Bancshares, Inc. were immaterial to Summit's Consolidated Financial Statements.
The B.M.J. Financial Corp. ("B.M.J.") acquisition was consummated on March
1, 1997, in an exchange of .56 shares of the Company's common stock for each
share of B.M.J. common stock. Also included in Note 2 of the Consolidated
Financial Statements is information pertaining to the announced merger agreement
to acquire Collective Bancorp, Inc.
Summit Capital Trust I ("the Trust"), a wholly owned subsidiary of the
Company, created on March 12, 1997, is a special purpose subsidiary organized
for the sole purpose of issuing up to $225 million of Capital Trust Pass-though
Securities ("Trust-Preferred Securities"). On March 20, 1997, the Trust issued
$150 million of 8.40% Trust-Preferred Securities. The proceeds of the issuance
were lent to the Company in the form of subordinated debentures, maturing March
15, 2027. The Trust-Preferred Securities represent the undivided beneficial
interest in the Trust's assets, which consist solely of the subordinated
securities issued by the Company. The Company expects to use the net proceeds
from the issue of the subordinated debentures for general corporate purposes.
The Trust-Preferred Securities, which qualify as Tier I capital, are expected to
be traded in the secondary market.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Summit is engaged in the business of managing or controlling banks and such
other businesses related to banking as may be authorized under the Bank Holding
Company Act of 1956, as amended. The registrant is also engaged in furnishing
services to, or performing services for its present operating subsidiaries.
Reference is made below for a discussion about industry segments.
(c) (1) NARRATIVE DESCRIPTION OF BUSINESS.
Bank Subsidiaries
Summit Bank NJ was organized in 1899 and is the Company's largest bank
subsidiary, accounting for 86% of the Company's assets. Based on the latest
available data concerning deposit market share, Summit Bank NJ ranked as the
largest New Jersey-based commercial bank. Summit Bank NJ operates 47 offices to
serve most of the
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70 communities in Bergen County, the second most populous county in New Jersey.
It also operates 228 other banking offices throughout 17 of the remaining 20
counties in New Jersey. Summit Bank PA was organized in 1968 and is the
Company's Pennsylvania bank subsidiary, accounting for 12% of consolidated
assets. Summit Bank PA operates 70 offices in 13 counties in eastern
Pennsylvania.
The Company's bank subsidiaries provide a broad range of retail, commercial
and private banking services as well as trust and investment services through a
line of business approach to individuals, businesses, not-for-profit
organizations, government entities and other financial institutions.
The retail banking line of business, which includes the traditional branch
network, supermarket branches and automated teller machines, offers a full range
of checking, savings, and time deposit products; consumer lending; telephone and
personal computer banking; mortgage banking activities including originations,
servicing and selling of mortgages as well as other retail financial products.
The commercial banking line of business provides financial services to
middle-market corporate customers including: asset-based lending; foreign
exchange; leasing; term lending; private placement; correspondent banking;
treasury services; structured finance; and financing for international trade,
construction and development, equipment, commercial real estate and aircraft.
The private banking line of business responds to the financial needs of
high net-worth individuals by providing credit related products, investments,
insurance, retirement and estate planning services.
The bank and certain non-bank subsidiaries operate in the trust and
investment services line of business, providing a full range of investment
products, custodial services and insurance products for individuals and
institutions.
Non-Bank Subsidiaries
The Company, through its wholly-owned subsidiary, Summit Credit Corp., owns
and operates Summit Commercial/Gibraltar Corp., which is a commercial finance
company operating in the New York and New Jersey metropolitan areas, and
specializes in making loans secured by accounts receivable, inventory and
equipment, as well as financing sales and leases of equipment. The Company,
through its wholly-owned bank subsidiary, Summit Bank PA, owns and operates
Summit Discount Brokerage Co., which is engaged in the stock brokerage business
and in the underwriting of municipal bonds. The Company, through its
wholly-owned bank subsidiaries, owns and operates Summit Service Corporation,
which provides data processing services to the bank subsidiaries. Total revenues
(excluding intercompany revenues) for all non-bank subsidiaries as a group
during the last three years did not account for 10% or more of consolidated
revenues of Summit and its subsidiaries.
Supervision and Regulation
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit the options
of its management to deploy assets and maximize income. Areas subject to
regulation and supervision by the bank regulatory agencies include: nature of
business activities; minimum capital levels; dividends; affiliate transactions;
expansion of locations; acquisitions and mergers; interest rates paid on certain
types of deposits; reserves against deposits; terms, amounts and interest rates
charged to various types of borrowers; and investments. For additional
information on regulatory matters, see Note 20 of the Consolidated Financial
Statements on page 49 of the 1996 Annual Report to Shareholders.
BANK HOLDING COMPANY REGULATION
Summit is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"). As a bank holding
company, Summit is supervised by the Board of Governors of the Federal Reserve
System (the "FRB") and is required to file reports with the FRB and provide such
additional information as the FRB may require. Summit is also regulated by the
New Jersey and Pennsylvania Departments of Banking.
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The Holding Company Act prohibits Summit, with certain exceptions, from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to subsidiary banks, except that it may, upon application,
engage in, and may own shares of companies engaged in, certain businesses found
by the FRB to be so closely related to banking "as to be a proper incident
thereto" if the FRB determines that such acquisitions will be, on balance,
beneficial to the public. The Holding Company Act requires prior approval by the
FRB of the acquisition by Summit of more than five percent of the voting stock
of any additional bank. Acquisitions in any state were permitted after September
29, 1995. See "Interstate Banking" below. Satisfactory financial condition,
particularly with regard to capital adequacy, and satisfactory Community
Reinvestment Act ratings are generally prerequisites to obtaining federal
regulatory approval to make acquisitions. All of Summit's subsidiary banks are
currently rated "satisfactory" or better under the Community Reinvestment Act.
In addition, Summit is subject to various requirements under both New
Jersey and Pennsylvania laws concerning future acquisitions. Such laws require
the prior approval of the relevant Department of Banking to acquire any bank
chartered by that State. Statewide branching is permitted in New Jersey and
Pennsylvania. Branch approvals are subject to statutory standards relating to
safety and soundness, competition, and public convenience. The Holding Company
Act does not place territorial restrictions on the activities of non-bank
subsidiaries of bank holding companies.
The policy of the FRB provides that Summit is expected to act as a source
of financial strength to each of its subsidiary banks and to commit resources to
support such subsidiary banks in circumstances in which it might not do so
absent such policy. In addition, any capital loans by Summit to any subsidiary
bank would be subordinate in right of payment to deposits and certain other
indebtedness of such subsidiary bank.
Summit is required by the Holding Company Act to file annual reports of its
operations with the FRB and is subject to examination by the FRB. Under Section
106 of the 1970 amendments to the Holding Company Act and the regulations of the
FRB, bank holding companies and their subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit or
provision of any property or services. Regulations of the FRB under the Federal
Reserve Act require that reserves be maintained by a Summit bank subsidiary on
deposits; in addition, reserves must be maintained on certain other obligations,
to the extent that the proceeds of any Summit promissory note, acknowledgment of
advance, due bill or similar obligation, with a maturity of less than four
years, are used to supply or to maintain the availability of funds (other than
capital) to the bank subsidiary, except any such obligation that, had it been
issued directly by the bank subsidiary, would not constitute a deposit. They
also place limits upon the amount of Summit's equity securities which may be
repurchased or redeemed by Summit.
INTERSTATE BANKING AND REGULATORY RELIEF LEGISLATION IN 1994
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
enacted September 29, 1994, permits full nationwide interstate banking (e.g.,
bank holding company ("BHC") acquisition of bank subsidiaries anywhere in the
U.S.), with interstate branching by merger to be permitted after June 1, 1997.
Importantly, states retain the right to opt-out of interstate branching and to
require that out-of-state BHCs and banks comply with state rules governing
entry.
A brief summary of the Act's major provisions follows:
(A) Interstate Banking. Adequately capitalized and adequately managed
BHCs are permitted to acquire banks in any state. States cannot opt-out of
this provision. State laws may prohibit the purchase of banks 5 years of
age or less. Concentration limits are imposed (10% of bank and thrift
deposits nationwide/30% in the state; the state supervisor may waive this
30% limit). States retain existing authority to impose nondiscriminatory
deposit caps. Those banks with over 30% of statewide deposits may be sold
to out-of-state BHCs without being subject to the 30% rule where the BHC
has no presence in the host state (some limited exceptions may apply).
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(B) Bank/Thrift Affiliate Agency Authority. An insured bank subsidiary
may act as agent for an affiliate bank or thrift in offering specified
banking services (receive deposits, renew time deposits, close loans,
service loans, and receive payments on loans and other obligations) both
within and across state lines without offices of the agent being deemed
branches of the affiliates on whose behalf they act. Summit Bank NJ and
Summit Bank PA act as agents for each other pursuant to this authority.
Thrift affiliates may provide these same agency services under limited
circumstances.
(C) Interstate Branching.
(1) Branching Through Bank Mergers. After June 1, 1997, the
appropriate Federal regulator may approve the merger of adequately
capitalized banks across state lines, so long as the resulting
institution is adequately capitalized and adequately managed. This
will allow BHCs, after that date, to convert their subsidiary banks in
different states into branches of the same bank; banks in different
states, whether within holding companies or independent, will likewise
be permitted to directly merge. Bank mergers would have to conform
with state laws which impose age restrictions of up to 5 years on
acquisitions of new banks. States may opt-out of interstate branching
from September 29, 1994 until June 1, 1997. Doing so will preclude the
merger of banks in that state with banks located in other states;
banks located in states which opt-out would not be permitted to have
interstate branches. States may permit interstate branching earlier
than June 1, 1997, where both states involved with the bank merger
expressly permit it by statute. New Jersey and Pennsylvania have
passed such a law. Where the bank/BHC would be effectively moving into
a new state as a result of the merger, regulators must consider
Community Reinvestment Act compliance of all bank affiliates before
approving the merger application. The 10% nationwide/30% state by
state deposit concentration limits discussed above also apply to bank
mergers; states retain current authority to impose deposit caps. Host
state banks with over 30% of statewide deposits may be merged with
out-of-state banks without being subject to the 30% rule where the
out-of-state bank has no presence in the host state (some limited
exceptions may apply).
(2) Direct Branching by Banks. National and state banks are
prohibited from directly acquiring an existing branch (separate from
the acquisition of a charter), or establishing a de novo branch, in a
host state unless the law of the host state permits it. New Jersey
permits the acquisition of an existing branch but prohibits de novo;
Pennsylvania permits both.
(D) Foreign Banks. Foreign branches and agencies located in the U.S.
will be permitted to branch interstate to the same extent as domestic
institutions. However, certain restrictions are placed on foreign branch
operations in the U.S.
(E) Laws Applicable to State Interstate Branches. Branches of
out-of-state state chartered banks will be subject to the laws of the host
state, including permissible activities, as if they were branches of a bank
located in that host state. State bank supervisors of the host state may
examine an in-state branch of an out-of-state state bank for purposes of
determining compliance with state law and to ensure that the branch is
being operated in a safe and sound manner.
(F) Other. For financial institutions that maintain one or more
branches outside the home state, the appropriate Federal banking agency
must prepare a written evaluation of the entire institution's Community
Reinvestment Act performance and a separate evaluation of the institution's
performance for each state and metropolitan statistical area, and for the
non-metropolitan portion of the state. The Act prohibits the use of
interstate branches primarily for the purpose of deposit production, and
requires that the interstate bank's level of lending in the host state
relative to deposits from the host state (using available information) be
greater than half the average of all banks with home offices in that state.
The appropriate Federal regulator may require closure of a branch which
fails this test. In the case of an interstate bank that proposes to close
any branch in a low- or moderate-income area, the branch closure notices
must contain the mailing address of the bank's Federal regulator, and a
statement that comments regarding the closure may be mailed to that
regulator. If a person from the area in which the branch is located submits
a written request and includes a statement of specific reasons, and the
request is not frivolous, the agency must consult with community leaders
and convene a meeting with such leaders and depository institutions to
explore the feasibility of
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obtaining adequate alternative facilities and services. The legislation
specifically states that this process shall not affect the authority of the
bank to close the branch, or the timing of the closing.
Congress also enacted the Riegle Community Development and Regulatory
Improvement Act of 1994 on September 23, 1994. This Act amended the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") to allow
regulators to issue guidelines instead of regulations on asset quality, earnings
and stock valuation standards, provides for electronic filing of call reports
and currency transaction reports, exempts business purpose loans from the Real
Estate Settlement Procedures Act, reduces certain audit requirements of FDICIA,
and included many other miscellaneous provisions intended to reduce regulatory
burdens. However, stricter requirements are imposed on banks with respect to
requiring flood insurance from borrowers.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991, which
became law in December 1991, in addition to authorizing increased funding for
the Bank Insurance Fund ("BIF") by raising the FDIC's borrowing limits and
eliminating the cap on deposit insurance premiums, imposes extensive additional
statutory requirements regarding the roles, responsibilities, and liabilities of
a bank's senior management, directors, independent auditors, and regulators in
compliance, management and financial affairs of a bank. This Act has required
additional time, effort and resources to be devoted to compliance and internal
controls.
FDICIA requires each financial institution with $500 million or more in
total assets to have an annual audit of its financial statements by an
independent public accountant and to have an audit committee consisting of
independent outside directors. There are more stringent criteria for audit
committees of institutions with $3 billion or more in total assets. It also
requires that management report on and assess their responsibility for internal
controls over financial reporting and compliance with designated laws and
regulations.
FDICIA requires each federal banking agency to ensure that its risk-based
capital standards take adequate account of interest rate risk, concentration of
credit risk and the risks of non-traditional activities, as well as reflect the
actual performance and expected risk of loss on multi-family mortgages. In
addition, pursuant to FDICIA, each federal banking agency has promulgated
regulations specifying the levels at which a financial institution would be
considered "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized," and to take
certain mandatory and discretionary supervisory actions based on the capital
level of the institution.
Insured institutions are generally prohibited from paying dividends or
management fees if after making such payments, the institution would be
"undercapitalized." An "undercapitalized" institution also is required to
develop and submit to the appropriate federal banking agency a capital
restoration plan, and each company controlling such institution must guarantee
the institution's compliance with such plan. The liability of a holding company
under any such guarantee is limited to the lesser of five percent of the
institution's total assets at the time it became undercapitalized or the amount
needed to comply with all applicable capital standards. The FDIC is accorded a
priority over the claims of unsecured creditors in any bankruptcy proceeding of
a holding company that has guaranteed an institution's compliance with a capital
restoration plan. Further, "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized" institutions are subject to increasingly
extensive requirements and limitations, including mandatory sale of stock,
forced mergers, and ultimately receivership or conservatorship. A "critically
undercapitalized" institution, beginning 60 days after it becomes "critically
undercapitalized," generally is prohibited from making any payment of principal
or interest on the institution's subordinated debt.
FDICIA provides that the FDIC insurance assessments are to move from
flat-rate premiums to a new system of risk-based premium assessments. The
risk-based insurance assessment evaluates an institution's potential for causing
a loss to the insurance fund and bases deposit insurance premiums upon
individual bank profiles. The majority of the Company's FDIC insured deposits
are covered under the Bank Insurance Fund ("BIF"). After BIF reached its
"designated reserve ratio" in 1995, the FDIC greatly reduced (and, in the case
of the most highly rated and well-capitalized banks, eventually eliminated)
assessments applicable to BIF-insured deposits commencing January 1, 1996. As a
result of deposits acquired through the acquisition of thrift institutions over
the last several years, the Company has approximately $2.3 billion of deposits
that are insured under the Savings Association Insurance Fund ("SAIF").
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The Deposit Insurance Funds Act of 1996, which became law on September 30,
1996, included measures to address the disparity in deposit insurance assessment
rates that had developed between institutions whose deposits are insured by BIF
and those whose deposits are insured by SAIF. The SAIF was recapitalized through
a special "one time only" assessment of 0.657 of all deposits insured by that
Fund; the proceeds of this assessment brought SAIF to its designated reserve
ratio. The Company's bank subsidiaries were subject to this special assessment
with respect to the SAIF-insured deposits held by them; however, they benefited
from a 20% reduction provided by the legislation in favor of so-called "Oakar
Banks." As part of this legislation, the assessment basis for the Financing
Corporation ("FICO") bonds issued to finance resolution of early stages of the
savings and loan crisis, was broadened to include banks; however, banks are
assessed for this purpose at only one-fifth the rate of the assessment on
savings associations until December 31, 1999. As a result of these changes, the
deposit insurance assessment for banks and for thrifts has been nearly equalized
and will be identical for comparably rated institutions after January 1, 2000,
at which time banks will share equally in the FICO assessment and the BIF and
SAIF funds will be merged.
FDICIA also contains the Truth in Savings Act, which requires certain
disclosures to be made in connection with deposit accounts offered to consumers.
The FRB has adopted regulations implementing the provisions of the Truth in
Savings Act.
In addition, significant provisions of FDICIA required federal banking
regulators to draft standards in a number of other areas to assure bank safety
and soundness, including internal controls, information systems and internal
audit systems, credit underwriting, asset growth, compensation, loan
documentation and interest rate exposure. The bank regulators have issued
substantially similar regulations that impose on banks which fail to meet the
safety and soundness standards of FDICIA substantially the same requirements
respecting the formulation and implementation of a corrective plan of action as
apply in the case of banks failing to meet the capital adequacy standards.
FDICIA requires the regulators to establish standards regarding asset quality
and earnings. The legislation also contains provisions which tighten independent
auditing requirements, restrict the activities and investments of
state-chartered banks to those permitted for national banks, amend various
consumer banking laws, limit the ability of "undercapitalized" banks to borrow
from the FRB discount window, and require federal banking regulators to perform
annual on-site bank examinations and set standards for real estate lending.
FDICIA significantly increased costs for the banking industry due to higher FDIC
assessments, additional layers of reporting and compliance requirements and more
limitations on the activities of all but the most well capitalized banks.
FIRREA
Although the most significant purpose of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") was to restructure the savings
and loan industry, many of its provisions have importance for the commercial
banking industry, including the provision which authorized bank holding
companies to acquire healthy as well as troubled thrift institutions, generally
without limitations on interstate acquisitions, while retaining thrift branching
powers.
Under FIRREA, a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions,
including a failure to meet minimum capital requirements, indicating that a
"default" is likely to occur in the absence of regulatory assistance. These
provisions have commonly been referred to as FIRREA's "cross guarantee"
provisions. Liability under the "cross guarantee" provisions is subordinate to
claims (other than claims by shareholders, including bank holding companies, in
their capacity as shareholders, and affiliates of the institution) of
depositors, secured creditors, other general or senior creditors, and holders of
obligations subordinated to depositors or other creditors. The FDIC may waive
its rights under limited circumstances generally applicable to acquisitions of
troubled institutions.
FIRREA gives the FDIC as conservator or receiver of a failed depository
institution express authority to repudiate contracts with such institution which
it determines to be burdensome or if such repudiation will promote the orderly
administration of the institution's affairs. Certain "qualified financial
contracts", defined to include
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securities contracts, commodity contracts, forward contracts, repurchase
agreements, and swap agreements, are generally excluded from the repudiation
powers of the FDIC. The FDIC is also given authority to enforce contracts made
by a depository institution, notwithstanding any contractual provision providing
for termination, default, acceleration, or exercise of rights upon, or solely by
reason of, insolvency or the appointment of a conservator or receiver. Insured
depository institutions are also prohibited from entering into contracts for
goods, products or services which would adversely affect the safety and
soundness of the institution.
The bank regulatory agencies have broad discretion to issue cease and
desist orders if they determine that the Company or its subsidiaries are
engaging in "unsafe or unsound banking practices." In addition, the federal bank
regulatory authorities are empowered to impose substantial civil money penalties
for violations of certain Federal banking statutes and regulations. Financial
institutions, and directors, officers, employees, controlling shareholders,
agents, consultants, attorneys, accountants, appraisers and others associated
with a financial institution could now be subject to increased fines, penalties,
and other enforcement actions as a result of provisions of FIRREA. Further,
under FIRREA the failure to meet capital guidelines could subject a banking
institution to a variety of enforcement remedies available to Federal regulatory
authorities, including the termination of deposit insurance by the FDIC.
REGULATION OF SUBSIDIARIES
Various laws and the regulations thereunder applicable to the Company and
its bank subsidiaries impose restrictions and requirements in many areas,
including capital requirements, the maintenance of reserves, establishment of
new offices, the making of loans and investments, consumer protection,
employment practices and other matters. There are various legal limitations,
including Sections 23A and 23B of the Federal Reserve Act, on the extent to
which a bank subsidiary may finance or otherwise supply funds to Summit or its
non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to
certain limited exceptions, make loans or extensions of credit to, or
investments in the securities of, its parent or non-bank subsidiaries of its
parent or take their securities as collateral for loans to any borrower. See
Note 20 of the Consolidated Financial Statements on page 49 of the 1996 Annual
Report to Shareholders. Summit and its banking and other subsidiaries are also
subject to certain restrictions with respect to engaging in the business of
issuing, underwriting, public sale, flotation or distribution of securities.
The two state-chartered subsidiary banks are subject to the supervision of,
and to regular examination by, the New Jersey Department of Banking and
Insurance, in the case of Summit Bank NJ, and the Pennsylvania Department of
Banking, in the case of Summit Bank PA. In addition, the subsidiary banks are
subject to examination by the FDIC, and by the U.S Department of Education with
respect to student loan activity. Summit Bank NJ is also subject to examination
by the FRB and, as a registered municipal securities dealer, to the supervision
of the Municipal Securities Rulemaking Board.
None of the stocks of the subsidiary banks or other subsidiaries owned or
controlled by Summit carry statutory double liability. However, Article XIV,
Section 11 of the Constitution of the State of Arizona provides that the stock
of Summit's credit life insurance subsidiaries may be subject to assessment to
restore impaired capital under certain circumstances as and to the extent
provided therein. There is no such provision in New Jersey or Pennsylvania law
governing Summit's state-chartered banks.
Certain statutory restrictions may affect the declaration and payment of
dividends by the subsidiary banks to Summit. For additional information see Note
20 of the Consolidated Financial Statements on page 49 of the 1996 Annual Report
to Shareholders.
Summit and its non-bank subsidiaries are subject to examination by the New
Jersey and Pennsylvania state bank regulatory agencies, the FRB and the FDIC at
their discretion. As a mortgagee approved by the Department of Housing and Urban
Development and a seller - servicer of mortgages approved by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the New Jersey Housing and Mortgage Finance Agency, Summit Bank NJ is subject to
regulation or supervision by these government agencies. Summit Bank PA is a
participant in the mortgage program conducted by the Pennsylvania Housing
Finance Agency and is subject to the supervision of that agency. Summit Discount
Brokerage Co. is subject to regulation and examination by the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
securities regulatory authorities of Connecticut, Florida, New Jersey, New York
and Pennsylvania and, as a municipal
9
<PAGE> 10
securities dealer, to regulation by the Municipal Securities Rulemaking Board.
United Jersey Credit Life Insurance Company and First Valley Life Insurance
Company are subject to regulation and examination by the Department of Insurance
of the State of Arizona. Beechwood Insurance Agency, Inc. is subject to the
jurisdiction of, and to regular examination by, the New Jersey Department of
Insurance. Summit Commercial Corp. is subject to the jurisdiction of the
Connecticut Department of Banking.
Summit and its subsidiaries are also subject to various reporting
requirements of Federal and state securities laws, and regulations of the
Securities and Exchange Commission and the New York Stock Exchange.
From time to time, various bills are introduced in the United States
Congress and the New Jersey or Pennsylvania Legislature which could result in
additional regulation of the business of Summit and its subsidiaries, or further
increase competition or expense. Legislation has been proposed at the federal
level that would provide banking organizations such as Summit with greater
flexibility to provide non-banking services of a financial nature; and
legislation has been proposed that would permit non-banking companies to provide
banking services and to acquire banks. It cannot be determined at this time
whether any of these proposals will become law, or if they do become law, what
effect they will have on the operations of Summit.
There is a continuing trend toward regulating every aspect of retail
banking through consumer protection laws, at significant expense to financial
institutions. At the same time, securities brokers, insurance companies,
retailers and other non-bank entities are being allowed to offer a variety of
traditional bank services without being subject to the same degree of regulation
as banks and bank holding companies. If these trends continue without providing
parity to the commercial banks in matters such as permissible services, taxation
and interest rates chargeable on loans, adverse effects on commercial banks
could ensue.
In its operations in other countries, Summit Bank NJ is also subject to
restrictions imposed by the laws and banking authorities of such countries.
References under this caption, Supervision and Regulation, to applicable
statutes are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to such
statutes.
Monetary Policy and Economic Conditions
The earnings and business of Summit and its subsidiaries are affected by
the policies of regulatory authorities, including the FRB. The monetary policies
of the FRB have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the future. Because
of the changing conditions in the national and international economy and in the
money markets, as a result of actions by monetary and fiscal authorities,
interest rates, credit availability and deposit levels may change due to
circumstances beyond the control of Summit or its subsidiaries.
Effects of Inflation
A bank's asset and liability structure differs from that of an industrial
company, since its assets and liabilities fluctuate over time based upon
monetary policies and changes in interest rates. The growth in the bank's
earning assets, regardless of the effects of inflation, will increase net
interest income if the bank is able to maintain a consistent interest spread
between earning assets and supporting liabilities, of which there can be no
assurance.
A purchasing power gain or loss from holding net monetary assets during the
year represents the effect of general inflation on monetary assets and
liabilities. Almost all of the assets and liabilities of Summit are considered
monetary because they are fixed in terms of dollars and, therefore, are not
materially affected by inflation.
(c)(1)(i) PRINCIPAL PRODUCTS AND SERVICES RENDERED BY INDUSTRY SEGMENTS.
Not applicable. See response to Item l (c) (1) contained elsewhere in this
report.
10
<PAGE> 11
(c)(1)(ii) DESCRIPTION OF NEW PRODUCTS OR SEGMENTS.
There were no new products or industry segments that required the
investment of a material amount of the assets of the Company or that otherwise
were material.
(c)(1)(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS.
Not applicable.
(c)(1)(iv) IMPORTANCE OF PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND
CONCESSIONS HELD.
Patents and licenses, as such, are not of importance to Summit or its
subsidiaries, but operating charters (similar to licenses) - approved banking
location authorizations granted by the New Jersey Department of Banking and
Insurance and the Pennsylvania Department of Banking for state-chartered bank
subsidiaries - are vital to the operation and expansion of the bank
subsidiaries. Such charters are perpetual unless revoked by the granting
authorities. Various licenses and approvals to do business are also required by
the other regulatory agencies referred to under Supervision and Regulation
above. Most of these licenses and approvals require periodic renewal.
Summit has several registered service marks, none of which is considered
material to its business. The duration of each registration is perpetual so long
as the registrant continues to use the mark and renews the registration every
ten years.
(c)(1)(v) SEASONALITY OF BUSINESS.
Not applicable.
(c)(1)(vi) WORKING CAPITAL REQUIREMENTS RELATED TO INVENTORY.
Not applicable.
(c)(1)(vii) CONCENTRATION OF CUSTOMERS.
The business of the registrant and its subsidiaries is not dependent on a
single customer, nor on a small group of customers.
(c)(1)(viii) BACKLOG OF ORDERS.
Not applicable.
(c)(1)(ix) GOVERNMENT CONTRACTS.
No material portion of the business of Summit and its subsidiaries is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the Government.
(c)(1)(x) COMPETITION.
Each bank subsidiary faces strong competition for local business in the
communities it serves from other banking institutions as well as from other
financial institutions. Summit's banking subsidiaries compete in the national
market with other major banking and financial institutions in the New York and
Philadelphia areas, many of which are substantially larger and may have greater
financial resources. A number of these institutions offer their services
throughout New Jersey and Pennsylvania through bank and non-bank subsidiaries,
loan production offices and solicitations through broadcast and print media and
direct mail. For international business, Summit competes not only with a
substantial number of United States banks having foreign departments, but also
with agencies and branches of foreign banks located in the United States and
with other major banks throughout the world. The effect of liberalized branching
and acquisition laws has been to lower barriers to entry into the banking
11
<PAGE> 12
business and to increase competition for banking business, as well as to
increase both competition for and opportunities to acquire other financial
institutions. Nationwide interstate banking has accelerated these trends.
For most of the services which the subsidiaries perform, there is
increasing competition from financial institutions other than commercial banks
due to the relaxation of regulatory restrictions. Money market funds actively
compete with banks for deposits. Savings banks, savings and loan associations
and credit unions also actively compete for deposits and for various types of
loans; such institutions, as well as securities brokers, consumer finance
companies, mortgage companies, factors, insurance companies and pension trusts,
are important competitors. Financial institutions such as these, as well as
retailers and other non-bank entities, have acquired so-called "non-bank banks"
permitting them to offer traditional banking services without being subject to
the same degree of regulation. Insurance companies, mutual fund investment
counseling firms and other business firms and individuals offer competition for
personal and corporate trust services and investment advisory services.
Each of Summit's non-bank subsidiaries competes with a very large number of
competitors, many of which are substantially larger and have greater financial
resources.
Competition for banking and permitted non-bank services is based on price,
nature of product, quality of service, and in the case of retail activities,
convenience of location.
(c)(1)(xi) RESEARCH AND DEVELOPMENT.
Summit and its subsidiaries conduct research activities, from time to time,
relating to the development of new services. Expenditures for these activities
are not considered material to the financial condition of Summit and its
subsidiaries. Research expenditures during 1996 were charged directly to expense
as incurred.
(c)(1)(xii) COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS.
It is not expected that compliance with Federal, state and local provisions
relating to the protection of the environment will have any material effect on
Summit or its subsidiaries.
(c)(1)(xiii) NUMBER OF PERSONS EMPLOYED.
At December 31, 1996, there were 7,333 persons, on a full-time equivalent
basis, employed by Summit and its subsidiaries.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Summit Bank NJ operates an International Banking Department principally for
the benefit of its domestic customers and an offshore banking facility on the
island of Grand Cayman in the British West Indies. UJB Trade Finance (HK),
Limited, operating under a Hong Kong charter, issues documentary letters of
credit to Asian suppliers on behalf of U.S. importers. Business at these
offshore facilities constituted less than one-half of one percent of the total
assets and income of Summit Bank NJ in 1996.
12
<PAGE> 13
(e) STATISTICAL INFORMATION
The following tables set forth, on a consolidated basis, certain
statistical information concerning Summit and its subsidiaries. The tables
should be read in conjunction with the consolidated financial statements
contained in the 1996 Annual Report to Shareholders. Average data have been
derived from daily balances except in the case of certain smaller subsidiaries
where month-end balances were used.
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and
Interest Differential
For information on average balances, interest and average rates earned and
paid see Consolidated Comparative Average Balance Sheets With Resultant Interest
and Rates on pages 30 and 31 in the 1996 Annual Report to Shareholders.
For information on the effective interest differential of volume and rate
changes for the years 1996 and 1995 on a tax-equivalent basis see Rate/Volume
Table on page 23, and for additional information on interest sensitivity see
Asset/Liability Management on pages 26 through 28 in the 1996 Annual Report to
Shareholders.
Securities
The following table shows the carrying value of securities at December 31 for
each of the following years:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Securities available for sale:
U.S. Government and Federal agencies .. $2,182,383 $1,902,259 $ 821,430
State and political subdivisions ...... 12,906 -- --
Other securities ...................... 475,125 505,806 300,834
---------- ---------- ----------
Total securities available for sale $2,670,414 $2,408,065 $1,122,264
========== ========== ==========
Securities held to maturity:
U.S. Government and Federal agencies .. $1,698,032 $1,261,172 $2,422,999
State and political subdivisions ...... 217,547 271,621 378,919
Other securities ...................... 1,301,805 1,514,287 1,999,069
---------- ---------- ----------
Total securities held to maturity $3,217,384 $3,047,080 $4,800,987
========== ========== ==========
</TABLE>
For information on the maturity distribution and weighted average yields to
maturity on a tax equivalent basis for securities at December 31, 1996, see Note
3 of the Consolidated Financial Statements on page 40 of the 1996 Annual Report
to Shareholders.
13
<PAGE> 14
Loan Portfolio
For information on the loan portfolio for the five years ended December 31,
1996, see "Loans" on page 21 in the 1996 Annual Report to Shareholders. Included
in commercial and industrial loans are lease financing receivables of $578.8
million in 1996, $319.1 million in 1995, $317.4 million in 1994, $204.6 million
in 1993, and $153.2 million in 1992.
Unearned discount on loans and leases at December 31, 1996 and 1995 were
$89.5 million and $103.4 million, respectively. For information concerning
concentrations of credit risk, see Note 4 of the Consolidated Financial
Statements on page 41 of the 1996 Annual Report to Shareholders.
The following table shows the approximate maturities of selected loans at
December 31, 1996. The loans are segregated between those which are at
predetermined interest rates and those at floating or adjustable interest rates.
<TABLE>
<CAPTION>
Over One Over
One Year Year Through Five
or Less Five Years Years Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(In thousands)
Loan categories:
Commercial and industrial ............................ $2,372,710 $1,533,425 $ 310,288 $4,216,423
Construction and development ......................... 283,929 134,998 52,486 471,413
---------- ---------- ---------- ----------
Total $2,656,639 $1,668,423 $ 362,774 $4,687,836
========== ========== ========== ==========
Amounts of loans based upon:
Predetermined interest rates ......................... $ 617,749 $ 862,608 $ 274,477 $1,754,834
Floating or adjustable interest rates ................ 2,038,890 805,815 88,297 2,933,002
---------- ---------- ---------- ----------
Total $2,656,639 $1,668,423 $ 362,774 $4,687,836
========== ========== ========== ==========
</TABLE>
For information concerning the Company's accounting policy for
non-performing loans, see Note 1 of the Consolidated Financial Statements on
pages 36 and 37 of the 1996 Annual Report to Shareholders. The following table
shows the principal amount of non-performing loans, renegotiated loans, and
loans contractually past due 90 days or more at December 31 for each of the past
five years, and their resultant impact on earnings before taxes for the years
then ended. All loans in the following table represent domestic loans. There are
no foreign loans included in any of the categories.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Non-performing loans ........................................................ $132,086 $188,289 $197,285 $312,605 $423,748
Renegotiated loans .......................................................... -- 199 2,920 6,778 34,710
Loans, not included above, contractually past due
90 days or more (1) ......................................................... 60,570 47,786 39,645 58,852 76,766
IMPACT ON INTEREST INCOME:
Interest income that would have been recorded on non-performing and
renegotiated loans outstanding at December 31 in accordance with
their original terms .................................................... $ 13,497 $ 19,724 $ 19,702 $ 28,225 $ 37,524
Interest income actually received and recorded
on non-performing and renegotiated loans
outstanding at December 31 ............................................. 1,817 2,833 2,642 5,332 4,897
-------- -------- -------- -------- --------
Lost income on non-performing
and renegotiated loans $ 11,680 $ 16,891 $ 17,060 $ 22,893 $ 32,627
======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Primarily consumer and residential mortgage loans which are well
collateralized and in the process of collection.
Potential problem loans are those which management believes conditions
indicate that the collection of principal and interest may be doubtful in
accordance with the original contract terms. They are not included in
non-performing loans as these loans are still performing. Potential problem
loans were $11.0 million and $18.7 million at December 31, 1996 and 1995
respectively. Potential problem loans at December 31, 1996 comprised
14
<PAGE> 15
commercial and industrial loans of $5.9 million, construction and development
loans of $4.9 million, and real estate related loans of $.2 million. The risk
associated with such loans has been factored into the Company's allowance for
loan losses.
Summary of Loan Loss Experience
The relationship for the past five years among loans, loans charged off and
loan recoveries, the provision for loan losses and the allowance for loan losses
is shown below:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Loans:
Average for the period ................. $ 13,416,526 $ 13,416,526 $ 12,387,584 $ 11,889,465 $ 12,043,874
============ ============ ============ ============ ============
Allowance for loan losses:
Balance, beginning of period ........... $ 279,034 $ 305,330 $ 339,028 $ 374,639 $ 388,846
Acquisition adjustments, net ........... 8,492 6,131 1,910 -- --
Provision charged to operating
expenses ............................. 62,000 71,850 91,995 112,885 165,553
Loans charged off:
Commercial and industrial ............ 36,524 45,293 37,229 75,966 84,910
Construction and development ......... 16,862 35,451 39,209 38,354 74,260
Commercial mortgage .................. 25,695 25,741 21,731 18,590 13,490
Residential mortgage ................. 5,043 6,016 4,440 3,829 3,794
Consumer ............................. 20,913 13,871 10,300 29,760 20,810
------------ ------------ ------------ ------------ ------------
Total loans charged off ........ 105,037 126,372 112,909 166,499 197,264
------------ ------------ ------------ ------------ ------------
Recoveries
Commercial and industrial ............ 12,602 14,684 13,921 10,856 9,489
Construction and development ......... 2,427 2,072 1,320 1,657 1,662
Commercial mortgage .................. 2,466 1,920 2,838 724 876
Residential mortgage ................. 838 667 594 315 181
Consumer ............................. 4,897 2,752 3,585 4,451 5,296
------------ ------------ ------------ ------------ ------------
Total recoveries ............... 23,230 22,095 22,258 18,003 17,504
------------ ------------ ------------ ------------ ------------
Net loans charge off ..................... 81,807 104,277 90,651 148,496 179,760
Write downs on transfer to assets
held for accelerated disposition ....... -- -- 36,952 -- --
------------ ------------ ------------ ------------ ------------
Balance, end of period $ 267,719 $ 279,034 $ 305,330 $ 339,028 $ 374,639
============ ============ ============ ============ ============
Ratio of:
Net charge offs to average loans
outstanding .......................... 0.56% 0.78% 0.73% 1.25% 1.49%
Allowance to year-end loans ............ 1.81% 1.99% 2.33% 2.85% 3.13%
</TABLE>
For additional information, see Notes 4 and 5 to the Consolidated Financial
Statements on page 41 and Allowance for Loan Losses and Related Provision on
page 26 of the 1996 Annual Report to Shareholders.
15
<PAGE> 16
Specific allocations as well as a need for general reserves are identified
by loan type and allocated according to the following categories of loans at
December 31 for each of the past five years. The analysis of the adequacy of the
allowance for loan losses for the year 1995 and prior was the result of
combining The Summit Bancorporation and UJB Financial Corp. analysis. The
analysis for 1996 includes the effect of the merged entities under the one
methodology. The percentage of loans to total loans is based upon the
classification of loans shown as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(In thousands) ------------------- ------------------ ------------------ -------------------- ----------------
Percentage Percentage Percentage Percentage Percentage
of of of of of
loans to loans to loans to loans to loans to
total total total total total
Amount loans Amount loans Amount loans Amount loans Amount loan
------ ----- ------ ----- ------ ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial ................. $ 39,280 28.5% $ 53,925 31.6% $ 62,300 32.4% $ 78,181 31.7% $ 85,906 31.8%
Construction
and development .............. 36,352 3.2 43,951 4.1 61,274 6.0 85,580 8.2 101,251 9.3
Commercial mortgage 20,690 15.6 31,754 16.5 31,943 16.8 30,814 20.0 32,689 19.3
Residential mortgage 8,152 25.6 15,501 23.5 15,740 21.4 13,529 18.1 15,901 17.5
Consumer ..................... 22,259 23.2 21,150 22.0 24,992 21.0 20,934 20.3 26,194 20.8
Loan commitments
and other loans .............. 7,762 3.9 26,895 2.3 3,221 2.4 1,226 1.7 1,696 1.3
Unallocated .................. 133,224 N/A 85,858 N/A 105,860 N/A 108,764 N/A 111,002 N/A
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $267,719 100.0% $279,034 100.0% $305,330 100.0% $339,028 100.0 $374,639 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Deposits
For information on classification of average balances for deposits, see
"Comparative Average Balance Sheets With Resultant Interest and Rates" on pages
30 and 31, and for additional information on deposits at December 31, 1996, see
Note 8 to the Consolidated Financial Statements on page 42 of the 1996 Annual
Report to Shareholders.
The following table shows, by time remaining to maturity, all certificates
of deposit $100,000 and over at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Less than three months ................ $628,691
Three to six months ................... 41,700
Six to twelve months .................. 71,512
More than twelve months ............... 248,778
--------
Total $990,681
========
</TABLE>
Return on Equity and Assets
For information on consolidated ratios, see "Summary of Selected Financial
Data" on pages 52 and 53 and see "Unaudited Quarterly Financial Data" on page 54
in the 1996 Annual Report to Shareholders.
16
<PAGE> 17
Short-Term Borrowings
The following table summarizes information relating to certain short-term
borrowings for each of the past three years:
<TABLE>
<CAPTION>
Maximum
Daily Average for Year Amount
Amount ---------------------- Outstanding
Outstanding at Average Rate at Amount Interest at any
December 31 December 31 Outstanding Rate Month End
----------- ----------- ----------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Securities sold under agreements to repurchase:
1996 $ 796,815 5.53% $ 574,011 5.17% $ 844,988
1995 649,650 5.48 817,152 5.47 966,269
1994 1,177,725 5.24 920,654 4.35 1,273,711
Federal funds purchased:
1996 $ 199,950 6.22% $ 628,989 5.32% $1,186,691
1995 200,700 5.57 253,516 5.85 442,675
1994 172,255 5.94 540,073 4.22 708,456
</TABLE>
ITEM 2. PROPERTIES.
The Company owns its administrative headquarters building in West Windsor
Township, New Jersey. The principal banking office of Summit Bank NJ is located
in Hackensack, New Jersey in a nine-story building owned by the bank. In
addition to its principal office, Summit Bank NJ also leases facilities in
Cranford and Dayton, New Jersey, which are used for various administrative and
back office loan operations. The principal banking and administrative offices of
Summit Bank PA are located in an eleven-story building in Bethlehem,
Pennsylvania. Summit Bank PA leases the building for an initial term ending in
the year 2000, with renewal options extending for an additional 38 years. Summit
Bank PA occupies approximately two-thirds of the building. The bank subsidiaries
conduct business in approximately 345 banking offices, of which approximately
44% are owned, with the remaining leased. Office space in certain of the owned
buildings is leased to others. Summit Service Corporation, a wholly owned
subsidiary of the bank subsidiaries, leases 300,000 square feet of real property
located in Ridgefield Park, New Jersey for use as the principal data processing
facility.
For additional information on properties see Note 6 of the Consolidated
Financial Statements on page 42 of the 1996 Annual Report to Shareholders.
17
<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS.
Management does not believe that the ultimate disposition of the litigation
discussed below will have a material adverse effect on the financial position
and results of operation of the Company and its subsidiaries, taken as a whole.
1. Cushman & Wakefield of New Jersey, Inc. v. Alexander Summer Company and
United Jersey Bank. Filed December 26, 1989 in the Superior Court of New Jersey,
Bergen County, Docket No. L-000012-90; cross-appealed to the Superior Court of
New Jersey, Appellate Division, Docket No. A-1531-94 (T1); petition to the New
Jersey Supreme Court for certification, Docket number 43,333. Plaintiff
originally brought this action to recover brokerage commissions and punitive
damages, alleging tortious interference with contract and tortious interference
with prospective economic advantage. In its complaint, plaintiff alleged that
United Jersey Bank (former name of Summit Bank NJ) utilized plaintiff's services
to obtain leases for its new operations center and two branch banks, and that
the Bank and the co-defendant, a real estate brokerage proprietorship owned by a
director of the Bank, improperly deprived plaintiff of these commissions. On
November 7, 1994, the trial court found in favor of the plaintiff with respect
to the two branches and awarded compensatory damages of $131,250, prejudgement
interest of $42,759, and punitive damages in the amount of $400,000. The trial
court held that it could not award damages relating to loss of the brokerage
commission on the operations center because the Bank leased an adjacent
property, not the one shown to it by plaintiff. The trial court also held that
it could not consider plaintiff's legal expenses in the award of punitive
damages. The parties cross-appealed.
In a decision filed November 18, 1996, the Appellate Division affirmed that
portion of the trial court's decision in favor of plaintiff with respect to the
two branches but, reversing the trial court, also held that the plaintiff was
entitled to damages for loss of the brokerage commission on the operations
center (estimated to be between $3.7 and $4.2 million), and that the trial court
should consider plaintiff's litigation expenses in the award of punitive
damages. The Appellate Division remanded the matter to the trial court for
further proceedings consistent with its opinion. The Bank and its co-defendant
have petitioned the Supreme Court of New Jersey for certification to review the
determination of the Appellate Division. The Supreme Court has not yet granted
or denied certification.
The Bank is contractually indemnified by Alexander Summer Company, the
co-defendant, against damages and legal expenses arising out of claims by third
parties, including plaintiff, for brokerage commissions.
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 No. 95CV05258 (JBS), filed on October 4, 1995. The plaintiff alleges that
she is representative of a class of United Jersey Bank (former name of Summit
Bank NJ) customers who obtained consumer loans (primarily on automobiles and
trailers) from the Bank and who either did not obtain required insurance or
permitted that insurance to lapse, after which the Bank "force-placed"
insurance. The complaint alleges breach of contract and of the implied covenants
of good faith and fair dealing, unconscionable commercial practices under the
New Jersey Consumer Fraud Act, unjust enrichment, breach of fiduciary duty and
violations of the National Bank Act and Depository Institution and Monetary
Control Act.
On January 6, 1996, the Bank filed a motion to dismiss Count V of the
complaint (in which plaintiff claims a violation of the National Bank Act and
Depository Institution and Monetary Control Act) for failure to state a federal
claim upon which relief may be granted and to dismiss the remaining counts of
the complaint for lack of supplemental jurisdiction. The plaintiff filed an
opposing brief and, on July 29, 1996, the court denied the motion. On August 22,
1996, the Bank served a motion for summary judgment. Opposition papers have been
filed by the plaintiff. The return date of the motion was December 20, 1996 but
no decision has been rendered by the Court.
On November 21, 1996, the plaintiff filed a motion for class certification
and the Bank opposed the motion. No return date has been set for this last
motion and no decision has been rendered,.
On October 14, 1996, counsel for the plaintiff filed a companion case,
Robert M. Gundle, III, on behalf of himself and all others similarly situated v.
Summit Bank, successor in interest to United Jersey Bank, U.S. District Court
for the District of New Jersey, Civil Action No. 96-4477 (JBS). The allegations
of the Gundle complaint are substantially the same as those in Loatman. On
October 30, 1996, the plaintiff filed a motion to consolidate
18
<PAGE> 19
the Gundle matter into the Loatman matter. The Bank has filed opposition papers.
The return date of this motion was December 6, 1996, but no decision has been
rendered by the Court.
On April 24, 1996, Annette Loatman filed an action in the Superior Court of
New Jersey, Camden County, entitled, Annette Loatman, on behalf of herself and
all others similarly situated v. United Jersey Bank, Docket No. L-3527-96 ("the
State Action"). The allegations in the State Action are substantially similar to
those of Loatman. On August 16, 1996, the State Action was stayed by the court
for ninety days pending the resolution of the District Court matter with the
understanding that, if the District Court matter were still pending, the state
court action would be dismissed. At the end of the ninety day period, the
plaintiff filed a motion to extend the stay. The Bank filed papers in
opposition. On December 9, 1996, the court denied the motion to extend the stay
and dismissed the State Action without prejudice.
3. In re Payroll Express Corporation of New York and Payroll Express
Corporation, United States Bankruptcy Court for the Southern District of New
York. Case Nos. 92-B-43 149 (CB) and 92-B-43 150 (CB).
Summit Bank NJ, formerly known as United Jersey Bank, is involved in a
number of cases venued in the United States Bankruptcy Court and the United
States District Court for the Southern District of New York (the "Bankruptcy
Cases") involving a former customer of the Bank, Payroll Express Corp.
("Payroll"), and several related entities. Payroll was primarily in the business
of providing on-site check cashing services.
Customers of Payroll deposited funds into a general deposit account
("Account") at the Bank to cover their payrolls. The Account was given credit
for deposits received by Payroll and cash was obtained by debiting the Account.
Payroll perpetrated a substantial check kiting scheme using the Account and
another account at National Westminster Bank, NJ ("NatWest"). NatWest apparently
discovered this scheme in late May of 1992. Due to this discovery, NatWest
ceased honoring checks drawn by Payroll on its account. The Bank was ultimately
left with a loss of approximately $4 million in the Account.
On June 5, 1992, Robert Felzenberg, the President of Payroll, was charged
in a Federal court located in Manhattan with embezzlement and wire fraud. He has
pled guilty to among other things, wire and tax fraud, and was sentenced to six
and one-half years imprisonment in March 1994.
A trustee (the "Trustee") has been appointed by the Bankruptcy Court.
Payroll customers deposited a total of $11.8 million into the Account
during the last two weeks of May 1992. A number of these customers have asserted
claims against the Bank, although only four lawsuits are currently pending: Beth
Israel Medical Center, et al v. United Jersey Bank and National Westminster Bank
New Jersey, United States District Court for the Southern District of New York,
Civil Action No. 94-8256 (LAP), Frederick Goldman, Inc. v. United Jersey Bank
and National Westminster Bank New Jersey, United States District Court for the
Southern District of New York, Civil Action No, 94-8256 (LAP), Towers Financial
Corporation v. United Jersey Bank, United States District Court for the District
of New Jersey, Civil Action No.92-3175 (WGB), New York City Transit Authority v.
United Jersey Bank and National Westminster Bank New Jersey, United States
District Court for the Southern District of New York, Civil Action No.95-3685
(LAP) and Copytone, Inc. on behalf of itself and others similarly situated v.
United Jersey Bank, National Westminster Bank New Jersey and John Does I through
20, United States District Court for the Southern District of New York, Civil
Action No. 95-8217 (LAP). The lawsuits allege various common law causes of
action against the Bank, including unjust enrichment, restitution, conversion,
fraud, negligence and/or breach of fiduciary duty. In addition, the Copytone
matter purports to be a class action. The Beth Israel, Frederick Goldman, New
York Transit Authority and Copytone matters were consolidated and the Bank filed
motions to dismiss the complaints for failure to state a claim upon which relief
can be granted. The motions were heard on February 15, 1996. On October 11,
1996, the court granted the Bank's motion in part, dismissing the claims against
the Bank which were based on negligence, aiding and abetting the wrongful
conduct of Payroll Express, breach of fiduciary duty, fraud, equitable fraud,
conspiracy to conceal check-kiting by Payroll Express, as well as a part of the
conversion claims. The court denied the remainder of the Bank's motion but
stayed the proceedings as to the remaining claims until the completion of the
preference action entitled In re Payroll Express Corporation et al - John S.
Pereira as Chapter 11 Trustee of the Estate of Payroll
19
<PAGE> 20
Express Corporation et al v. United Jersey Bank, United States District Court
for the Southern District of New York, Civil Action No. 94-1565 (LAP).
A status conference was held in the fifth customer lawsuit, Towers
Financial Corporation v. United Jersey Bank, United States District Court for
the District of New Jersey, Civil Action No.92-3175 (WGB), on November 15, 1996.
The court requested that Towers dismiss its lawsuit without prejudice, and await
resolution of the preference lawsuit brought by the Trustee in Bankruptcy or
file a new lawsuit in the United States District Court for the Southern District
of New York. Towers agreed to dismiss its lawsuit and, on November 17, 1996, the
Court entered an order dismissing the lawsuit without prejudice.
The Trustee appointed in the Bankruptcy Cases described above has filed two
adversary proceedings against the Bank. The first, captioned John E. Pereira, as
Chapter II Trustee of the Estate of Payroll Express Corporation et al. v. United
Jersey Bank, was originally filed in the United States Bankruptcy Court for the
Southern District of New York. The adversary complaint alleges the Account
received incoming wire transfers of at least $17,013,537.54 within the 90 days
prior to the filing of bankruptcy by Payroll. These incoming wire transfers were
allegedly used by the Bank to reduce its losses on the check kiting scheme. The
Trustee claims that the amounts of the wire transfers are recoverable by the
Trustee as avoidable preferences under the Bankruptcy Code. The Bank
successfully moved to withdraw the reference of this matter to the United States
District Court for the Southern District of New York where it is currently
pending under Civil Action No.94-1565 (LAP). The Bank then filed a motion for
summary judgment. In opposition, the Trustee filed a cross-motion for summary
judgment. Briefing on the motions was completed and the motions were heard on
February 15, 1996. On October 11, 1996, the court denied both motions.
The second adversary complaint, captioned John E. Pereira, as Chapter 11
Trustee of the Estate of Payroll Express Corporation et al. v. United Jersey
Bank, United States Bankruptcy Court for the Southern District of New York,
Adversary Proceeding No. 94-8297A, alleges that the mortgages given to the Bank
on property owned by the various Felzenberg-controlled entities, together with
certain loan payments made by Payroll to the Bank, were fraudulent conveyances.
The properties in question have all been sold. The Trustee also seeks the return
of $310,000.00 in principal and $152,487.50 in interest payments made by Payroll
on its loan, in the year prior to the bankruptcy. The Trustee claims that these
transfers are recoverable under section 548 of the Bankruptcy Code, as well as
under the New Jersey Uniform Fraudulent Transfer Act. The Bank has filed an
answer denying the material allegations of the complaint and the parties have
concluded fact discovery. Discovery of experts has commenced and will be
followed by pre-trial motions (if necessary) and eventually a trial.
4. Michael Hochman and Joan Hochman, individually and on behalf of a class of
similarly situated depositors v. United Jersey Bank, a New Jersey corporation
and UJB Financial Corp., a New Jersey Corporation, originally filed on December
7, 1995 in the Superior Court of New Jersey, Law Division, Middlesex County,
Docket No. MID-L-10623-95, and now pending in the United States District Court
for the District of New Jersey, Case No.96-916 (MTB). The plaintiffs allege that
they are representatives of a class of Summit Bank NJ customers who purchased
and redeemed certificates of deposit and who were entitled to, but were not
paid, interest for the period from the date of maturity until the date of
redemption. The plaintiffs allege breach of contract, fraud and a violation of
the New Jersey Consumer Fraud Act. They seek payment, to themselves and other
members of the putative class, of the interest alleged to be owed, a declaratory
judgment that the Bank is obligated to pay interest during the 10 day redemption
grace period after maturity, counsel fees and costs. They also seek treble
damages under the New Jersey Consumer Fraud Act.
On February 16, 1996, Plaintiffs filed an amended complaint, alleging
violations of the federal Truth in Savings Act. The Bank and UJB Financial Corp.
then removed the matter to the U.S. District Court for the District of New
Jersey where it is presently pending. On March 21, 1996, the Bank and UJB
Financial Corp. filed a motion for summary judgment. On April 23, 1996, the
plaintiffs filed a cross-motion for summary judgment. Briefing on the motions
has been completed and the Court has declined to hear oral argument. No decision
has been rendered by the Court to date on the motions.
5. McAdoo CERCLA Matter. First Valley Bank ("FVB"), now known as Summit Bank PA,
foreclosed on property in McAdoo, Pennsylvania, taking title by a sheriff's deed
in 1980. The property was later designated by the United States Environmental
Protection Agency ("EPA") as a part of a site (the "McAdoo Site") listed on the
20
<PAGE> 21
National Priorities List of sites to be remediated pursuant to the federal
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
On June 3, 1988, the United States District Court for the Eastern District
of Pennsylvania entered a Consent Decree in United States v. Air Products and
Chemicals, Inc., Civil Action No.87-7352 (the "Air Products litigation"), in
which sixty-five potentially responsible parties ("PRPs"), not including FVB,
agreed to undertake remediation of the McAdoo Site and the United States agreed
to pay 25% of the settling PRPs' (the "Initial PRPS") cost of remediation.
On June 11, 1988, after having made a demand upon FVB and a number of other
non-settling PRPs, the United States sued a number of the PRPs other than FVB
who did not enter into the Consent Decree in a matter entitled United States of
America v. Alcan Aluminum et al, United States District Court, Eastern District
of Pennsylvania, Civil Action No.88-4970 (the "Alcan litigation"). Although the
United States did not sue FVB, on April 16, 1990, one defendant in the Alcan
Litigation, Kalama Chemical, Inc., filed a motion for leave to file a third
party complaint against FVB seeking contribution. The motion was denied without
prejudice.
FVB then participated in settlement discussions in the Alcan litigation.
Pursuant to those negotiations, FVB and certain defendants, third-party
defendants and other potential third-party defendants deposited, in a Court
registry, a sum which the United States agreed will satisfy all of its claims
against FVB. FVB's contribution was $192,000. The parties also executed a
Consent Decree which was approved by the District Court by Order dated June 24,
1993. The Consent Decree gives FVB a broad covenant not to sue and contribution
protection to the extent available under 42 U.S.C. 9622(d)(2). The Consent
Decree was the subject of public notice and comment, pursuant to 42 U.S.C.
9622(d)(2). The Initial PRPs submitted comments to the United States, objecting
to the Consent Decree, including inter alia, the broad release provided to FVB.
The Initial PRPs also filed a motion to intervene in the Alcan litigation, which
was denied by the District Court. The Initial PRPs then appealed that denial to
the United States Court of Appeals for the Third Circuit in a matter captioned
United States V. Alcan Aluminum, Inc., et al, Action No.93-1099 (3rd Cir.). On
May 25, 1994, the Third Circuit vacated the District Court's orders denying the
motion to intervene and approving the Consent Decree, holding that the Initial
PRPs may intervene as a matter of right in the Alcan litigation if they can
prove that they have a protectable interest in that litigation. Consequently,
the case was remanded to the District Court to determine whether the Initial
PRPs have a protectable interest in the Alcan litigation.
As a result of settlement negotiations, the parties have reached an
agreement in principle for the settlement of the case and the Court has
suspended all proceedings in the case. Under the agreement, the Alcan Settlors
agreed to pay an additional $190,000.00, upon the entry of two new Consent
decrees, one for the Alcan litigation and one for the Air Products litigation.
FVB's portion of the $190,000.00 amounts to $8,500.00.
The parties and the government then engaged in lengthy negotiations over
the specific terms of the two Consent Orders. The parties reached agreement on
the language of the two Consent Decrees in September 1996 and in late September
1996, the Alcan Settlors and the Air Products Settlors signed the two Consent
Decrees. In the final Alcan Consent Decree, the United States again would
provide FVB with a very broad release from past and future liability, similar to
that contained in the earlier Alcan Consent Decree. Further, the Air Products
parties are signatories to the new Alcan Consent Decree, and they specifically
have agreed to the broad release afforded to FVB.
The two Consent Decrees must now be signed by representatives of the United
States. Before these signatures may be obtained, the Consent Decrees must
undergo an internal governmental approval process that typically takes several
months. If the Consent Decrees are fully executed by the United States, they
will be lodged with the Court, public notice will be published and a period of
public comment will be provided. The United States will reserve the right to
withdraw its consent based on this public comment. If, following public comment,
the United States does not withdraw its consent, it must then move for Court
approval and entry of the Consent Decrees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
21
<PAGE> 22
EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
The following data is supplied as of March 7, 1997:
Title (All positions and offices presently held with
Name Age Registrant) and year appointed to office(s)
- --------------------- ---- -------------------------------------------------------------
<S> <C> <C>
T. Joseph Semrod ......... 60 Chairman of the Board and Chief Executive Officer (1981)
Robert G. Cox ............ 56 President (1996)
John G. Collins .......... 60 Vice Chairman (1986)
John R. Howell ........... 63 Vice Chairman (1987)
John R. Haggerty ......... 61 Senior Executive Vice President/Finance (1987) and
Treasurer (1981)
Sabry J. Mackoul ......... 56 Senior Executive Vice President/Retail Banking (1993)
Stephen H. Paneyko ....... 54 Senior Executive Vice President/ Commercial Banking (1987)
Larry L. Betsinger ....... 59 Executive Vice President/Corporate Information Services (1990)
Alfred M. D'Augusta ...... 55 Executive Vice President/Human Resources (1988)
John R. Feeney ........... 47 Executive Vice President/Asset Liability Management (1996)
William J. Healy ......... 52 Executive Vice President (1988) and Comptroller (1979) and
Assistant Secretary (1980)
Richard F. Ober, Jr. ..... 53 Executive Vice President (1988), General Counsel (1975)
and Secretary (1978)
Dennis Porterfield ....... 60 Executive Vice President/Bank Investments (1991) and
Assistant Secretary (1975)
Alan N. Posencheg ........ 55 Executive Vice President/Corporate Operations and
Information Services (1984)
Gary F. Simmerman ........ 62 Executive Vice President/Consumer Loans and Services (1994)
George J. Soltys, Jr. .... 50 Executive Vice President/Corporate Planning (1996)
Edmund C. Weiss, Jr. ..... 54 Executive Vice President (1990) and Auditor (1977)
</TABLE>
The term of each of the above officers is until the next organization
meeting of the Board of Directors, which occurs immediately following the annual
meeting of shareholders, and until a successor is appointed by the Board of
Directors. Each officer may be removed at any time by the Board of Directors
without cause. Management of Summit is not aware of any family relationship
between any director or executive officer or person nominated or chosen to
become a director or executive officer. All of the executive officers named
above have been employed in executive positions by Summit, a subsidiary of
Summit or a bank holding company merged into Summit for more than the last five
years.
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
This item has been omitted pursuant to paragraph (2) of General Instruction
"G" - Information to be Incorporated by Reference. See the Shareholders' Equity
and Dividends section in the Financial Review on pages 22 and 23, Notes 13 and
20 to the Consolidated Financial Statements on pages 43 and 49, Unaudited
Quarterly Financial Data on page 54, and Quarterly Common Stock Price and
Dividend Information on page 57 of the 1996 Annual Report to Shareholders. At
February 28, 1997 there were 27,996 record holders of Summit Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
This item is omitted pursuant to paragraph (2) of General Instruction "G" -
Information to be Incorporated by Reference. See Consolidated Summary of
Selected Financial Data on pages 52 and 53 of the 1996 Annual Report to
Shareholders. Included in non-interest income for the years 1996 through 1992
were investment securities gains of $5.2 million, $8.6 million, $2.2 million,
$9.6 million, and $19.2 million respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This item is omitted pursuant to paragraph (2) of General Instruction "G" -
Information to be Incorporated by Reference. See Financial Review on pages 19
through 29 of the 1996 Annual Report to Shareholders. Reference is made to page
10 of this report for a discussion of the effects of inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
This item is omitted pursuant to paragraph (2) of General Instruction "G" -
Information to be Incorporated by Reference. See Consolidated Financial
Statements and Notes to Consolidated Financial Statements on pages 32 through 50
and page 54 of the 1996 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This item is omitted pursuant to paragraph (3) of General Instruction "G" -
Information to be Incorporated by Reference, except that certain information on
Executive Officers of the Registrant is included in Part I of this report. A
definitive proxy statement, dated March 7, 1997 (the "Proxy Statement"), was
filed with the Securities and Exchange Commission on March 7, 1997. Information
required by Item 401 of Regulation S-K is provided at page 22 of this Annual
Report on Form 10-K and in the Proxy Statement at pages 2-6 under the caption
"Election of Directors", which is incorporated herein by reference. Information
required by Item 405 of Regulation S-K is provided in the Proxy Statement at
page 20 under the caption "Additional Information Regarding Directors and
Officers - Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
This item is omitted pursuant to paragraph (3) of General Instruction "G" -
Information to be Incorporated by Reference. Information required by Item 402 of
Regulation S-K is provided in the Proxy Statement at pages 11-24 under the
captions "Remuneration of Outside Directors", "Summary Compensation Table",
"Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR Exercises in
Last Fiscal Year and FY-End Option/SAR Values", "Long-Term Incentive Plans -
Awards in Last Fiscal Year" and "Certain Information As To Executive Officers",
all of which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This item has been omitted pursuant to paragraph (3) of General Instruction
"G" - "Information to be Incorporated by Reference". Information required by
Item 403 of Regulation S-K is provided at page 1 of the Proxy Statement in the
introductory information to the Proxy Statement and at pages 7-8 of the Proxy
Statement under the caption "Beneficial Ownership of Summit Common Stock by
Directors and Executive Officers", all of which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This item is omitted pursuant to paragraph (3) of Instruction "G" -
"Information to be Incorporated by Reference". Information required by Item 404
of Regulation S-K is provided in the Proxy Statement at page 20 under the
caption "Additional Information Regarding Directors and Officers", which is
incorporated herein by reference.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
a) (1) Financial statements, Summit Bancorp. and Subsidiaries:
<S> <C>
Page*
-----
Consolidated Balance Sheets - December 31, 1996 and 1995 .................... 32
Consolidated Statements of Income - Three Years Ended December 31, 1996 ..... 33
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 1996 ...................................................... 34
Consolidated Statements of Shareholders' Equity - Three Years Ended
December 31, 1996 ...................................................... 35
Notes to Consolidated Financial Statements .................................. 36
Management's and Independent Auditors' Report ............................... 51
Unaudited Quarterly Financial Data .......................................... 54
</TABLE>
Financial statement schedules are omitted as the required information is not
applicable or the information is presented in the financial statements or
related notes thereto.
a) (2) Other Exhibits (All references to Forms 8-K, 10-K, 10-Q, 8-A, S-1, S-3,
S-4, S-8 and other Forms provided for by the Securities Act of 1933,
Securities Exchange Act of 1934 or the Trust Indenture Act of 1940 refer to
Securities and Exchange Commission File No. 1-6451 of Summit Bancorp.,
unless otherwise specifically noted below. Specific exhibits are numbered
in accordance with Item 601 of Regulation S-K):
(2) Articles of incorporation; By-Laws.
A. Restated Certificate of Incorporation of Summit Bancorp., as
restated March 1, 1996 (incorporated by reference to Exhibit
(3)A. on Form 10-K for the year ended December 31, 1995).
B. By-Laws of Summit Bancorp., as restated October 18, 1995
(incorporated by reference to Exhibit (3)B. on Form 10-K for the
year ended December 31, 1995).
(3) Instruments defining the rights of security holders, including
indentures.
A. Rights Agreement, dated as of August 16, 1989, by and between
Summit Bancorp. (under former name UJB Financial Corp.) and First
Chicago Trust Company of New York, as Rights Agent (incorporated
by reference to Exhibit 2 to the Registration Statement on Form
8-A, filed August 28, 1989) (File No. 1-6451).
B. Indenture, dated as of November 1, 1972, between Summit Bancorp.
(under former name United Jersey Banks) and The Bank of New York,
as Trustee, for $20,000,000 of 7 3/4% Sinking Fund Debentures due
November 1, 1997 (incorporated by reference to Exhibit 4(a) to
Amendment No. 2 to Registration Statement No. 2-45397 on Form
S-1, filed October 25, 1972).
C. Purchase Agreement, dated October 25, 1972, between Summit
Bancorp. (under former name United Jersey Banks) and Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers,
for 7 3/4% Sinking Fund Debentures (incorporated by reference to
Exhibit I (b) to Amendment No. 2 to Registration Statement No.
2-45397 on Form S-1, filed October 25, 1972).
- ----------
*Refers to the respective page numbers of Summit Bancorp. 1996 Annual Report to
Shareholders included as Exhibit 13. Such pages are incorporated herein by
reference.
25
<PAGE> 26
D. Note Agreement, dated as of August 19, 1993, between Summit
Bancorp. (under former name UJB Financial Corp.) and The
Northwestern Mutual Life Insurance Company relating to
$20,000,000 of 7.95% Senior Notes Due August 25, 2003
(incorporated by reference to Exhibit (4)D. on Form 10-Q for the
quarter ended September 30, 1993).
E. (i) Fiscal and Paying Agency Agreement, dated as of June 30,
1993, between Summit Bank, as issuer, and Summit Bank, as fiscal
and paying agent acting through its Trust Department, relating to
$50,000,000 of 6 3/4% Subordinated Notes due June 15, 2003 of
Summit Bank (incorporated by reference to Exhibit (4)E.(i) on
Form 8-K, dated April 11, 1996), and (ii) Specimen of Global
Certificate for 6 3/4% Subordinated Notes due June 15, 2003 of
Summit Bank (incorporated by reference to Exhibit (4)E.(ii) on
Form 8-K, dated April 11, 1996).
F. (deleted)
G. (i) Subordinated Indenture, dated as of December 1, 1992, between
Summit Bancorp. (under former name UJB Financial Corp.) and
Citibank, N.A., Trustee, relating to $175,000,000 of 8 5/8%
Subordinated Notes Due December 10, 2002 of Summit Bancorp.
(incorporated by reference to Exhibit (4) G. on Form 10-K for the
year ended December 31, 1992), and (ii) Specimen of Summit
Bancorp.'s 8 5/8% Subordinated Notes Due December 10, 2002
(incorporated by reference to Exhibit 4 on Form 8-K, dated
December 10, 1992).
(10) MATERIAL CONTRACTS
A. 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).
B. (i) Master Agreement of Lease, dated January 26, 1982, between
Summit Bancorp. (under former name United Jersey Banks) and
Sha-Li Leasing Associates, Inc. relating to equipment leases in
excess of $10,000,000 in aggregate lease obligations, including
form of Equipment Schedule (incorporated by referenced to Exhibit
(10) B. (i) on Form 10-Q for the quarter ended September 30,
1993), (ii) Assignment and Assumption of Equipment Lease,
effective December 31, 1991, between Summit Bancorp. (under
former name UJB Financial Corp.) and UJB Financial Service
Corporation (relating to assignment of Master Agreement of Lease)
(incorporated by reference to Exhibit (10) B. (ii) on Form 10-Q
for the quarter ended September 30, 1993), and (iii) Form of
Guaranty Agreement between Summit Bancorp. (under former name UJB
Financial Corp.) and various lenders under the Master Agreement
of Lease relating to certain equipment leases in excess of
$10,000,000 in aggregate lease obligations (incorporated by
reference to Exhibit (10) B. (iii) on Form 10-Q for the quarter
ended September 30, 1993).
*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), (ii) Compensation Committee
Regulations for the Grant and Exercise of Stock Options and
Restricted Stock (adopted July 19, 1993) (incorporated by
reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter
ended June 30, 1993), (iii) Compensation Committee Interpretation
of Section 5 (e) (ii) (F) (incorporated by reference to Exhibit
(10) C. (iii) on Form 10-Q for the quarter ended March 31, 1994),
and (iv) Compensation Committee Interpretation of Stock Incentive
Plans adopted June 19, 1996 (incorporated by reference to Exhibit
(10)C.(iv) on Form 10-Q for the quarter ended June 30, 1996).
*D. (i) UJB Financial Corp. (former name of Summit Bancorp.) 1990
Stock Option Plan (incorporated by reference to Exhibit (10) to
Registration Statement No. 33-36209 on
26
<PAGE> 27
Form S-8, filed July 26, 1990), and (ii) Compensation Committee
Regulations for the Grant and Exercise of Stock Options and
Restricted Stock (adopted July 19, 1993) (incorporated by
reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter
end June 30, 1993).
*E. Supplemental Executive Retirement Plan of The Summit
Bancorporation (incorporated by reference to Exhibit (10)E. on
Form 8-K, dated April 11, 1996).
*F. Description of Incentive Plan approved January 20, 1982
(incorporated by reference to Exhibit (10)F. on Form 10-K for the
year ended December 31, 1994).
G. (i) Deferred Compensation Plan for Directors, as revised October
17, 1979, (incorporated by reference to Exhibit (10) G. (i) on
Form 10-K for the year ended December 31, 1994), and (ii)
Amendment adopted April 25, 1994 (incorporated by reference to
Exhibit (10) G. (ii) on Form 10-K for the year ended December 31,
1994).
*H. (i) Agreement dated April 2, 1981 between Summit Bancorp. (under
former name United Jersey Banks) and T. Joseph Semrod
(incorporated by reference to Exhibit (10) H. (i) on Form 10-K
for the year ended December 31, 1994), with (ii) Amendment No. I
dated May 5, 1981 (incorporated by reference to Exhibit (10)
H.(ii) on Form 10-K for the year ended December 31, 1994, (iii)
Amendment No. 2 dated December 15, 1982 (incorporated by
reference to Exhibit (10) H. (iii) on Form 10-K for the year
ended December 31, 1994), and (iv) Amendment No. 3 dated August
20, 1986 (incorporated by reference to Exhibit (10) H. (iv) on
Form 10-K for the year ended December 31, 1994).
*I. (i) Employment Agreement, dated March 1, 1996, between Summit
Bancorp. and Robert G. Cox (incorporated by reference to Exhibit
(10)I.(i) on Form 10-K for the year ended December 31, 1995), and
(ii) Agreement, dated as of September 1, 1995, between The Summit
Bancorporation (predecessor corporation to Summit Bancorp.) and
Robert G. Cox assumed by Summit Bancorp. (incorporated by
reference to Exhibit (10)I.(ii) on Form 10-K for the year ended
December 31, 1995).
J. Retirement Program for Outside Directors of Franklin State Bank.
K. Franklin State Bank Deferred Compensation Plan adopted January
10, 1984.
*L. (i) United Jersey Banks (former name of Summit Bancorp.) 1982
Stock Option Plan (incorporated by reference to Exhibit 4 to
Registration Statement No. 2-78500 on Form S-8, filed July 21,
1982) with (ii) Amendment No. 1, dated June 16, 1984
(incorporated by reference to Exhibit (10) L. (ii) on Form 10-K
for the year ended December 31, 1994), (iii) Amendment No. 2,
dated December 19, 1990 (incorporated by reference to Exhibit
(10)L.(iii) on Form 10-K for the year ended December 31, 1995),
and (iv) Compensation Committee Regulations for the Grant and
Exercise of Stock Options and Restricted Stock (adopted July 19,
1993) (incorporated by reference to Exhibit (10) C. (ii) on Form
10-Q for the quarter ended June 30, 1993).
*M. (i) Retirement Restoration Plan, adopted April 19, 1983
(incorporated by reference to Exhibit (10) M.(i) on Form 10-K for
the year ended December 31, 1994), (ii) Supplemental Retirement
Plan, adopted August 16, 1989 (incorporated by reference to
Exhibit (10) M. (ii) on Form 10-K for the year ended December 31,
1994), (iii) Written Consent of UJB Financial Corp. (former name
of Summit Bancorp.) Benefits Committee interpreting the
Retirement Restoration Plan, adopted August 30, 1989
(incorporated by reference to Exhibit (10) M. (iii) on Form 10-K
for the year ended December 31, 1994), and (iv) Amendments to the
Retirement Restoration Plan and Supplemental Retirement Plan
adopted April 25, 1994 (incorporated by reference to Exhibit (10)
M. (iv) on Form 10-K for the year ended December 31, 1994).
27
<PAGE> 28
N. (i) Equipment Lease Guaranty dated as of August 31, 1992 by
Summit Bancorp. (under former name UJB Financial Corp.) to Sanwa
General Equipment Leasing, Inc. (incorporated by reference to
Exhibit (10) N. (i) on Form 10-Q for the quarter ended March 31,
1993), and (ii) Equipment Lease Agreement dated as of August 31,
1992 and Equipment Schedule Nos. A-1 and A-2 dated as of August
31, 1992 between Sanwa General Equipment Leasing, Inc. and UJB
Financial Service Corporation, United Jersey Bank, United Jersey
Bank/Central, N.A. (predecessor bank to United Jersey Bank) and
United Jersey Bank/South, N.A. (predecessor bank to United Jersey
Bank), pursuant to Equipment Lease Agreement dated as of August
31, 1992, for five year lease of furniture, fixtures and
equipment (incorporated by reference to Exhibit (10) N. (ii) on
Form 10-Q for the quarter ended March 31, 1993).
O. (i) Equipment Lease Guaranty dated as of August 31, 1992 by
Summit Bancorp. (under former name UJB Financial Corp.) to
MetLife Capital Corporation (incorporated by reference to Exhibit
(10) O. (i) on Form 10-Q for the quarter ended March 31, 1993),
and (ii) Equipment Schedule Nos. B-1 and B-2 dated as of August
31, 1992 between MetLife Capital Corporation and UJB Financial
Service Corporation, United Jersey Bank, United Jersey
Bank/Central, N.A. (predecessor bank to United Jersey Bank) and
United Jersey Bank/South, N.A. (predecessor bank to United Jersey
Bank) pursuant to Equipment Lease Agreement dated as of August
31, 1992 between Sanwa General Equipment Leasing, Inc. and United
Jersey Bank, United Jersey Bank/ Central, N.A. (predecessor bank
to United Jersey Bank) and United Jersey Bank/South, N.A.
(predecessor bank to United Jersey Bank), for five year lease of
furniture, fixtures and equipment (incorporated by reference to
Exhibit (10) O. (ii) on Form 10-Q for the quarter ended March 31,
1993).
P. Twenty-year real estate lease executed and dated December 12,
1988 from Hartz Mountain Industries, Inc. for real property
located in Ridgefield Park, New Jersey used as a data processing
facility (incorporated by reference to Exhibit (10) P. on Form
10-K for the year ended December 31, 1993).
Q. (i) Twenty-five year real property lease, dated June 5, 1990,
between Summit Bancorp. (under name of predecessor corporation
The Summit Bancorporation) and Hartz Mountain Industries, Inc.
for data processing and operations center located in Cranford,
New Jersey (incorporated by reference to Exhibit (10)Q.(i) on
Form 8-K, dated April 11, 1996), and (ii) Lease Modification
Agreement, dated February 22, 1995 and effective October 1, 1994,
between Summit Bancorp. (under name of predecessor corporation
The Summit Bancorporation) and Hartz Mountain Industries, Inc.
relating to the twenty-five year lease for data processing and
operations center in Cranford, New Jersey (incorporated by
reference to Exhibit (10)Q.(ii) on Form 8-K, dated April 11,
1996).
R.-V. (deleted)
W. (i) Retirement Plan for Outside Directors of UJB Financial Corp.,
(former name of Summit Bancorp.), as amended and restated
February 20, 1991 (incorporated by reference to Exhibit (10)W.(i)
on Form 10-K for the year ended December 31, 1995), (ii)
Interpretation, dated March 15, 1993, of the Retirement Plan for
Outside Directors of UJB Financial Corp. (former name of Summit
Bancorp.) (incorporated by reference to Exhibit (10) W. (ii) on
Form 10-K for the year ended December 31, 1992), and (iii)
Amendment adopted April 25, 1994 (incorporated by reference to
Exhibit (10) W. (iii) on Form 10-K for the year ended December
31, 1994).
X.-DD. (deleted)
28
<PAGE> 29
*EE. (i) Form of Termination Agreement between Summit Bancorp. (under
former name UJB Financial Corp.) and each of T. Joseph Semrod,
John G. Collins, John R. Howell, John R. Haggerty, Stephen H.
Paneyko, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney,
William J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis
Porterfield, Alan N. Posencheg, Gary F. Simmerman, Edmund C.
Weiss, with (ii) Amendment No. 1, dated December 20, 1989, (iii)
Amendment No. 2, dated October 16, 1991, and (iv) Amendment No.
3, dated December 16, 1992 (incorporated by reference to Exhibit
(10) EE. (iv) on Form 8-K, dated January 19, 1993).
*FF. (i) UJB Financial Corp. (former name of Summit Bancorp.)
Executive Severance Plan, as amended through December 16, 1992
(incorporated by reference to Exhibit (10) FF. on Form 8-K, dated
January 19, 1993), and (ii) Amendment adopted April 25, 1994
(incorporated by reference to Exhibit (10) FF. (ii) on Form 10-K
for the year ended December 31, 1994).
GG.-II. (deleted)
JJ. (i) Retirement Plan for Outside Directors of Commercial
Bancshares, Inc. adopted May 1, 1986, and (ii) Compensation
Committee Interpretation, dated July 19, 1993 (incorporated by
reference to Exhibit (10) JJ. (ii) on Form 10-Q for the quarter
ended June 30, 1993).
KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation
Plan adopted May 20, 1986 (substantially identical plans were
adopted by former subsidiaries of Commercial Bancshares, Inc.)
and (ii) related Master Trust Agreement.
LL. (i) United Jersey Banks (former name of Summit Bancorp.) 1987
Stock Option Plan, with (ii) Amendment dated April 25, 1989,
(incorporated by reference to Exhibit (10) LL. (ii) on Form 10-K
for the year ended December 31, 1994), (iii) amendment dated June
30, 1990, and (iv) Compensation Committee Regulations for the
Grant and Exercise of Stock Options and Restricted Stock (adopted
July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii)
on Form 10-Q for the quarter ended June 30, 1993).
(13) Summit Bancorp 1996 Annual Report to Shareholders
(21) Subsidiaries of the registrant.
(23) Consents of Experts and Counsel
A. Independent Auditors' Consent - KPMG Peat Marwick LLP
(27) Financial Data Schedule - Summit Bancorp.
- ----------
* Management contract or compensatory plan or arrangement.
None of the Exhibits listed above other than the Summit Bancorp 1996 Annual
Report to Shareholders are furnished herewith (other than certain copies filed
with the Securities and Exchange Commission). Any of such Exhibits will be
furnished to any requesting security holder upon payment of a fee of 15 cents
per page. Contact Lori A. Wierzbinsky, Assistant Corporate Secretary, Summit
Bancorp., P.O. Box 2066, Princeton, NJ 08543-2066 for a determination of the fee
necessary to fulfill any request.
29
<PAGE> 30
b) Reports on Form 8-K.
In a current report on Form 8-K dated October 16, 1996, under Item 5, Other
Events, the Company reported the amount of the assessments to recapitalize
the Savings Association Insurance Fund for Summit Bancorp. and for Central
Jersey Financial Corporation, which were accrued as of September 30, 1996.
In a current report on Form 8-K dated December 10, 1996, under Item 5,
Other Events, the Company reported the Superior Court of New Jersey,
Appellate Division's affirmation in part and reversal in part of the
November 7, 1994 decision of the Superior Court of New Jersey, Law Division
in Cushman & Wakefield of New Jersey, Inc. v. Alexander Summer Company and
United Jersey Bank (former name of Summit Bank NJ).
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: March 27, 1997 By: /s/ J.R. HAGGERTY
-----------------------------
John R. Haggerty
Senior Executive Vice President/Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ T. JOSEPH SEMROD Chairman of the Board and March 27, 1997
------------------------- Director (Chief Executive Officer)
T. Joseph Semrod
/s/ ROBERT G. COX President and Director March 27, 1997
-------------------------
Robert G. Cox
/s/ JOHN G. COLLINS Vice Chairman and Director March 27,1997
-------------------------
John G. Collins
/s/ JOHN R. HOWELL Vice Chairman and Director March 27, 1997
-------------------------
John R. Howell
/s/ J. R. HAGGERTY Senior Executive Vice March 27, 1997
------------------------- President/Finance (Principal
John R. Haggerty Financial Officer)
/s/ WILLIAM J. HEALY Executive Vice President and March 27, 1997
------------------------- Comptroller (Principal accounting
William J. Healy Officer)
/s/ S. ROGERS BENJAMIN Director March 27, 1997
-------------------------
S. Rogers Benjamin
/s/ ROBERT L. BOYLE Director March 27, 1997
-------------------------
Robert L. Boyle
/s/ JAMES C. BRADY, JR. Director March 27, 1997
-------------------------
James C. Brady, Jr.
/s/ T. J. DERMOT DUNPHY Director March 27, 1997
-------------------------
T. J. Dermot Dunphy
/s/ ANNE EVANS ESTABROOK Director March 27, 1997
-------------------------
Anne Evans Estabrook
/s/ ELINOR J. FERDON Director March 27, 1997
-------------------------
Elinor J. Ferdon
/s/ FRED G. HARVEY Director March 27, 1997
-------------------------
Fred G. Harvey
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C>
/s/ FRANCIS J. MERTZ Director March 27, 1997
-------------------------
Francis J. Mertz
/s/ GEORGE L. MILES, JR. Director March 27, 1997
-------------------------
George L. Miles, Jr.
/s/ HENRY S. PATTERSON II Director March 27, 1997
-------------------------
Henry S. Patterson II
/s/ THOMAS D. SAYLES, JR. Director March 27, 1997
-------------------------
Thomas D. Sayles, Jr.
/s/ RAYMOND SILVERSTEIN Director March 27, 1997
-------------------------
Raymond Silverstein
/s/ ORIN R. SMITH Director March 27, 1997
-------------------------
Orin R. Smith
/s/ JOSEPH M. TABAK Director March 27, 1997
-------------------------
Joseph M. Tabak
/s/ DOUGLAS G. WATSON Director March 27, 1997
-------------------------
Douglas G. Watson
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX
_____________
Exhibit No. Description
__________ ________________________________________________________________
(10)J. Retirement Program for Outside Directors of Franklin State Bank.
K. Franklin State Bank Deferred Compensation Plan adopted January
10, 1984.
EE.(i) Form of Termination Agreement between Summit Bancorp. (under
former name UJB Fiancial Corp.) and each of T. Joseph Semrod,
John H. Colling, John R. Howell, John R. Haggerty, Stephen H.
Paneyko, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney,
William J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis
Porterfield, Alan N. Posencheg, Gary F. Simmerman, and Edmund C.
Weiss.
(ii) Amendment No. 1, dated December 20, 1989 to the Form of
Termination Agreement between Summit Bancorp. (under former name
UJB Financial Corp.) and each of T. Joseph Semrod, John G.
Collins, John R. Howell, John R. Haggerty, Stephen H. Peneyko
Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William
J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis
Porterfield, Alan N. Posencheg, Gary F. Simmerman, and Edmund C.
Weiss.
(iii) Amendment No. 2, dated October 16, 1991 to the Form of
Termination Agreement between Summit Bancorp. (under former name
UJB Financial Corp.) and each of T. Joseph Semrod, John G.
Collins, John R. Howell, John R. Haggerty, Stephen H. Paneyko,
Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William
J. Healy, Sabry J. Mackoul, Richard F. Ober, Jr., Dennis
Porterfield, Alan N. Posencheg, Gary F. Simmerman, and Edmund C.
Weiss.
JJ. Retirement Plan for Outside Directors of Commercial Bancshares,
Inc. adopted May 1, 1986.
KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation Plan
adopted May 20, 1986.
(ii) Related Master Trust Agreement of the Commercial Bancshares, Inc.
Directors Deferred Compensation Plan adopted May 20, 1986.
LL. (i) United Jersey Banks (former name of Summit Bancorp.) 1987 Stock
Option Plan.
(13) Summit Bancorp. 1996 Annual Report to Shareholders.
(21) Subsidiaries of the Registrant.
(23)A. Independent Auditors' Consent-KPMG Peat Markwick LLP
(27) Summit Bancorp. financial data schedule-December 31, 1996
<PAGE> 1
EXHIBIT (10)J.
<PAGE> 2
[Franklin State Logo]
RESOLUTION ESTABLISHING A RETIREMENT
PROGRAM FOR OUTSIDE DIRECTORS
OF FRANKLIN STATE BANK
BE IT RESOLVED by the Board of Directors of Franklin State Bank that a
Retirement Program be and is hereby established for present and future outside
directors of Franklin State Bank (Bank) under the following terms and
conditions:
1. Any director who is not a full time officer or employee of the Bank
at the time of retirement from the Board of Directors, shall be considered an
outside director and be eligible under the Retirement Program subject to the
service and age requirements hereinafter set forth.
2. To receive the benefits of this program, a Director must have
served as a member of the Board of Directors for a cumulative period of not
less than 10 years, subject to the modification hereinafter set forth in the
provisions pertaining to change of control, and subject further to the
provision that all directors in office at the date of adoption of this
resolution and program shall be considered as having served for the maximum
period of 20 years and shall be fully vested for retirement and death benefits
in the amount of $100,000.
3. A director must have retired and attained the age of 65 years
before he can commence receiving the retirement benefits hereinafter set forth,
and shall receive such benefits whether or not he is still a member of the
board at the time he attains the age of 65 years, if he has theretofore
satisfied the service requirement and his rights have thereby become vested.
<PAGE> 3
4. Retirement benefits shall be calculated on the basis of $5,000 for
ever year of service on the Board of Directors, to a maximum of 20 years, the
total sum to be calculated and divided into 10 equal amounts payable annually
commencing on the anniversary date of retirement or the 65th birthday,
whichever is later.
5. A death benefit equal to the maximum retirement benefit of $100,000
shall be paid in a lump sum to the designated beneficiary or estate of any
Director, whether or not the Director was eligible for a retirement benefit at
the time of his death. In the event of death during the 10 year period
following retirement and commencement and payment of the annual benefits, the
beneficiary or the estate shall be paid the balance of the retirement benefit
constituting the difference between the amount of benefits received to date of
death subtracted from the total retirement benefits of the Director.
6. In the event of a "change of control" of the ownership of the Bank,
or its parent company, Franklin Bancorp (Bancorp), all outside Directors will
be immediately eligible and may then, or any time thereafter, elect to receive
a lump sum payment of the maximum retirement benefit of $100,000, whether or
not they were otherwise eligible for a retirement benefit at the time of a
change of control. "Change of Control", as to both Bank and Bancorp, for the
purposes of this program, shall be deemed to have occurred if:
a) Any individual, corporation or firm becomes the beneficial owner of
20% or more of the outstanding common stock of Bancorp, other than
pursuant to a sale from Bancorp, its Officers or Directors, approved
by a majority of its Board of Directors; or
b) Pursuant to any arrangement or understanding with any person
acquiring beneficial ownership of 5% or more, or making a tender
offer for beneficial ownership of 5% or more, of the outstanding
common stock of Bancorp, whereby any persons are elected or
designated as directors of Bancorp, otherwise than at a meeting of
security holders, and the persons so elected or designated constitute
a majority of the Board; or
-2-
<PAGE> 4
[Franklin Logo]
c) In any solicitation of proxies from the security holders of
Bancorp, proxies are solicited by or on behalf of anyone other
than the Board and, upon the conclusion of such solicitation, a
number of directors of Bancorp equal to one-half of the entire
Board who were in office prior to such solicitation are not
longer in office; or
d) Either Bank or Bancorp is merged or consolidated with any other
bank or corporation without approval of the Board of Directors
of Bancorp; or
e) The Bank is dissolved or liquidated.
7. A director shall agree in writing to abide by the following
stipulations during the period in which the retirement benefit is being paid:
a) A retired Director will not directly or indirectly have an
interest in, or be associated with, in any capacity (whether as
officer, director, stockholder of more that 2% of the
outstanding shares, partner, associate, employee, consultant,
owner, or otherwise) of any corporation, firm or enterprise
carrying on a business competitive with that of the Bank in its
geographical trade area, other than with written approval of the
Bank.
b) A retired Director will not disclose, inadvertently or
otherwise, any confidential information concerning the Bank's
operations, future plans or methods of doing business.
c) A retired Director will not solicit employees of the Bank for
the purpose of obtaining confidential information or securing
their employment elsewhere.
d) A retired Director will provide reasonable advisory and
consulting services as requested by the Bank from time to time.
-3-
<PAGE> 5
[FRANKLIN LOGO]
8. A copy of this Resolution shall be given to all present and future
Directors of the Bank and upon the signing of a copy of the same by each
director, acknowledging receipt and agreeing to the terms and conditions herein
set forth, this resolution shall constitute a binding contract by and between
the director and Franklin State Bank, its successors and assigns.
<PAGE> 1
EXHIBIT (10)K.
<PAGE> 2
- ------------------------------------------------------------------------------
FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN
- ------------------------------------------------------------------------------
PLAN DOCUMENT
Compensation Committee approval - December 13, 1983
Board of Directors approval - January 10, 1984
/s/ Marian L. Hockenbury
- ------------------------
Marian L. Hockenbury
Assistant Secretary
<PAGE> 3
- ------------------------------------------------------------------------------
FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1 Purpose....................................................... 1
2 Definitions................................................... 1
3 Administration................................................ 2
4 Deferral of Compensation...................................... 3
5 Rights of Participants........................................ 5
6 Non-Transferability of Rights Under the Plan.................. 5
7 Designation of Beneficiary.................................... 5
8 Agreements with Participants.................................. 6
9 Withholding Taxes............................................. 6
10 No Employment Rights.......................................... 6
11 Applicable Law................................................ 6
12 Amendments, Modification and Termination...................... 7
13 Relationship to Qualified Plans............................... 7
14 Effective Date................................................ 7
15 Notices....................................................... 7
16 Severability of Provisions.................................... 8
17 Headings and Captions......................................... 8
</TABLE>
<PAGE> 4
- ------------------------------------------------------------------------------
FRANKLIN STATE BANK DEFERRED COMPENSATION PLAN
- ------------------------------------------------------------------------------
1. Purpose
The purpose of the Franklin State Bank Deferred Compensation Plan (the
"Plan") is to enable the Corporation (as hereinafter defined) and its
subsidiaries to attract, retain and motivate officers and other key
employees by offering competitive compensation opportunities including the
elective deferral of amounts which would be payable as salary and pursuant
to the Corporation's Management Performance Program.
2. Definitions
Except where the context otherwise indicates, the following definitions
apply:
(a) "Bankruptcy" shall mean that
(i) the Company is adjudicated bankrupt, or a trustee or a receiver is
appointed for the Company, or for all or a substantial part of its
property in any involuntary proceeding, or any court has taken
jurisdiction of all or a substantial part of the property of the
Company in any involuntary proceeding for the reorganization,
dissolution, liquidation or winding up of the Company and such
trustee or receiver has not been discharged or such jurisdiction
relinquished or vacated or stayed on appeal or otherwise stayed
within 60 days; or
(ii) the Company has filed a petition or answer, not denying
jurisdiction, in bankruptcy or under Chapter 11 of the Federal
Bankruptcy Act or any similar law, state or Federal, whether now
or hereafter existing, or such a petition filed against the
Company shall be approved and not vacated or stayed within 60
days.
(b) "Committee" means the Compensation Committee consisting of three (3) or
more members as may be appointed by the Board of Directors to
administer the Plan pursuant to Section 3(a) hereof.
(c) "Corporation" means Franklin State Bank, its subsidiary companies and
operating divisions.
(d) "Deferred Compensation Account" is as defined in Section 4(a) of this
Plan.
-1-
<PAGE> 5
(e) "Insolvency" shall mean that the Company makes an assignment for the
benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they become due, or shall consent to the
appointment of a receiver or trustee or liquidation of all or a
substantial part of its property or shall have failed within 60 days
to pay or bond or otherwise discharge any judgment or attachment
which is not stayed on appeal or otherwise being contested in good
faith.
(f) "Performance Year" means an operating year of the Corporation
beginning January 1 and ending December 31.
(g) "Participant" means any officer of the Corporation who has been
selected by the Committee as eligible to participate in this Plan.
(h) "Retirement" means discontinuance of employment with the Corporation
by a Participant at such Participant's normal retirement date as
provided in the applicable pension or retirement plan or, with the
consent of the Committee, at an earlier date.
(i) "Termination of Employment" means the discontinuance of employment
of a Participant with the Corporation for any reason whatsoever,
other than a change of employment within the Corporation.
3. Administration
(a) The Plan shall be administered by the Committee.
(b) The Committee shall have full and exclusive authority and
responsibility, subject to express provisions of the Plan as amended
or modified from time to time, (i) to administer the Plan, (ii) to
interpret the Plan, (iii) to establish, amend and rescind rules and
regulations for administering the Plan as the Committee deems
necessary or appropriate, (iv) to select Participants, (v) to
determine the applicable rate of interest or interest equivalent
payable on amounts deferred pursuant to the Plan and (vi) to make
all other determinations and to take all other steps deemed
necessary or advisable for the administration of the Plan. The
Committee shall not be bound to any standards of uniformity or
similarity of action, interpretation or conduct in the discharge of
its duties hereunder, regardless of the apparent similarity of the
matters coming before it. Its determination shall be binding on all
parties.
(c) The Committee may designate an officer of the Corporation, other
employees of the Corporation or competent professional advisors to
assist the Committee in the administration of the Plan and may grant
authority to such persons to execute agreements or other documents
on behalf of the Committee.
-2-
<PAGE> 6
(d) The composition of the Committee and any or all powers and
functions thereof, may at any time and from time to time be
amended, modified or terminated by the President of the
Corporation.
(e) The Committee may employ such legal counsel, consultants or
accountants as it may deem desirable for the administration of
the Plan and may rely upon any opinion received from any such
counsel, consultant or accountant and any computation received
from any such consultant or accountant. No member of the
Committee, the Corporation or the Board of Directors shall be
liable for any action or determination made in good faith with
respect to the Plan. To the maximum extent permitted by
applicable law, each member of the Committee shall be
indemnified and held harmless by the Corporation against any
cost or expense of liability (including, without limitation,
reasonable counsel fees and any sums paid in settlement of a
claim with the approval of the Corporation) arising out of any
act of omission to act in connection with the Plan and its
administration unless arising out of such member's own fraud or
bad faith. Expenses incurred by the Committee in the engagement
of such counsel, consultant or accountant shall be paid by the
Corporation.
(f) All costs and expenses involved in administering the Plan as
provided herein, or incident thereto, shall be borne by the
Corporation.
(g) The Committee may, in its sole discretion, make appropriate
adjustments with respect to the terms of the Plan and its
applicability to any Participant including termination of
individual deferral agreements, or suspension of any provision
of such agreements in the event (i) the employment status or
relationship between the Corporation and such Participant is
changed, (ii) any of the anticipated benefits of deferral
pursuant to this Plan or any provision hereof are altered by
reason of any interpretation or of change in law, policy or
regulation, (iii) in the event there is a change in the common
control of the Corporation, (iv) the Company's insolvency or
(v) the Company's entering the state of bankruptcy.
4. Deferral of Compensation
(a) (i) A participant may request the Committee to defer all or any
specified portion of the amounts payable as compensation by the
Corporation including salary (in excess of the Social Security
maximum wage base) and cash awards and Performance Shares
payable pursuant to the Corporation's Management Performance
Program provided, however, that each request to defer must be
with respect to at least $1,000. The Committee in its sole
discretion may accept or reject such request. Any amount
deferred will be credited to a separate bookkeeping account in
the name of the Participant (the "Deferred Compensation
Account") on the date such amount would otherwise have become
payable to the Participant.
-3-
<PAGE> 7
However, funds shall not be irrevocably set aside and the employee's sole
claim for amounts deferred shall be as an unsecured general creditor of the
Corporation, pursuant to Article 5 of this Agreement. (ii) Amounts deferred
shall be credited with an interest rate or an interest equivalent
established annually by the Committee in its sole discretion. Interest or
interest equivalents shall accrue on the amount deferred from the date such
amount is credited to the Deferred Compensation Account until the date of
payment on terms fixed by the Committee at the time of the election by the
Participant to defer such amount. In the Committee's sole discretion, such
interest equivalent may be determined by reference to a rate paid by a
specified financial institution or hypothetical investment(s) Treasury
bills, stocks, bonds, mutual fund shares or other securities, or any other
medium of investment as determined by the Committee. (iii) The interest
rate or terms of such interest equivalent in effect at the time of such
deferral election shall remain in effect during the entire period of
deferral, unless upon request of a Participant, the Committee, in its sole
discretion, changes the interest rate or amends the terms of such interest
equivalent applicable to such Participant's Deferred Compensation Account.
(b) (i) A request to defer payment of salary must be made in writing to the
Corporation on or before the fifteenth day prior to the end of the fiscal
quarter preceding the fiscal quarter in which earned. The Committee shall
accept or reject such request on or before the last day of such quarter. An
election to defer payment of cash awards under the Management Performance
Program must be made in writing to the Corporation on or before September
30th of the Performance Year in which earned. An election to defer cash
payment of Performance Shares under the Management Performance Program must
be made in writing to the Corporation at least 180 days prior to the end of
the five year vesting period for such Performance Shares. Such written
requests shall be made in a manner determined by the Corporation. The
Committee, in its sole discretion may modify such requests in the case of
disability, hardship or unusual circumstances. (ii) Each deferral request
filed with the Corporation will specify the date or dates during or after
employment on which the amounts credited to the Deferred Compensation
Account are to be paid to the Participant, or the legal representative or
beneficiary of the Participant.
(c) Notwithstanding the request made by a Participant, (i) as soon as
practicable following his/her Termination of Employment other than by
reason of Retirement, disability (as determined by the Committee) or death,
subject to the provisions of Section 3(g) of this Plan, the total amount
then credited to the Participant's Deferred Compensation Account shall be
paid to him/her, and (ii) within ten (10) years after his/her Termination
of Employment by reason of Retirement, disability (as determined by the
Committee) or death, all amounts, if any, then credited to the
Participant's Deferred Compensation Account shall be paid in a manner
irrevocably elected by the Participant at least 90 days prior to any
such Termination of Employment, to the
-4-
<PAGE> 8
Participant of his/her legal representatives or beneficiary, as the
case may be.
(d) Except as provided in this Plan, a Participant shall not be entitled
to, and the Corporation shall not be obligated to pay to such
Participant the whole or any part of the amounts credited to his
Deferred Compensation Account.
5. Rights of Participants
Nothing contained in the Plan and no action taken pursuant to the Plan
shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between the Corporation and any Participant or
his/her legal representative or beneficiary, or any other persons. Funds
allocated to Deferred Compensation Accounts established by the
Corporation in connection with the Plan shall continue to be a part of
the general funds of the Corporation, and no individual or entity other
than the Corporation shall have any interest in such funds until paid to
a Participant, his/her legal representative or beneficiary. If and to
the extent that any Participant or his/her legal representative or
beneficiary, as the case may be, acquires a right to receive any payment
from the Corporation pursuant to the Plan, such right shall be no
greater than the right of an unsecured general creditor of the
Corporation and shall, if the Participant is indebted to the Corporation
(such indebtedness and the amount thereof to be determined by the
Committee in its sole discretion), be subject to the right of the
Committee to deduct such amount from the amount payable hereunder to the
Participant (or his/her legal representative or designated beneficiary,
as the case may be).
6. Non-Transferability of Rights Under the Plan
No amounts payable or other rights under the Plan shall be sold,
transferred, assigned, pledged or otherwise disposed of or encumbered by
a Participant.
7. Designation of Beneficiary
(a) Subject to applicable law, each Participant shall have the right to
file with the Corporation, to the attention of the Committee or such
person as may be designated by the Committee, a written designation
of one or more persons as the beneficiary who shall be entitled to
receive the amount, if any, payable under the Plan upon his/her
death. A Participant may from time to time revoke or change such
beneficiary designation without the consent of any prior beneficiary
by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior
to the Participant's death, and in no event shall it be effective as
of a date prior to such receipt.
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<PAGE> 9
(b) If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with the law, the
payment of the amount, if any, payable under the Plan upon his/her
death shall be made to the Participant's estate. If the Committee is
in doubt as to the right of any person to receive any amount, the
Committee may retain such amount, without liability for any interest
thereon, until the rights thereto are determined, or the Committee
may pay such amount into any court of appropriate jurisdiction and
such payment shall be a complete discharge of the liability of the
Plan, the Corporation and Committee therefor.
8. Agreements with Participants
Each participant shall be required to enter into an agreement with the
Corporation which shall contain such provisions, consistent with the
provisions of the Plan, as may be established from time to time by the
Committee, including any provisions which may be advisable to comply
with applicable laws, regulations, rulings, or guidelines of any
government authority.
9. Withholding Taxes
The Corporation shall have the right to deduct withholding taxes from
any payments made pursuant to the Plan, or make such other provisions as
it deems necessary or appropriate to satisfy its obligations to withhold
federal, state, local or foreign income or other taxes incurred by
reason of payments pursuant to the Plan. In lieu thereof, the
Corporation shall have the right to the extent permitted by law to
withhold the amount of such taxes from any other sums due or to become
due from the Corporation to the Participant upon such terms and
conditions as the Committee may prescribe.
10. No Employment Rights
Nothing in this Plan or any booklet or other document describing or
referring to this Plan shall be deemed to confer on any Participant the
right to continue in the employ of the Corporation or his/her respective
employer or affect the right of such employer to terminate the
employment of any such person with or without cause.
11. Applicable Law
This Plan and all actions taken hereunder shall be governed by the laws
of the State of New Jersey.
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<PAGE> 10
12. Amendments, Modification and Termination
The Committee may from time to time amend, modify or terminate
the Plan or any provision hereof. No amendment to or
discontinuance or termination of the Plan shall, without the
written consent of the Participant, adversely affect any rights
of such Participant with respect to amounts previously credited
to such Participant's Deferred Compensation Account. The Plan
shall continue until terminated by the Committee.
13. Relationship to Qualified Plans
Amounts deferred hereunder shall not be included in creditable
compensation in computing benefits under the Employees'
Retirement Plan. To the extent that exclusion of such deferred
compensation adversely affects benefits payable under the
Employee Retirement Plan, the Participant shall be entitled to
an appropriate supplement approximately equivalent to the
benefits the Participant would have received under such plan if
such compensation had not been deferred. Such supplement shall
be payable at the same time and in the same manner as benefits
under the aforementioned plan.
14. Effective Date
The Plan is effective as of January 1, 1984 subject to its
adoption by the Committee pursuant to authority delegated by
the Board of Directors.
15. Notices
Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing
of notices and the delivery of agreements and payments. Any
notice required or permitted to be given shall be deemed given
if directed to the person to whom addressed at such address
and mailed by regular United States mail, first-class and
prepaid. If any item mailed to such address is returned as
undeliverable to the addressee, mailing will be suspended until
the Participant furnishes the proper address. This provision
shall not be constructed as requiring the mailing of any notice
or notification if the regulations issued under the Employee
Retirement Income and Security Act of 1974 deem sufficient
notice to be given by the posting of notice in appropriate
places or by any other publication device.
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<PAGE> 11
16. Severability of Provisions
If any provision of this Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions
hereof and this Plan shall be constructed and enforced as if such provisions
had not been included.
17. Headings and Captions
The headings and captions herein are provided for reference and convenience
only, shall not be considered part of the Plan and shall not be employed in
the construction of the Plan.
/s/ Kenneth A. Bott /s/ Anthony D. Schoberl
-------------------------------- -----------------------------------
Kenneth A. Bott Anthony D. Schoberl
1/31/84 Jan. 31, 1984
-------------------------------- -----------------------------------
Date Date
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<PAGE> 1
EXHIBIT (10)EE.(i)
<PAGE> 2
TERMINATION AGREEMENT
THIS AGREEMENT dated and entered into effective and as of the 29th day
of December, 1986, by and between United Jersey Banks, a New Jersey corporation
(the "Company"), and , residing at
New Jersey (the "Executive").
W I T N E S S E T H:
WHEREAS, should the Company receive a proposal from a third person,
whether solicited by the Company or unsolicited, concerning a possible business
combination with or the acquisition of a substantial share of the equity or
voting securities of, the Company, the Board of Directors of the Company (the
"Board") has deemed it imperative that it and the Company be able to rely on the
Executive to continue to serve in his position, and that the Board and the
Company be able to receive and rely upon his advice, if they request it, as to
the best interests of the Company and its shareholders, without concern that the
Executive might be distracted by the personal uncertainties and risks that such
a proposal might otherwise create; and
WHEREAS, the Company desires to enhance executive morale and its
ability to retain existing management; and
WHEREAS, the Company desires to reward the Executive for his valuable,
dedicated service to the Company or one or more of its subsidiary corporations
(each, a "Subsidiary") should his service be terminated under circumstances
hereinafter described; and
WHEREAS, the Board therefore considers it in the best interests of the
Company and its shareholders for the Company to enter into Termination
Agreements, in form similar to this Agreement, with certain key executive
officers of the Company and one or more of its Subsidiaries; and
WHEREAS, the Executive is presently the duly elected and acting
President and Chief Executive Officer of United Jersey Bank, and is a key
executive with whom the Company has been authorized by the Board to enter into
this Agreement;
NOW, THEREFORE, to assure the Company of the Executive's continued
dedication and the availability of his advice and counsel in the event of any
such proposal, to induce the Executive to remain in the employ of the Company or
a Subsidiary, and to reward the Executive for his valuable, dedicated service to
the Company or a Subsidiary should his service be terminated under circumstances
hereinafter described, and for other good and valuable consideration, the
receipt and adequacy whereof each party acknowledges, the Company and the
Executive agree as follows:
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<PAGE> 3
1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT.
(a) This Agreement is effective and binding on both parties as of the
date hereof. Notwithstanding its present effectiveness, the provisions of
paragraphs 3 and 4 of this Agreement shall become operative only when, as and if
there has been a "Change in Control" of the Company. For purposes of this
Agreement, a "Change in Control" of the Company shall mean a Change in Control
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934 ("Exchange Act"); provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (including as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing thirty-three and one-third percent (33-1/3%) or more of the
combined voting power of the Company's outstanding securities then entitled to
vote for the election of directors; or (ii) during any period of two (2)
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof
(excluding, for purposes of this calculation, any director who dies during such
period); or (iii) the Company shall meet the delisting criteria of the New York
Stock Exchange or any successor exchange in respect of the number of
publicly-held shares or the number of stockholders holding one hundred (100)
shares or more; or (iv) the Board shall approve the sale of all or substantially
all of the assets of the Company; or (v) the Board shall approve any merger,
consolidation, issuance of securities or purchase of assets, the result of which
would be the occurrence of any event described in clause (i), (ii) or (iii)
above.
(b) The Company shall be obligated to make the payments referred to in
paragraphs 3 and 4 hereof following, and the provisions of paragraph 2 hereof
shall apply to, a Change in Control of the Company only if such Change in
Control shall have occurred within, or as a result of efforts designed to attain
such and known to the parties hereto to have commenced within, five (5) years
from the date hereof (or such later date as the Board shall determine).
2. EMPLOYMENT OF EXECUTIVE.
Nothing herein shall affect any right which the Executive or the
Company or a Subsidiary may otherwise have to terminate the Executive's
employment by the Company or a Subsidiary at any tine in any lawful manner,
subject always to the Company's providing to the Executive the payments and
benefits specified in paragraphs 3 and 4 of this Agreement to the extent
hereinbelow provided.
In the event any person commences a tender or exchange offer,
circulates a proxy statement to the Company's shareholders or takes other steps
designed to effect a Change in Control of the Company as defined in paragraph 1
of this Agreement, the Executive agrees that he will not voluntarily leave the
employ of the Company or a Subsidiary, and will continue to perform his regular
duties and to render the services specified in the recitals of this Agreement,
until such person has
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<PAGE> 4
abandoned or terminated his efforts to effect a Change in Control or until a
Change in Control has occurred. Should the Executive voluntarily terminate his
employment before any such effort to effect a Change in Control of the Company
has commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If any of the events described in paragraph 1 hereof constituting a
Change in Control of the Company shall have occurred, the Executive shall be
entitled to the benefits provided in paragraph 4 hereof upon the subsequent
termination of his employment within the applicable period set forth in
paragraph 4 hereof following such Change in Control unless such termination is
(i) due to the Executive's death or Retirement; or (ii) by the Company or a
Subsidiary by reason of the Executive's Disability or for Cause; or (iii) by the
Executive other than for Good Reason.
(b) If following a Change in Control the Executive's employment is
terminated by reason of his death or Disability, the Executive shall be entitled
to death or long-term disability benefits, as the case may be, from the Company
no less favorable than those benefits to which he would have been entitled had
the death or termination for Disability occurred during the six month period
prior to the Change in Control. If prior to any such termination for Disability,
the Executive fails to perform his duties as a result of incapacity due to
physical or mental illness, he shall continue to receive his Base Salary less
any benefits as may be available to him under the Company's or Subsidiary's
disability plans until his employment is terminated for Disability.
(c) If the Executive's employment shall be terminated by the Company or
a Subsidiary for Cause or by the Executive other than for Good Reason, the
Company shall pay to the Executive his full Base Salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
and the Company shall have no further obligations to the Executive under this
Agreement.
(d) For purposes of this Agreement:
(i) "Disability" shall mean the Executive's incapacity due to physical
or mental illness such that the Executive shall have become qualified
to receive benefits under the Company's or Subsidiary's long-term
disability plans or any equivalent coverage required to be provided to
the Executive pursuant to any other plan or agreement, whichever is
applicable.
(ii) "Retirement" shall mean that the Executive shall have reached the
normal retirement date provided in the Company's or Subsidiary's
retirement plans applicable to such Executive or any earlier actual
retirement by the Executive from his employment with the Company or a
Subsidiary.
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<PAGE> 5
(iii) "For Cause" shall mean:
(A) the willful commission by the Executive of a criminal or
other act that causes or will probably cause substantial
economic damage to the Company or a Subsidiary or substantial
injury to the business reputation of the Company or a
Subsidiary:
(B) the commission by the Executive of an act of fraud in the
performance of such Executive's duties on behalf of the
Company or a Subsidiary;
(C) the continuing willful failure of the Executive to perform
the duties of such Executive to the Company or a Subsidiary
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness) after written
notice thereof (specifying the particulars thereof in
reasonable detail) and a reasonable opportunity to be heard
and cure such failure are given to the Executive by the
Personnel Committee of the Board; or
(D) the order of a federal or state bank regulatory agency or
a court of competent jurisdiction requiring the termination of
the Executive's employment.
(iv) "Good Reason" shall mean:
(A) The assignment by the Company or a Subsidiary to the
Executive of duties which (i) are materially different or
require travel significantly more time consuming or extensive
than the Executive's duties or business travel obligations
immediately prior to the Change in Control, or (ii) result,
without the Executive's express written consent, in either a
significant reduction in the Executive's authority and
responsibility as a senior corporate executive of the Company
or a Subsidiary when compared to the highest level of
authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in
Control, or, (iii) without the Executive's express written
consent, the removal of the Executive from, or any failure to
reappoint or reelect the Executive to, the highest title held
since the date six (6) months before the Change in Control,
except in connection with a termination of the Executive's
employment by the Company or a Subsidiary for Cause, or by
reason of the Executive's death, Disability or Retirement;
(B) A reduction by the Company or a Subsidiary of the
Executive's salary grade or Base Salary, or the failure to
grant increases in the Executive's Base Salary on a basis at
least substantially comparable to those granted to other
executives of the Company or a Subsidiary of comparable title,
salary grade and performance ratings made in good faith;
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<PAGE> 6
(C) The relocation of the Company's principal executive
offices (or in the case of an employee of a Subsidiary, the
principal executive offices of such Subsidiary) to a location
outside the State of New Jersey, or the Company's requiring
the Executive to be based anywhere other than the Company's
principal executive offices (or in the case of an employee of
a Subsidiary, the principal executive offices of such
Subsidiary) except for required travel on the Company's or a
Subsidiary's business to an extent substantially consistent
with the Executive's present business travel obligations, or
in the event of any relocation of the Executive with the
Executive's express written consent, the failure by the
Company or a Subsidiary to pay (or reimburse the Executive
for) all reasonable moving expenses by the Executive relating
to a change of principal residence in connection with such
relocation and to indemnify the Executive against any loss
realized in the sale of the Executive's principal residence in
connection with any such change of residence, all to the
effect that the Executive shall incur no loss on an after tax
basis;
(D) The failure by the Company or a Subsidiary to continue to
provide the Executive with substantially the same welfare
benefits (which for purposes of this Agreement shall mean
benefits under all welfare plans as that term is defined in
Section 3(1) of the Employee Retirement Income Security Act of
1974, as amended) and perquisites, including participation on
a comparable basis in the Company's or a Subsidiary's
retirement plans, Incentive Bonus Plan, Savings Incentive
Plan, Long-Term Performance Stock Plan, Executive Severance
Plan, stock option plans and other plans in which executives
of the Company or a Subsidiary of comparable title and salary
grade participate, as were provided to the Executive
immediately prior to such Change in Control of the Company, or
with a package of welfare benefits and perquisites, that,
though one or more of such benefits or perquisites may vary
from those, including participation on a comparable basis in
the Company's or a Subsidiary's retirement plans, Incentive
Bonus Plan, Savings Incentive Plan, Long-Term Performance
Stock Plan, Executive Severance Plan and stock option plans,
is substantially comparable in all material respects to such
welfare benefits and perquisites, including participation on a
comparable basis in the Company's or a Subsidiary's retirement
plans, Incentive Bonus Plan, Savings Incentive Plan, Long-Term
Performance Stock Plan, Executive Severance Plan and stock
option plans, taken as a whole; or
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<PAGE> 7
(E) The failure of the Company to obtain the express written
assumption of and agreement to perform this Agreement by any
successor as contemplated in subparagraph 5(d) hereof.
(v) "Dispute" shall mean (i) in the case of termination of employment
of an Executive with the Company or a Subsidiary by the Company or a
Subsidiary for Disability or Cause, that the Executive challenges the
existence of Disability or Cause and (ii) in the case of termination of
employment of an Executive with the Company or a Subsidiary by the
Executive for Good Reason, that the Company or a Subsidiary challenges
the existence of Good Reason.
(vi) "Base Salary" shall mean the amount determined by multiplying the
Executive's highest bi-weekly or other periodic rate of base pay paid
to the Executive during the twelve-month period immediately prior to
the giving of the Notice of Termination by the number of pay periods
per year. The following items are not part of base pay, as used herein:
reimbursed expenses, any amount paid on account of overtime or holiday
work, payment on account of insurance premiums or other contributions
made to other welfare or benefit plans, any year-end or other bonuses,
commissions and gifts.
For purposes of this subparagraph (d), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
(e) Any purported termination of employment by the Company or a
Subsidiary by reason of the Executive's Disability or for Cause, or by the
Executive for Good Reason shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice given by the Executive or the Company or a
Subsidiary, as the case may be, which shall indicate the specific basis for
termination and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for determination of any payments under this
Agreement. An Executive shall not be entitled to give a Notice of Termination
that the Executive is terminating his employment with the Company or a
Subsidiary for Good Reason more than six (6) months following the occurrence of
the event alleged to constitute Good Reason.
(f) For purposes of this Agreement, "Date of Termination" shall mean
the date specified in the Notice of Termination, which shall be not more than
ninety (90) days after such Notice of Termination is given. If within thirty
(30) days after any Notice of Termination is given, the party who receives such
Notice of Termination notifies the other party that a Dispute (as heretofore
defined) exists, the Date of Termination shall be the date on which the Dispute
is finally determined, either by
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<PAGE> 8
mutual written agreement of the parties, or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); provided that the Date of
Termination shall be extended by a notice of Dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such Dispute with reasonable diligence and provided further that pending the
resolution of any such Dispute, the Company or a Subsidiary shall continue to
pay the Executive the same Base salary and to provide the Executive with the
same or substantially comparable welfare benefits and perquisites, including
participation in the Company's or a Subsidiary's retirement plans, Savings
Incentive Plan, Incentive Bonus Plan, Long-Term Performance Stock Plan,
Executive Severance Plan, and stock option plans that the Executive was paid and
provided immediately prior to the Change in Control of the Company. Should it
ultimately be determined that a challenged termination by the Company or a
Subsidiary by reason of the Executive's Disability or for Cause was justified,
or that a challenged termination by the Executive for Good Reason was not
justified, then all sums paid by the Company or a Subsidiary to the Executive
from the date of termination specified in the Notice of Termination until final
resolution of the Dispute pursuant to this paragraph shall be repaid promptly by
the Executive to the Company or a Subsidiary, with interest at the base rate
charged from time to time by United Jersey Bank, Hackensack, all options, rights
and restricted stock granted to the Executive during such period shall be
cancelled or returned to the Company or Subsidiary, and no service as an
employee shall be credited to the Executive for such period for pension
purposes. The Executive shall not be obligated to pay to the Company or a
Subsidiary the cost of providing the Executive with welfare benefits and
perquisites for such period unless the final judgment, order or decree of a
court resolving the Dispute determines that the Executive acted in bad faith in
giving a notice of Dispute. Should it ultimately be determined that a challenged
termination by the Company or a Subsidiary by reason of the Executive's
Disability or for Cause was not justified, or that a challenged termination by
the Executive for Good Reason was justified, then the Executive shall be
entitled to retain all sums paid to the Executive pending resolution of the
Dispute and shall be entitled to receive, in addition, the payments and other
benefits provided for in paragraph 4 hereof.
4. PAYMENTS UPON TERMINATION.
If within three years after a Change in Control of the Company, the
Company or a Subsidiary shall terminate the Executive's employment other than by
reason of the Executive's death, Disability, Retirement or for Cause or if the
Executive shall terminate his employment for Good Reason then,
(a) the Company or a Subsidiary will pay to the Executive as
compensation for services rendered, on or before the Executive's Date of
Termination, a lump sum cash amount (subject to any applicable payroll or other
taxes required to be withheld computed at the rate for supplemental payments)
equal to the Executive's Base Salary, but in no event greater than 2.99 times
the average of the Executive's annual compensation payable
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<PAGE> 9
by the Company and its Subsidiaries and includible in the Executive's gross
income for Federal income tax purposes for the five calendar years immediately
preceding the Change in Control (or such portion of such period during which the
Executive was an employee of the Company or a Subsidiary);
(b) the Executive will be entitled to receive "Special Retirement
Benefits" as provided herein, so that the total retirement benefits the
Executive receives from the Company will approximate the total retirement
benefits the Executive would have received under all retirement plans (which
shall not include severance plans) and other employment contracts of the Company
and its Subsidiaries in which the Executive participates were the Executive
fully vested under such retirement plans and entitled to all benefits payable
under such other employment contracts and had the Executive continued in the
employ of the Company or a Subsidiary for thirty-six months following Date of
Termination or until his Retirement, if earlier (provided that such additional
period shall be inclusive of and shall not be in addition to any period of
service credited under any severance plan of the Company or a Subsidiary). The
benefits specified in this subparagraph will include all ancillary benefits,
such as early retirement and survivor rights and benefits available at
retirement. The amount payable to the Executive or his beneficiaries under this
subparagraph shall equal the excess of (1) the benefits that would be paid to
the Executive or his beneficiaries, under all retirement plans and other
employment contracts of the Company and its Subsidiaries in which the Executive
participates if (A) the Executive were fully vested under such plans and
entitled to all benefits payable under such other employment contracts, (B) the
thirty-six (36) month period (or the period until his Retirement, if less)
following the Date of Termination were added to his credited service under such
plans and contracts, (C) such plans were hereafter not amended in a way that
adversely affects the Executive, and (D) the Executive's highest average annual
base salary as defined under such retirement plans and other employment
contracts were calculated as if the Executive had been employed by the Company
or a Subsidiary for a thirty-six (36) month period (or the period until his
Retirement, if earlier) following the Date of Termination and had the
Executive's salary during such period been equal to the Executive's Base Salary;
over (2) the benefits that are payable to the Executive or his beneficiaries
under all retirement plans and other employment contracts of the Company and its
Subsidiaries in which the Executive participates. These Special Retirement
Benefits are provided on an unfunded basis, are not intended to meet the
qualification requirements of Section 401 of the Internal Revenue Code and shall
be payable solely from the general assets of the Company. These Special
Retirement Benefits shall be payable at the times and in the manner provided in
the applicable retirement plans and other employment contracts to which they
relate.
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<PAGE> 10
5. GENERAL.
(a) The Executive shall retain in confidence any proprietary or other
confidential information known to him concerning the Company and its business
(including the Company's Subsidiaries and their businesses) so long as such
information is not publicly disclosed and disclosure is not required by an order
of any governmental body or court.
(b) If litigation shall be brought to enforce or interpret any
provision contained herein, the Company shall indemnify the Executive for his
reasonable attorney's fees and disbursements incurred in such litigation and pay
prejudgment interest on any money judgment obtained by the Executive calculated
at the United Jersey Bank, Hackensack, base rate of interest in effect from time
to time from the date that payment should have been made under the Agreement;
provided that the Executive shall not have been found by the court to have acted
in bad faith, which finding must be final with the time to appeal therefrom
having expired and no appeal having been taken.
(c) The Company's obligation to pay the Executive the compensation and
to make the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, any
setoff, counterclaim, recoupment, defense or other right which the company may
have against the Executive or anyone else. All amounts payable by the Company
hereunder shall be paid without notice or demand. Except as expressly provided
herein, the Company waives all rights which it may now have or may hereafter
have conferred upon it, by statute or otherwise, to terminate, cancel or rescind
this Agreement in whole or in part. Except as provided in paragraph 3(f) herein,
each and every payment made hereunder by the Company shall be final and the
Company will not seek to recover for any reason all or any part of such payment
from the Executive or any person entitled thereto. The Executive shall not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise.
(d) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by written agreement in form and
substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 5 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(e) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be
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<PAGE> 11
payable to the Executive hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee or other designee
or, if there be no such designee, to the Executive's estate. The obligations of
the Executive hereunder shall not be assignable by the Executive.
6. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Mr. Clifford H. Coyman
280 Prospect Avenue, Apt. 4F
Hackensack, New Jersey 07601
If to the Company:
United Jersey Banks
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
Attention: Secretary to the Board
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing, signed by
the Executive and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No assurances or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. However, this Agreement is in
addition to and not in lieu of any other plan providing for payments to or
benefits for the Executive or any agreement now existing or which hereafter may
be entered into between the Company and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New Jersey.
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<PAGE> 12
8. FINANCING
All amounts due and benefits provided under this Agreement shall
constitute general obligations of the Company in accordance with the terms of
this Agreement. The Executive shall have only an unsecured right to payment
thereof out of the general assets of the Company. Notwithstanding the foregoing,
the Company may, by agreement with one or more trustees to be selected by the
Company, create a trust on such terms as the Company shall determine to make
payments to the Executive in accordance with the terms of this Agreement.
9. VALIDITY.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. Any provision in this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
UNITED JERSEY BANKS EXECUTIVE
By: ______________________________ ____________________________
T. Joseph Semrod, Chairman of
the Board and President
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<PAGE> 1
EXHIBIT (10)EE.(ii)
<PAGE> 2
Exhibit (10)EE.(ii)
AMENDMENT NO. 1
TO
TERMINATION AGREEMENT
THIS AMENDMENT NO. 1 dated and entered into effective as of the 20th
day of December, 1989, to the TERMINATION AGREEMENT (the "Agreement") by and
between United Jersey Banks (now UJB Financial Corp.), a New Jersey corporation
(the "Company") and ____________________________________ (the "Executive).
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into the
Agreement referred to above; and
WHEREAS, the Company and the Executive desire to amend the Agreement to
permit the Executive to receive the maximum after-tax payments and benefits
thereunder;
NOW, THEREFORE, to assure the Company of the Executive's continued
dedication and the availability of his advice and counsel in the event of a
proposed change of control of the Company, to induce the Executive to remain in
the employ of the Company or a Subsidiary of the Company, and to reward the
Executive for his valuable, dedicated service to the Company or a Subsidiary
should his service be terminated under circumstances described in the Agreement,
and for other good and valuable consideration, the receipt and adequacy whereof
each party acknowledges, the Company and the Executive agree that the Agreement
is hereby amended by adding a new paragraph 5(f) thereto as follows:
5(f) The amounts due pursuant to this Agreement shall be
reduced by the Excess Amount (as defined below) if (i) any payment or
benefit received or to be received by the Executive in connection with
a Change of Control of the Company or the termination of employment of
the Executive, whether pursuant to the terms of this Agreement or any
other plan, agreement or arrangement (collectively, the "Payments"),
would be subject in whole or in part to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) the amount by which the Payments paid or
to be paid to or for the benefit of the Executive exceeds the maximum
amount of Payments which may be paid to or for the benefit of the
Executive without any portion of such Payments being subject to the
Excise Tax (the "Excess Amount") is less than or equal to the sum of
(A) the total amount of the Excise Tax which would be imposed on the
Payments and (B) the income taxes that would be payable by the
Executive in respect of the Excess Amount. All determinations necessary
to the application of this paragraph 5(f) shall be made by the
Executive, in his sole discretion, who shall deliver to the Company a
statement setting forth in reasonable detail the application of this
paragraph 5(f) to the Payments due under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to
the Agreement as of the date set forth above.
UJB FINANCIAL CORP. EXECUTIVE
<PAGE> 1
EXHIBIT (10)EE.(iii)
<PAGE> 2
Exhibit (10)EE.(iii)
AMENDMENT NO. 2
TO
TERMINATION AGREEMENT
THIS AMENDMENT NO. 2 dated and entered into effective as of the 16th
day of October, 1991, to the TERMINATION AGREEMENT (the "Agreement") by and
between United Jersey Banks (now UJB Financial Corp.), a New Jersey corporation
(the "Company") and (the "Executive"), as amended by
Amendment No. 1 dated December 20, 1989.
WITNESSETH:
WHEREAS, the Company and the Executive have previously entered into the
Agreement referred to above; and
WHEREAS, the Company and the Executive desire to amend the Agreement
to extend the term of the Agreement and to permit the Company to collect from
the Executive any amounts that may become payable to the Internal Revenue
Service due to an excess parachute payment;
NOW, THEREFORE, to assure the Company of the Executive's continued
dedication and the availability of his advice and counsel in the event of any
proposed change of control of the Company, to induce the Executive to remain
in the employ of the Company or a Subsidiary of the Company, and to reward the
Executive for his valuable, dedicated service to the Company or a Subsidiary
should his service be terminated under circumstances described in the
Agreement, and for other good and valuable consideration, the receipt and
adequacy whereof each party acknowledges, the Company and the Executive agree
that the Agreement is hereby amended as follows:
1. Paragraph 1.(b) of the Agreement is amended in its entirety to
read as follows:
1.(b) The Company shall be obligated to make the payments
referred to in paragraphs 3 and 4 hereof following, and the
provisions of paragraph 2 hereof shall apply to, a Change in
Control of the Company only if such Change in Control shall have
occurred prior to, or as a result of efforts designed to attain
such and known to the parties hereto to have commenced prior to,
December 29, 1996 (or such later date as the Board shall
determine).
2. A new paragraph 5.(g) is added thereto and shall read in its
entirety as follows:
5.(g) The Company shall contest any improper assessment of the
Excise Tax or other tax imposed as a result of a determination
that an "excess parachute payment" has been made to the
Executive within the meaning of Section 280G of the Code. If it
is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding
that an "excess parachute payment" within the meaning of Section
280G of the Code does in fact exist, and that the Company is
liable for failure to withhold the Excise Tax, then the
Executive shall pay to the Company, upon demand, an amount not
to
<PAGE> 3
exceed the sum of the amount of tax, interest and penalties and
additions to tax (if any) for which the Company is determined to
be liable by reason of its failure to withhold. The Company
shall provide notice to the Executive of any proceeding
concerning the potential determination that a payment to the
Executive constituted an excess parachute payment.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to
the Agreement as of the date set forth above.
UJB FINANCIAL CORP. EXECUTIVE
:TERM2
<PAGE> 1
EXHIBIT (10)JJ.
<PAGE> 2
COMMERCIAL BANCSHARES, INC.
DIRECTORS RETIREMENT PLAN
This Plan adopted as of this 1st day of May, 1986, is intended to be a
nonqualified defined benefit plan. The purpose of this Plan is to attract and
retain highly qualified outside Directors of Commercial Bancshares, Inc. (the
"Company") by making provision for the payment of retirement benefits to all of
the outside Directors of the Company who have contributed in a substantial
degree to the success of the Company.
This Plan shall not be a funded plan, and the Company shall not set
aside any funds for the purpose of making payments under this Plan. Any payments
hereunder shall be made out of the general assets of the Company. This Plan is
not intended to meet the qualification requirements of Section 401 of the
Internal Revenue Code of 1954, as amended. No Participant shall be entitled to
receive any payments for benefits under this Plan from the trust funds
maintained pursuant to any trust agreements under any other pension, profit
sharing or other plan maintained by the Company.
ARTICLE I
DEFINITIONS
Whenever the following words and phrases appear in this Plan, they have
the respective meaning set forth below, unless the context clearly indicates
otherwise:
<PAGE> 3
1.01. "Board of Directors" means the Board of Directors of the Company.
1.02. "Change of Control of the Company" means a consolidation,
dissolution, or complete liquidation of the Company, or a sale of all or
substantially all of its assets, or other corporate reorganization in which the
Company is not the surviving corporation, or any merger in which the Company is
the surviving corporation, but in which the holders of its Common Stock receive
securities of another corporation.
1.03. "Committee" means the committee of directors of the Company
appointed to administer the Plan as provided in Article IV.
1.04. "Compensation" means the total annual fees payable by the Company
to the Participant, whether or not such fees are deferred at the election of the
Participant, including Director's fees and fees for serving on a committee, that
are or would be included in the Federal gross income of the Participant, but for
the deferral of receipt by the Participant.
1.05. "Effective Date" means the date on which this Plan is adopted.
1.06. "Outside Director" means a person serving on the Board of
Directors who is not an employee of the Company or of any Subsidiary.
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<PAGE> 4
1.07. "Participant" means an Outside Director who participates in this
Plan.
1.08. "Plan" means this Commercial Bancshares, Inc. Directors
Retirement Plan, as described herein, or as hereafter amended.
1.09. "Retirement" means the later of the attainment of age sixty-five
(65) or the cessation of a Participant's services as an Outside Director, by
reason other than death, whereby the Participant thereafter is not a director of
the Company.
1.10. "Subsidiary" means a corporation more than 80 percent of whose
outstanding securities representing the right, other than as affected by events
of default, to vote for the election of directors, is as of the date of
adoption, and during the effectiveness, of the Plan, owned directly or
indirectly, by the Company.
1.11. "Year of Service" means a period of 12 months (including
nonconsecutive months) commencing as of the earlier of the date that an
individual becomes an Outside Director or becomes a director of a Subsidiary of
the Company or a predecessor of such Subsidiary, including: (i) Years of Service
prior to the Effective Date of this Plan; (ii) Years of Service rendered to a
Subsidiary of the Company or a predecessor of such Subsidiary including such
service prior to the
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<PAGE> 5
Subsidiary or such predecessor becoming a Subsidiary of the Company; and (iii)
Years of Service rendered to the surviving corporation following a Change of
Control of the Company.
1.12. The masculine pronoun means the feminine, wherever appropriate.
ARTICLE II
ELIGIBILITY
2.01. All Outside Directors of the Company are eligible to be and shall
become Participants of the Plan as of the later of the Effective Date of this
Plan or the date of election or appointment to the Board of Directors as an
Outside Director.
ARTICLE III
AMOUNT AND PAYMENT OF RETIREMENT BENEFITS
3.01. Except as otherwise provided in this Article III,
(a) The annual retirement benefit payable under this Plan to a
Participant shall be equal to 50 percent of the Participant's average
Compensation during the three calendar years in which such Participant's
Compensation is highest.
(b) Notwithstanding paragraph (a), the minimum annual retirement
benefit payable shall not be less than $4,000.
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<PAGE> 6
3.02. The amount of the annual retirement benefit payable under
Paragraph 3.01 herein shall be reduced by 1/10th for each Year of Service or
part thereof less than ten.
3.03. Subject to Paragraph 3.04, a Participant shall be 50 percent
vested in his aggregate accrued retirement benefits payable under the Plan after
completing five (5) Years of Service, and the Participant shall vest an
additional ten (10) percent in his aggregate accrued retirement benefits for
each subsequent Year of Service.
3.04. In the event of a Change of Control of the Company, following
which event the Participant does not continue to serve as an Outside Director,
each Participant who has completed three (3) Years of Service shall immediately
become 100 percent vested in his aggregate accrued retirement benefits as
calculated under Paragraph 3.01, but without regard to the application of
Paragraph 3.02, and shall be eligible for payment of such retirement benefits
commencing upon the Participant's attaining age 65 (or immediately if the
Participant is then older than 65 years of age) in accordance with the payment
provisions of this Article III.
3.05. Retirement benefits shall be paid to a Participant, in cash or
the equivalent thereof, beginning on the first day of the calendar quarter
following the end of the calendar quarter of the Participant's Retirement, in
equal quarterly installments without interest for a period of ten
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<PAGE> 7
(10) years; provided, however, that upon a Participant's death, a Participant
shall forfeit all of his right, title and interest in and to his retirement
benefits payable under this Plan.
ARTICLE IV
ADMINISTRATION
4.01. The Plan shall be administered by a Committee, appointed from
time to time by the Board of Directors of the Company, consisting of not less
than three directors of the Company and appointed from among directors who are
not Participants of the Plan. The Committee shall have full power and authority,
subject to the terms and conditions of the Plan, from time to time, to calculate
the amount of retirement benefits to be paid under the Plan in accordance with
Article III, to construe and adopt rules and regulations relating to the Plan
and to determine all other matters which may arise in the administration of the
Plan. The determination of the Committee concerning any matter arising under or
with respect to the Plan or any retirement benefits payable under the Plan shall
be final, binding and conclusive on all interested persons. The Committee may,
as to all questions of accounting, rely conclusively upon any determinations
made by the independent public accountants of the Company.
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<PAGE> 8
ARTICLE V
AMENDMENT AND TERMINATION
5.01. The Board of Directors shall have the right at any time to amend
this Plan in any respect, or to terminate this Plan. However, if this Plan is
amended or discontinued, such action shall not impair or adversely affect any
benefits accrued under this Plan as of the date of such action.
ARTICLE VI
GENERAL PROVISIONS
6.01. The establishment of this Plan shall not be construed as
conferring any legal rights upon any Outside Director or other person for a
continuation of appointment to the Board of Directors, nor shall it interfere
with the right of the Company to terminate any Outside Director or to act with
respect to him without regard to the effect which such treatment might have upon
him as a Participant.
6.02. Subject to any applicable law, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall
any such benefit be in any manner liable for or subject to garnishment,
attachment, execution or levy, or liable for or subject to the debts, contracts,
liabilities, engagement or torts of the Participant.
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<PAGE> 9
6.03. The Plan shall be construed, regulated and administered under the
laws of the State of New Jersey.
-8-
<PAGE> 1
EXHIBIT (10)KK.(i)
<PAGE> 2
Exhibit (10)KK.(i)
COMMERCIAL BANCSHARES, INC.
DIRECTORS DEFERRED COMPENSATION PLAN
I. PURPOSE
This Plan adopted this 20th day of May, 1986, is intended to provide a
means for selected directors of the Corporation to defer the receipt of
Compensation to future years.
II. DEFINITIONS
Whenever the following words and phrases appear in the Plan, they have
the respective meaning set forth below, unless the context clearly indicates
otherwise:
A. "Board of Directors" means the Board of Directors of the
Corporation.
B. "Committee" means a group of not less than three senior officers or
directors of the Corporation appointed to administer the Plan in accordance with
the provisions in Section IV.
C. "Commingled Accounts" means the accounts (including a Participant's
Deferred Compensation Account), the assets of which are commingled pursuant to
Paragraph D of Section V.
D. "Compensation" means: (i) any annual retainer or meeting fees
payable by the Corporation for services as an Out-
<PAGE> 3
side Director or a Director, (ii) any other fees payable by the Corporation for
services as an Outside Director or a Director, including services on a committee
of the Board of Directors, (iii) any property including, without limitation,
stock and other securities of the Corporation payable by the Corporation for
services as an Outside Director or a Director, and (iv) any other component of a
Participant's compensation paid by the Corporation to an Outside Director or a
Director, the payment of which the Committee has approved to be deferred
(including, in the case of Directors who shall have been designated as "Eligible
Participants" under Section III, salary and cash bonuses).
E. "Corporation" means Commercial Bancshares, Inc.
F. "Deferred Compensation" means Compensation, the payment of which has
been deferred by a Participant as herein provided.
G. "Deferred Compensation Account" means an individual account
maintained on the books and records of the Master Trust for each Participant of
all Deferred Compensation held by the Master Trust and all proceeds earned and
gains and losses realized with respect thereto and all payments made therefrom,
in accordance with Paragraphs B, C and D of Section V.
H. "Deferral Period" means the period designated by a Participant,
beginning on the date when payment of Deferred
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<PAGE> 4
Compensation is first deferred and ending when the last payment of Deferred
Compensation is made.
I. "Director" means a director of the Corporation who is not an Outside
Director.
J. "Effective Date" means the date on which the Plan is adopted as
first hereinabove written.
K. "Master Trust" means a trust established by the Corporation in
accordance with Paragraph A of Section V.
L. "Outside Director" means a director of the Corporation who is not an
officer or other employee of the Corporation or of a Subsidiary.
M. "Participant" means an Outside Director or a Director who
participates in this Plan, as herein provided, for so long as such person shall
so participate.
N. "Plan" means this Commercial Bancshares, Inc. Directors Deferred
Compensation Plan, as described herein, or as hereafter amended.
O. "Related Plan" means a deferred compensation plan adopted by a
Subsidiary which in operation and effect permits directors of such Subsidiary to
defer compensation on substantially the same terms and conditions as
Compensation may be deferred under the Plan; provided that if the classes of
directors of a Subsidiary who may defer compensation are dif-
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<PAGE> 5
ferent than the classes of Outside Directors and Directors who may defer
Compensation under the Plan, that difference alone shall not preclude the
deferred compensation plan of such Subsidiary from being a Related Plan.
P. "Retirement" means the later of the attainment of age sixty-five
(65) or the cessation of a Participant's services as an Outside Director or as a
Director, as the case may be, whereby the Participant thereafter is not a
director of the Corporation or of a Subsidiary.
Q. "Subsidiary" means a corporation more than 80 percent of whose
outstanding securities representing the right, other than as affected by events
of default, to vote for the election of directors, is as of the date of adoption
of, and during the effectiveness of the Plan, owned directly or indirectly, by
the Corporation.
R. "Termination" means the cessation of a Participant's services as a
director of the Corporation or of a Subsidiary for any reason other than death
or Retirement.
S. The masculine pronoun means the feminine whenever appropriate.
III. ELIGIBILITY
All Outside Directors, and such other Directors or classes of Directors
as shall have been designated as "Eligible
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<PAGE> 6
Participants" by action of the Board of Directors, are eligible to be
Participants as of the latest to occur of the Effective Date, the date of
election or appointment as an Outside Director or Director, or the date of such
designation.
IV. ADMINISTRATION
A. The Committee. The Plan shall be administered by a Committee,
appointed from time to time by the Board of Directors, consisting of one or
more individuals who are not Participants and who are selected and appointed
from among the Board of Directors and the senior officers of the Corporation.
B. Reports. Subject to the provisions of the Plan, the Committee shall,
at least annually, report or cause to be reported in writing to the Board of
Directors (i) the identity and number of Participants in the Plan and (ii) the
form, type and amount of Compensation subject to deferral under the Plan. The
Committee shall also report or cause to be reported in writing to each
Participant from time to time, but not less frequently than annually, the status
of the Participant's Deferred Compensation Account as of a stated date. Such
report may be (but need not be) a composite report reflecting the status of a
Participant's Deferred Compensation Account and of a Participant's accounts
under Related Plans.
C. Powers and Duties of the Committee. The Committee shall have the
power and duty to specify the period of time
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<PAGE> 7
in which a Participant may make an irrevocable election to defer receipt of all
or any part of his payment of Compensation; to interpret the Plan; to make other
determinations that the Committee believes necessary or advisable for the
administration of the Plan; and to adopt rules, regulations and forms of
agreements and other documents executed pursuant to the Plan which are not
inconsistent with the Plan and with the determinations of the Board of
Directors. The determination of the Committee concerning any matter arising
under or with respect to the Plan or any benefits payable under the Plan shall
be final, binding and conclusive on all interested persons.
V. ESTABLISHMENT OF MASTER TRUST AND DEFERRED COMPENSATION
A. Master Trust. The Corporation shall, prior to or promptly after the
end of the calendar quarter in which Deferred Compensation is first deferred,
establish a trust substantially in the form of Annex 1 hereto to be known as the
"Master Trust," and shall from time to time, but not less frequently than
quarterly, contribute all of the Deferred Compensation to the Master Trust, to
be invested, reinvested and distributed to the Participants by the Trustees of
the Master Trust in accordance with the provisions of the Plan and of the Master
Trust.
B. Deferred Compensation Account. The Trustees of the Master Trust
shall establish the Deferred Compensation Account
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<PAGE> 8
as a book reserve for each Participant, and from time to time shall enter
therein the name of the Participant and the amount of money and property to be
credited to the Participant's Deferred Compensation Account as herein provided.
A separate sub-account (a "Sub-account") may be maintained within such Deferred
Compensation Account for each election by a Participant to defer Compensation,
except that a single Sub-account within such Deferred Compensation Account shall
be maintained for all deferrals by a Participant having identical payout
periods. All Compensation deferred under the Plan shall be contributed to the
Master Trust and credited to a Participant's Deferred Compensation Account in
the Master Trust as provided in this Section V and in the Master Trust Agreement
establishing the Master Trust.
C. Credits or Debits to a Deferred Compensation Account. A
Participant's Deferred Compensation Account and the Sub-accounts, if any,
contained therein shall consist of an amount of money and property credited or
debited thereto by reason of the Participant's election to defer Compensation,
as follows:
(i) Principal. If a Participant elects to defer
Compensation, the Participant's Deferred Compensation
Account shall be credited with the amount of such
Compensation as of the date on which it would have
been paid but for said deferral.
(ii) Income. The Participant's Deferred Compensation
Account shall be credited from time to time with an
amount equal to interest or other
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<PAGE> 9
proceeds earned or gains realized by the investment
or reinvestment of the assets allocable to said
account as determined by the Trustees, or at the
Trustees' sole discretion, by the independent public
accountants of the Corporation.
(iii) Loss. The Participant's Deferred Compensation Account
shall be debited from time to time with an amount
equal to any losses realized by the investment or
reinvestment of the assets allocable to said account
as determined by the Trustees, or at the Trustees'
sole discretion, by the independent public
accountants of the Corporation.
(iv) Payments. The Participant's Deferred Compensation
Account shall be debited with an amount equal to all
payments of Deferred Compensation.
D. Commingling of Assets in Participant's Accounts. If a Participant
is a Participant under one or more Related Plans, then, subject to rules
established by the Committee, he may direct that all or some of the assets in
his Deferred Compensation Account may be commingled, invested and reinvested
with all or some of the assets in an account for such Participant under such
Related Plan or Related Plans; provided, that no such commingling, investment or
reinvestment may occur with respect to any assets in a Participant's Deferred
Compensation Account unless the payout period relating to the assets in each
Commingled Account is identical. Notwithstanding any commingling of assets as
herein permitted, separate accounts shall be maintained for each Commingled
Account. Any income or loss realized with respect to assets in
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<PAGE> 10
Commingled Accounts shall be allocated between the Commingled Accounts pro rata
on such basis as the Committee and the committee administering each such Related
Plan shall mutually determine.
VI. DEFERRAL OF COMPENSATION
A. Election to Defer; Deferral Period. Each Outside Director or
Director, who is eligible to be a Participant as provided in Section III and who
receives Compensation may, within the period specified by the Committee,
participate in the Plan by making an irrevocable election, as provided in
Paragraphs B and C, to defer receipt of all or any part of payment of such
Compensation; provided, however, that each such election must defer the receipt
of an amount of not less than $100. A Participant may elect to receive amounts
in a particular Sub-account in his Deferred Compensation Account over a number
of years, not to exceed ten (10), as selected by the Participant or as otherwise
permitted by the Committee.
B. Notice of Election to Defer. Each Participant shall, within the
period specified in Paragraph C hereunder, notify the Committee in writing of an
election to defer the receipt of Compensation. Each such notice shall state:
(i) the amount or percentage of the Compensation to be
deferred (the "Deferred Compensation");
(ii) the year in which payment is to commence; and
(iii) the number of years for payment.
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<PAGE> 11
C. Time of Notice of Election to Defer. Written notice of election to
defer Compensation must be given to the Committee by a Participant within the
following time periods:
Type of Compensation Notice Required
Director's Fees For any part of fees to be earned in the
fiscal year ending December 31, 1986, on or
before the end of the month preceding the
month in which earned. With respect to fees
for all subsequent years, on or before the
December 31st preceding the year in which
earned.
Other As specified by the Committee, but prior to
commencement of the period during which
services are performed for which such
Compensation is actually earned.
D. Notice of Directed Investment. Each Participant may from time to
time, but not more frequently than quarterly, specify by giving written notice
to the Trustees of the Master Trust: (i) the form and type of investment or
reinvestment, (ii) the amount or percentage of Deferred Compensation credited to
such Participant's Deferred Compensation Account to be so invested or
reinvested, and (iii) the date, not less than five (5) days from the date of
such notice, as of which such specifications in (i) and (ii) above are to be
effected; provided, that (x) no such investment or reinvestment shall be other
than in cash, cash equivalents or readily marketable securities and no such
investment or reinvestment shall be contrary to rules established by the
Committee, (y) no investment or reinvestment may be specified by a Participant
in which such Participant may
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<PAGE> 12
have liability greater than the amount of such investment or reinvestment, or
which might or will place other assets of the Master Trust not credited to such
Participant's Deferred Compensation Account at risk, and (z) unless otherwise
permitted pursuant to rules and regulations adopted by the Committee and then
only pursuant to such rules, no investment or reinvestment may be made in
securities issued or guaranteed by the Corporation or a Subsidiary. If the
Participant has not specified the form or type of investment or reinvestment of
cash balances held at any time in his Deferred Compensation Account, such cash
balances may be (but need not be) invested or reinvested in investments
permitted under the Plan according to the sole discretion of the Trustees of the
Master Trust. In the event of the making of any investment or reinvestment by
the Trustees as provided in the immediately preceding sentence, other than an
investment or reinvestment of cash balances in time, interest bearing demand or
money market accounts or pursuant to a dividend reinvestment plan, the Trustees
of the Master Trust shall mail or cause to be mailed to a Participant, at his
last address known to the Trustees, written notice of each investment or
reinvestment within a reasonable period of time thereafter.
VII. PAYMENT OF DEFERRED COMPENSATION
A. Amount and Timing of Payment. Except as otherwise provided in the
Plan, the first payment of Deferred Compen-
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<PAGE> 13
sation will be made in the year specified by the Participant or, if any of the
following events occur prior to the year specified by the Participant, in the
year following the year in which occurs the earliest of the following:
(i) death of the Participant;
(ii) Retirement of the Participant.
Unless the Participant has selected a different payment schedule or formula
which has been approved by the Committee with respect to each deferral, the
amount to be paid to a Participant in any year during the payout period shall be
paid in cash or cash equivalents, or in property held for the Participant's
account and valued at its value as reflected on the Participant's Deferred
Compensation Account, at the discretion of the Committee. The amount to be paid
each year to a Participant during the Participant's payout period with respect
to a particular Sub-account shall be distributed in as nearly equal payments as
practicable as determined in the sole discretion of the Committee; provided that
in the last year of the payout period the entire amount credited to such
Sub-account shall be paid to such Participant. Any payments of Deferred
Compensation will be made by the Trustees of the Master Trust on or, at the
discretion of the Committee, prior to March 31st of the calendar year in which
such payment will be made. In the case of payments from Commingled Accounts,
payments shall be allocated between such Commingled Accounts pro rata on such
basis as the
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<PAGE> 14
Committee and the committee administering each affected Related Plan shall
mutually determine.
B. Distribution on Termination of Service. Notwithstanding the
foregoing, in the event of a Participant's Termination immediately after which
such Participant is no longer a director of the Corporation or of any
Subsidiary, and subject to the provisions of Paragraph G(i) of Section VIII, the
Trustees of the Master Trust shall pay out the entire balance credited to such
Participant's Deferred Compensation Account as soon as practicable after such
Termination, unless the Committee in its sole discretion provides for a
different payment schedule not longer than the schedule originally selected by
the Participant.
VIII. GENERAL PROVISIONS
A. Assignment. The interest of a Participant or of the Participant's
beneficiary(ies) in any Deferred Compensation Account held in the Master Trust
is not assignable, either by voluntary or involuntary assignment or by operation
of law. No part of any Deferred Compensation Account may be paid over, loaned,
sold, assigned, transferred, discounted, pledged as collateral for a loan, or in
any other way encumbered or alienated before the end of the Deferral Period with
respect to such Deferred Compensation.
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<PAGE> 15
B. Contribution of Deferred Compensation. During the Deferral Period,
the Corporation shall segregate all Deferred Compensation from other funds of
the Corporation by contributing all Deferred Compensation to the Master Trust.
An election to defer Compensation by a Participant hereunder shall constitute an
acknowledgment and agreement by the Participant that during a Deferral Period
and, in the event of insolvency or bankruptcy of the Corporation, thereafter to
the extent required by law, all Deferred Compensation contributed to the Master
Trust by the Corporation and (if any) all net proceeds earned and net
appreciation accrued with respect thereto is subject to the claims of the
general creditors (including a Participant in his capacity as such) of the
Corporation.
Nothing contained in the Plan shall be construed as creating any
absolute or unconditional trust, express or implied, for the benefit of any
Participant.
C. Appointment of Beneficiary. Subject to applicable law, each
Participant may appoint a beneficiary or beneficiaries to receive payments to
be made from such Participant's Deferred Compensation Account, if any, after the
Participant's death. In the absence of such appointment, all such amounts shall
be paid to the Participant's estate. The appointment shall be made on a form to
be supplied by the Committee and may
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<PAGE> 16
be revoked or superseded at any time. Payments to a beneficiary or beneficiaries
shall be made in accordance with the schedule designated by the Participant.
D. Reservation of Rights. Nothing in this Plan shall be construed to
give any Outside Director or Director any right (i) to defer Compensation other
than as expressly authorized and permitted by this Plan and the Committee, (ii)
to limit in any way the right of the Corporation or a Subsidiary to terminate a
Participant's services as an Outside Director or a Director or a member of the
board of directors of a Subsidiary, or (iii) to be nominated for election or
reelection as a director of the Corporation or a Subsidiary.
E. Amendment or Termination. The Corporation may, at any time,
terminate or amend this Plan provided that any such termination or amendment
shall not affect the rights of a Participant or beneficiary(ies) of the
Participant to payments of amounts standing to the credit of the Participant in
the Participant's Deferred Compensation Account at the time of such amendment or
termination. In the event of termination of this Plan, the Corporation, in its
absolute discretion, may make such provision for payment of Deferred
Compensation as it deems appropriate including, among other things, the payment
of Deferred Compensation notwithstanding an election by a Participant with
respect thereto.
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<PAGE> 17
F. Relationship to Other Benefit Plans of the Corporation. Deferred
Compensation shall not be included as compensation to the Participant either at
the time earned or paid for the purpose of computing benefits to which the
Participant may be entitled under any retirement plan of the Corporation or of
any Subsidiary or under any other benefit arrangement of the Corporation or any
Subsidiary for the benefit of their respective directors, except as otherwise
provided in any such plan.
G. Change in Directorship or Law. The Committee may, in its absolute
discretion, make appropriate adjustments with respect to the terms of the Plan
and its applicability to Participants in the event (i) of a discontinuance by
the Corporation of a Participant's services as an Outside Director or Director
resulting from an event such as merger, sale of assets, consolidation, other
business combination or liquidation of the Corporation, or (ii) any of the
anticipated benefits of deferral pursuant to this Plan or any provision hereof
are altered by reason of any interpretation of or change in law, policy or
regulation.
H. Voting of Securities. No Participant will be entitled to direct the
Trustees of the Master Trust as to the exercise of any voting rights
attributable to securities having voting rights held in a Participant's Deferred
Compensation Account.
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<PAGE> 18
Such securities shall not be voted by such Participant or by the Trustees of the
Master Trust.
I. Applicable Laws. The Plan shall be construed, regulated and
administered under the laws of the State of New Jersey.
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<PAGE> 1
EXHIBIT (10)KK.(ii)
<PAGE> 2
Exhibit (10)KK.(ii)
MASTER TRUST AGREEMENT
THIS TRUST AGREEMENT made as of this _______ day of __________, 1986,
by and among Commercial Bancshares, Inc., a corporation organized and existing
under the banking laws of New Jersey, and each of those current and hereafter
acquired or created subsidiaries of Commercial Bancshares, Inc. who have or will
have executed this Master Trust Agreement or a counterpart or supplement hereto,
hereinafter singularly referred to as the "Grantor" and collectively referred to
as the "Grantors", and Stephen P. Cosgrove, Benjamin Pace and Edward Lord, as
TRUSTEES, hereinafter referred to as the "Trustees",
WITNESSETH:
WHEREAS, the Board of Directors of each of the Grantors, prior to or at
the time of executing this Master Trust Agreement or a counterpart or supplement
hereto, has adopted a resolution substantially in the following form:
RESOLVED, that there be and hereby is created and established a fund to
be known as the MASTER TRUST to which has been appropriated out of the
earnings of this Corporation, the sum of all Deferred Compensation, as
that term is defined under the Directors Deferred Compensation Plan of
this Corporation (the "Plan"), that would have been payable but for the
Plan participant's election to defer receipt, which amount of Deferred
Compensation has been paid to the Trustees; and be it further
RESOLVED, that there be and hereby is appointed Stephen P. Cosgrove,
Benjamin Pace and Edward Lord to serve as Trustees and administer the
fund.
<PAGE> 3
WHEREAS, pursuant to the said resolution said sum was paid to the
Trustees, and
WHEREAS, it is now the desire of the Grantors and the Trustees that the
intention of the parties and the creation and establishment of such fund and
terms and conditions under which such fund is to be administered by the Trustees
be definitively set out in writing,
NOW THEREFORE, the Grantors, in consideration of the premises and
covenants and agreements herein contained, and other good and valuable
consideration, subject to the terms and conditions hereof, do hereby give,
grant, convey and transfer irrevocably to the Trustees herein and before named,
and to their successors in office, the cash set forth in Schedule "A", hereto
attached and made a part hereof,
TO HAVE AND TO HOLD all and singular the above described property unto
the Trustees, and any additional property which may be transferred to the
Trustees, IN TRUST NEVERTHELESS, for the uses and purposes and subject to the
duties and powers hereinafter set forth:
SECTION I
RELATION TO THE PLAN
All of the provisions of the Directors Deferred Compensation Plans of
each of the respective Grantors (the "Plans") are hereby incorporated by
reference to the extent
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<PAGE> 4
that they do not conflict with this Trust. All capitalized words and phrases
appearing in this Trust shall have the same respective meaning as set forth in
the Commercial Bancshares, Inc. Directors Deferred Compensation Plan, as it may
from time to time be amended, unless the context clearly indicates otherwise.
SECTION II
INVESTMENT AND APPLICATION OF
TRUST FUND AND INCOME
The Trustees shall receive, hold and manage the property and the income
and proceeds earned and appreciation or losses accrued with respect thereto at
any time forming a part of the Trust (the "Trust Fund"). The Trustees shall
establish the Deferred Compensation Account required under each of the Plans as
a book reserve for each of the participants of the respective Plans, and shall
adjust each such Deferred Compensation Account to reflect all of the
compensation deferred by a participant of the respective Plans together with all
of the income and proceeds earned, gains or losses realized and payments made
with respect thereto (the "Account Balance"). The Trustees shall invest and
reinvest the Account Balance according to the written specifications of such
participant given in accordance with the provisions of the applicable Plan, or
if no such written specification has ever been provided, according to Trustees'
sole discretion, and shall debit and credit such participant's Deferred
Compensation Account as provided in each of the applicable Plans.
-3-
<PAGE> 5
The Trustees are hereby expressly authorized to use the Account Balance
of each such participant for the purpose of making payments owed to such
participant in accordance with the provisions of the applicable Plan and with
documents executed pursuant thereto; provided, however, that the Trustees shall
have the right to deduct and withhold from all such payments any taxes required
by law to be withheld with respect to such payments.
SECTION III
TRUSTEES POWERS
The Trustees shall not be bound by any law of New Jersey with reference
to the investment or reinvestment of the Trust Fund, but may invest in such
securities as the Plan participants may direct or, in the absence of such
direction, as the Trustees shall deem for the best interest of such Trust Fund.
The Trustees are hereby expressly authorized to hold any stock or
securities which may at any time form a part of the Trust Fund in the name of a
nominee of such Trustees.
SECTION IV
RESTRICTIONS ON USE OF TRUST FUND
The Account Balances forming the Trust Fund shall be devoted
exclusively to the funding of the respective Plans, and shall in no part and in
no event be given or contributed to or inure to the benefit of any private
person or corporation other
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<PAGE> 6
than the participants under the respective Plans and the Grantors in accordance
with the provisions of the applicable Plan and documents executed pursuant to
such Plan; provided, however, that in the event that any of the Grantors so
request, the Trustees shall apply that portion of the Trust Fund credited to the
Deferred Compensation Accounts of such Grantor's participants under the Plan of
such Grantor pro rata according to relative values of the Account Balances then
forming that Grantor's share of the Trust Fund, as required to satisfy the
claims of such Grantor's general creditors.
SECTION V
ADDITIONS TO TRUST FUND
All amounts of compensation designated as Deferred Compensation under
the respective Plans shall from time to time, but not less frequently than
quarterly, be contributed to the Trust by the respective Grantors, to become
part of the Trust Fund and credited to the Deferred Compensation Account of the
participant under the applicable Plan who would have received such compensation
but for the deferral pursuant to such Plan.
SECTION VI
INTERESTS OF PLAN PARTICIPANTS
Each participant's Deferred Compensation Account under the applicable
Plan is not assignable by such participant nor such participant's
beneficiary(ies), either by voluntary or
-5-
<PAGE> 7
involuntary assignment or by operation of law. No part of any Account Balance
may be paid over, loaned, sold, assigned, transferred, discounted, pledged as
collateral for a loan, or in any other way encumbered or alienated until the end
of the Deferral Period elected with respect thereto as provided in the
applicable Plan and documents executed pursuant to such Plan.
Nothing herein contained shall be construed as creating any absolute or
unconditional trust, express or implied, for the benefit of any participant of
any of the Plans.
SECTION VII
GOOD FAITH DUTY OF TRUSTEES
The Trustees shall be chargeable only with the exercise of good faith
in carrying out the provisions of the Trust. The Trustees shall not, in the
absence of bad faith, be responsible or accountable for errors of judgment in
determining the total investment or reinvestment income or loss generated by the
Trust Fund during the Deferral Period under the applicable Plan.
Nothing herein contained shall be construed as creating any
responsibility or accountability on the part of the Trustees with respect to
actions taken upon investment or reinvestment specifications given by a
participant of a Plan or upon instructions given by a committee under the
applicable Plan.
-6-
<PAGE> 8
SECTION VIII
DECISION OF TRUSTEES
The act of the majority of the Trustees shall be conclusive on all
matters relating to this Trust, including the management and distribution of the
Account Balances. Evidence of such majority actions shall be in writing and
shall be filed with the Grantors.
SECTION IX
DELEGATION OF DUTIES
The Trustees are authorized in the discharge of their duties to employ
counsel (which may be counsel to one or more of the Grantors) and/or agents and
to pay them reasonable compensation which compensation shall be allocated to,
and, if applicable, reimbursed to the Trustees from among, the Grantors as may
be equitable in the sole determination of the Trustees.
SECTION X
ELIGIBILITY TO SERVE AS TRUSTEE
No individual shall be eligible to serve as Trustee unless such
individual, at all times while acting as such Trustee, is an officer of
Commercial Bancshares, Inc. or of one of its subsidiaries and is not a
participant in any of the Plans.
-7-
<PAGE> 9
SECTION XI
APPOINTMENT OF SUCCESSOR TRUSTEE
Any Trustee may at any time resign the office of Trustee (and in the
event that a Trustee shall cease to be eligible to serve as Trustee, such
Trustee's resignation shall be automatic) upon giving thirty (30) days notice to
the other Trustees. In the event of a vacancy in the Trustees by resignation,
death, disqualification, or otherwise, the remaining Trustees shall elect a
Trustee or Trustees to fill such vacancy or vacancies from among persons
eligible pursuant to Section X of this Master Trust Agreement or, if no Trustees
remain to fill such vacancies, the Grantors shall fill such vacancies. Until
such time as such successor Trustee is appointed, the remaining Trustees shall
have full power to act under this Trust.
SECTION XII
DURATION OF TRUST
This Trust shall be irrevocable and shall be continued and maintained
as long as may be necessary, desirable or convenient for the full and complete
administration of the Trust Fund as provided for herein or as may be hereafter
changed or modified; provided, however, that in the event that any of the
Grantors shall so request, the Trustees shall then, in such event, make
distributions to that Grantor in an amount not in excess of the Trust Fund
credited to the Deferred Compensation
-8-
<PAGE> 10
Accounts of such Grantor's participants under the applicable Plan in
satisfaction of the claims of such Grantor's general creditors; and provided,
further, that in the event of a merger, sale of assets, consolidation, other
business combination or liquidation of any of the Grantors, subject to any
instructions received from the committee administering such Grantor's Plan, the
Trustees may in their sole discretion continue the Trust for the benefit of the
participants under such Grantor's Plan or may make such provision for
distribution of the Trust Fund in such participants' Deferred Compensation
Accounts as they deem appropriate including, among other things, the payment of
all Deferred Compensation payable to such participant notwithstanding an
election by a participant with respect thereto.
SECTION XIII
AMENDMENT OF TRUST AGREEMENT
This Trust or any of the terms hereof may be changed or amended by the
Trustees and the Grantors by an instrument in writing duly executed by the
Trustees and the Grantors; provided, however, that no change or amendment shall
effect any revocation, in whole or in part, of the Trust hereby created, or
alter the provisions for distribution upon the termination of the Trust.
-9-
<PAGE> 11
SECTION XIV
RECEIPT OF TRUST FUNDS
The Trustees, by joining in the execution of this instrument,
acknowledge receipt of the cash set forth in Schedule "A", hereto annexed, and
signify their acceptance of the Trust and agree to hold such cash under the
Trust as herein provided.
IN WITNESS WHEREOF, each of the Grantors has caused this Master Trust
Agreement to be duly signed by its President, and its corporate seal to be
hereunto affixed and attested by the Secretary or Cashier, and the Trustees have
hereunto set their respective hands and seals the day and year first above
written.
ATTEST: COMMERCIAL BANCSHARES, INC.
_______________________________ By: ________________________________
Joseph E. Des Marais, Secretary John G. Collins,
President
ATTEST: COMMERCIAL TRUST COMPANY OF
NEW JERSEY
_______________________________ By: ________________________________
Joseph E. Des Marais, Secretary Ronald C. Brown, President
ATTEST: THE EDGEWATER NATIONAL BANK
_______________________________ By: ________________________________
Charles Caruso, Cashier William M. Winans, President
ATTEST: FIDELITY BANK & TRUST COMPANY OF
NEW JERSEY
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<PAGE> 12
_______________________________ By: ________________________________
James B. Groff, Secretary Richard J. Abdill, President
ATTEST: N.A. HOME INVESTORS MORTGAGE
CORPORATION
_______________________________ By: ________________________________
Carol Albrecht, Secretary Elliot R. Jacobs, President
ATTEST: LENAPE STATE BANK
_______________________________ By: ________________________________
D. Lynn McLaughlin, Secretary William F. Sharp, President
ATTEST: TRICO MORTGAGE COMPANY, INC.
_______________________________ By: ________________________________
Asit K. Shroff, Secretary Frank J. Tricarico, President
ATTEST: THE WOOD RIDGE NATIONAL BANK
_______________________________ By: ________________________________
Richard J. DeRusso, Cashier Edward J. Tessalone,
President
_______________________________ ________________________________
Witness Stephen P. Cosgrove, Trustee
_______________________________ ________________________________
Witness Benjamin Pace, Trustee
_______________________________ ________________________________
Witness Trustee
-11-
<PAGE> 1
EXHIBIT (10)LL.(i)
<PAGE> 2
UNITED JERSEY BANKS
1987 STOCK OPTION PLAN
<PAGE> 3
UNITED JERSEY BANKS
1987 STOCK OPTION PLAN
Article Page
I. Purposes A-1
II. Amount of Stock Subject to the Plan A-1
III. Administration A-1
IV. Eligibility A-2
V. Maximum Allotment of Incentive Options A-3
VI. Option Price and Payment A-3
VII. Use of Proceeds A-3
VIII. Term of Options and Limitations on the Right of Exercise A-4
IX. Exercise of Options A-4
X. Stock Appreciation Rights A-4
XI. Nontransferability of Options and Stock Appreciation Rights A-5
XII. Termination of Employment A-5
XIII. Adjustment of Shares; Effect of Certain Transactions A-7
XIV. Right to Terminate Employment A-8
XV. Purchase for Investment A-8
XVI. Issuance of Certificates; Legends; Payment of Expenses A-8
XVII. Withholding Taxes A-9
XVIII. Listing of Shares and Related Matters A-9
XIX. Amendment of the Plan A-9
XX. Termination or Suspension of the Plan A-9
XXI. Governing Law A-10
XXII. Partial Invalidity A-10
XXIII. Effective Date A-10
i
<PAGE> 4
UNITED JERSEY BANKS
1987 STOCK OPTION PLAN
I. PURPOSES
United Jersey Banks (the "Company") desires to afford certain of its
key employees and the key employees of any subsidiary corporation or parent
corporation of the Company now existing or hereafter formed or acquired who are
responsible for the continued growth of the Company an opportunity to acquire a
proprietary interest in the Company, and thus to create in such key employees an
increased interest in and a greater concern for the welfare of the Company.
The stock options ("Options") and stock appreciation rights ("Rights")
offered pursuant to this 1987 Stock Option Plan (the "Plan") are a matter of
separate inducement and are not in lieu of any salary or other compensation for
the services of any key employee.
The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions and to secure the services of persons capable
of filling such positions.
The Options granted under the Plan are intended to be either incentive
stock options ("Incentive Options") within the meaning of Section 422A of the
Internal Revenue Code of 1986 (the "Code"), or options that do not meet the
requirements for Incentive Options ("Non-Qualified Options"), but the Company
makes no warranty as to the qualification of any Option as an Incentive Option.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
The total number of shares of common stock of the Company which either
may be purchased pursuant to the exercise of Options granted under the Plan or
acquired pursuant to the exercise of Rights granted under the Plan shall not
exceed, in the aggregate, one million three hundred thousand (1,300,000) shares
of the authorized common stock, $1.20 par value per share, of the Company (the
"Shares"). Shares which are subject to Rights and related Options shall be
counted only once in determining whether the maximum number of Shares which may
be purchased or acquired under the Plan has been exceeded.
Shares which may be acquired under the Plan may be either authorized
but unissued Shares, Shares of issued stock held in the Company's treasury, or
both, at the discretion of the Company. If and to the extent that Options or
Rights granted under the Plan expire or terminate without having been exercised,
new Options or Rights may be granted with respect to the Shares covered by such
expired or terminated Options or Rights, provided that the grant and the terms
of such new Options or Rights shall in all respects comply with the provisions
of the Plan.
Except as provided in Article XXIII, the Company may, from time to time
during the period beginning February 18, 1987 (the "Effective Date") and ending
February 17, 1992 (the Termination Date"), grant to certain key employees of the
Company, or of any subsidiary corporation or parent corporation of the Company
now existing or hereafter formed or acquired, Options, Rights or both Options
and Rights, under the terms hereinafter set forth.
Provisions of the Plan which pertain to Options or Rights granted to an
employee shall apply to Options, Rights or a combination thereof.
As used in the Plan, the terms "subsidiary corporation" and "parent
corporation" shall mean, respectively, a corporation coming within the
definition of such terms contained in Sections 425(f) and 425(e) of the Code.
III. ADMINISTRATION
The board of directors of the Company (the "Board of Directors") shall
designate from among its members an option committee (the "Committee"), which
shall consist of no fewer than three members of the Board of Directors, each of
whom shall be a "disinterested person" within the meaning of Rule 16b-3 (or any
successor rule or regulation) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to administer the Plan. A majority of the
members of the Committee
A-1
<PAGE> 5
shall constitute a quorum, and the act of a majority of the members of the
Committee shall be the act of the Committee. Any member of the Committee may be
removed at any time either with or without cause by resolution adopted by the
Board of Directors, and any vacancy on the Committee may at any time be filled
by resolution adopted by the Board of Directors.
Any or all powers and functions of the Committee may at any time and
from time to time be exercised by the Board of Directors or the Executive
Committee thereof; provided, however, that, with respect to the participation in
the Plan by employees who are members of the Board of Directors or of the
Executive Committee, as the case may be, such powers and functions of the
Committee may be exercised by the Board of Directors or the Executive Committee
only if, at the time of such exercise, a majority of the members of the Board of
Directors or the Executive Committee, as the case may be, and a majority of the
directors acting in the particular matter, are "disinterested persons" within
the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated
under the Exchange Act.
Subject to the express provisions of the Plan, the Board of Directors
or the Committee, as the case may be, shall have authority, in its discretion,
to determine the employees to whom Options or Rights shall be granted, the time
when such Options or Rights shall be granted to employees, the number of Shares
which shall be subject to each Option or Right, the purchase price of each Share
which shall be subject to each Option or Right, the period(s) during which such
Options or Rights shall be exercisable (whether in whole or in part), and the
other terms and provisions thereof. In determining the employees to whom Options
or Rights shall be granted and the number of Shares for which Options or Rights
shall be granted to each employee, the Board of Directors or the Committee, as
the case may be, shall consider the length of service, the amount of earnings,
and the responsibilities and duties of such employee; provided, however, that no
employee shall be granted Incentive Options in any calendar year to purchase
shares of stock in the Company or in any subsidiary corporation or parent
corporation of the Company in excess of the maximum allotment prescribed in
Article V.
Subject to the express provisions of the Plan, the Board of Directors
or the Committee, as the case may be, also shall have authority to construe the
Plan and Options and Rights granted thereunder, to amend the Plan and Options
and Rights granted thereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective Options (which need not be identical) and Rights (which need not be
identical) and to make all other determinations necessary or advisable for
administering the Plan. The Board of Directors or the Committee, as the case may
be, also shall have the authority to require, in its discretion, as a condition
of the granting of any such Option or Right, that the employee agree (i) not to
sell or otherwise dispose of Shares acquired pursuant to the Option or Right for
a period of six (6) months following the date of acquisition of such Shares and
(ii) that in the event of termination of employment of such employee, other than
as a result of dismissal without cause, such employee will not, for a period to
be fixed at the time of the grant of the Option or Right, enter into any other
employment or participate directly or indirectly in any other business or
enterprise which is competitive with the business of the Company or any
subsidiary corporation or parent corporation of the Company, or enter into any
employment in which such employee will be called upon to utilize special
knowledge obtained through employment with the Company or any subsidiary
corporation or parent corporation thereof.
The determination of the Board of Directors or the Committee, as the
case may be, on matters referred to in this Article III shall be conclusive.
The Board of Directors or the Committee, as the case may be, may employ
such legal counsel, consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion received from any such
counsel or consultant and any computation received from any such consultant or
agent. Expenses incurred by the Board of Directors or the Committee in the
engagement of such counsel, consultant or agent shall be paid by the Company. No
member or former member of the Committee or of the Board of Directors shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option or Right granted hereunder.
IV. ELIGIBILITY
Options and Rights may be granted only to salaried key employees of the
Company or of any subsidiary corporation or parent corporation of the Company,
except members of the Committee and
A-2
<PAGE> 6
except as hereinafter provided, and shall not be granted to any officer or
director who is not also a salaried key employee. Any person who shall have
retired from the active employment by the Company, although such person shall
have entered into a consulting contract with the Company, shall not be eligible
to receive an Option or a Right.
An Incentive Option shall not be granted to any person who, at the time
such Option is granted, owns stock of the Company or any subsidiary corporation
or parent corporation of the Company possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
subsidiary corporation or parent corporation of the Company. In determining
stock ownership of an employee, the rules of Section 425(d) of the Code shall be
applied, and the Board of Directors or the Committee, as the case may be, may
rely on representations of fact made to it by the employee and believed by it to
be true.
V. MAXIMUM ALLOTMENT OF INCENTIVE OPTIONS
No employee shall be granted Incentive Options to purchase shares of
stock of the Company or of any subsidiary corporation or parent corporation of
the Company or any combination thereof, if the aggregate fair market value of
stock with respect to which Incentive Options are exercisable for the first time
by such employee during any calendar year (under all stock option plans of the
Company and any parent corporation or subsidiary corporation of the Company)
exceeds $100,000. For purposes of this limitation, the fair market value of
stock is determined as of the time the Option is granted. To the extent
permitted for purposes of Section 422A(b)(7) of the Code, the limitation set
forth in this Article V shall take into account only those Incentive Options
granted after December 31, 1986.
VI. OPTION PRICE AND PAYMENT
The price for each Share purchasable under any Option granted hereunder
shall be such amount as the Board of Directors or the Committee, as the case may
be, shall, in its best judgment, determine on the basis of facts and
circumstances to be not less than one hundred percent (100%) of the fair market
value per Share at the date the Option is granted.
If the Shares are listed on a national securities exchange in the
United States on the date any Option is granted, the fair market value per Share
shall be deemed to be the average of the high and low quotations at which such
Shares are sold on such national securities exchange on the date such Option is
granted. If the Shares are listed on a national securities exchange in the
United States on such date but the Shares are not traded on such date, or such
national securities exchange is not open for business on such date, the fair
market value per Share shall be determined as of the closest preceding date on
which such exchange shall have been open for business and the Shares were
traded. If the Shares are listed on more than one national securities exchange
in the United States on the date any such Option is granted, the Committee shall
determine which national securities exchange shall be used for the purpose of
determining the fair market value per Share.
For purposes of this Plan, the determination by the Board of Directors
or the Committee, as the case may be, of the fair market value of a Share shall
be conclusive.
Upon the exercise of an Option granted hereunder, the Company shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash; provided, however, that in lieu of
cash, the holder of an Option may, if and to the extent the terms of such Option
so provide and to the extent permitted by applicable law, exercise an Option in
whole or in part, by delivering to the Company shares of common stock of the
Company (in proper form for transfer and accompanied by all requisite stock
transfer tax stamps or cash in lieu thereof) owned by such holder having a fair
market value equal to the cash exercise price applicable to that portion of the
Option being exercised by the delivery of such Shares. The fair market value of
the stock so delivered shall be determined as of the date immediately preceding
the date on which the Option is exercised, or as may be required in order to
comply with or to conform to the requirements of any applicable laws or
regulations.
VII. USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to the Options granted
hereunder are to be added to the general funds of the Company and used for its
general corporate purposes as the Board of
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<PAGE> 7
Directors shall determine.
VIII. TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Unless the Board of Directors or the Committee, as the case may be,
shall determine otherwise (in which event the instrument evidencing the Option
granted hereunder shall so specify), any Incentive Option granted hereunder
shall be exercisable during a period of not more than ten (10) years from the
date of grant of such Option at such times and in such amounts as the Board of
Directors or the Committee shall determine at such date of grant.
Any Non-Qualified Option granted hereunder shall be exercisable at such
times, in such amounts and during such period or periods as the Board of
Directors or the Committee, as the case may be, shall determine at the date of
the grant of such Option.
The Board of Directors or the Committee shall have the right to
accelerate, in whole or in part, from time to time, conditionally or
unconditionally, rights to exercise any Option granted hereunder.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part. If any Option granted hereunder shall terminate prior to the Termination
Date, the Board of Directors or the Committee, as the case may be, shall have
the right to use the Shares as to which such Option shall not have been
exercised to grant one or more additional Options or Rights to any eligible
employee, but any such grant of an additional Option or Right shall be made
prior to the close of business on the Termination Date.
In no event shall an Option granted hereunder be exercised for a
fraction of a share.
IX. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the optionee as to
all or part of the Shares covered thereby by the giving of written notice of the
exercise thereof to the Corporate Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and specifying a business day not more than fifteen (15) days from the date such
notice is given, for the payment of the purchase price against delivery of the
Shares being purchased. Subject to the terms of Articles XV, XVII and XVIII, the
Company shall cause certificates for the Shares so purchased to be delivered to
the optionee at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise.
X. STOCK APPRECIATION RIGHTS
In the discretion of the Board of Directors or the Committee, as the
case may be, a Right may be granted (i) alone, (ii) simultaneously with the
grant of an Option (either Incentive or Non-Qualified) and in conjunction
therewith or in the alternative thereto or (iii) subsequent to the grant of a
Non-Qualified Option and in conjunction therewith or in the alternative thereto.
The exercise price of a Right granted alone shall be determined by the
Board of Directors or the Committee, as the case may be, but shall not be less
than one hundred percent (100%) of the fair market value of one Share on the
date of grant of such Right. A Right granted simultaneously with or subsequent
to the grant of an Option and in conjunction therewith or in the alternative
thereto shall have the same exercise price as the related Option, shall be
transferable only upon the same terms and conditions as the related Option, and
shall be exercisable only to the same extent as the related Option; provided,
however, that a Right, by its terms, shall be exercisable only when the fair
market value of the Shares subject to the Right and related Option exceeds the
exercise price thereof.
Upon exercise of a Right granted simultaneously with or subsequent to
an Option and in the alternative thereto, the number of Shares for which the
related Option shall be exercisable shall be reduced by the number of Shares for
which the Right shall have been exercised. The number of Shares for which a
Right shall be exercisable shall be reduced upon any exercise of a related
Option by the number of Shares for which such Option shall have been exercised.
Any Right shall be exercisable upon such additional terms and
conditions as may from time to time be prescribed by the Board of Directors or
the Committee, as the case may be.
A-4
<PAGE> 8
A Right shall entitle the holder upon exercise thereof to receive from
the Company, upon a written request filed with the Secretary of the Company at
its principal offices (the "Request"), a number of Shares (with or without
restrictions as to substantial risk of forfeiture and transferability, as
determined by the Board of Directors or the Committee, as the case maybe, in its
sole discretion), an amount of cash, or any combination of Shares and cash, as
specified in the Request (but subject to the approval of the Board of Directors
or the Committee, as the case may be, in its sole discretion, at any time up to
and including the time of payment, as to the making of any cash payment), having
an aggregate fair market value equal to the product of (i) the excess of the
fair market value, on the clay of such Request, of one Share over the exercise
price per Share specified in such Right or its related Option, multiplied by
(ii) the number of Shares for which such Right shall be exercised; provided,
however, that the aggregate value of cash and Shares which may be received by a
holder with respect to the Share upon exercise of a Right shall not exceed one
hundred percent (100%) of the exercise price per Share under such Right.
Any election by a holder of a Right to receive cash in full or partial
settlement of such Right, and any exercise of such Right for cash, may be made
only by a Request tiled with the Corporate Secretary of the Company during the
period beginning on the third business day following the date of release for
publication by the Company of quarterly or annual summary statements of earnings
and ending on the twelfth business day following such date. Within thirty (30)
days of the receipt by the Company of a Request to receive cash in full or
partial settlement of a Right or to exercise such Right for cash, the Board of
Directors or the Committee, as the case may be, shall, in its sole discretion,
either consent to or disapprove, in whole or in part, such Request. A Request to
receive cash in full or partial settlement of a Right or to exercise a Right for
cash may provide that, in the event the Board of Directors or the Committee, as
the case may be, shall disapprove such Request, such Request shall be deemed to
be an exercise of such Right for Shares.
If the Board of Directors or the Committee, as the case may be,
disapproves in whole or in part any election by a holder to receive cash in full
or partial settlement of a Right or to exercise such Right for cash, such
disapproval shall not affect such holder's right to exercise such Right at a
later date, to the extent that such Right shall be otherwise exercisable, or to
elect the form of payment at a later date, provided that an election to receive
cash upon such later exercise shall be subject to the approval of the Board of
Directors or the Committee, as the case may be. Additionally, such disapproval
shall not affect such holder's right to exercise any related Option or Options
granted to such holder under the Plan.
A holder of a Right shall not be entitled to request or receive cash in
full or partial payment of such Right, if such Right or the related Option shall
have been exercised during the first six (6) months of its respective term;
provided, however, that such prohibition shall not apply if the holder of such
Right dies or becomes disabled (within the meaning of Section 22(e)(3) of the
Code) prior to the expiration of such six-month period, or if such holder is not
a Director or officer of the Company or a beneficial owner of the Company who is
described in Section 16(a) of the Exchange Act.
A Right shall be deemed exercised on the last day of its term, if not
otherwise exercised by the holder thereof, provided that the fair market value
of the Shares subject to the Right exceeds the exercise price thereof on such
date.
XI. NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
Neither an Option nor a Right granted hereunder shall be transferable,
whether by operation of law or otherwise, other than by will or the laws of
descent and distribution, and any Option or Right granted hereunder shall be
exercisable, during the lifetime of the holder, only by such holder.
XII. TERMINATION OF EMPLOYMENT
Upon termination of employment of any employee with the Company and all
subsidiary corporations and parent corporations of the Company, any Option or
Right previously granted to the employee, unless otherwise specified by the
Board of Directors or the Committee, as the case may be, in the Option or Right,
shall, to the extent not theretofore exercised, terminate and become null and
void, provided that;
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<PAGE> 9
(a) if the employee shall die while in the employ of such
corporation or during either the three (3) month or one (1) year
period, whichever is applicable, specified in clause (b) below and at a
time when such employee was entitled to exercise an Option or Right as
herein provided, the legal representative of such employee, or such
person who acquired such Option or Right by bequest or inheritance or
by reason of the death of the employee, may, not later than one (1)
year from the date of death, exercise such Option or Right, to the
extent not theretofore exercised, in respect of any or all of such
number of Shares as specified by the Board of Directors or the
Committee, as the case may be, in such Option or Right; and
(b) if the employment of any employee to whom such Option or
related Right shall have been granted shall terminate by reason of the
employee's retirement (at such age or upon such conditions as shall be
specified by the Board of Directors or the Committee, as the case may
be), disability (as described in Section 22(e)(3) of the Code) or
dismissal by the employer other than for cause (as defined below), and
while such employee is entitled to exercise such Option or Right as
herein provided, such employee shall have the right to exercise such
Option or Right so granted, to the extent not theretofore exercised, in
respect of any or all of such number of Shares as specified by the
Board of Directors or the Committee, as the case may be, in such Option
or Right, at any time up to and including (i) three (3) months after
the date of such termination of employment in the case of termination
by reason of retirement or dismissal other than for cause and (ii) one
(1) year after the date of termination of employment in the case of
termination by reason of disability.
In no event, however, shall any person be entitled to exercise any
Option or Right after the expiration of the period of exercisability of such
Option or Right as specified therein.
If an employee voluntarily terminates his or her employment, or is
discharged for cause, any Option or Right granted hereunder shall, unless
otherwise specified by the Board of Directors or the Committee, as the case may
be, in the Option or Right, forthwith terminate with respect to any unexercised
portion thereof.
Notwithstanding any other provision of this Article XII, if the
employment of any employee with the Company and all subsidiary and parent
corporations of the Company is terminated, whether voluntarily or involuntarily,
within a one-year period following a change in control of the Company (as
defined in Article XIII) and while such employee is entitled to exercise an
Option or Right as herein provided, other than a termination of such employment
by the employer for cause, such employee shall have the right to exercise all or
any portion of such Option or Right at any time up to and including three (3)
months after the date of such termination of employment, at which time such
Option or Right shall cease to be exercisable.
If an Option or Right granted hereunder shall be exercised by the legal
representative of a deceased employee or former employee, or by a person who
acquired an Option or Right granted hereunder by bequest or inheritance or by
reason of the death of any employee or former employee, written notice of such
exercise shall be accompanied by a certified copy of letters testamentary or
equivalent proof of the right of such legal representative or other person to
exercise such Option or Right.
For the purposes of the Plan, the term "for cause" shall mean (i) with
respect to an employee who is a party to a written agreement with, or,
alternatively, participates in a compensation or benefit plan of the Company or
a subsidiary corporation or parent corporation of the Company, which agreement
or plan contains a definition of "for cause" or "cause" (or words of like
import) for purposes of termination of employment thereunder by the Company or
such subsidiary corporation or parent corporation of the Company, "for cause" or
"cause" as defined in the most recent of such agreements or plans, or (ii) in
all other cases, as determined by the Committee or the Board of Directors, in
its sole discretion, (a) the willful commission by an employee of a criminal or
other act that causes or will probably cause substantial economic damage to the
Company or a subsidiary corporation or parent corporation of the Company or
substantial injury to the business reputation of the Company or a subsidiary
corporation or parent corporation of the Company; (b) the commission by an
employee of an act of fraud in the performance of such employee's duties on
behalf of the Company or a subsidiary corporation or parent corporation of the
Company; (c) the continuing willful failure of an employee to perform the duties
of such employee to the Company or a subsidiary corporation or parent
corporation of the Company (other
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<PAGE> 10
than such failure resulting from the employee's incapacity due to physical or
mental illness) after written notice thereof (specifying the particulars thereof
in reasonable detail) and a reasonable opportunity to be heard and cure such
failure are given to the employee by the Board of Directors or the Committee; or
(d) the order of a federal or state bank regulatory agency or a court of
competent jurisdiction requiring the termination of the employee's employment.
For purposes of the Plan, no act, or failure to act, on the employee's part
shall be considered "willful" unless done or omitted to be done by the employee
not in good faith and without reasonable belief that the employee's action or
omission was in the best interest of the Company or a subsidiary corporation or
parent corporation of the Company.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an "employee" of such corporation for purposes
of Section 422A(a) of the Code. If an individual is on military, sick leave or
other bona fide leave of absence such individual shall be considered an
"employee" for purposes of the exercise of an Option or Right and shall be
entitled to exercise such Option or Right during such leave if the period of
such leave does not exceed 90 days, or, if longer, so long as the individual's
right to reemployment with the corporation granting the option (or a related
corporation) is guaranteed either by statute or by contract. If the period of
leave exceeds ninety (90) days, the employment relationship shall be deemed to
have terminated on the ninety-first (91) day of such leave, unless the
individual's right to reemployment is guaranteed by statute or contract.
A termination of employment shall not be deemed to occur by reason of
(i) the transfer of an employee from employment by the Company to employment by
a subsidiary corporation or a parent corporation of the Company or (ii) the
transfer of an employee from employment by a subsidiary corporation or a parent
corporation of the Company to employment by the Company or by another subsidiary
corporation or parent corporation of the Company.
XIII. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
In the event of any change in the outstanding Shares through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
split-up, split-off, spin-off, combination of shares, exchange of shares, or
other like change in capital structure of the Company, an adjustment shall be
made to each outstanding Option and Right such that each such Option and Right
shall thereafter be exercisable for such securities, cash and/or other property
as would have been received in respect of the Shares subject to such Option or
Right had such Option or Right been exercised in full immediately prior to such
change, and such an adjustment shall be made successively each time any such
change shall occur. The term "Shares" shall after any such change refer to the
securities, cash and/or property then receivable upon exercise of an Option or
Right. In addition, in the event of any such change, the Board of Directors or
the Committee, as the case may be, shall make any further adjustment as may be
appropriate to the maximum number of Shares subject to the Plan, the maximum
number of Shares for which Options or Rights may be granted to any one employee,
and the number of Shares and price per Share subject to outstanding Options or
Rights as shall be equitable to prevent dilution or enlargement of rights under
such Options or Rights, and the determination of the Board of Directors or the
Committee, as the case may be, as to these matters shall be conclusive.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Option and any related Right shall comply with the rules of Section
425(a) of the Code, and (ii) in no event shall any adjustment be made which
would render any Incentive Option granted hereunder other than an incentive
stock option for purposes of Section 422A of the Code.
In the event of a change in control of the Company, all then
outstanding Options and Rights shall immediately become exercisable. For
purposes of the Plan, a "change in control" of the Company occurs if; (a) any
"person" (defined as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act, as amended) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing thirty-three percent or
more of the combined voting power of the Company's outstanding securities then
entitled to vote for the election of directors; or (b) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors cease for any reason to constitute at least a majority
thereof; or (c) the Company shall become subject to the delisting of the Shares
by the New York Stock Exchange or any successor exchange in respect of the
number
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<PAGE> 11
of publicly-held Shares or the number of stockholders holding one hundred Shares
or more; or (d) the Board of Directors shall approve the sale of all or
substantially all of the assets of the Company; or (e) the Board of Directors
shall approve any merger, consolidation, issuance of securities or purchase of
assets, the result of which would be the occurrence of any event described in
clause (a), (b) or (c) above.
The Board or Directors or Committee, as the case may be, in its
discretion, may determine that, upon the occurrence of a transaction described
in the preceding paragraph, each Option or Right outstanding hereunder shall
terminate within a specified number of days after notice to the holder, and such
holder shall receive, with respect to each Share subject to such Option or
Right, cash in an amount equal to the excess of the fair market value of such
Share immediately prior to the occurrence of such transaction over the exercise
price per Share of such Option or Right. The provisions contained in the
preceding sentence shall be inapplicable to an Option or Right granted within
six (6) months before the occurrence of a transaction described above if the
holder of such Option or Right is a Director or officer of the Company or a
beneficial owner of the Company who is described in Section 16(a) of the
Exchange Act, unless such holder dies or becomes disabled (within the meaning of
Section 22(e)(3) of the Code) prior to the expiration of such six-month period.
XIV. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the employment
of any holder of an Option or Right; and it shall not impose any obligation on
the part of any holder of an Option or Right to remain in the employ of the
Company or of any subsidiary corporation or parent corporation thereof.
XV. PURCHASE FOR INVESTMENT
Except as hereafter provided, the holder of an Option or Right granted
hereunder shall, upon any exercise thereof, execute and deliver to the Company a
written statement, in form satisfactory to the Company, in which such holder
represents and warrants that such holder is purchasing or acquiring the Shares
acquired thereunder for such holder's own account, for investment only and not
with a view to the resale or distribution thereof, and agrees that any
subsequent offer for sale or sale or distribution of any of such Shares shall be
made only pursuant to either (a) a Registration Statement on an appropriate form
under the Securities Act of 1933, as amended (the "Securities Act"), which
Registration Statement has become effective and is current with regard to the
Shares being offered or sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption the holder
shall, prior to any offer for sale or sale of such Shares, obtain a prior
favorable written opinion, in form and substance satisfactory to the Company,
from counsel for or approved by the Company, as to the applicability of such
exemption thereto. The foregoing restriction shall not apply to (i) issuances by
the Company so long as the Shares being issued are registered under the
Securities Act and a prospectus in respect thereof is current or (ii)
reofferings of Shares by affiliates of the Company (as defined in Rule 405 or
any successor rule or regulation promulgated under the Securities Act) if the
Shares being reoffered are registered under the Securities Act and a prospectus
in respect thereof is current.
XVI. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Upon any exercise of an Option or Right which may be granted hereunder
and, in the case of an Option, payment of the purchase price, a certificate or
certificates for the Shares as to which the Option or Right has been exercised
shall be issued by the Company in the name of the person exercising the Option
or Right and shall be delivered to or upon the order of such person or persons.
The Company may endorse such legend or legends upon the certificates
for Shares issued upon exercise of an Option or Right granted hereunder and may
issue such "stop transfer" instructions to its transfer agent in respect of such
Shares as, in its discretion, it determines to be necessary or appropriate to
(i) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act, (ii) implement the provisions of the Plan
and any agreement between the Company and the optionee or grantee with respect
to such Shares, or (iii) permit the Company to determine the
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<PAGE> 12
occurrence of a disqualifying disposition, as described in Section 421(b) of the
Code, of Shares transferred upon exercise of an Incentive Option granted under
the Plan.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses necessarily
incurred by the Company in connection with such issuance or transfer, except
fees and expenses which may be necessitated by the filing or amending of a
Registration Statement under the Securities Act, which fees and expenses shall
be borne by the recipient of the Shares unless such Registration Statement has
been filed by the Company for its own corporate purposes (and the Company so
states) in which event the recipient of the Shares shall bear only such fees and
expenses as are attributable solely to the inclusion of the Shares he or she
receives in the Registration Statement.
All Shares issued as provided herein shall be fully paid and
non-assessable to the extent permitted by law.
XVII. WITHHOLDING TAXES
The Company may require an employee exercising a Right or a
Non-Qualified Option granted hereunder, or disposing of Shares acquired pursuant
to the exercise of an Incentive Option in a disqualifying disposition (within
the meaning of Section 421(b) of the Code), to reimburse the corporation that
employs such employee for any taxes required by any government to be withheld or
otherwise deducted and paid by such corporation in respect of the issuance or
disposition of Shares. In lieu thereof, the corporation that employs such
employee shall have the right to withhold the amount of such taxes from any
other sums due or to become due from such corporation to the employee upon such
terms and conditions as the Board of Directors or the Committee, as the case may
be, shall prescribe.
XVIII. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board of Directors shall determine in its discretion
that the listing, registration or qualification of the Shares covered by the
Plan upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares under the Plan, no Shares shall be issued unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board of Directors.
XIX. AMENDMENT OF THE PLAN
The Board of Directors may, from time to time, amend the Plan, provided
that no amendment shall be made, without the approval of the shareholders of the
Company, that will (i) increase the total number of Shares reserved for Options
under the Plan (other than an increase resulting from an adjustment provided for
in Article XIII), (ii) reduce the exercise price of any Incentive Option granted
hereunder below the price required by Article VI, (iii) modify the provisions of
the Plan relating to eligibility, or (iv) materially increase the benefits
accruing to participants under the Plan. The Board of Directors or the
Committee, as the case may be, shall be authorized to amend the Plan and the
Options granted thereunder to permit the Incentive Options granted thereunder to
qualify as incentive stock options within the meaning of Section 422A of the
Code. The rights and obligations under any Option or Right granted before
amendment of the Plan or any unexercised portion of such Option or Right shall
not be adversely affected by amendment of the Plan or the Option or Right
without the consent of the holder of the Option or Right.
XX. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors may at any time suspend or terminate the Plan.
The Plan, unless sooner terminated under Article XXIII or by action of the Board
of Directors, shall terminate at the close of business on the Termination Date.
An Option or Right may not be granted while the Plan is suspended or after it is
terminated. Rights and obligations under any Option or Right granted while the
Plan is
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in effect shall not be altered or impaired by suspension or termination of the
Plan, except upon the consent of the person to whom the Option or Right was
granted. The power of the Board of Directors or the Committee, as the case may
be, to construe and administer any Options or Rights granted prior to the
termination or suspension of the Plan under Article III nevertheless shall
continue after such termination or during such suspension.
XXI. GOVERNING LAW
The Plan, such Options and Rights as may be granted thereunder and all
related matters shall be governed by, and construed and enforced in accordance
with, the laws of the State of New Jersey from time to time obtaining.
XXII. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.
XXIII. EFFECTIVE DATE
The Plan shall become effective at 5:00 P.M., New York City time, on
the Effective Date, the date on which the Plan was adopted by the Board of
Directors; provided, however, that if the Plan is not approved by a vote of the
shareholders of the Company at an annual meeting or any special meeting or by
unanimous written consent within twelve (12) months before or after the
Effective Date, the Plan and any Options and Rights granted thereunder shall
terminate.
A-10
<PAGE> 1
SUMMIT BANCORP ANNUAL REPORT 1996
[PICTURE OF MONT BLANC]
SUMMIT: REACHING HIGHER
<PAGE> 2
SUMMIT BANCORP, A LEADING REGIONAL FINANCIAL SERVICES ORGANIZATION, IS
HEADQUARTERED IN PRINCETON, NEW JERSEY. WITH $23 BILLION IN ASSETS AND OVER $18
BILLION IN DEPOSITS, IT IS THE 31ST LARGEST BANK HOLDING COMPANY IN THE UNITED
STATES. SUMMIT'S EXTENSIVE NETWORK OF TRADITIONAL AND IN-STORE BRANCHES AND ATMS
SERVES CUSTOMERS THROUGHOUT NEW JERSEY AND EASTERN PENNSYLVANIA.
CONTENTS ...
FINANCIAL HIGHLIGHTS PAGE 1
LINES OF BUSINESS PAGE 2
CHAIRMAN'S MESSAGE PAGE 4
REACHING HIGHER SERVING BETTER PAGE 7
BOARD OF DIRECTORS PAGE 16
GLOSSARY OF TERMS PAGE 18
FINANCIAL REVIEW PAGE 19
CORPORATE DIRECTORY PAGE 55
SHAREHOLDER AND CORPORATE INFORMATION PAGE 57
ABOUT THE COVER:
IN THE FRENCH ALPS, MONT BLANC SOARS TO MAGNIFICENT HEIGHTS. SUMMIT BANCORP IS
ALSO "REACHING HIGHER" FOR OUR CUSTOMERS, OUR SHAREHOLDERS AND OUR EMPLOYEES.
<PAGE> 3
SUMMIT BANCORP AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
(Dollars in thousands, except per share data) 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31
Before non-recurring items(*)
Net income:
Dollars ............................................. $ 305,919 $ 242,870 26.0
Per common share .................................... 3.26 2.77 17.7
After non-recurring items(*)
Net income:
Dollars ............................................. 229,175 242,870 (5.6)
Per common share .................................... 2.44 2.77 (11.9)
Per common share:
Cash dividends declared ............................. 1.36 1.19 14.3
Book value .......................................... 20.51 19.89 3.1
Market value ........................................ 43.75 35.63 22.8
=================================================================================================================
BALANCE SHEET DATA AT DECEMBER 31
Total assets .......................................... $22,668,012 $21,536,935 5.3
Total deposits ........................................ 18,374,986 17,955,103 2.3
Demand deposits ..................................... 3,984,366 3,873,801 2.9
Savings and time deposits ........................... 13,779,803 13,373,864 3.0
Total loans ........................................... 14,819,595 14,019,574 5.7
Commercial .......................................... 5,266,665 5,321,047 (1.0)
Commercial mortgage ................................. 2,313,610 2,315,384 (.1)
Residential mortgage ................................ 3,795,752 3,296,818 15.1
Consumer ............................................ 3,443,568 3,086,325 11.6
Shareholders' equity .................................. 1,926,873 1,802,316 6.9
Allowance for loan losses ............................. 267,719 279,034 (4.1)
=================================================================================================================
CONSOLIDATED RATIOS
Before non-recurring items(*)
Return on average assets ............................ 1.38% 1.16% 19.0
Return on average common equity ..................... 16.61 14.82 12.1
After non-recurring items(*)
Return on average assets ............................ 1.03 1.16 (11.2)
Return on average common equity ..................... 12.41 14.82 (16.3)
Efficiency ratio ...................................... 53.39 57.55 (7.2)
Tier I capital to average assets (leverage) ........... 8.06 7.97 1.1
Tier I capital to risk-adjusted assets ................ 11.09 10.75 3.2
Total capital to risk-adjusted assets ................. 13.75 13.46 2.2
Allowance for loan losses to year-end loans ........... 1.81 1.99 (9.0)
Non-performing loans to year-end loans ................ .89 1.34 (33.6)
=================================================================================================================
</TABLE>
(*) Non-recurring items for 1996 include $70 million after tax, or $.75 per
common share, of merger-related restructuring charges and a supermarket
branch initiative charge, in addition to a $6.7 million after tax, or $.07
per common share, of a one-time Savings Association Insurance Fund
assessment.
NET INCOME PER SHARE BEFORE AND AFTER NON-RECURRING ITEMS
<TABLE>
<CAPTION>
YEAR BEFORE AFTER
- ---- ------ -----
<S> <C> <C>
1992 $1.13 $1.13
1993 1.61 1.57
1994 2.22 1.8
1995 2.77 2.77
1996 3.26 2.44
</TABLE>
ANNUAL INDICATED DIVIDEND
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1992 $0.60
1993 0.84
1994 1.04
1995 1.28
1996 1.44
</TABLE>
RETURN ON AVERAGE ASSETS BEFORE AND AFTER NON-RECURRING ITEMS(IN PERCENT)
<TABLE>
<CAPTION>
YEAR BEFORE AFTER
- ---- ------- -----
<S> <C> <C>
1992 0.48 0.48
1993 0.72 0.7
1994 0.94 0.76
1995 1.16 1.16
1996 1.38 1.03
</TABLE>
1
<PAGE> 4
LINES OF BUSINESS
COMMERCIAL BANKING
FOCUS
Provides a full array of commercial financial services including asset based
lending, international trade financing, foreign exchange, equipment financing,
leasing, term lending, commercial real estate financing, private placement,
mezzanine financing, aircraft financing, correspondent banking, treasury
services and structured finance
MARKET PENETRATION
- - N.J.'s largest commercial and industrial lender, serving 30,000 clients and
15 major industry groups
- - Recognized leader in providing financial services to middle market
companies
- - One of largest N.J. asset based lenders; offices in New York City,
Stamford, Conn., Philadelphia area
HIGHLIGHTS OF 1996
- - Significant growth in asset based lending portfolio to over $1 billion
- - Restructured business into distinct units to serve segmented markets
- - Business Banking Group formed to serve the 9,200 businesses in the region
with annual sales of $5-$15 million
- - Introduced Commercial Customer Service Center
KEY MARKET DATA
COMMERCIAL LOAN PORTFOLIO (IN PERCENT)
<TABLE>
<S> <C>
REAL ESTATE 36.5
MIDDLE MARKET 19.5
ASSET BASED 13.6
LARGE CORPORATIONS 7.2
LEASING 6.2
BUSINESS BANKING 5.1
HEALTH CARE 4.9
INTERNATIONAL 3.4
MEDIA 3.4
</TABLE>
REACHING HIGHER, LOOKING AHEAD
- - Pursue growth opportunities in lower middle market, asset based lending,
international trade services, health and medical, communications and media
- - Seek to maximize business potential in all areas through aggressive sales
and marketing programs
- - Build on asset based lending capability with Summit Commercial Corp.,
offering new financing opportunities
RETAIL BANKING
FOCUS
Delivers retail banking products and services to consumers and small businesses
through 335 traditional banking offices, 16 supermarket branches, a dozen
mini-branches and state-of-the-art telephone banking centers in N.J. and eastern
Pa.
MARKET PENETRATION
- - #1 deposit market share in N.J. and #5 in the 13 counties we serve in Pa.
- - More than 500 automated teller machines (ATMs) in N.J., N.Y. and Pa.
including 200 off-site
- - Largest N.J. issuer of Visa check cards to individuals and small
businesses; nearly one million debit cards outstanding
- - Largest merchant bankcard processor in N.J. and 43rd in the nation
HIGHLIGHTS OF 1996
- - Became major regional player in supermarket banking
- - First bank in N.J. and eastern Pa. to dispense U.S. postage stamps through
nearly 200 ATMs
- - Customer Call Center processed 12 million calls
- - Reduced turnaround time to one day for lower-end small business loans
KEY MARKET DATA
CUSTOMER CALL CENTER ANNUAL CALL VOLUME (CALLS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR
<S> <C>
1992 2.5
1993 3.2
1994 4.9
1995 6.5
1996 12.0
</TABLE>
REACHING HIGHER, LOOKING AHEAD
- - Capitalize on Managing Local Markets, a market-driven approach to sales
delivery
- - Expand role of alternative delivery systems such as ATMs, PC, telephone
banking and Customer Call Center
- - Introduce Summit PC Banking
- - Expand Customer Call Center to 24-hour live operation
- - Continue supermarket branch initiative; over 70 branches planned by end
1999
2
<PAGE> 5
LINES OF BUSINESS
TRUST & INVESTMENT SERVICES
FOCUS
Provides a full range of investment products and administrative and custodial
services, including discount brokerage, to individuals and institutions, and a
wide array of insurance products for the personal and corporate marketplace
MARKET PENETRATION
- - Assets totaling $1.6 billion in 15 Pillar Funds
- - Summit Discount Brokerage offices in 10 high-profile locations
- - Total trust assets under management of $23 billion and discretionary assets
of $7 billion
- - 60 licensed financial services advisors
HIGHLIGHTS OF 1996
- - Four-star rating awarded to five Pillar Funds by Morningstar; highest
five-star rating to Pillar Equity Value Fund
- - Enhanced cross-sell opportunities with retail branches and The Private Bank
- - Established network links between offices to improve online communications
KEY MARKET DATA
PILLAR FUNDS NET ASSET VALUE (IN BILLIONS)
<TABLE>
<CAPTION>
YEAR
<S> <C>
1992 $0.835
1993 1.100
1994 1.100
1995 1.400
1996 1.600
</TABLE>
REACHING HIGHER, LOOKING AHEAD
- - Opened new Summit Discount Brokerage office in N.Y.; additional offices
planned in N.J., Pa.
- - Create specialized investment products for niche markets; Special Needs
Trust for families of disabled, Trust Care for seniors
- - Introduce niche market - The Women's Financial Future at Summit Bank
- - Focus on baby boomers' retirement needs
PRIVATE BANKING
FOCUS
Offers customers a creative response to their financial needs including
borrowing, investments, insurance, retirement and estate planning
MARKET PENETRATION
- - Premier provider of products and services to lawyers and CPAs
- - Leading deposit escrow product for law firms and realtors
- - Growing market share among medical professionals
- - Niche strategy increasingly includes residential and investment real estate
financing
HIGHLIGHTS OF 1996
- - Opened private banking office in New York City to better serve N.J.
commuters and clients in N.Y. and Conn.
- - Expanded cross-sell and referral programs with other business lines to take
advantage of large high net worth market
- - Actively promoted "team" approach to managing private banking relationships
KEY MARKET DATA
[CHART OF PRIVATE BANKING-INCLUDES THE FOLLOWING AREAS
BUSINESS & PERSONAL LOANS
DEPOSIT PRODUCTS
JUMBO MORTGAGES
INVESTMENT SERVICES
INSURANCE
TRUST & ESTATE PLANNING]
REACHING HIGHER, LOOKING AHEAD
- - Open private banking and investment services office in Philadelphia area to
include discount brokerage
- - Increase market penetration by targeting younger audience and customers
with net worth of $1 million including real estate
- - Expand share of niche markets and create new ones; focus on women
- - Further expand business link with Trust and Investment Services
MORTGAGE BANKING
FOCUS
Provides a complete range of full-service mortgage banking activities, from
origination through servicing, to take customers from application to final
payoff
MARKET PENETRATION
- - Largest originator of residential mortgages in N.J. and a strong presence
in Pa. trade area
- - Residential servicing portfolio of $5 billion
- - Residential mortgage portfolio of $3.8 billion
HIGHLIGHTS OF 1996
- - Nearly $1 billion of new residential mortgage originations
- - Achieved increase of 15.1% in residential mortgage portfolio over prior
year
- - Integrated two of N.J.'s largest residential mortgage originators
KEY MARKET DATA
RESIDENTIAL MORTGAGE LOANS AT DECEMBER 31, (IN BILLIONS)
<TABLE>
<CAPTION>
YEAR
<S> <C>
1992 $2.0975
1993 2.1480
1994 2.8033
1995 3.2968
1996 3.7958
</TABLE>
REACHING HIGHER, LOOKING AHEAD
- - Achieve greater market penetration by utilizing strength of Summit
franchise
- - Implement cross-sell strategy for referrals from other lines of business
- - Build future income stream of servicing fees from originations
- - Pursue alternative delivery channels including direct marketing
- - Continue to streamline mortgage process to reach goal of 24-hour approval
3
<PAGE> 6
CHAIRMAN'S MESSAGE
[PICTURE: (LEFT) PRESIDENT ROBERT G. COX, (RIGHT) CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, T. JOSEPH SEMROD]
It is tempting to remember 1996 solely as the year we finalized the merger of
UJB Financial Corp and The Summit Bancorporation. We are proud of the synergy
produced by this union and the strength of our new $23 billion organization. Our
position will be further enhanced by our February 28, 1997 announcement of a
merger agreement with Collective Bancorp, Inc., a thrift holding company with
$5.5 billion in assets. Without question, the numerous acquisitions that we have
integrated over the past two years have strongly enhanced our ability to compete
going forward.
We are now the largest bank in New Jersey and the leader in deposit market
share. With the Collective merger, we will have 16.1 percent of the state's
deposits, and hold the number one market share in nine New Jersey counties.
Summit will then have relationships with 1.2 million of New Jersey's nearly
three million households. We continue to rank fifth in deposits in eastern
Pennsylvania where we serve 13 counties.
In 1996, a year of transition and merger integration, our financial
performance has been impressive with 26 percent growth in operating earnings
excluding non-recurring charges. The cost savings that we achieved through the
successful integration of our acquisitions combined with revenue growth resulted
in improvement in our key profitability measures. Return on assets for 1996 was
1.38 percent, and return on common equity rose to 16.61 percent. The efficiency
ratio, a measure of productivity, improved to 53.39 percent. We are also pleased
with the continued improvement in asset quality measures such as the decline in
non-performing loans to under one percent of loans.
4
<PAGE> 7
[CAPTION: WE ARE NOW THE LARGEST BANK IN NEW JERSEY AND THE LEADER IN DEPOSIT
MARKET SHARE.]
After increasing the dividend in December 1995, the Board of Directors
again raised the common stock dividend in August 1996 -- this time to $.36 per
common share. The annualized dividend is now $1.44, the highest in our 26 year
history.
Summit has achieved cost savings while maintaining revenue growth. Our five
lines of business have undertaken many new initiatives to be even more
responsive to customers. Our alternative delivery systems have been expanded to
better meet customer needs and also to lower our cost of doing business.
Over the past year, Summit has put the mechanisms in place to "reach
higher" and serve our customers better. At Summit, the customer is our first
priority. We have now rolled out our Managing Local Markets program throughout
our retail banking operation. This program studies customer preference and
profitability potential, and concentrates on local market information. It is our
belief that market segmentation, at the narrowest definition possible, is the
key to delivering the right products to the right customers through the right
delivery channels. Our challenges are to earn a larger share of our customers'
profit potential, effectively manage our expenses and simultaneously offer
quality customer service.
During 1996, we advanced our image as a regional market leader in the
in-store banking arena. Summit now has 16 supermarket branches in Pathmark, A&P
and ShopRite stores in New Jersey and eastern Pennsylvania. By the end of 1999,
we plan to have over 70. While in-store branches offer added convenience to our
customers, there is also a secondary benefit. The supermarket branches have a
much lower entry cost and significantly reduced annual operating expenses.
During the past year, we have initiated or completed six acquisitions that
have allowed us to strengthen our market share in attractive New Jersey
5
<PAGE> 8
[CAPTION: SUMMIT OFFERS THE VERSATILITY OF A LARGE REGIONAL BANK COMBINED WITH
THE SOUL OF A SMALL COMPANY.]
counties such as Middlesex, Burlington, Hunterdon, Ocean, and Atlantic. Summit
has a strong acquisition process. We are skilled in merger integration and cost
savings, which have averaged 50 percent within the first year through
consolidation of back office operations and branches.
Through our acquisition strategy, we have created a company that has the
products, services and marketing power of a large, regional financial services
organization, but the customer-focused approach of a community bank. In other
words, Summit offers the versatility of a large bank combined with the soul of a
small company.
At Summit, diversity is an organizational strategy tied directly to the
corporation's business strategy. Surely, the most successful companies in the
21st century will be those that welcome and reflect the changing face of society
and that respect the differences among their customers and staff. By actively
valuing diversity, we become a stronger, more competitive company that makes use
of all the talent and expertise available.
When UJB Financial merged with The Summit Bancorporation, former Summit
Chairman Thomas D. Sayles, Jr. joined our Board. Mr. Sayles will be retiring
this April, and we are grateful for his guidance. Long involved in New Jersey
banking, he has earned the highest respect from his industry peers.
At Summit Bancorp, we have recreated our internal structure from the ground
up. We will continue to challenge ourselves and our strategies to ensure that we
remain strong competitors in today's rapidly changing business environment. Our
lines of business -- wholesale, retail and mortgage banking as well as
investment management and private banking -- are "reaching higher" and looking
ahead to the challenges and opportunities in 1997. We thank you, our
shareholders, for your trust, and we remain committed to long-term earnings
growth and maximizing shareholder value.
/s/ T. Joseph Semrod /s/ Robert G. Cox
T. Joseph Semrod Robert G. Cox
Chairman and Chief Executive Officer President March 7, 1997
6
<PAGE> 9
[PICTURE: SUMMIT CUSTOMER ENTERING A BRANCH OF SUMMIT BANCORP]
1996 SUMMIT BANCORP
[CAPTION: At Summit, "Reaching Higher" is an important part of our corporate
culture and business focus. The following pages describe how our lines of
business -- commercial, retail, mortgage banking, investment management and
private banking -- are finding solutions for Summit customers.]
7
<PAGE> 10
[PICTURE PRODUCTS OF OUR COMMERCIAL CUSTOMERS]
[CAPTION: What has positioned Summit as the preeminent financial organization in
the commercial marketplace?]
8
<PAGE> 11
[PICTURE: MARYLOU BARREIRO, V.P. MIDDLE MARKET LENDING]
[CAPTION "As a commercial clients' relationship manager, I'm empowered to
specifically structure credit terms and rates based on my clients' growth
strategies and needs. I am especially enthused about serving clients in markets
such as Newark where I've found significant new business opportunities. The
gains here are endless. What really separates Summit from the competition is
that my clients can build relationships with Summit's very stable senior
management."]
/s/ MaryLou Barreiro,
MaryLou Barreiro,
Vice President
Middle Market Lending
Commercial Banking
Pictured: Summit's commercial loan portfolio is highly diverse and includes 15
major industry groups.
Summit is recognized in the marketplace as the largest commercial and industrial
lender headquartered in New Jersey. Our proactive, intense sales culture helps
our relationship managers find creative solutions to their commercial clients'
borrowing needs. Relationship managers coordinate with other lines of business
to ensure that their clients' needs are met with appropriate solutions. In
addition, Summit's senior management routinely meets with our commercial clients
to help devise innovative financial strategies.
We are the recognized New Jersey based provider of financial services to
middle market companies. New Jersey and eastern Pennsylvania boast over 14,000
middle market companies which provide growth and revitalization to our
marketplace.
One of our region's strengths is the diversity of small and mid-size
businesses. In fact, 90 percent of the companies in New Jersey have sales under
$15 million. This is Summit's fastest growing business segment, and our unique
orientation effectively targets this market. We've created a business banking
group just to focus on the 9,200 companies in New Jersey and eastern
Pennsylvania with sales between $5 million and $15 million.
Summit is one of the largest asset based bank lenders in the Northeast
with offices in New Jersey, New York City, the Philadelphia area and Stamford,
Connecticut. During 1996, asset based lending showed significant growth, and
loans now total over $1 billion.
To help us remain successful in an increasingly competitive environment,
asset based lending has been incorporated into a newly formed entity, Summit
Commercial Corp. (SCC). SCC will serve as the umbrella for all specialty lending
activity that takes place in this market including asset based lending,
structured finance, corporate aircraft lending, trade finance, Employee Stock
Ownership Plan lending, commercial finance and leasing. Our commercial clients
benefit because decisions can be made expeditiously, yet the borrower still
retains the benefits of working with a $23 billion regional institution.
Through our commercial real estate sector, we are able to provide a
variety of real estate related financing services. Examples include construction
project financing and commercial mortgages -- using varied structures and
pricing to meet any need.
Just as businesses in New Jersey are highly diverse, so is Summit's loan
portfolio. We have 15 major industry groups each with balances of over $50
million. They range from printing and publishing to wholesale machinery
equipment, advertising agencies to wholesale groceries, manufacturers of rubber
products to business credit services.
Growth opportunities in 1996 and into 1997 include the lower middle market
companies where we believe that our extensive branch system and streamlined
delivery process give us a competitive edge. Summit also remains strong in the
health-medical field where our portfolio is focused on relationships with
hospitals and medical practices. Likewise, Summit continues to see growth
prospects in communications where our commercial relationship managers are
seasoned professionals. Newspapers, radio and television rely upon us for their
financial needs, and even other banks look to our experience in this specialized
area.
9
<PAGE> 12
[PICTURE: DEBORAH PARKER STOUT, A V.P. BRANCH MANAGER]
[CAPTION "Through Managing Local Markets, I better understand my community. I
can identify the premiere customers that I want to retain and find potential
ones that may need additional services. I learn my customers' buying habits and
their banking needs. By targeting a specific group of consumers, I can
anticipate a greater success ratio and am able to track my results."]
/s/ Deborah Parker Stout,
Deborah Parker Stout,
Assistant Vice President
Branch Manager
Retail Banking
Pictured: By the end of 1999, Summit expects to have over 70 supermarket
branches in New Jersey and Pennsylvania.
As a regional leader in retail banking, we understand that distribution channels
must be aligned to customer needs. Traditional full-service banking offices have
become a less dominant form of service delivery. Therefore, we have reduced
their number from 381 to 335, and have expanded our alternative delivery
channels and in-store branches.
Summit has already established itself as a major player in supermarket
banking in our region. During 1997, we plan to open over 25 new locations, and
by the end of 1999 we expect to have over 70 supermarket branches in New Jersey
and Pennsylvania.
We have placed major emphasis on alternative delivery systems. Examples
include automated teller machines (ATMs), PC banking, express offices and
telephone banking. Currently, more than half of our transactions are performed
electronically or by telephone, which substantially lowers our costs.
Many of our 500 ATMs also dispense postage stamps; we were the first bank
in New Jersey and eastern Pennsylvania to offer this service. Of note, Summit is
one of the major banks in our region to offer free basic PC banking services to
customers. We view PC banking as a strategic channel in the delivery of services
in the years ahead because it gives customers a direct link to our bank from
their nearest computer.
One way that Summit remains cost effective yet provides top customer
service is with our Customer Call Center. By dialing 1-800-282-BANK, customers
can for free obtain information on account balances, see if a check has cleared,
transfer balances, make an application for a loan or open an account. We have
been able to improve answering time to within one minute. Early in the second
quarter of 1997, the Call Center will have operators taking calls 24 hours a
day, seven days a week.
A strategic initiative called Managing Local Markets (MLM) is now
operating throughout the Summit organization. It is a market driven approach to
sales and sales delivery which focuses on selling the right products to the
right customers through the right delivery channels. The program uses market
segmentation and recognizes the distinct demographic characteristics of 93
separate markets we serve in New Jersey and eastern Pennsylvania. Above all, MLM
makes Summit employees highly responsive to local community needs.
Summit community bankers are also very attuned to the needs of small
business customers with annual sales of up to $5 million. There are 450,000
small businesses operating in New Jersey and eastern Pennsylvania. During 1996,
we centralized our back office operations for small business which resulted in
one day approval for loan requests up to $35,000, and approval within three
business days for up to $100,000. We expect that this will further improve
during 1997.
Summit is a Small Business Administration preferred lender in both New
Jersey and Pennsylvania. We also specialize in community real estate loans which
offer very attractive terms and rates. By simplifying both documentation and
process, we have reduced customers' closing costs and improved approval time to
ten days.
10
<PAGE> 13
[PICTURE: SUMMIT SUPERMARKET BRANCH]
[CAPTION: WHAT MAKES SUMMIT A LEADER IN OFFERING PRODUCTS AND SERVICES THAT MEET
LOCAL CUSTOMER NEEDS?]
11
<PAGE> 14
[PICTURE: SUMMIT EMPLOYEES REVIEWING AN INVESTMENT REPORT]
[CAPTION: HOW HAS SUMMIT FURTHER ENHANCED SERVICE TO INVESTMENT MANAGEMENT,
TRUST AND PRIVATE BANKING CLIENTS?]
12
<PAGE> 15
[PICTURE: FERNANDO N. GARIP, V.P. REGIONAL MANAGER, INVESTMENT MANAGEMENT]
[CAPTION: "I now have a nationally competitive product to offer my clients and
can provide the highest level of client service. In fact, customers can speak
directly to portfolio managers responsible for their fund who are also part of
the community where the customer lives or works. Our technology, combined with
our local and regional presence, gives Summit a clear advantage over the
competition."]
/s/ Fernando N. Garip
Fernando N. Garip,
Vice President
Regional Manager
Investment Management
Pictured: (from left) William C. Gascoigne, vice president, and Thomas H.
Loester, vice president, from Private Banking confer on the best solutions for a
client with Beverly A. Ebanks, vice president, and Peter T. Lillard, vice
president, from Investment Management.
One of the major strengths of the merger of UJB Financial and The Summit
Bancorporation was the synergy created in investment services and private
banking. UJB already had strong trust and investment management relationships
with institutions and middle market companies, while Summit's strength was
individual investment and trust clients.
In private banking today, Summit is the bank of choice in the
professionals market with lawyers, accountants and their firms. We also have the
leading deposit escrow product for law firms and realtors.
In investment services, Summit Bancorp has a broad product line with 15
proprietary mutual funds. When national ratings were last issued, five Pillar
Funds received a four star rating from Morningstar, a mutual fund analytical
service. Our Equity Value Fund received the highest rating -- five stars. As of
February 1997, these funds totaled over $2 billion, and we are focusing on
additional growth in 1997.
Many of our customers have expressed their pleasure in dealing with a
home-based institution whose investment decision making takes place in regional
offices in New Jersey and eastern Pennsylvania. The advanced technology that we
have implemented over the past year has benefited investment and economic
analysis.
In addition to traditional trust and estate services, Summit is now also
offering Special Needs Trusts for handicapped and disabled persons, as well as
Trust Care for seniors who need additional services.
In January 1997, Summit Discount Brokerage opened its first New York
office in New City, Rockland County, adjacent to Bergen County, one of our
strongest markets. This venture marks our tenth discount brokerage office. We
anticipate opening three additional offices in New Jersey and one in
Pennsylvania during 1997 to meet the needs of our expanding customer base.
Summit's private bankers offer customers a timely and creative response to
their financial needs including borrowing, investments, insurance, retirement
and estate planning. The resources of our larger organization enable us to
provide quality customer service, even as we have remained a relationship driven
private bank.
In 1996, Summit opened a private banking office in New York City to
accommodate New Jersey residents who work in the city, as well as individuals
and professionals from Connecticut and New York. We anticipate opening a private
banking and investment services office in the Philadelphia area which would
include a discount brokerage operation.
Our 1997 efforts will include programs specifically tailored for women,
including entrepreneurs, corporate executives, and other professional high net
worth, high income individuals -- including women with such potential. We are
also focusing on "baby boomers" whose needs typically include 401(k)s or estate
planning. Summit is also ready to handle their credit needs for college tuition,
a vacation home or an investment.
13
<PAGE> 16
[PICTURE: JAMES G. NAPODA, V.P. PRIVATE BANKING]
[CAPTION: "As a private banker, I can structure a credit facility
custom-tailored to my client's unique circumstances. Summit's management
supports all my efforts on behalf of my clients, and that's why I can't think of
a better place to work. As a four time New York City Marathon runner, I like to
think that I go the extra mile -- or 26 -- for my customers."
/s/ James G. Napoda
James G. Napoda,
Vice President
Private Banking
Pictured: Summit serves a very diverse customer base from young couples to
retirees, lawyers to women entrepreneurs.
Success in banking means constantly expanding your customer base through
acquisitions and internal growth. Summit Bancorp has achieved its premier
franchise through deliberately planned internal and external growth. On February
28, 1997, we announced the acquisition of Collective Bancorp, Inc., a thrift
holding company with $5.5 billion in assets and branches throughout 15 counties
in New Jersey. We are one of the most active acquirers in our region. However,
at Summit we realize that cost savings are only one component of a successful
acquisition. Customer retention is crucial. Great effort is placed on retaining
and expanding relationships with customers of acquired organizations.
Summit's ten acquisitions completed or announced in the past few years
have helped us to garner relationships with 40 percent of New Jersey's nearly
three million households. When all of these are completed, we will command one
of the top three market shares in 16 of New Jersey's 21 counties -- we'll be
number one in nine counties. Our expanded customer base has allowed us to serve
our region's diverse cultures.
SUMMIT'S ESTIMATED
HOUSEHOLD GROWTH FROM ACQUISITIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Household base before recent acquisitions ........................... 720,400
July 1994 VSB Bancorp, Inc. ........................... 14,000
September 1994 Palisade Savings Bank, FSB .................. 14,000
July 1995 Bancorp New Jersey, Inc. .................... 18,000
February 1996 The Flemington National Bank
and Trust Company ...................... 15,600
March 1996 The Summit Bancorporation ................... 250,000
(includes Garden State Bancshares, Inc.
and Crestmont Financial Corp.)
December 1996 Central Jersey Financial Corporation ........ 23,000
March 1997 B.M.J. Financial Corp. ...................... 45,000
February 1997 Collective Bancorp, Inc. .................... 213,000
(announced)
- ---------------------------------------------------------------------------------------
1.3 MILLION HOUSEHOLDS
=======================================================================================
</TABLE>
Acquisitions we pursue must support our line of business strategies in
commercial, retail and mortgage banking as well as investment management and
private banking. Cross-selling is Summit's culture, and for us success means
focusing our efforts on intelligent cross-selling of products and services.
Customer relationships must be fostered. By learning more about our customers,
we can ensure that we are serving all their financial needs. Our people are
consistently challenged to find creative solutions for their customers. Growth
also comes from focusing on the continued development of niche markets, and this
remains a key part of Summit's strategy.
14
<PAGE> 17
[PICTURE: SUMMIT EMPLOYEES]
[CAPTION: WHAT IS SUMMIT'S CUSTOMER GROWTH STRATEGY?]
15
<PAGE> 18
[PICTURE: THE BOARD OF DIRECTORS]
ROBERT G. COX
ELINOR J. FERDON
T. JOSEPH SEMROD
T.J. DERMOT DUNPHY
GEORGE L. MILES, JR., CPA
HENRY S. PATTERSON II
JAMES C. BRADY, JR.
S. RODGERS BENJAMIN
ANNE EVANS ESTABROOK
JOSEPH M. TABAK
DOUGLAS G. WATSON
JOHN R. HOWELL
ORIN R. SMITH
RAYMOND SILVERSTEIN, CPA
FRED G. HARVEY
FRANCIS J. MERTZ
ROBERT L. BOYLE
THOMAS D. SAYLES, JR.
JOHN G. COLLINS
16
<PAGE> 19
[PICTURE: THE BOARD OF DIRECTORS]
1. ROBERT G. COX
2. ELINOR J. FERDON
3. T. JOSEPH SEMROD
4. T.J. DERMOT DUNPHY
5. GEORGE L. MILES, JR., CPA
6. HENRY S. PATTERSON II
7. JAMES C. BRADY, JR.
8. S. RODGERS BENJAMIN
9. ANNE EVANS ESTABROOK
10. JOSEPH M. TABAK
11. DOUGLAS G. WATSON
12. JOHN R. HOWELL
13. ORIN R. SMITH
14. RAYMOND SILVERSTEIN, CPA
15. FRED G. HARVEY
16. FRANCIS J. MERTZ
17. ROBERT L. BOYLE
18. THOMAS D. SAYLES, JR.
19. JOHN G. COLLINS
BOARD OF DIRECTORS
SUMMIT BANCORP
S. RODGERS BENJAMIN
Chairman and CEO Flemington Fur Company. Director since 1996. Former Director
The Summit Bancorporation. Member Audit, Capital and Dividend Committees.
ROBERT L. BOYLE
Representative William H. Hintelmann Firm. Director since 1986. Publisher
Emeritus of The Dispatch. Director Summit Bank. Member Executive, Compensation,
Audit, Acquisition Committees.
JAMES C. BRADY, JR.
Partner Mill House Associates, L.P. Director since 1996. Former Director The
Summit Bancorporation. Director Summit Bank. Member Executive, Compensation,
Capital and Dividend Committees.
JOHN G. COLLINS
Vice Chairman Summit Bancorp. Director since 1986. Vice Chairman and Director
Summit Bank. Member Capital and Dividend Committee.
ROBERT G. COX
President Summit Bancorp. Director since 1996. Former President, CEO and
Director The Summit Bancorporation. President and Director Summit Bank. Member
Executive and Acquisition Committees.
T.J. DERMOT DUNPHY
Chairman and CEO Sealed Air Corporation. Director since 1984. Director Summit
Bank. Chair of Executive and Compensation Committees. Member Acquisition and
Nominating Committees.
ANNE EVANS ESTABROOK
Owner Elberon Development Co. Director since 1994. Director Summit Bank. Member
Executive, Compensation, Nominating, Capital and Dividend Committees.
ELINOR J. FERDON
Volunteer Professional and National President Girl Scouts of U.S.A. Director
since 1984. Director Summit Bank. Chair of Audit Committee. Member Executive,
Compensation, Capital and Dividend Committees.
FRED G. HARVEY
Vice President E&E Corporation. Director since 1988. Director Summit Bank,
Pennsylvania. Chair of Capital and Dividend Committee. Member Audit and
Nominating Committees.
JOHN R. HOWELL
Vice Chairman Summit Bancorp. Director since 1988. Chairman and CEO First Valley
Corporation. Chairman, President, CEO and Director Summit Bank, Pennsylvania.
Member Acquisition Committee.
FRANCIS J. MERTZ
President Fairleigh Dickinson University. Director since 1986. Director Summit
Bank. Member Executive, Compensation, Audit, Capital and Dividend Committees.
GEORGE L. MILES, JR., CPA
President and CEO WQED Pittsburgh. Director since 1994. Director Summit Bank.
Member Audit, Acquisition, Nominating Committees.
HENRY S. PATTERSON II
President E'town Corporation. Director since 1971. Director Summit Bank. Member
Executive, Compensation, Audit, Acquisition, Capital and Dividend Committees.
THOMAS D. SAYLES, JR.
Former Chairman and Director The Summit Bancorporation. Director since 1996.
Member Capital and Dividend Committee.
T. JOSEPH SEMROD
Chairman and CEO Summit Bancorp. Director since 1981. Chairman, CEO and Director
Summit Bank. Member Executive Committee.
RAYMOND SILVERSTEIN, CPA
Consultant Alloy, Silverstein, Shapiro, Adams, Mulford & Co., P.C. Director
since 1991. Director Summit Bank. Chair of Nominating Committee. Member
Acquisition, Capital and Dividend Committees.
ORIN R. SMITH
Chairman and CEO Engelhard Corporation. Director since 1996. Former Director The
Summit Bancorporation. Director Summit Bank. Member Executive, Compensation,
Acquisition Committees.
JOSEPH M. TABAK
President and CEO JPC Enterprises, Inc. Director since 1987. Director Summit
Bank. Chair of Acquisition Committee. Member Executive, Compensation, Nominating
Committees.
DOUGLAS G. WATSON
President and CEO Novartis Corporation. Director since 1996. Former Director The
Summit Bancorporation. Member Audit and Nominating Committees.
17
<PAGE> 20
GLOSSARY OF TERMS
[PICTURE: LEDGER BOOK AND ABACUS]
BASIS POINT: A unit of measure for interest yields and rates equivalent to one
one-hundredth of one percent. One hundred basis points equals one percent.
BOOK VALUE: The value of a share of common stock determined by dividing total
common shareholders' equity at the end of a period by the total number of common
shares outstanding.
DIVIDEND PAYOUT RATIO: Dividends per common share divided by net income per
common share.
EFFICIENCY RATIO: Non-interest expenses (excluding other real estate owned
expenses and non-recurring items) divided by taxable-equivalent net interest
income plus non-interest income (excluding net securities gains/losses).
INTEREST-SENSITIVITY GAP: The amount by which interest-rate sensitive assets
exceed interest-rate sensitive liabilities, and vice versa, for a designated
time period.
LEVERAGE RATIO: Tier I capital divided by the most recent quarterly total
average assets less goodwill and other disallowed intangibles.
NET CHARGE OFFS: The amount of loans written off as uncollectible net of any
recoveries on loans previously written off as uncollectible.
NET INCOME PER SHARE: Net income, less dividends on preferred stock, divided by
the average number of common shares outstanding during the period.
NET INTEREST INCOME: The difference between total interest income and total
interest expense.
NET INTEREST MARGIN: A measurement of net return on interest-earning assets. It
is computed by dividing net interest income (tax-equivalent basis) by average
interest-earning assets.
NET INTEREST SPREAD: The difference between the yield on interest-earning assets
(tax-equivalent basis) and the rate paid on interest-bearing liabilities.
NON-PERFORMING LOANS: Loans on which interest accruals have been discontinued
due to the borrower's financial difficulties.
NON-RECURRING ITEMS: Income or charges that are not in the ordinary course of
business. Non-recurring items generally include the cumulative effect of a
change in accounting principle, restructuring charges and gains or losses on the
sale of acquired assets.
POOLING OF INTERESTS: An accounting method that restates historical financial
information of the surviving company in a merger as if the two entities were
always one.
PURCHASE ACCOUNTING: An accounting method that adds the fair market value of
assets and liabilities acquired to those of the acquiror at the time of
acquisition. Historical financial information of the acquiror is not restated.
RETURN ON AVERAGE ASSETS: A measure of profitability that indicates how
effectively an institution utilized its assets. It is calculated by dividing net
income by total average assets.
RETURN ON AVERAGE COMMON EQUITY: A measure of profitability that indicates
what an institution earned on its shareholders' investment. It is calculated by
dividing net income less preferred stock dividends by total average common
shareholders' equity.
TAX-EQUIVALENT INCOME: Tax-exempt interest income which, for comparative
purposes, has been increased by an amount equivalent to the Federal income taxes
which would have been paid if this income were fully taxable at the Federal
statutory rate.
TIER I CAPITAL: Primarily consists of common shareholders' equity, qualifying
preferred stock less goodwill and other disallowed intangibles.
TIER II CAPITAL: Consists of qualifying subordinated debt instruments and a
limited amount of the allowance for loan losses.
TOTAL CAPITAL: The total of Tier I capital and Tier II capital.
TREASURY STOCK: Common stock purchased and held by the issuing corporation to be
reissued for corporate purposes.
18
<PAGE> 21
Summit Bancorp and Subsidiaries
FINANCIAL REVIEW
BASIS OF PRESENTATION
================================================================================
On March 1, 1996, Summit Bancorp emerged from UJB Financial's acquisition of The
Summit Bancorporation. The acquisition was accounted for as a pooling of
interests and, therefore, all financial information includes the combined
balances and results of operations for both entities.
The Financial Review should be read in conjunction with the Consolidated
Comparative Average Balance Sheets on pages 30 and 31, the Consolidated
Financial Statements and Notes beginning on page 32, and the Consolidated
Summary of Selected Financial Data on pages 52 and 53.
Several acquisitions were completed by Summit Bancorp during 1996, which
increased its presence in the markets it serves and supported balance sheet
growth strategies. Since July 1995, the company completed four acquisitions that
affect comparisons to prior year financial information. The purchase acquisition
of Bancorp New Jersey, Inc. (Bancorp) was completed on July 11, 1995. The first
quarter acquisitions of Garden State Bancshares, Inc. (Garden State) and The
Flemington National Bank and Trust Company (Flemington) have been reflected in
the financial statements from January 1, 1996. The purchase acquisition of
Central Jersey Financial Corporation (Central Jersey) was completed on December
7, 1996.
SUMMARY OF PERFORMANCE
================================================================================
For the year ended December 31, 1996, Summit Bancorp's net income was $229.2
million compared to $242.9 million earned in 1995, a decrease of 5.6%. On a per
common share basis, net income decreased 11.9% to $2.44, compared to $2.77 the
prior year.
Net income for 1996 included non-recurring items of $110.7 million of
restructuring charges and a one-time special assessment of $11.1 million.
Restructuring charges were recorded for the acquisitions of The Summit
Bancorporation, Flemington and Garden State and a supermarket branch initiative.
The one-time special assessment was recorded in conjunction with legislation
passed to recapitalize the Savings Association Insurance Fund (SAIF).
For the year ended December 31, 1996, Summit Bancorp's operating earnings,
before the non-recurring items, were $305.9 million compared to $242.9 million
earned in 1995, an increase of 26.0%. On a per common share basis, operating
earnings increased 17.7% to $3.26 compared to $2.77 the prior year.
Summit Bancorp's performance for 1996 was highlighted by the successful
integration of the acquisitions, realization of merger cost savings, and an
improvement in asset quality ratios. These factors contributed to increases in
key profitability measures. Before non-recurring items, return on average assets
improved to 1.38% compared to 1.16% the previous year, and return on common
equity rose to 16.61% versus 14.82% for 1995. Based on net income as reported,
return on average assets and return on common equity for 1996 were 1.03% and
12.41%, respectively. In addition, the efficiency ratio improved to 53.39% for
1996 from 57.55% in 1995.
The following chart illustrates the growth in net income before non-recurring
items for the past five years.
Net Income, Before and After Non-recurring Items (in millions)
YEAR BEFORE AFTER
---- ------ -----
1992 $90.28 $90.28
1993 136.72 133.14
1994 190.18 154.55
1995 242.87 242.87
1996 305.92 229.18
As a result of the company's internal and external growth strategies, earnings
were enhanced with acquired and core loan growth. Average total loans increased
$1.2 billion or 9.0% during 1996, with the residential mortgage and consumer
loan portfolios contributing $999.1 million of this increase. Net interest
income rose $42.3 million, or 4.9%, benefiting from loan growth, as well as an
increased level of non-interest bearing deposits.
In addition to the rise in net interest income, operating earnings benefited
from higher non-interest income and lower non-interest expenses compared to the
prior year. Non-interest income, including securities gains, rose $23.3 million
or 10.4% to $247.5 million as a result of increased fee-based income on loans
and deposits. Non-interest expenses, before non-recurring items, declined $16.2
million to $626.2 million as a result of merger savings and lower deposit
insurance premiums.
Continued improvement in asset quality ratios was evidenced by declines in
non-performing loans and other real estate owned (OREO). During 1996,
non-performing loans were reduced by $56.4 million, or 29.9%, to $132.1 million.
Non-performing loans as a percentage of total loans declined to .89% at year-end
1996 from 1.34% at the prior year end. As a result of this improvement, the
provision for loan losses was reduced to $62.0 million, a decline of $9.9
million, or 13.7%.
19
<PAGE> 22
FINANCIAL CONDITION
================================================================================
INTEREST-EARNING ASSETS AND INTEREST-BEARING
LIABILITIES:
Average interest-earning assets totaled $20.5 billion in 1996, an increase of
$1.2 billion, or 6.2%, compared to 1995, reflecting an increase in loans due to
strategic acquisitions and modest growth in securities. Average total loans
increased $1.2 billion, or 9.0%, to average $14.6 billion.
Average interest-bearing liabilities totaled $16.2 billion in 1996, an increase
of $729.8 million, or 4.7%, compared to 1995. This increase was primarily
attributable to growth in interest-bearing deposits of $617.0 million, due
primarily to acquisitions, and a $191.7 million increase in other borrowed
funds.
The average tax-equivalent yield on total interest-earning assets amounted to
7.64%, a decrease of 21 basis points from 7.85% earned in 1995. This decline can
be attributed to declining interest rates during the year and the competitive
loan pricing environment. The average prime rate declined approximately 56 basis
points to 8.27% in 1996 compared to 8.83% in 1995.
The average cost of interest-bearing liabilities was 3.94% for 1996, an 11 basis
point decrease from the 4.05% paid in 1995. Net interest spread was 3.70% for
1996 compared to 3.80% in 1995, a decline of 10 basis points. This decrease
resulted as yields earned on interest-earning assets declined faster than the
rates paid on interest-bearing liabilities, reflecting an increasingly
competitive market for deposits.
SECURITIES:
Securities available for sale may be sold in response to changing market and
interest rate conditions. These securities are reported at fair value with
unrealized gains and losses, net of tax, included as a separate component of
shareholders' equity. Securities available for sale averaged $2.5 billion during
1996 compared to $1.0 billion in 1995, an increase of $1.5 billion.
The average balance for 1996 increased significantly from 1995 as a result of
the one-time reclassification of $1.7 billion of securities held to maturity to
securities available for sale at December 31, 1995. In November 1995, the
Financial Accounting Standards Board (FASB) issued a special report on the
implementation of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and
permitted a one-time reclassification of securities as of a single measurement
date between November 15, 1995, and December 31, 1995. This transfer was made
based upon Summit Bancorp's reevaluation of its securities portfolios as a
result of the special report.
The available-for-sale portfolio consists primarily of U.S. Government and
Federal agency securities and other securities, primarily corporate
collateralized mortgage obligations (CMOs). During 1996, U.S. Government and
Federal agency securities averaged $2.0 billion compared with $738.0 million in
1995. Other securities averaged $487.4 million during 1996 compared with $247.0
million in the prior year.
In 1996, $135.6 million of securities available for sale were sold for a net
gain of $4.2 million and maturities for the period amounted to $486.0 million.
At December 31, 1996, there were net unrealized gains of $10.2 million on
securities available for sale compared to $11.3 million at December 31, 1995.
At December 31, 1996, the average estimated life of securities available for
sale, adjusted for historical prepayment patterns on mortgage-backed securities,
was 3 years. The average yield on this portfolio decreased 37 basis points to
6.22% in 1996 compared to 6.59% in 1995.
Securities held to maturity are carried at amortized historical cost and consist
of those securities for which there is a positive intent and ability to hold to
maturity. Securities held to maturity averaged $3.3 billion during 1996, a
decline of $1.4 billion, or 29.6%, from the 1995 average of $4.7 billion. This
decline was primarily due to the one-time reclassification of $1.7 billion of
securities to securities available for sale. At December 31, 1996, securities
held to maturity totaled $3.2 billion, an increase of $170.3 million, or 5.6%,
from the $3.0 billion at year-end 1995.
The portfolio consists primarily of U.S. Government and Federal agency
securities, which averaged $1.6 billion, and other securities, principally
corporate CMOs, which averaged $1.4 billion. The average estimated life of
securities held to maturity, adjusted for historical prepayment patterns on
mortgage-backed securities, was 3 years and 3 months at December 31, 1996. The
average yield on this portfolio declined 4 basis points during 1996 to 6.34%
compared to 6.38% in 1995.
20
<PAGE> 23
LOANS:
================================================================================
The following chart illustrates the growth in average total loans for the past
five years.
Total Average Loans (in billions)
YEAR
----
1992 $12.0439
1993 11.8895
1994 12.3876
1995 13.4165
1996 14.6213
Total loans averaged $14.6 billion during 1996, an increase of $1.2 billion, or
9.0%, compared to an average of $13.4 billion in 1995. This increase is
primarily due to residential mortgage loans which grew $586.7 million and
consumer loans which rose $412.4 million. The average yield on the total loan
portfolio was 8.19% in 1996 compared to 8.48% in 1995, a decline of 29 basis
points, reflecting the lower interest rate and competitive loan pricing
environment.
The commercial loan portfolio, which consists primarily of commercial and
industrial (C & I) loans and construction and development loans, grew $45.4
million, or 0.9%, to average $5.3 billion for 1996. However, at December 31,
1996, commercial loans declined $54.4 million, or 1.0%, from the prior year end,
resulting from several paydowns on large corporate credits during the fourth
quarter. The average yield on the portfolio declined 42 basis points to 8.33% in
1996 from 8.75% the prior year.
C & I loans totaled $4.8 billion at December 31, 1996, an increase of $44.0
million, or 0.9%, over 1995. This portfolio continued to mirror the business
diversification of the region, with no industry concentrations greater than 10%
of total C & I loans. Construction and development loans amounted to $471.4
million at December 31, 1996, a decline of $98.4 million, or 17.3%, compared to
1995. As the table below reports, construction and development loans have
declined 57.6% over the last four years, resulting from managed reductions in
the portfolio and transfers to permanent financing.
Commercial mortgage loans averaged $2.4 billion for 1996, an increase of $160.3
million, or 7.2%, from 1995. At December 31, 1996, commercial mortgage loans
totaled $2.3 billion. The average yield on commercial mortgage loans was 8.71%
for 1996 compared to 8.97% for 1995, a decrease of 26 basis points.
Residential mortgage loans averaged $3.6 billion, up $586.7 million, or 19.4%,
from 1995. Most of the growth occurred in adjustable-rate loans, which are
generally originated and retained in the portfolio. In addition, approximately
$223.9 million of the increase in residential mortgage loans were from the
acquisitions of Garden State, Flemington and Central Jersey.
Mortgage loan originations totaled $911.9 million in 1996, compared to $912.7
million in 1995. Sales of loans in the secondary market, generally fixed-rate
loans, were $373.9 million in 1996 compared to $124.8 million in 1995.
Residential mortgage loans held for sale totaled $49.4 million at December 31,
1996, versus $68.8 million at year-end 1995. The average yield on residential
mortgage loans was 7.41% for 1996 compared to 7.40% for 1995.
Consumer loans averaged $3.3 billion for the year, an increase of $412.4
million, or 14.3%, from 1995. The growth in this portfolio occurred primarily in
home equity loans. Home equity loans grew $257.7 million, or 13.5%, to total
$2.2 billion at year-end 1996. These loans increased primarily as a result of
successful promotions to attract retail customers at competitive rates.
Automobile loans totaled $893.7 million as of December 31, 1996, an increase of
$67.4 million, or 8.2%, over year-end 1995 and represented growth in both direct
lending and leasing activity. The credit card portfolio, initiated in late 1995,
grew $15.4 million during 1996, totaling $18.7 million at year end. The average
yield on the consumer loan portfolio was 8.43%, a decrease of 30 basis points
from the 8.73% earned in 1995.
The following table presents the classification of the loan portfolio by major
category at December 31 for each of the past five years. Total loans have grown
$2.8 billion or 23.8% since December 31, 1992, primarily in residential mortgage
and consumer loans.
<TABLE>
<CAPTION>
LOANS
(In thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial ........... $ 4,795,252 $ 4,751,227 $ 4,568,763 $ 3,971,082 $ 3,957,929
Construction and development ........ 471,413 569,820 785,595 973,279 1,112,655
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial ........................ 5,266,665 5,321,047 5,354,358 4,944,361 5,070,584
Commercial mortgage ................. 2,313,610 2,315,384 2,201,698 2,381,630 2,312,332
Residential mortgage ................ 3,795,752 3,296,818 2,803,286 2,148,004 2,097,504
Consumer ............................ 3,443,568 3,086,325 2,745,837 2,407,431 2,491,633
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans ....................... $14,819,595 $14,019,574 $13,105,179 $11,881,426 $11,972,053
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
DEPOSITS:
During 1996, deposits continued to be impacted by investors' desire for
higher-yielding investment alternatives such as mutual funds, annuities, and the
stock market. Average total deposits were $18.1 billion for 1996 compared to
$17.1 billion for 1995, an increase of $975.1 million, or 5.7%. The most
significant growth occurred in demand deposits and time deposits. At December
31, 1996, total deposits were $18.4 billion, an increase of $419.9 million or
2.3% from year-end 1995. This increase in deposits was primarily due to
acquisitions.
The following chart illustrates the growth in average demand deposits for the
past five years.
Average Demand Deposits (in billions)
YEAR
----
1992 $2.6801
1993 3.0253
1994 3.3140
1995 3.3939
1996 3.7520
Average demand deposits were $3.8 billion for 1996, an increase of $358.1
million, or 10.6%, from the prior year. Demand deposit growth occurred primarily
in business accounts. The increase in this interest-free source of funds was a
contributing factor to the growth of net interest income.
Savings deposits, which include interest bearing checking, money market and
savings accounts, increased on average $181.1 million, or 2.3%, to average $8.0
billion during 1996. Money market accounts increased $183.8 million and interest
bearing checking accounts increased $90.1 million, offset by a decline of $92.8
million in savings accounts. The average cost of these deposit products
decreased 12 basis points to 2.52% in 1996 compared to 2.64% in 1995.
Time deposits, which consist primarily of retail certificates of deposit,
increased $263.6 million, or 5.0%, during 1996 to average $5.6 billion. The
majority of the increase was in certificates of deposit with a term of one to
two and one-half years. The average cost of time deposits decreased six basis
points to 5.10% in 1996 from 5.16% in 1995.
Commercial certificates of deposit $100,000 and over are a funding source to
support growth in the loan portfolio and as an alternative to other sources of
borrowed funds. These deposits averaged $803.9 million during 1996, an increase
of $172.3 million, or 27.3%, compared to 1995. The cost of these deposits
decreased by 36 basis points during the year to 5.35% compared with 5.71% in
1995, reflecting the lower interest rate environment.
OTHER BORROWED FUNDS:
Other borrowed funds include Federal funds purchased, repurchase agreements,
short-term Federal Home Loan Bank borrowings, treasury tax and loan deposits,
and other short-term borrowings. These borrowings provide an additional source
of funds to support loan or investment securities growth. During 1996, other
borrowed funds increased $191.7 million, or 15.6%, to average $1.4 billion. The
average cost of other borrowed funds decreased 34 basis points during the year
to 5.45% compared with 5.79% in 1995 due to the lower interest rate environment
in 1996.
Commercial paper, a funding source for certain non-bank subsidiaries, averaged
$44.5 million during 1996, a decrease of $3.2 million, or 6.7%, from 1995. The
average cost of commercial paper decreased 45 basis points to 5.25% in 1996 from
5.70% in 1995.
LONG-TERM DEBT:
Long-term debt averaged $423.9 million for 1996, a decrease of $75.7 million, or
15.2%, compared to 1995. This decline is due to maturities during the year. At
year-end 1996, long-term debt totaled $690.0 million, an increase of $265.1
million, or 62.4%, compared to December 31, 1995. This increase was due to
$300.2 million of long-term advances from the Federal Home Loan Bank in the
fourth quarter of 1996.
Certain long-term debt agreements contain limitations on the amount of
additional funded debt that can be assumed. At December 31, 1996, under the most
restrictive covenants, the amount of additional funded debt that could have been
created was $553.4 million. Long-term debt totaling $224.5 million qualified as
risk-based Tier II capital at December 31, 1996. For additional information on
long-term debt, see Note 12 of the Notes to Consolidated Financial Statements.
SHAREHOLDERS' EQUITY AND DIVIDENDS:
Summit Bancorp has long had a policy of maintaining a strong capital position.
The maintenance of a strong capital base promotes investor confidence and
enhances the flexibility to capitalize on business growth and acquisition
opportunities and to serve the needs of depositors and creditors. Shareholders'
equity averaged $1.9 billion during 1996, an increase of $202.4 million, or
12.2%, compared to 1995. The ratio of average total equity to average total
assets increased to 8.42% for 1996 compared to 7.97% for 1995. At December 31,
1996, book value per common share rose to $20.51, compared to $19.89 at the
prior year end due primarily to retained net income offset by issuance of
additional common shares in connection with certain acquisitions.
22
<PAGE> 25
As a result of sustained earnings growth, the quarterly dividend paid on common
stock was increased from $.32 per share to $.36 per share during the third
quarter of 1996. Common stock dividends declared totaled $1.36 per share for
1996 compared to $1.19 for 1995, an increase of 14.3%.
The market price of the common stock was $43.75 at December 31, 1996, compared
to $35.63 the prior year end. The common stock of Summit Bancorp is traded on
the New York Stock Exchange under the symbol SUB. The quarterly market price
ranges and dividends declared per common share for the last two years are shown
on page 57.
On December 15, 1996, all outstanding shares of the Series B and Series C
preferred stock were redeemed at $50.00 and $25.00, respectively. Both Series
were retired upon redemption.
In 1996 Summit Bancorp issued 6.7 million shares of common stock for the
acquisitions of Garden State, Flemington and Central Jersey. Of the common
shares issued for these acquisitions, 2.3 million shares were reissued treasury
shares, which were specifically purchased in the open market during the third
and fourth quarters for the Central Jersey acquisition. During 1995, Summit
Bancorp issued 1.9 million shares of common stock for the purchase acquisition
of Bancorp.
Summit Bancorp and its bank subsidiaries are subject to various regulatory
capital requirements administered by the Federal Reserve Board and Federal
Deposit Insurance Corporation. For information on regulatory capital, see Note
20 of the Notes to Consolidated Financial Statements.
Results of Operations
================================================================================
NET INTEREST INCOME:
The accompanying Rate/Volume Table presents an analysis of
the impact on interest income and interest expense resulting from changes in
average volumes and rates over the past two years. Changes that are not due to
volume or rate have been allocated proportionally to both, based on their
relative absolute values.
Interest income on a tax-equivalent basis was $1.6 billion, an increase of $51.5
million, or 3.4%, compared to 1995. This increase was primarily due to growth in
interest-earning assets. On average, interest-earning assets increased $1.2
billion, principally in loans due to the strategic acquisitions. This growth
contributed $94.9 million to interest income. Partially offsetting this was a
$43.4 million decrease due to the decline in interest rates during 1996. The
average yield on interest-earning assets was 7.64% for 1996 compared to 7.85%
for 1995, a decrease of 21 basis points.
Interest expense was $639.3 million for 1996, an increase of $12.9 million, or
2.1%, from a year ago. On average, interest-bearing liabilities increased
$729.8 million, primarily due to interest bearing deposits from the
acquisitions. Interest expense rose $34.6 million from the increase in
interest-bearing liabilities. Partially offsetting this increase, interest
expense declined $21.7 million as a result of the lower interest rate
environment. The average cost of total interest-bearing liabilities was 3.94% in
1996, a decrease of 11 basis points from 4.05% in 1995.
Net interest income on a tax-equivalent basis amounted to $925.1 million, an
increase of $38.6 million, or 4.4%, from $886.5 million earned in 1995. Net
interest spread declined 10
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Rate/Volume Table
Amount of Increase (Decrease)
----------------------------------------------------------------------------
1996 versus 1995 1995 versus 1994
----------------------------------- ----------------------------------
Due to Change in: Due to Change in:
--------------------- ---------------------
(Tax-equivalent basis, in millions) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans
Commercial ................................ $ 4.0 $ (22.4) $ (18.4) $ 10.7 $ 59.5 $ 70.2
Commercial mortgage ....................... 14.1 (5.9) 8.2 (5.6) 16.1 10.5
Residential mortgage ...................... 43.4 .3 43.7 47.4 11.2 58.6
Consumer .................................. 34.9 (8.9) 26.0 26.4 15.8 42.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans ............................. 96.4 (36.9) 59.5 78.9 102.6 181.5
Securities held to maturity ................. (88.5) (1.9) (90.4) 4.1 17.3 21.4
Securities available for sale ............... 90.9 (3.9) 87.0 (31.0) 14.3 (16.7)
Other interest-earning assets ............... (3.9) (.7) (4.6) .3 4.2 4.5
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income ................. 94.9 (43.4) 51.5 52.3 138.4 190.7
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits
Savings deposits .......................... 4.8 (9.2) (4.4) (12.8) 35.5 22.7
Time deposits ............................. 13.5 (3.2) 10.3 49.5 56.4 105.9
Commercial certificates of deposit
$100,000 and over ....................... 9.5 (2.6) 6.9 8.2 9.0 17.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits .......................... 27.8 (15.0) 12.8 44.9 100.9 145.8
Other interest-bearing liabilities .......... 6.8 (6.7) .1 (20.3) 24.9 4.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................ 34.6 (21.7) 12.9 24.6 125.8 150.4
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income ........................... $ 60.3 $ (21.7) $ 38.6 $ 27.7 $ 12.6 $ 40.3
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
basis points to 3.70% for the year compared to 3.80% earned in 1995. Net
interest margin declined to 4.52% for 1996 compared to 4.60% in 1995. Both
declines resulted as yields earned on interest-earning assets declined faster
than the costs paid on interest-bearing liabilities, reflecting an increasingly
competitive market for customer loans and deposits.
The following chart illustrates the growth in tax-equivalent net interest income
for the past five years.
Net Interest Income (tax-equivalent basis, in millions)
YEAR
----
1992 $769.9
1993 801.1
1994 846.2
1995 886.5
1996 925.1
NON-INTEREST INCOME:
Non-interest income, including securities gains, amounted to $247.5 million in
1996 compared to $224.2 million in the prior year, an increase of $23.3 million,
or 10.4%. Excluding securities gains, non-interest income rose $26.7 million, or
12.4%.
Non-interest income categories compared to the prior year are shown in the
following table.
<TABLE>
<CAPTION>
(Dollars in thousands) Increase (Decrease)
- --------------------------------------------------------------------------------
1996 1995 Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit
accounts ................ $ 98,949 $ 88,083 $ 10,866 12.3
Service and loan fee income 40,414 35,562 4,852 13.6
Trust income .............. 39,540 35,418 4,122 11.6
Trading account gains ..... 477 1,295 (818) (63.2)
Other ..................... 62,866 55,225 7,641 13.8
- --------------------------------------------------------------------------------
242,246 215,583 26,663 12.4
Securities gains .......... 5,217 8,606 (3,389) (39.4)
- --------------------------------------------------------------------------------
$247,463 $224,189 $ 23,274 10.4
- --------------------------------------------------------------------------------
</TABLE>
Service charges on deposit accounts amounted to $98.9 million in 1996, an
increase of $10.9 million, or 12.3%. This increase resulted from the impact of
Summit Bancorp's fee structure on acquired deposits and higher insufficient
funds income from demand deposit accounts.
Service and loan fee income increased $4.9 million, or 13.6%, to $40.4 million
in 1996 primarily due to increases in fee income on merchant card processing and
consumer debit cards. The increase in merchant processing fees was a result of a
successful sales effort which led to an increase in processing volume. Also
contributing was an increase in consumer debit card fees resulting from higher
point-of-sale customer usage.
Trust income of $39.5 million increased $4.1 million, or 11.6%, over the prior
year. This increase is primarily due to an increase in fee income on proprietary
mutual funds, third-party mutual fund commissions and investment advisory
accounts. Assets under trust administration, including corporate debt issue
trusteeships, totaled $23.2 billion at December 31, 1996. Assets under
discretionary management were $6.9 billion at year-end 1996. These assets
include the Pillar Funds(R), a family of bank sponsored mutual funds established
in 1992, which totaled $1.6 billion at December 31, 1996. These funds increased
$203.6 million, or 14.9%, from the prior year end.
Other income amounted to $62.9 million, an increase of $7.6 million, or 13.8%,
compared to the prior year. The increase was primarily due to new ATM access
fees, effective in May 1996. For the year ended December 31, 1996, securities
gains were $5.2 million, a decrease of $3.4 million, or 39.4%, below 1995. These
gains were principally due to sales of equity securities.
NON-INTEREST EXPENSES:
Non-interest expenses totaled $747.9 million in 1996, an increase of $105.6
million, or 16.4%, compared to 1995. Impacting the comparison of 1996
non-interest expenses to the prior year are the Bancorp, Garden State,
Flemington and Central Jersey acquisitions. Non-interest expenses for 1996
included restructuring charges totaling $110.7 million and a special one-time
assessment for SAIF deposits of $11.1 million. Before these non-recurring items,
non-interest expenses decreased $16.2 million, or 2.5%, compared to 1995 as a
result of merger savings and a reduction in deposit insurance premiums.
Non-interest expense categories compared to the prior year are shown in the
following table.
<TABLE>
<CAPTION>
(Dollars in thousands) Increase (Decrease)
- ----------------------------------------------------------------------------------------
1996 1995 Amount Percent
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries .................... $245,507 $251,253 $(5,746) (2.3)
Pension and other employee
benefits .................. 80,873 85,297 (4,424) (5.2)
Occupancy, net .............. 71,368 70,297 1,071 1.5
Furniture and equipment ..... 64,841 61,104 3,737 6.1
Communications .............. 30,029 26,155 3,874 14.8
Deposit insurance premiums .. 3,780 21,600 (17,820) (82.5)
Other ....................... 129,778 126,655 3,123 2.5
- ----------------------------------------------------------------------------------------
626,176 642,361 (16,185) (2.5)
Savings Association Insurance
Fund assessment ........... 11,059 -- 11,059 NM
Restructuring charges ....... 110,700 -- 110,700 NM
- ----------------------------------------------------------------------------------------
$747,935 $ 642,361 $ 105,574 16.4
- ----------------------------------------------------------------------------------------
</TABLE>
NM-Not meaningful
Salaries totaled $245.5 million in 1996, a decrease of $5.7 million, or 2.3%,
compared to 1995. Total full-time equivalent employees at December 31, 1996 were
7,333 compared to 7,547 at December 31, 1995, a decrease of 2.8%. Pension and
other
24
<PAGE> 27
employee benefits expense totaled $80.9 million for the year ended
December 31, 1996, and was $4.4 million, or 5.2%, lower than 1995. These
expenses declined throughout 1996 as duplicate positions of the acquired
entities were eliminated.
During 1996, net occupancy expenses increased $1.1 million, or 1.5%, from the
prior year. This increase was primarily due to the impact of the 1996
acquisitions offset by cost savings from branch closings and consolidations.
Furniture and equipment expenses totaled $64.8 million, an increase of $3.7
million or 6.1% from 1995. This increase can also be attributed to the 1996
acquisitions and higher expenses associated with the automation of acquired
banks and enhanced uses of technology.
Communications expense totaled $30.0 million in 1996, an increase of $3.9
million, or 14.8%, compared to 1995. This increase was due in part to additional
expenses associated with the upgrading of communication equipment and lines that
support the branch automation network, other system improvements and an ATM
network purchased in late 1995.
As a result of rate changes in Bank Insurance Fund (BIF) and SAIF premiums,
deposit insurance premiums declined $17.8 million, or 82.5%. BIF deposits, which
make up approximately 88% of the insurable deposit base, were exempt from
premiums in 1996. In addition, as a result of the one-time $11.1 million special
assessment to recapitalize the SAIF on September 30, 1996, there were no SAIF
premiums for the fourth quarter of 1996.
Other expenses were $129.8 million in 1996, an increase of $3.1 million, or
2.5%, from 1995. This increase was due in part to an increase in miscellaneous
operating expenses offset by a reduction in OREO expenses, reflecting a
continued decline in OREO properties. For additional information, please see
Note 16 to the Notes to Consolidated Financial Statements.
INCOME TAXES:
Federal and state income tax expenses for 1996 were $119.9 million compared to
$136.3 million in 1995. The decrease was primarily due to lower pre-tax income,
the reduction in valuation reserves and tax planning. The combined Federal and
state effective income tax rate, which is income tax expense as a percentage of
pre-tax income, was 34.3% for 1996 compared to 36.0% for 1995.
ASSET QUALITY
NON-PERFORMING LOANS:
At December 31, 1996, non-performing loans totaled $132.1 million and
represented .89% of total loans, compared to $188.5 million, or 1.34% of total
loans, the prior year. Non-performing loans declined $56.4 million, or 29.9%,
in 1996. The significant reduction in non-performing loans can be attributed to
a stabilized real estate market and aggressive loan workout strategies. During
1996, there was a decline in the amount of loans transferred into
non-performing, while payments received increased. In addition, there were
several sales totaling $38.5 million of small-balance non-performing loans and
resolutions of several large non-performing loans.
The following chart illustrates the trend in non-performing loans for the past
five years.
Non-Performing Loans (in millions)
YEAR
----
1992 $458.5
1993 319.4
1994 200.2
1995 188.5
1996 132.1
At December 31, 1995, there were 16 non-performing loans greater than $2 million
totaling $78.0 million, or approximately 41.5% of the non-performing loan
portfolio. This compares with four loans greater than $2 million, totaling $31.0
million or approximately 23.5% of the portfolio at year-end 1996.
The following table represents the composition of non-performing loans by type.
<TABLE>
<CAPTION>
(Dollars in thousands) Increase (Decrease)
- --------------------------------------------------------------------------------------
1996 1995 Amount Percent
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial .. $ 54,308 $ 52,086 $ 2,222 4.3
Construction and development 31,901 52,975 (21,074) (39.8)
Commercial mortgage ........ 45,877 83,427 (37,550) (45.0)
- --------------------------------------------------------------------------------------
$132,086 $ 188,488 $(56,402) (29.9)
- --------------------------------------------------------------------------------------
</TABLE>
The following table illustrates the activity in non-performing loans over the
past two years.
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year ................. $188,488 $200,205
Additions:
From loan portfolio ...................... 172,765 223,502
Adjustment for acquisitions .............. 10,980 4,126
Transfer from OREO and assets held
for accelerated disposition ............ 950 7,211
- --------------------------------------------------------------------------------
Total additions ........................ 184,695 234,839
- --------------------------------------------------------------------------------
Deductions:
Payments received ........................ 133,017 102,253
Loan charge offs ......................... 69,097 75,736
Transfer to performing loans ............. 26,492 36,606
Transfer to other real estate owned ...... 12,491 29,496
Other .................................... -- 2,465
- --------------------------------------------------------------------------------
Total deductions ....................... 241,097 246,556
- --------------------------------------------------------------------------------
Balance, end of year ....................... $132,086 $188,488
- --------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
Loans 90 days or more past due and not included in the non-performing loan
category totaled $60.6 million at year-end 1996, compared to $47.8 million at
the prior year end. These loans consist of residential mortgage and consumer
loans which are generally well-secured and in the process of collection.
Unsecured consumer loans included in this category are typically charged off
after 120 days of delinquency.
OTHER REAL ESTATE OWNED:
OREO, net of a valuation allowance, amounted to $21.0 million at year end
compared to $24.3 million the prior year, a decline of $3.3 million, or 13.6%.
The following table illustrates the activity in OREO for the past two years.
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year ................... $ 37,539 $ 62,256
Additions:
From non-performing loans .................. 12,491 29,496
From loan portfolio ........................ 8,910 6,965
Transfer from assets held for accelerated
disposition .............................. 3,300 1,000
Adjustment from acquisitions ............... 3,534 1,064
- --------------------------------------------------------------------------------
Total additions .......................... 28,235 38,525
- --------------------------------------------------------------------------------
Deductions:
Sales and other reductions ................. 36,267 53,007
Transfer to non-performing loans, gross .... -- 10,235
- --------------------------------------------------------------------------------
Total deductions ......................... 36,267 63,242
- --------------------------------------------------------------------------------
Balance, end of year ......................... 29,507 37,539
Less allowance for OREO .................... (8,528) (13,244)
- --------------------------------------------------------------------------------
Balance, end of year, net .................... $ 20,979 $ 24,295
- --------------------------------------------------------------------------------
</TABLE>
OREO is carried at the lower of cost or fair value less estimated costs to sell
with any deficiency charged against the valuation allowance. At year-end 1996,
the allowance totaled $8.5 million, compared to $13.2 million the prior year
end.
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION:
The allowance for loan losses at December 31, 1996 was $267.7 million compared
to $279.0 million the prior year end, a decrease of $11.3 million, or 4.1%. The
ratio of the allowance for loan losses to total loans was 1.81% at December 31,
1996 and 1.99% at year-end 1995. The allowance for loan losses as a percentage
of non-performing loans was 202.7% at December 31, 1996 compared to 148.0% at
the end of 1995.
A standardized process has been established to assess the adequacy of the
allowance for loan losses and to identify the risks inherent in the loan
portfolio. This process incorporates credit reviews and gives consideration to
areas of exposure such as concentrations of credit, economic and industry
conditions, trends in delinquencies and collections, collateral coverage, and
the composition of the performing and non-performing loan portfolios.
When it is probable that, based on current information, the company will not
collect all amounts due under contractual terms, the loan is considered
impaired. A loan is also considered impaired if it is more than 90 days
contractually past due. Under Summit Bancorp's credit and accounting policies,
all impaired loans are defined as non-performing loans.
Specific allocations, when required under SFAS No. 114, are identified by
individual loan while general reserve percentages are identified by loan
category or grade and allocated accordingly. All other loans not considered
impaired, as defined, are graded and incorporated in the process of assessing
the adequacy of the allowance for loan losses. The allowance is maintained at a
level considered sufficient to absorb estimated losses in the loan portfolio.
At year-end 1996, of the total $267.7 million loan loss allowance, approximately
$19.5 million was identified for impaired loans, $115.0 million was allocated to
specific categories or grades of loans not considered impaired as deemed
necessary under the assessment process, and $133.2 million was considered a
general unallocated reserve for the remaining inherent risk in the portfolio.
The provision for loan losses was $62.0 million for the year, down $9.9 million,
or 13.7%, from $71.9 million recorded in 1995. This decrease resulted from the
improvement in asset quality ratios and the reduction in non-performing loans
during 1996. Net charge offs of $81.8 million were recorded in 1996, a decrease
of $22.5 million, or 21.5%, compared to $104.3 million recorded in 1995. These
net charge offs represented .56% of average loans in 1996 compared to .78% of
average loans in 1995.
ASSET/LIABILITY MANAGEMENT
================================================================================
INTEREST SENSITIVITY:
Interest rate sensitivity and the repricing characteristics of assets and
liabilities are managed by the Asset/Liability Management Committee (ALCO). The
principal objective of ALCO is to maximize net interest income within acceptable
levels of risk established by policy. Interest rate risk is measured using
financial modeling techniques, including stress tests, to measure the impact of
changes in interest rates on future earnings. Net interest income, the primary
source of earnings, is affected by interest rate movements. To mitigate the
impact of changes in interest rates, a balance sheet must be structured so that
repricing opportunities exist for both assets and liabilities in approximately
equivalent amounts at basically the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute an interest-sensitivity
gap, which is the difference between interest-sensitive assets and interest-
sensitive liabilities. These static measurements do not reflect the results of
any projected activity and are best used as early indicators of potential
interest rate exposures.
26
<PAGE> 29
As illustrated by the interest rate sensitivity analysis in the accompanying
table, sensitivity to interest rate fluctuations is measured in a number of time
frames. The gap position is presented on an adjusted basis allowing for the
impact of off-balance-sheet transactions.
An asset-sensitive gap means an excess of interest-sensitive assets over
interest-sensitive liabilities, whereas a liability-sensitive gap means an
excess of interest-sensitive liabilities over interest-sensitive assets. At
December 31, 1996, there was a thirty-day liability-sensitive gap of $3.5
billion and a one-year cumulative liability-sensitive gap of $2.7 billion. In a
rising rate environment, a liability-sensitive gap position generally indicates
that increases in the cost of interest-bearing liabilities will outpace
increases in income from interest-earning assets. This risk can be reduced by
various strategies, including the administration of liability costs, asset
maturities and use of off-balance-sheet financial instruments to insulate net
interest income from the effects of changes in interest rates.
These gap positions are also monitored through the use of simulation modeling
techniques which apply alternative interest rate scenarios to periodic forecasts
of future business activity and estimate the related impact on net interest
income. The use of simulation modeling assists management in its continuing
efforts to achieve earnings growth in varying interest rate environments.
Asset and liability management efforts also involved the use of hedges,
primarily interest rate swaps and interest rate floors, to modify the interest
rate characteristics of designated assets and liabilities. These interest rate
swaps and floors were accounted for as hedges and were not recorded on the
balance sheet. Income or expense related to these instruments was 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 reduction in net interest income of $2.0 million in 1996 compared to a $9.8
million reduction in 1995.
The following table illustrates the aggregate notional amounts and expected
maturities of interest rate swaps and interest rate floors at December 31, 1996.
<TABLE>
<CAPTION>
Weighted
Notional Avg. Est.
(In millions) Amount Maturity
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps:
Receive fixed/pay floating .............. $ 161.3 8/98
Receive floating/pay fixed .............. 225.0 10/97
Interest rate floors ...................... 430.0 12/98
- --------------------------------------------------------------------------------
$ 816.3 7/98
- --------------------------------------------------------------------------------
</TABLE>
The notional values of these instruments represent the contractual balances on
which calculations of the amount of interest exchanged were based. A portion of
the swaps were indexed amortizing swaps that were structured to contain an
initial principal lockout period followed by a scheduled principal amortization
period. The amortization speed was determined by a sliding percentage scale
which used different amortization percentages for varying levels of London
Interbank Offer Rate (LIBOR). The scheduled principal amortization speed is
designed to increase or decrease in a manner similar to that of the hedged asset
or liability. The actual lives of these agreements will move with the level of
rates, but cannot exceed the maximum life contained in each agreement. At
year-end 1996, the swap agreements had an average maximum remaining maturity of
17 months. The interest rate floors were purchased primarily to hedge LIBOR
based assets.
INTEREST RATE SENSITIVITY TABLE AS OF DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
------------------------------------------------------
30 DAY 90 DAY 180 DAY 365 DAY
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earning Assets:
Total securities ................ $ 778,233 $ 422,695 $ 690,038 $ 1,037,404
Loans, net .................... 4,734,603 949,008 833,681 1,406,742
Other interest-earning assets . 135,968 -- -- --
- -----------------------------------------------------------------------------------------
5,648,804 1,371,703 1,523,719 2,444,146
- -----------------------------------------------------------------------------------------
Sources of Funds:
Savings and time deposits ..... 7,899,228 900,851 856,960 1,364,292
Commercial CDs ................ 423,507 131,120 30,876 25,314
Other interest-bearing
liabilities ................. 813,726 212,305 92,393 341,406
Non-interest-bearing sources .. -- -- -- --
- -----------------------------------------------------------------------------------------
9,136,461 1,244,276 980,229 1,731,012
- -----------------------------------------------------------------------------------------
Asset (Liability) Interval Gap .. (3,487,657) 127,427 543,490 713,134
Net effect of off-balance sheet
instruments ................... 25,000 (391,313) -- (225,000)
- -----------------------------------------------------------------------------------------
Asset (Liability) Sensitivity Gap
Period gap .................... (3,462,657) (263,886) 543,490 488,134
Cumulative gap ................ $(3,462,657) $(3,726,543) $(3,183,053) $ (2,694,919)
- -----------------------------------------------------------------------------------------
<CAPTION>
TOTAL ONE YEAR NON-INTEREST
WITHIN TO SENSITIVE AND
ONE YEAR TWO YEARS OVER TWO YEARS TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earning Assets:
Total securities ................ $ 2,928,370 $ 798,610 $2,187,194 $ 5,914,174
Loans, net .................... 7,924,034 1,244,966 5,382,876 14,551,876
Other interest-earning assets . 135,968 -- -- 135,968
- -----------------------------------------------------------------------------------------
10,988,372 2,043,576 7,570,070 20,602,018
- -----------------------------------------------------------------------------------------
Sources of Funds:
Savings and time deposits ..... 11,021,331 951,560 1,806,912 13,779,803
Commercial CDs ................ 610,817 -- -- 610,817
Other interest-bearing
liabilities ................. 1,459,830 45,959 522,922 2,028,711
Non-interest-bearing sources .. -- -- 4,182,687 4,182,687
- -----------------------------------------------------------------------------------------
13,091,978 997,519 6,512,521 20,602,018
- -----------------------------------------------------------------------------------------
Asset (Liability) Interval Gap .. (2,103,606) 1,046,057 1,057,549
Net effect of off-balance sheet
instruments ................... (591,313) -- 591,313
- -----------------------------------------------------------------------------------------
Asset (Liability) Sensitivity Gap
Period gap .................... (2,694,919) 1,046,057 1,648,862
Cumulative gap ................ $ (2,694,919) (1,648,862) $ --
- -----------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
The following table illustrates the interest rate swap activity for the past two
years.
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year ............ $ 967.5 $1,063.5
Additions ........................... 225.0 40.0
Maturities/amortizations ............ (673.6) (136.0)
Terminations ........................ (132.6) --
- --------------------------------------------------------------------------------
Balance, end of year .................. $ 386.3 $ 967.5
- --------------------------------------------------------------------------------
</TABLE>
During 1996, interest rate swaps with a remaining notional value of $132.6
million were terminated for $.6 million. These termination costs are being
amortized over the remaining lives of the related hedged assets or liabilities.
At December 31, 1996, the remaining unamortized termination costs were $1.6
million with amortization periods ranging from 5 to 31 months. For additional
information on the use of derivative financial instruments, see Notes 18 and 19
of the Notes to Consolidated Financial Statements.
LIQUIDITY:
Bank liquidity is the ability to support asset growth while satisfying the
borrowing needs and deposit withdrawal requirements of customers. Traditional
sources of liquidity include asset maturities, asset repayments, and deposit
growth. Purchased liabilities such as commercial certificates of deposit,
Federal funds purchased and securities sold under agreements to repurchase
represent other major sources of funding. In addition, the bank subsidiaries
have established borrowing relationships with the Federal Home Loan Bank and
other correspondent banks which further support and enhance liquidity.
A base of low-cost demand and retail deposits, which is the cornerstone of
liquidity, is managed through an extensive branch network. Total demand and
retail deposits amounted to $17.8 billion at December 31, 1996, compared to
$17.2 billion at year-end 1995.
Liquidity is also important at the Parent Corporation in order to provide funds
for operations and to pay dividends to shareholders. Parent Corporation cash
requirements are met primarily through management fees and dividends from its
subsidiaries and the issuance of short- and long-term debt. The amount of
dividends from bank subsidiaries is subject to certain regulatory restrictions
as detailed in Note 20 of the Notes to Consolidated Financial Statements.
Commercial paper issued by the Parent Corporation is primarily a funding source
for certain non-bank subsidiaries. These funds averaged $44.5 million during the
year, compared to the 1995 average of $47.7 million. At December 31, 1996,
commercial paper totaled $40.5 million. At year-end 1996, there were $38.0
million of short-term lines of credit available to support commercial paper
borrowings and for general corporate purposes.
Liquidity management is a function of ALCO and includes monitoring current and
projected cash flows, as well as economic forecasts for the industry. A
liquidity contingency plan, which is designed to manage potential liquidity
concerns due to changes in interest rates, credit markets, and other external
risks, is also in place.
The Consolidated Statements of Cash Flows present the change in cash from
operating, investing, and financing activities. Cash decreased by $110.8 million
during 1996. Net cash provided by operating activities totaled $324.0 million.
This amount was primarily due to results of operations adjusted for: provisions
for loan losses and OREO, depreciation, amortization and accretion, originations
of mortgages held for sale, and proceeds from the sales of mortgages held for
sale. Net cash used in investing activities totaled $237.6 million and was
primarily the result of loan and securities activity. Net cash used in financing
activities totaled $197.2 million, reflecting dividends paid, the redemption of
preferred stock and the purchase of common stock specifically for the Central
Jersey acquisition, in addition to decreases in deposits partially offset by
increases in short-term borrowings and long-term debt.
The combined securities portfolio is also a source of liquidity, as portfolio
assets provide cash flows through maturities and periodic repayments of
principal. During 1996, proceeds from maturities and other cash flows in the
combined securities portfolios were $1.2 billion, while proceeds from the sales
of securities available for sale were $139.8 million. Cash flows from the
securities portfolios were primarily used to fund loan growth. Total scheduled
maturities of interest bearing deposits with banks plus maturities and
anticipated principal repayments of the combined securities portfolios are
expected to approximate $1.1 billion during 1997. In addition, all or part of
the $2.7 billion of securities available for sale could be sold to provide
additional liquidity. At December 31, 1996, the average duration of securities
held to maturity and securities available for sale, adjusted for historical
prepayment patterns on mortgage-backed securities, was estimated to be
approximately 2.2 years and 1.4 years, respectively.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
================================================================================
Total earnings in 1995 amounted to $242.9 million or $2.77 per share compared to
$154.6 million or $1.80 per share for 1994. Improved earnings were primarily the
result of growth in net interest income, a lower provision for loan losses, and
a reduction in non-interest expenses. As a result of sustained earnings and
capital growth, the quarterly dividend paid on common stock was increased twice
during 1995 to an annualized dividend rate of $1.28 per share compared to a
$1.04 dividend rate at year-end 1994. Also, during 1995 key performance ratios
showed significant improvement. Return on average assets increased 40 basis
points from 1994 to 1.16%, while return on common equity rose to 14.82% versus
10.37% for 1994. In addition, the efficiency ratio improved to 57.55% for 1995
from 59.71% in 1994.
Interest income on a tax-equivalent basis was $1.5 billion, an increase of
$190.7 million, or 14.4%, compared to 1994. This increase was primarily due to
the impact of higher interest rates in early 1995 on the loan and securities
portfolios. The average yield on interest earning assets was 7.85% for 1995
compared to 7.09% for 1994, an increase of 76 basis points.
28
<PAGE> 31
Interest expense was $626.4 million for 1995, an increase of $150.4 million, or
31.6%, from a year ago. The increase is primarily the result of the higher rates
paid for deposits and other borrowed funds. The average cost of total
interest-bearing liabilities was 4.05% in 1995, an increase of 91 basis points
from 3.14% in 1994.
Net interest income on a tax-equivalent basis amounted to $886.5 million, an
increase of $40.3 million, or 4.8%, from $846.2 million earned in 1994. This
increase was primarily from higher levels of net interest-earning assets over
the prior year. Net interest spread on a tax-equivalent basis declined 15 basis
points to 3.80% for the year compared to 3.95% earned in 1994. Net interest
margin rose slightly to 4.60% for 1995 compared to 4.53% in 1994, as the growth
in net interest income outpaced the growth in average interest-earning assets.
Excluding securities gains, non-interest income rose $7.7 million, or 3.7%, from
1994. Service charges on deposit accounts amounted to $88.1 million in 1995, an
increase of $5.1 million, or 6.1%. Service and loan fee income decreased $1.5
million, or 3.9%, to $35.6 million in 1995. Trust income of $35.4 million
increased $1.8 million, or 5.2%, over the prior year. Other income amounted to
$55.2 million, an increase of $1.9 million, or 3.6%, compared to the prior year.
For the year ended December 31, 1995, securities gains were $8.6 million, an
increase of $6.4 million over 1994.
Non-interest expenses totaled $642.4 million in 1995, a decrease of $57.3
million, or 8.2%, compared to 1994. Excluding the restructuring charge and the
loss on sale of assets taken in 1994, non-interest expenses decreased $8.3
million, or 1.3%, in 1995. Salaries expense totaled $251.3 million in 1995, an
increase of $6.3 million, or 2.6%, compared to 1994. Pension and other employee
benefits expense totaled $85.3 million for the year ended December 31, 1995, and
was $7.4 million, or 9.5%, greater than 1994.
Furniture and equipment expenses amounted to $61.1 million, an increase of $2.5
million, or 4.3%, from $58.6 million in 1994. Communications expense was $26.2
million for 1995, an increase of $1.3 million, or 5.1%, from 1994. Deposit
insurance premiums of $21.6 million represented a decline of $16.4 million, or
43.1%, from 1994, which reflected the reduction in premium rates on BIF deposits
effective June 1995.
During 1994, a restructuring charge of $13.6 million was recorded in conjunction
with the Crestmont Financial Corp. (Crestmont) acquisition. In addition, other
expenses for 1995 were $126.7 million, a decrease of $45.6 million, or 26.5%,
from 1994. Included were declines of $13.2 million in OREO expenses and $35.4
million due to the loss on the sale of certain non-performing loans and OREO
acquired from Crestmont.
Federal and state income tax expenses for 1995 were $136.3 million compared to
$89.0 million in 1994. The increase was primarily the result of higher pre-tax
income.
RECENT ACCOUNTING PRONOUNCEMENTS
================================================================================
IN June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transactions that are secured borrowings. SFAS No. 125 is effective
for transfers occurring after December 31, 1996. In December 1996 the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125, an Amendment of FASB Statement No. 125." The adoption of
SFAS Nos. 125 and 127 is not expected to have a material effect on Summit
Bancorp's future financial condition or results of operations.
REACHING HIGHER - LOOKING AHEAD
================================================================================
One of Summit Bancorp's primary objectives is to achieve balanced asset and
revenue growth, and at the same time expand market presence and diversify the
line of financial products. However, it is recognized that objectives, no matter
how focused, are subject to factors beyond the control of Summit Bancorp which
can impede the ability to achieve these goals.
The following are some factors that should be considered when evaluating Summit
Bancorp's ability to achieve its objectives:
The financial market place is rapidly changing. Over the last several decades,
the banking industry has lost market share to other financial service providers.
Banks are no longer the only place to obtain loans, nor the only place to keep
financial assets. The future is predicated on Summit Bancorp's ability to adapt
product lines, provide superior customer service and compete in an ever-changing
marketplace.
Net interest income, the primary source of earnings, is impacted favorably or
unfavorably by changes in interest rates. Although the impact of interest rate
fluctuations is mitigated by ALCO strategies, significant changes in interest
rates can have an adverse impact on profitability.
The ability of customers to repay their obligations is often impacted by changes
in the regional and national economy. Although Summit Bancorp regularly sets
aside loan loss provisions toward the allowance for loan losses in amounts
intended to be sufficient to absorb foreseeable credit losses, significant
unfavorable changes in the economy could severely impact the assumptions used in
the determination of the adequacy of the allowance.
Technological changes will have a material impact on how financial service
companies compete for and deliver services. It is recognized that these changes
will have a direct impact on how the marketplace is approached and ultimately on
profitability. Summit Bancorp has already taken steps to reduce reliance on
traditional delivery channels. However, continued success will be measured by
the ability to react immediately to future technological changes.
<PAGE> 32
Summit Bancorp and Subsidiaries
CONSOLIDATED COMPARATIVE AVERAGE BALANCE SHEETS WITH RESULTANT
INTEREST AND RATES
<TABLE>
<CAPTION>
(Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1996
Average Average
Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold and securities purchased under
agreements to resell ....................................................... $ 49.1 $ 2.9 5.90%
Interest-bearing deposits with banks ......................................... 14.3 .8 5.74
Trading account securities ................................................... 27.5 1.5 5.44
Securities available for sale:
U.S. Government and Federal agencies ....................................... 1,956.7 122.6 6.27
States and political subdivisions .......................................... 6.4 .4 6.66
Other securities ........................................................... 487.4 29.5 6.04
- --------------------------------------------------------------------------------------------------------------------------
Total securities available for sale ...................................... 2,450.5 152.5 6.22
- --------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government and Federal agencies ....................................... 1,607.2 99.6 6.20
States and political subdivisions .......................................... 255.8 23.3 9.11
Other securities ........................................................... 1,443.7 86.6 6.00
- --------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity ........................................ 3,306.7 209.5 6.34
- --------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial ................................................................. 5,331.4 444.3 8.33
Commercial mortgage ........................................................ 2,392.6 208.4 8.71
Residential mortgage ....................................................... 3,608.2 267.3 7.41
Consumer ................................................................... 3,289.1 277.2 8.43
- --------------------------------------------------------------------------------------------------------------------------
Total loans .............................................................. 14,621.3 1,197.2 8.19
- --------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............................................ 20,469.4 1,564.4 7.64
- --------------------------------------------------------------------------------------------------------------------------
Cash and due from banks ........................................................ 1,198.5
Allowance for loan losses ...................................................... (284.9)
Other assets ................................................................... 796.9
- --------------------------------------------------------------------------------------------------------------------------
Total Assets ................................................................... $22,179.9
==========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits ............................................................. $ 7,954.8 200.8 2.52
Time deposits ................................................................ 5,561.8 283.7 5.10
Commercial certificates of deposit $100,000 and over ......................... 803.9 43.0 5.35
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits .......................................... 14,320.5 527.5 3.68
- --------------------------------------------------------------------------------------------------------------------------
Commercial paper ............................................................. 44.5 2.3 5.25
Other borrowed funds ......................................................... 1,423.7 77.7 5.45
Long-term debt ............................................................... 423.9 31.8 7.50
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ....................................... 16,212.6 639.3 3.94
- --------------------------------------------------------------------------------------------------------------------------
Demand deposits ................................................................ 3,752.0
Other liabilities .............................................................. 348.6
Shareholders' equity ........................................................... 1,866.7
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ..................................... $22,179.9
==========================================================================================================================
Net interest income (tax-equivalent basis) 925.1 3.70%
Tax-equivalent basis adjustment (13.6)
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $ 911.5
==========================================================================================================================
Net interest income as a percent of interest-earning assets
(tax-equivalent basis) 4.52%
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995
Average Average
Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold and securities purchased under
agreements to resell .......................................... $ 112.9 $ 7.1 6.31%
Interest-bearing deposits with banks ............................ 11.1 .6 5.81
Trading account securities ...................................... 34.8 2.1 5.89
Securities available for sale:
U.S. Government and Federal agencies .......................... 738.0 48.7 6.60
States and political subdivisions ............................. 9.3 .6 6.89
Other securities .............................................. 247.0 16.2 6.56
- ----------------------------------------------------------------------------------------------------------------
Total securities available for sale ......................... 994.3 65.5 6.59
- ----------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government and Federal agencies .......................... 2,445.5 151.4 6.19
States and political subdivisions ............................. 323.5 31.4 9.69
Other securities .............................................. 1,929.4 117.1 6.07
- ----------------------------------------------------------------------------------------------------------------
Total securities held to maturity ........................... 4,698.4 299.9 6.38
- ----------------------------------------------------------------------------------------------------------------
Loans:
Commercial .................................................... 5,286.0 462.7 8.75
Commercial mortgage ........................................... 2,232.3 200.2 8.97
Residential mortgage .......................................... 3,021.5 223.6 7.40
Consumer ...................................................... 2,876.7 251.2 8.73
- ----------------------------------------------------------------------------------------------------------------
Total loans ................................................. 13,416.5 1,137.7 8.48
- ----------------------------------------------------------------------------------------------------------------
Total interest-earning assets ............................... 19,268.0 1,512.9 7.85
- ----------------------------------------------------------------------------------------------------------------
Cash and due from banks ........................................... 1,079.2
Allowance for loan losses ......................................... (299.9)
Other assets ...................................................... 822.8
- ----------------------------------------------------------------------------------------------------------------
Total Assets ...................................................... $20,870.1
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits ................................................ $ 7,773.7 205.2 2.64
Time deposits ................................................... 5,298.2 273.4 5.16
Commercial certificates of deposit $100,000 and over ............ 631.6 36.1 5.71
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ............................. 13,703.5 514.7 3.76
- ----------------------------------------------------------------------------------------------------------------
Commercial paper ................................................ 47.7 2.7 5.70
Other borrowed funds ............................................ 1,232.0 71.4 5.79
Long-term debt .................................................. 499.6 37.6 7.52
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities .......................... 15,482.8 626.4 4.05
- ----------------------------------------------------------------------------------------------------------------
Demand deposits ................................................... 3,393.9
Other liabilities ................................................. 329.1
Shareholders' equity .............................................. 1,664.3
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ........................ $20,870.1
================================================================================================================
Net interest income (tax-equivalent basis) 886.5 3.80%
Tax-equivalent basis adjustment (17.3)
- ----------------------------------------------------------------------------------------------------------------
Net interest income $ 869.2
================================================================================================================
Net interest income as a percent of interest-earning assets
(tax-equivalent basis) 4.60%
================================================================================================================
</TABLE>
Notes: Average loan balances and rates include non-accruing loans.
The tax-equivalent basis adjustment was computed based on a Federal
income tax rate of 35% for 1996 through 1993 and 34% for 1992 and 1991.
30
<PAGE> 33
<TABLE>
<CAPTION>
1994 1993
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 ................................. $ 103.2 $ 3.8 3.73% $ 231.9 $ 7.1 3.08%
Interest-bearing deposits with banks ................... 16.9 .6 3.72 21.9 .7 2.98
Trading account securities ............................. 28.9 .9 2.94 32.7 1.5 4.44
Securities available for sale:
U.S. Government and Federal agencies ................. 442.3 25.2 5.71 410.2 17.1 4.16
States and political subdivisions .................... 536.2 30.6 5.70 272.0 14.7 5.39
Other securities ..................................... 514.9 26.4 5.13 464.1 21.4 4.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale ................ 1,493.4 82.2 5.50 1,146.3 53.2 4.64
- ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government and Federal agencies ................. 2,378.4 136.2 5.72 2,898.5 189.8 6.55
States and political subdivisions .................... 381.5 38.1 9.99 403.1 42.8 10.62
Other securities ..................................... 1,869.5 104.2 5.57 947.6 53.9 5.69
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity .................. 4,629.4 278.5 6.01 4,249.2 286.5 6.74
- ------------------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial .............................................. 5,148.0 392.5 7.62 5,008.1 352.8 7.04
Commercial mortgage ..................................... 2,299.3 189.7 8.25 2,338.4 189.7 8.11
Residential mortgage .................................... 2,372.6 165.0 6.95 2,083.5 162.9 7.82
Consumer ................................................ 2,567.7 209.0 8.14 2,459.5 203.5 8.27
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans ........................................... 12,387.6 956.2 7.72 11,889.5 908.9 7.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ......................... 18,659.4 1,322.2 7.09 17,571.5 1,257.9 7.16
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks ................................... 1,130.2 1,073.4
Allowance for loan losses ................................. (342.0) (359.5)
Other assets .............................................. 810.6 830.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets .............................................. $20,258.2 $19,115.6
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits ....................................... $ 8,327.5 182.5 2.19 $ 7,997.5 184.4 2.31
Time deposits .......................................... 4,205.2 167.5 3.98 4,758.3 200.0 4.20
Commercial certificates of deposit $100,000 and over ... 460.1 18.9 4.10 324.5 9.4 2.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits .................... 12,992.8 368.9 2.84 13,080.3 393.8 3.01
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial paper ....................................... 46.5 1.9 4.06 58.9 1.7 2.95
Other borrowed funds ................................... 1,624.6 70.3 4.33 922.7 32.7 3.55
Long-term debt ......................................... 479.5 34.9 7.28 370.6 28.6 7.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ................. 15,143.4 476.0 3.14 14,432.5 456.8 3.17
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits .......................................... 3,314.0 3.025.3
Other liabilities ........................................ 289.3 244.3
Shareholders' equity ..................................... 1,511.5 1,413.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ............... $20,258.2 $19,115.6
====================================================================================================================================
Net interest income (tax-equivalent basis) ................ 846.2 3.95% 801.1 3.99%
Tax-equivalent basis adjustment .......................... (19.4) (21.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ...................................... $ 826.8 $ 779.9
====================================================================================================================================
Net interest income as a percent of interest-earning assets
(tax-equivalent basis) 4.53% 4.56%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1992 1991
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 ................................. $ 287.0 $ 11.1 3.86% $ 526.9 $ 31.5 5.98%
Interest-bearing deposits with banks ................... 18.7 .7 3.70 34.7 2.3 6.58
Trading account securities ............................. 23.9 1.5 6.26 14.5 1.3 9.16
Securities available for sale:
U.S. Government and Federal agencies ................. 120.5 10.3 8.54 22.4 2.1 9.32
States and political subdivisions .................... -- -- -- 5.0 .8 15.43
Other securities ..................................... 6.3 .5 7.75 7.8 .6 8.29
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale ................ 126.8 10.8 8.50 35.2 3.5 9.97
- ---------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government and Federal agencies ................. 3,781.9 276.5 7.31 3,067.7 268.5 8.75
States and political subdivisions .................... 498.2 51.5 10.34 581.6 61.5 10.58
Other securities ..................................... 486.1 31.9 6.57 701.1 60.1 8.57
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity .................. 4,766.2 359.9 7.55 4,350.4 390.1 8.97
- ---------------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial .............................................. 5,249.9 381.1 7.26 5,542.7 494.9 8.93
Commercial mortgage ..................................... 2,265.7 199.3 8.80 2,055.1 203.7 9.91
Residential mortgage .................................... 2,025.9 178.4 8.81 2,098.9 204.0 9.72
Consumer ................................................ 2,502.4 221.9 8.87 2,477.5 259.0 10.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans ............................................ 12,043.9 980.7 8.14 12,174.2 1,161.6 9.54
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets .......................... 17,266.5 1,364.7 7.90 17,135.9 1,590.3 9.28
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks ................................... 974.6 865.7
Allowance for loan losses ................................. (401.6) (397.2)
Other assets .............................................. 858.2 840.0
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets .............................................. $18,697.7 $18,444.4
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits ...................................... $ 7,246.3 226.7 3.13 $ 6,034.0 300.0 4.97
Time deposits ......................................... 5,417.6 282.1 5.21 5,785.1 399.4 6.90
Commercial certificates of deposit $100,000 and over .. 517.0 20.2 3.91 1,000.0 61.4 6.14
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits ................... 13,180.9 529.0 4.01 12,819.1 760.8 5.94
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial paper ...................................... 94.3 3.4 3.61 167.4 10.2 6.10
Other borrowed funds .................................. 1,027.0 38.3 3.73 1,417.1 82.3 5.80
Long-term debt ........................................ 248.7 24.1 9.68 303.6 29.3 9.66
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities ................ 14,550.9 594.8 4.09 14,707.2 882.6 6.00
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits ......................................... 2,680.1 2,347.7
Other liabilities ....................................... 209.1 227.7
Shareholders' equity .................................... 1,257.6 1,161.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity .............. $18,697.7 $18,444.4
=================================================================================================================================
Net interest income (tax-equivalent basis) .............. 769.9 3.81% 707.7 3.28%
Tax-equivalent basis adjustment ......................... (23.2) (27.9)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income ..................................... $ 746.7 $ 679.8
=================================================================================================================================
Net interest income as a percent of interest-earning assets
(tax-equivalent basis) 4.46% 4.13%
=================================================================================================================================
</TABLE>
31
<PAGE> 34
Summit Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................................ $ 1,256,684 $ 1,337,718
Federal funds sold and securities purchased under agreements to resell ................. 111,143 161,650
Interest bearing deposits with banks ................................................... 24,825 18,329
Securities:
Trading account securities ........................................................... 26,376 28,637
Securities available for sale ........................................................ 2,670,414 2,408,065
Securities held to maturity (fair value of $3,198,347 in 1996
and $3,040,826 in 1995) ............................................................ 3,217,384 3,047,080
- ------------------------------------------------------------------------------------------------------------------------------
Total securities ................................................................. 5,914,174 5,483,782
- ------------------------------------------------------------------------------------------------------------------------------
Loans .................................................................................. 14,819,595 14,019,574
Less: Allowance for loan losses ...................................................... 267,719 279,034
- ------------------------------------------------------------------------------------------------------------------------------
Net loans ........................................................................ 14,551,876 13,740,540
- ------------------------------------------------------------------------------------------------------------------------------
Premises and equipment ................................................................. 204,953 206,691
Accrued interest receivable ............................................................ 140,368 132,441
Due from customers on acceptances ...................................................... 15,671 26,740
Other assets ........................................................................... 448,318 429,044
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets ........................................................................... $22,668,012 $21,536,935
==============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits ................................................. $ 3,984,366 $ 3,873,801
Interest bearing deposits:
Savings and time deposits .......................................................... 13,779,803 13,373,864
Commercial certificates of deposit $100,000 and over ............................... 610,817 707,438
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits ................................................................... 18,374,986 17,955,103
- ------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds ................................................................... 1,338,734 1,042,556
Accrued expenses and other liabilities ................................................. 271,510 239,791
Accrued interest payable ............................................................... 50,261 45,567
Bank acceptances outstanding ........................................................... 15,671 26,740
Long-term debt ......................................................................... 689,977 424,862
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities ................................................................ 20,741,139 19,734,619
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock:
Series B: Authorized 1,200,000 shares, issued and outstanding 600,166 shares in 1995 -- 30,008
Series C: Authorized, issued and outstanding 504,481 shares in 1995 -- 12,612
Common stock par value $1.20:
Authorized 130,000,000 shares; issued and outstanding 93,962,565 in 1996 and
88,471,028 in 1995 ............................................................... 112,755 106,165
Surplus .............................................................................. 881,483 826,788
Retained earnings .................................................................... 927,672 821,579
Net unrealized gain on securities, net of tax ........................................ 4,963 5,164
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ....................................................... 1,926,873 1,802,316
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ............................................. $22,668,012 $21,536,935
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 35
SUMMIT BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans ................................................................... $1,191,805 $1,132,584 $ 951,029
Securities:
Trading account securities ............................................ 1,481 1,981 747
Securities available for sale ......................................... 152,326 63,973 81,187
Securities held to maturity ........................................... 201,481 289,310 265,365
- ------------------------------------------------------------------------------------------------------------------------------
Total securities .................................................... 355,288 355,264 347,299
Federal funds sold and securities purchased under agreements to resell .. 2,894 7,122 3,843
Deposits with banks ..................................................... 820 647 629
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income ............................................... 1,550,807 1,495,617 1,302,800
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Savings and time deposits ............................................... 484,524 478,643 349,989
Commercial certificates of deposit $100,000 and over .................... 43,011 36,090 18,858
Borrowed funds and long-term debt ....................................... 111,761 111,643 107,126
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense .............................................. 639,296 626,376 475,973
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income ................................................. 911,511 869,241 826,827
Provision for loan losses ............................................... 62,000 71,850 91,995
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses ................. 849,511 797,391 734,832
- ------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts ..................................... 98,949 88,083 82,997
Service and loan fee income ............................................. 40,414 35,562 37,013
Trust income ............................................................ 39,540 35,418 33,667
Securities gains ........................................................ 5,217 8,606 2,232
Trading account gains ................................................... 477 1,295 847
Other ................................................................... 62,866 55,225 53,310
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest income ........................................... 247,463 224,189 210,066
- ------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Salaries ................................................................ 245,507 251,253 244,906
Pension and other employee benefits ..................................... 80,873 85,297 77,906
Occupancy, net .......................................................... 71,368 70,297 69,617
Furniture and equipment ................................................. 64,841 61,104 58,561
Communications .......................................................... 30,029 26,155 24,885
Savings Association Insurance Fund assessment ........................... 11,059 -- --
Deposit insurance premium ............................................... 3,780 21,600 37,983
Restructuring charges ................................................... 110,700 -- 13,565
Other ................................................................... 129,778 126,655 172,242
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses ......................................... 747,935 642,361 699,665
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes ................................................. 349,039 379,219 245,233
Federal and state income taxes .......................................... 119,864 136,349 88,952
- ------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in accounting principle . 229,175 242,870 156,281
Cumulative effect of a change in accounting principle ................... -- -- (1,731)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income .......................................................... $ 229,175 $ 242,870 $ 154,550
==============================================================================================================================
Net Income Per Common Share:
Income before cumulative effect of a change in accounting principle . $ 2.44 $ 2.77 $ 1.82
Cumulative effect of a change in accounting principle ................... -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income Per Common Share ......................................... $ 2.44 $ 2.77 $ 1.80
==============================================================================================================================
Average Common Shares Outstanding (in thousands) ........................ 93,061 86,674 84,381
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE> 36
Summit Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .......................................................................... $ 229,175 $ 242,870 $ 154,550
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses and other real estate owned ............................ 64,204 77,736 102,568
Depreciation, amortization, and accretion, net .................................... 24,644 44,075 44,168
Restructuring charges ............................................................. 110,700 -- 13,565
Deferred income tax ............................................................... 10,916 22,486 23,244
Gains on sales of trading account securities and securities available for sale .... (5,694) (9,901) (3,079)
Gains on sales of mortgages held for sale ......................................... (1,935) (4,806) (2,759)
Gains on sales of other real estate owned ......................................... (3,596) (3,528) (1,457)
Proceeds from sales of other real estate owned .................................... 27,165 24,534 44,927
Proceeds from sales of mortgages held for sale .................................... 375,824 129,650 450,554
Originations of mortgages held for sale ........................................... (372,389) (160,290) (373,552)
Net decrease (increase) in trading account securities ............................. 2,738 7,528 (2,536)
Net (increase) decrease in accrued interest receivable and other assets ........... (40,986) 44,626 (320,559)
Net (decrease) increase in accrued interest payable, accrued expenses,
and other liabilities ........................................................... (96,779) 13,775 23,095
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ....................................... 323,987 428,755 152,729
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of securities held to maturity ............................................ (504,879) (562,943) (2,134,258)
Purchases of securities available for sale .......................................... (884,304) (276,199) (557,253)
Proceeds from maturities of securities held to maturity ............................. 697,822 924,202 1,375,252
Proceeds from maturities of securities available for sale ........................... 486,028 203,609 800,271
Proceeds from sales of securities available for sale ................................ 139,796 401,104 111,023
Net decrease (increase) in Federal funds sold and securities purchased under
agreements to resell .............................................................. 63,832 (84,481) 303,425
Net (increase) decrease in interest bearing deposits with banks ..................... (6,496) 493 12,958
Purchase acquisitions ............................................................... -- (36,273) (42,156)
Net increase in loans ............................................................... (221,625) (654,001) (1,071,204)
Purchases of premises and equipment, net ............................................ (7,791) (18,515) (24,044)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ........................................... (237,617) (103,004) (1,225,986)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in deposits ................................................. (496,212) 528,488 546,205
Net increase (decrease) in short-term borrowings .................................... 274,541 (520,483) 758,412
Principal payments on long-term debt, net ........................................... (35,085) (196,499) (398,004)
Proceeds from issuance of debt, net of related expenses ............................. 300,200 76,425 475,439
Dividends paid ...................................................................... (133,185) (94,784) (74,042)
Proceeds from issuance of common stock under dividend reinvestment
and other stock plans ............................................................. 30,301 32,631 24,962
Purchase of common stock ............................................................ (91,175) -- --
Redemptions of preferred stock ...................................................... (42,620) (5,984) --
Other, net .......................................................................... (3,966) (4,186) (714)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities ............................. (197,201) (184,392) 1,332,258
- ------------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and due from banks ...................................... (110,831) 141,359 259,001
Beginning cash balance of acquired entities ......................................... 29,797 9,273 4,432
Cash and due from banks, beginning of year .......................................... 1,337,718 1,187,086 923,653
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year ................................................ $ 1,256,684 $ 1,337,718 $ 1,187,086
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid:
Interest payments ................................................................. $ 636,913 $ 615,750 $ 469,079
Income tax payments ............................................................... 123,408 100,386 73,191
Noncash investing activities:
Net transfer of securities held to maturity to (from) securities available for sale -- 1,397,526 (573,715)
Net transfer of loans to other real estate owned .................................. 21,401 30,050 47,628
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE> 37
Summit Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
Preferred Common Retained
Stock Stock Surplus Earnings
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 ............................ $ 50,008 $ 99,901 $ 706,530 $ 596,348
Beginning balance of immaterial pooled
acquisition (450,000 shares) ...................... -- 540 (140) 2,395
Net unrealized gain on securities upon
adoption of a change in accounting principle,
net of tax ........................................ -- -- -- --
Adjustment for the pooling of companies with
different fiscal year ends ........................ -- -- 343 474
Net income .......................................... -- -- -- 154,550
Cash dividend declared:
Preferred stock ................................... -- -- -- (3,035)
Common stock ...................................... -- -- -- (74,451)
Common stock issued:
Dividend reinvestment and other stock plans
(647,661 shares) ................................ -- 777 14,690 --
Exercise of stock options, net (655,374 shares) ... -- 787 8,708 --
Change in unrealized gain (loss) on securities,
net of tax ........................................ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ............................ 50,008 102,005 730,131 676,281
- -------------------------------------------------------------------------------------------------------------------------------
Net income .......................................... -- -- -- 242,870
Cash dividend declared:
Preferred stock ................................... -- -- -- (2,700)
Common stock ...................................... -- -- -- (96,276)
Common stock issued:
In connection with purchase acquisition of
Bancorp New Jersey, Inc. (1,948,153 shares) ..... -- 2,338 65,848 --
Dividend reinvestment and other stock plans
(894,061 shares) ................................ -- 1,073 24,684 --
Exercise of stock options, net (624,862 shares) ... -- 749 6,125 --
Redemption of Series C preferred stock
(295,519 shares) .................................. (7,388) -- -- 1,404
Change in unrealized gain (loss) on securities,
net of tax ........................................ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ............................ 42,620 106,165 826,788 821,579
- -------------------------------------------------------------------------------------------------------------------------------
Beginning balance of immaterial pooled
acquisitions (4,353,085 shares) ................... -- 5,224 29,612 14,054
Net income .......................................... -- -- -- 229,175
Cash dividend declared:
Preferred stock ................................... -- -- -- (2,544)
Common stock ...................................... -- -- -- (134,592)
Common stock issued:
Dividend reinvestment and other stock plans
(282,390 shares) ................................ -- 339 10,083 --
Exercise of stock options, net (856,062 shares) ... -- 1,027 18,852 --
Purchase of common stock at cost
(2,329,880 shares) ................................ -- (2,796) (88,379) --
Reissuance of treasury stock in conjunction with
acquisition (2,329,880 shares) .................... -- 2,796 84,527 --
Redemption of Series B preferred stock
(600,166 shares) and Series C preferred stock
(504,481 shares) .................................. (42,620) -- -- --
Change in unrealized gain (loss) on securities,
net of tax ........................................ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ............................ $ -- $ 112,755 $ 881,483 $ 927,672
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) Net Total
Unrealized Shareholders'
Gain (Loss) Equity
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1993 ............................ $ 3,740 $ 1,456,527
Beginning balance of immaterial pooled
acquisition (450,000 shares) ...................... -- 2,795
Net unrealized gain on securities upon
adoption of a change in accounting principle,
net of tax ........................................ 9,355 9,355
Adjustment for the pooling of companies with
different fiscal year ends ........................ -- 817
Net income .......................................... -- 154,550
Cash dividend declared:
Preferred stock ................................... -- (3,035)
Common stock ...................................... -- (74,451)
Common stock issued:
Dividend reinvestment and other stock plans
(647,661 shares) ................................ -- 15,467
Exercise of stock options, net (655,374 shares) ... -- 9,495
Change in unrealized gain (loss) on securities,
net of tax ........................................ (37,803) (37,803)
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ............................ (24,708) 1,533,717
- -------------------------------------------------------------------------------------------------
Net income .......................................... -- 242,870
Cash dividend declared:
Preferred stock ................................... -- (2,700)
Common stock ...................................... -- (96,276)
Common stock issued:
In connection with purchase acquisition of
Bancorp New Jersey, Inc. (1,948,153 shares) ..... -- 68,186
Dividend reinvestment and other stock plans
(894,061 shares) ................................ -- 25,757
Exercise of stock options, net (624,862 shares) ... -- 6,874
Redemption of Series C preferred stock
(295,519 shares) .................................. -- (5,984)
Change in unrealized gain (loss) on securities,
net of tax ........................................ 29,872 29,872
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ............................ 5,164 1,802,316
- -------------------------------------------------------------------------------------------------
Beginning balance of immaterial pooled
acquisitions (4,353,085 shares) ................... (567) 48,323
Net income .......................................... -- 229,175
Cash dividend declared:
Preferred stock ................................... -- (2,544)
Common stock ...................................... -- (134,592)
Common stock issued:
Dividend reinvestment and other stock plans
(282,390 shares) ................................ -- 10,422
Exercise of stock options, net (856,062 shares) ... -- 19,879
Purchase of common stock at cost
(2,329,880 shares) ................................ -- (91,175)
Reissuance of treasury stock in conjunction with
acquisition (2,329,880 shares) .................... -- 87,323
Redemption of Series B preferred stock
(600,166 shares) and Series C preferred stock
(504,481 shares) .................................. -- (42,620)
Change in unrealized gain (loss) on securities,
net of tax ........................................ 366 366
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ............................ $ 4,963 $ 1,926,873
=================================================================================================
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
- --------------------------------------------------------------------------------
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles and prevailing industry standards. The
following is a description of the significant accounting policies used in the
preparation of the Consolidated Financial Statements.
BUSINESS
On March 1, 1996, UJB Financial Corp. completed its acquisition of The Summit
Bancorporation, and the company changed its name to Summit Bancorp. Summit
Bancorp is a bank holding company registered under the Bank Holding Company Act
of 1956. Through its bank and active non-bank subsidiaries, a full range of
banking services and certain non-banking services are provided to its customers
in a competitive environment. Summit Bancorp is regulated by various Federal and
state agencies and is subject to periodic examinations by those regulatory
authorities.
PRINCIPLES OF CONSOLIDATION
The accompanying Consolidated Financial Statements include the accounts of
Summit Bancorp after elimination of all significant intercompany accounts and
transactions. Certain prior period amounts have been reclassified to conform to
the financial statement presentation of 1996. The reclassifications have no
effect on shareholders' equity or net income as previously reported.
Prior period financial statements have been restated to include the accounts and
results of operations for all material acquisitions accounted for as
pooling-of-interests combinations. For acquisitions using the purchase method of
accounting, results of operations are included from the dates of acquisition.
The assets and liabilities of companies acquired under the purchase method of
accounting have been adjusted to estimated fair values at the date of
acquisition; the resulting net discount or premium is being accreted or
amortized into income over the estimated remaining lives of the related assets
and liabilities.
In preparation of financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates.
SECURITIES
Securities are classified into one of three categories: trading account, held to
maturity, and available for sale.
Securities that are purchased specifically for short-term appreciation with the
intent of selling in the near future are classified as trading account
securities. Trading account securities are carried at fair value with realized
and unrealized gains and losses reported in non-interest income.
Debt securities purchased with the intent and ability to hold until maturity are
classified as securities held to maturity and are carried at cost, adjusted for
amortization of premiums and accretion of discounts.
All other securities, including equity securities, are classified as securities
available for sale. Securities available for sale may be sold prior to maturity
in response to changes in interest rates, changes in prepayment risk, for
asset/liability management purposes, or other factors. These securities are
carried at fair value with unrealized gains and losses, including the effect of
hedges, reported on a net-of-tax basis, as a separate component of shareholders'
equity. Realized gains and losses, which are generally computed using the
specific identification method, are reported in non-interest income.
LOANS
Loans are generally carried at the principal amount outstanding, net of unearned
discounts and deferred loan origination fees and costs. Interest on loans is
accrued and credited to interest income as earned. Loan origination fees and
certain direct loan origination costs are deferred and amortized over the life
of the loan in interest income as an adjustment to the yield. Other loan fees
are recognized as earned and are included in non-interest income.
Residential mortgage loans that are serviced for others are not included in the
Consolidated Financial Statements. Fees earned for servicing loans are reported
as non-interest income primarily when the related loan payments are collected.
Loan servicing costs are charged to non-interest expense as incurred.
Loans held for sale primarily consist of residential mortgages and are carried
at the lower of cost or market using the aggregate method. Gains and losses on
loans sold are included in non-interest income.
NON-PERFORMING LOANS
Non-performing loans consist of commercial and industrial, construction and
development, and commercial mortgage loans for which the accrual of interest has
been discontinued. These loans are classified as non-performing when they are 90
days or more past due as to principal or interest or where reasonable doubt
exists as to timely collectibility.
36
<PAGE> 39
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," were adopted
prospectively on January 1, 1995. Under SFAS Nos. 114 and 118, when it is
probable that, based on current information, the lender will not collect all
amounts due under the contractual terms of the loan, the loan is to be reported
as impaired. Summit Bancorp considers all of its non-performing loans to be
impaired.
At the time a loan is placed on non-accrual status, previously accrued and
uncollected interest is reversed against interest income. Interest income on
non-accrual loans is generally credited to income on a cash basis; however, if
ultimate collectibility of principal is in doubt, interest collections are
applied as principal reductions. A loan is transferred to accrual status when it
is brought current and its future collectibility is assured.
Smaller balance loans such as consumer loans and residential mortgages, which
are collectively evaluated, are specifically excluded from the population of
impaired loans. Interest accruals on all consumer and residential mortgage loans
cease at 90 days, at which time all previously accrued interest is reversed.
Generally, all non-real-estate consumer loans are charged off at 120 days. All
impaired loans, residential mortgage loans and consumer real estate secured
loans, or a portion thereof, are charged off when deemed uncollectible.
Loan impairment is measured based on the present value of the expected future
cash flows discounted at the loan's effective interest rate or the underlying
value of collateral for collateral dependent loans. The impaired loan's carrying
value in excess of the expected cash flows or collateral value is specifically
reserved for or is charged to the allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation reserve available for losses
incurred or expected on extensions of credit. Credit losses primarily arise from
the loan portfolio, but may also be derived from other credit-related sources
including commitments to extend credit, guarantees and standby letters of
credit. Additions are made to the allowance through periodic provisions which
are charged to expense. All losses of principal are charged to the allowance
when incurred or when a determination is made that a loss is expected.
Subsequent recoveries, if any, are credited to the allowance.
The adequacy of the allowance for loan losses is determined through a quarterly
review of outstanding loans and commitments to extend credit. The impact of
economic conditions on the creditworthiness of the borrowers is considered, as
well as loan loss experience, changes in the composition and volume of the loan
portfolio, and management's assessment of the risks inherent in the loan
portfolio. These and other factors are used in assessing the overall adequacy of
the allowance for loan losses and the resulting provision for loan losses.
PREMISES AND EQUIPMENT
Premises, furniture, and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method. Premises, furniture, and equipment are depreciated
over the estimated useful lives of the assets or terms of the leases, as
applicable. Estimated useful lives are ten to forty years for premises, and
three to ten years for furniture and equipment. Maintenance and repairs are
charged to non-interest expenses as incurred, while renewals and major
improvements are capitalized. Upon disposition, premises, furniture and
equipment are removed from the property accounts at their net carrying amount
with the resulting gain or loss credited or charged to non-interest income or
expenses.
OTHER REAL ESTATE OWNED (OREO)
OREO is carried at the lower of cost or fair value less estimated cost to sell.
When a property is acquired, the excess of the carrying amount over fair value,
if any, is charged to the allowance for loan losses. An allowance for OREO has
been established, through charges to OREO expense, to maintain properties at the
lower of cost or fair value less estimated cost to sell. Operating results of
OREO, including rental income, operating expenses, and gains and losses realized
from the sale of properties owned, are included in non-interest expenses.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets acquired through purchase acquisitions. The
amortization of goodwill is on a straight-line basis over the estimated periods
to be benefited, ranging from ten to twenty-five years, and is included in
non-interest expenses.
Other intangibles primarily consist of core deposit intangibles which represent
the intangible value of depositor relationships assumed in acquisitions. The
amortization of these intangibles is on an accelerated basis over their
estimated periods of benefit, ranging from five to ten years, and is included in
non-interest expenses.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, SFAS No. 122, "Accounting for Mortgage Servicing
Rights," was adopted on a prospective basis. SFAS No. 122 requires the
recognition of separate assets for the rights to service mortgage loans for
others, however those servicing rights are acquired, through purchase
transactions or loan originations. Mortgage servicing rights are amortized over
the estimated net servicing life and are evaluated for impairment based on their
fair value on a quarterly basis. The fair value is estimated using the present
value of future cash flows along with numerous assumptions including servicing
income, cost of servicing, discount rates, prepayment anticipations and default
rates. Impairment adjustments are recognized through the use of a valuation
allowance.
37
<PAGE> 40
DERIVATIVE FINANCIAL INSTRUMENTS
Off-balance-sheet financial derivatives are used as part of the overall
asset/liability management process. These instruments are used to manage risk
related to changes in interest rates. At December 31, 1996, interest rate swaps,
caps and floors were used primarily to manage interest rate risk.
Interest rate swaps are agreements with counterparties to exchange periodic
interest payments calculated on a notional principal amount and are accounted
for under the accrual method. To qualify for accounting under the accrual
method, the swaps must be designated to interest-bearing assets or liabilities
and must modify their interest rate characteristics over the term of the
agreement or the designated instrument, whichever is shorter. The net periodic
interest payments or receipts arising from these instruments are recognized in
interest income or interest expense as yield adjustments to the designated asset
or liability.
Interest rate caps and floors are agreements in which, for an upfront premium
and on predetermined future dates, the counterparty agrees to pay an interest
amount based on the movement of specified market interest rates either above or
below a predetermined level. The payments, if applicable, are derived from the
measured rate variance multiplied by the contractual notional volume. To qualify
for accrual accounting, interest rate caps and floors must be designated to
interest-bearing assets or liabilities and must modify their interest rate
characteristics over the term of the agreement or the designated instrument,
whichever is shorter. Costs of interest rate caps and floors are deferred and
amortized in interest income or interest expense as adjustments to the yield of
the designated instrument. Unamortized costs are included in other assets.
Payments received on these caps and floors are recognized under the accrual
method as adjustments to interest income or interest expense of the designated
instruments.
Changes in the fair value of derivatives are only reported in financial
statements if they are hedging financial instruments accounted for at fair value
on the balance sheet. If terminated, realized gains and losses on these
instruments are deferred and amortized in interest income and interest expense
as yield adjustments to the designated asset or liability over the shorter of
the remaining life of the agreement or the designated asset or liability.
Summit Bancorp does not hold or issue any derivative financial instruments for
trading purposes where changes in their values are reported in earnings.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for under the intrinsic value based method
as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." Included in these Notes to the Consolidated
Financial Statements are the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation," which assumes the fair value based
method of accounting had been adopted.
RETIREMENT PLANS
Several formal non-contributory retirement plans exist which cover substantially
all full-time employees. Annual contributions are made to the plans in amounts
at least equal to the minimum regulatory requirements and no greater than the
maximum amount that can be deducted for Federal income tax purposes. The costs
associated with these benefits are accrued based on actuarial assumptions and
included in non-interest expenses.
INCOME TAXES
The amount provided for Federal income taxes is based on income reported for
consolidated financial statement purposes, after elimination of Federal
tax-exempt income which is derived primarily from securities of state and
political subdivisions and certain commercial and mortgage loans. The amount
provided for state income taxes is based on income reported by each subsidiary
on a stand alone basis.
Deferred Federal and state tax assets and liabilities are recognized for the
expected future tax consequences of existing differences between financial
statement and tax bases of existing assets and liabilities, as well as for
operating losses. The effect of a change in the tax rate on deferred taxes is
recognized in the period of the enactment date.
A consolidated Federal income tax return is filed with the amount of income tax
expense or benefit computed and allocated to each subsidiary on a separate
return basis.
NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income, less the
dividends on preferred stocks, by the average daily number of common shares
outstanding during the period. Common stock equivalents are not included in the
calculation as they have no material dilutive effect.
38
<PAGE> 41
NOTE 2 ACQUISITIONS AND RESTRUCTURING CHARGES
- --------------------------------------------------------------------------------
ACQUISITIONS
On March 1, 1996, UJB Financial Corp. completed its acquisition of The Summit
Bancorporation, and the company changed its name to Summit Bancorp. This
transaction was accounted for as a pooling of interests, and all financial
information has been restated for 1995 and prior periods. Of the acquisitions
accounted for as poolings of interest, The Flemington National Bank and Trust
Company (Flemington), Garden State Bancshares, Inc. (Garden State) and Lancaster
Financial Ltd., Inc. acquisitions were not material to Summit Bancorp's
Consolidated Financial Statements and were recorded as adjustments to beginning
shareholders' equity in the year of acquisition. Entities acquired under the
purchase method of accounting are reflected in Summit Bancorp's financial
statements from the date of acquisition.
On August 28, 1996, Summit Bancorp announced a definitive merger agreement to
acquire B.M.J. Financial Corp. (B.M.J.). At December 31, 1996, B.M.J. had total
assets of $676 million, loans of $449 million and deposits of $552 million. The
transaction is expected to be consummated in March 1997 in an exchange of .56
shares of Summit Bancorp common stock for each share of B.M.J. common stock.
This transaction will be accounted for as a pooling of interests.
On February 28, 1997, Summit Bancorp announced a definitive merger agreement to
acquire Collective Bancorp, Inc.(Collective). At December 31, 1996, Collective
had total assets of $5,544 million, loans of $2,874 million and deposits of
$3,553 million. The transaction is intended to be accounted for as a pooling of
interests in an exchange of .895 shares of Summit Bancorp common stock for each
share of Collective common stock. At December 31, 1996, there were approximately
20.4 million of Collective shares issued and outstanding. This transaction is
subject to regulatory and Collective shareholder approval, and is anticipated to
be consummated in the third quarter of 1997.
RESTRUCTURING CHARGES
Summit Bancorp recorded restructuring charges of $110.7 million, or $.75 per
common share, for merger-related expenses associated with The Summit
Bancorporation, Flemington and Garden State acquisitions. Also included in the
restructuring charge was $9.5 million for costs relating to the closing of
select full-service branches in conjunction with the supermarket branch
initiative.
The Summit Bancorporation acquisition accounts for $89 million of the
restructuring charge of which $35 million is for personnel expenses. Personnel
expenses include severance pay and benefits for terminated employees including
external placement costs. Charges for real estate were approximately $26
million. Real estate expenses resulted from the costs incurred when branches and
other operation facilities were consolidated, including lease-termination costs,
write-downs of owned properties and leasehold improvements and other
facility-related costs. Charges for professional fees amounted to $12 million
and included costs for investment banking, accounting and legal fees. Charges
for data processing were $8 million, which primarily included costs associated
with the disposal or write-offs of duplicate or non-usable software or hardware
systems. The remaining $8 million was for account conversions, communications
and other merger costs. Merger-related restructuring charges also included $4.3
million for the Flemington acquisition and $7.9 million for the Garden State
acquisition. The types of costs incurred for these acquisitions are similar to
that of The Summit Bancorporation.
These charges included only identified direct and incremental costs associated
with the mergers and the restructuring.
Funding for cash expenditures related to the charges have, and will be paid for
out of operations of Summit Bancorp. Liquidity was not significantly impacted by
these cash outlays. Approximately $71 million of restructuring charge payments
and $12 million of write-offs had been realized through December 31, 1996. It is
anticipated that the remaining restructuring charges will be used in 1997.
<TABLE>
<CAPTION>
SUMMARY OF COMPLETED ACQUISITIONS
Cash
(In millions, except common shares issued) Date Assets Loans Deposits Paid
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Central Jersey Financial Corporation ............... Dec. 7 $ 446.6 $ 200.5 $ 376.8 $ --
The Summit Bancorporation .......................... March 1 5,654.1 3,562.2 4,693.7 --
The Flemington National Bank and Trust Company ..... Feb. 23 285.9 190.6 257.5 --
Garden State Bancshares, Inc.* ..................... Jan. 16 311.8 208.8 281.8 --
1995
Bancorp New Jersey, Inc. ........................... July 11 504.5 290.4 450.0 36.3
1994
Palisade Savings Bank, FSB ......................... Sept. 16 324.2 164.8 266.7 42.2
Crestmont Financial Corp.* ......................... Sept. 13 859.4 422.7 726.2 --
Lancaster Financial Ltd., Inc.* .................... Sept. 1 16.1 12.9 -- --
VSB Bancorp, Inc. .................................. July 1 381.1 133.0 294.0 --
</TABLE>
<TABLE>
<CAPTION>
Common
Shares Method of
(In millions, except common shares issued) Issued Accounting
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1996
Central Jersey Financial Corporation ............. 2,329,880 Stock purchase
The Summit Bancorporation ........................ 34,078,905 Pooling of interests
The Flemington National Bank and Trust Company ... 1,324,000 Pooling of interests
Garden State Bancshares, Inc.* ................... 3,029,085 Pooling of interests
1995
Bancorp New Jersey, Inc. ......................... 1,948,153 Stock/cash purchase
1994
Palisade Savings Bank, FSB ....................... -- Cash purchase
Crestmont Financial Corp.* ....................... 3,829,588 Pooling of interests
Lancaster Financial Ltd., Inc.* .................. 450,000 Pooling of interests
VSB Bancorp, Inc. ................................ 2,628,912 Pooling of interests
</TABLE>
* Amounts included in the March 1, 1996, The Summit Bancorporation acquisition.
39
<PAGE> 42
NOTE 3 SECURITIES
- --------------------------------------------------------------------------------
The following table represents the major components of investment securities.
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------- ----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government and Federal agencies . $2,188,919 $ 8,755 $ 15,291 $2,182,383 $1,904,017 $14,238 $ 15,996 $1,902,259
States and political subdivisions .... 12,908 1 3 12,906 -- -- -- --
Other securities:
Mortgage-backed .................... 317,434 1,232 997 317,669 348,939 2,079 2,285 348,733
Other debt ......................... 30,197 923 4 31,116 41,497 2,042 87 43,452
Equities, net ...................... 110,771 15,708 139 126,340 102,269 11,531 179 113,621
- ------------------------------------------------------------------------------------------------------------------------------------
Total other ...................... 458,402 17,863 1,140 475,125 492,705 15,652 2,551 505,806
- ------------------------------------------------------------------------------------------------------------------------------------
$2,660,229 $26,619 $ 16,434 $2,670,414 $2,396,722 $29,890 $ 18,547 $2,408,065
- ------------------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
U.S. Government and Federal agencies . $1,698,032 $ 6,959 $ 18,561 $1,686,430 $1,261,172 $ 8,180 $ 11,747 $1,257,605
States and political subdivisions .... 217,547 9,575 119 227,003 271,621 14,815 186 286,250
Other securities:
Mortgage-backed .................... 1,170,547 894 18,518 1,152,923 1,404,834 1,138 20,453 1,385,519
Other debt ......................... 131,258 1,133 400 131,991 109,453 2,326 327 111,452
- ------------------------------------------------------------------------------------------------------------------------------------
Total other ...................... 1,301,805 2,027 18,918 1,284,914 1,514,287 3,464 20,780 1,496,971
- ------------------------------------------------------------------------------------------------------------------------------------
$3,217,384 $18,561 $ 37,598 $3,198,347 $3,047,080 $26,459 $ 32,713 $3,040,826
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in interest on securities held to maturity and securities available
for sale is tax-exempt income on certain state and municipal securities which
amounted to $16,563,000, $21,127,000 and $25,328,000 for 1996, 1995 and 1994,
respectively.
Gross realized gains on securities available for sale amounted to $7,823,000,
$23,892,000 and $2,693,000, while gross realized losses amounted to
$3,580,000, $15,994,000 and $834,000 for the years 1996, 1995 and 1994,
respectively. These amounts are included in non-interest income as securities
gains in the Consolidated Statements of Income. Also included in securities
gains are gains and losses realized from the early redemption of securities
held to maturity.
The carrying value of investment securities pledged to secure public funds
and securities sold under agreements to repurchase, as well as for other
purposes required by law, was $1,853,832,000 at December 31, 1996.
The table below provides the remaining contractual yields of debt securities
within the investment portfolios. The carrying value of securities at
December 31, 1996, are distributed by contractual maturity. However,
mortgage-backed securities and other securities which may have principal
prepayment provisions are distributed based on contractual maturity adjusted
for historical prepayments. These prepayments are not scheduled over the life
of the investment, but are reflected as adjustments to the final maturity
distribution. Equity securities, which have no contractual maturity, are
shown without the anticipated dividend yield in the due "within one year"
column.
<TABLE>
<CAPTION>
Within After one year After five years After
one year through five years through ten years ten years Total
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Government and Federal agencies ....... $207,262 6.58% $1,173,061 6.07% $193,735 6.60% $608,325 6.71% $2,182,383
States and political subdivisions .......... 12,906 4.19 -- -- -- -- -- -- 12,906
Other securities:
Mortgage backed .......................... 7,503 7.19 101,272 6.79 79,470 6.43 129,424 6.15 317,669
Other debt ............................... -- -- 31,089 6.43 -- -- 27 6.46 31,116
Equities, net ............................ 126,340 -- -- -- -- -- -- -- 126,340
- ------------------------------------------------------------------------------------------------------------------------------------
Total other ............................ 133,843 7.19* 132,361 6.71 79,470 6.43 129,451 6.15 475,125
- ------------------------------------------------------------------------------------------------------------------------------------
$354,011 6.46%* $1,305,422 6.13% $273,205 6.55% $737,776 6.61% $2,670,414
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY:
U.S. Government and Federal agencies ....... $ 62,846 6.14% $ 866,378 5.99% $396,886 6.72% $371,922 7.03% $1,698,032
States and political subdivisions .......... 45,833 6.17 103,559 6.26 45,931 6.06 22,224 6.40 217,547
Other securities:
Mortgage backed .......................... 102,163 5.95 948,823 6.19 67,963 6.36 51,598 6.96 1,170,547
Other debt ............................... 1,055 5.95 77,621 6.23 12,793 6.42 39,789 7.00 131,258
- ------------------------------------------------------------------------------------------------------------------------------------
Total other ............................ 103,218 5.95 1,026,444 6.19 80,756 6.37 91,387 6.98 1,301,805
- ------------------------------------------------------------------------------------------------------------------------------------
$211,897 6.05% $1,996,381 6.11% $523,573 6.61% $485,533 6.99% $3,217,384
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Yields exclude equity securities.
40
<PAGE> 43
NOTE 4 LOANS
- --------------------------------------------------------------------------------
The composition of the loan portfolio, net of unearned discount and deferred
loan origination fees and costs, at December 31 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial ........... $ 4,795,252 $ 4,751,227
Construction and development ........ 471,413 569,820
- ----------------------------------------------------------------------
Total commercial loans ............ 5,266,665 5,321,047
Commercial mortgage ................. 2,313,610 2,315,384
Residential mortgage ................ 3,795,752 3,296,818
- ----------------------------------------------------------------------
Total mortgage loans .............. 6,109,362 5,612,202
Home equity ......................... 2,165,550 1,907,883
Automobile .......................... 893,703 826,263
Other consumer ...................... 384,315 352,179
- ----------------------------------------------------------------------
Total consumer loans .............. 3,443,568 $ 3,086,325
- ----------------------------------------------------------------------
$14,819,595 $14,019,574
- ----------------------------------------------------------------------
</TABLE>
Summit Bancorp's credit policy emphasizes diversification of risk among
industries and borrowers. Concentrations of credit risk, whether on or off the
balance sheet, exist in relation to certain groups of customers or
counterparties. A group concentration arises when a number of customers or
counterparties have similar economic characteristics that would cause their
ability to meet contractual obligations or be similarly affected by changes in
economic or other conditions. Summit Bancorp does not have a significant
exposure to any individual customer, counterparty, or group concentration.
Summit Bancorp's business is concentrated in New Jersey and eastern
Pennsylvania. A significant portion of the total loan portfolio is secured by
real estate or other collateral located in these states. This concentration is
mitigated by the diversification of the loan portfolio among commercial,
construction, commercial mortgage, residential mortgage, and consumer loans. The
commercial and industrial loan portfolio represents approximately 32% of the
entire loan portfolio and has no concentration greater than 10% to any specific
industry.
At December 31, 1996, the ten largest commercial and commercial mortgage loans
have outstanding balances of $460,754,000 and unexercised commitments of
$61,874,000.
Included in the commercial and commercial mortgage loan portfolios are loans
where the accrual of interest has been discontinued. These non-performing loans
were $132,086,000 and $188,488,000 at December 31, 1996 and 1995, respectively.
These loans return to accrual status when the loan becomes contractually current
and future collectibility of amounts due is reasonably assured.
The table below shows the lost interest on non-performing loans at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income that would have been recorded
under original contract terms ........ $13,497 $19,724 $19,702
Less interest income received .......... 1,817 2,833 2,642
- --------------------------------------------------------------------------------
Lost income on non-performing
loans at year end $11,680 $16,891 $17,060
- --------------------------------------------------------------------------------
</TABLE>
The average balance of non-performing loans for 1996 and 1995 was $174,933,000
and $209,674,000, respectively. The amount of cash basis interest income that
was received on these loans was $3,312,000 in 1996 and $3,254,000 in 1995.
Included in residential mortgage loans are mortgage loans held for sale, which
approximated $49,400,000 at December 31, 1996, and $68,800,000 at December 31,
1995. These loans are accounted for at the lower of aggregate cost or market
value.
NOTE 5 ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $279,034 $305,330 $339,028
Acquisition adjustments, net 8,492 6,131 1,910
Add provision charged to expense 62,000 71,850 91,995
- --------------------------------------------------------------------------------
349,526 383,311 432,933
- --------------------------------------------------------------------------------
Less charge offs:
Commercial and industrial 36,524 45,293 37,229
Construction and development 16,862 35,451 39,209
Commercial mortgage 25,695 25,741 21,731
Residential mortgage 5,043 6,016 4,440
Consumer 20,913 13,871 10,300
- --------------------------------------------------------------------------------
Total charge offs 105,037 126,372 112,909
- --------------------------------------------------------------------------------
Add recoveries:
Commercial and industrial 12,602 14,684 13,921
Construction and development 2,427 2,072 1,320
Commercial mortgage 2,466 1,920 2,838
Residential mortgage 838 667 594
Consumer 4,897 2,752 3,585
- --------------------------------------------------------------------------------
Total recoveries 23,230 22,095 22,258
- --------------------------------------------------------------------------------
Net charge offs 81,807 104,277 90,651
- --------------------------------------------------------------------------------
Less write downs on transfer to assets
held for accelerated disposition -- -- 36,952
- --------------------------------------------------------------------------------
Balance, December 31 $267,719 $279,034 $305,330
- --------------------------------------------------------------------------------
</TABLE>
The allocation of the allowance for loan losses at December 31 was as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Allowance allocated to non-performing
loans $ 19,520 $ 29,473
Allowance allocated to performing loans 114,975 163,703
Unallocated allowance 133,224 85,858
- --------------------------------------------------------------------------------
$267,719 $279,034
- --------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 44
NOTE 6 PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The major components of premises and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Land .................................. $ 26,451 $ 21,046
Premises and leasehold improvements ... 260,342 251,875
Furniture and equipment ............... 205,284 210,832
- --------------------------------------------------------------------
492,077 483,753
Less accumulated depreciation and
amortization ........................ 287,124 277,062
- --------------------------------------------------------------------
$204,953 $206,691
- --------------------------------------------------------------------
</TABLE>
Amounts charged to non-interest expenses for depreciation and amortization
amounted to $28,576,000 in 1996, $29,191,000 in 1995, and $28,558,000 in 1994.
NOTE 7 OTHER ASSETS
- --------------------------------------------------------------------------------
The major components of other assets at December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $156,346 $149,237
Goodwill and other intangibles 148,144 119,676
Other real estate owned 20,979 24,295
Assets held for accelerated disposition -- 16,650
Other 122,849 119,186
- --------------------------------------------------------------------------------
$448,318 $429,044
- --------------------------------------------------------------------------------
</TABLE>
See Note 16 for additional information on other real estate owned, goodwill and
other intangibles and see Note 17 for detail on the deferred tax assets.
Included in "Other" is the carrying value of the capitalized mortgage servicing
rights which was $1,646,000 and $1,828,000 at December 31, 1996 and 1995,
respectively. The carrying value of these servicing rights approximates market
value.
NOTE 8 DEPOSITS
- --------------------------------------------------------------------------------
The following is an expected maturity distribution of savings and time
deposits at December 31, 1996:
<TABLE>
<CAPTION>
(In thousands) Amount
- --------------------------------------------------------------------
<S> <C>
Due in one year or less ........................ $12,368,126
Due between one and two years .................. 886,727
Due between two and three years ................ 422,116
Due between three and four years ............... 62,616
Due between four and five years ................ 28,135
Due over five years ............................ 12,083
- --------------------------------------------------------------------
$13,779,803
- --------------------------------------------------------------------
</TABLE>
As of December 31, 1996, there were $990,681,000 of time deposits greater than
$100,000, of which $610,817,000 are classified as commercial certificates of
deposit. At year-end 1996 and 1995, there were $36,302,000 and $36,971,000,
respectively, of overdraft deposit relationships classified as loans.
The total amount of public funds held on deposit as of December 31, 1996 was
$867,015,000, for which $191,147,000 of securities were pledged as collateral.
NOTE 9 OTHER BORROWED FUNDS
- --------------------------------------------------------------------------------
Other borrowed funds at December 31 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements to
repurchase ........................ $ 796,815 $ 649,650
Federal funds purchased ............. 199,950 200,700
Treasury tax and loan ............... 128,695 90,689
Federal Home Loan Bank advances ..... 90,000 --
Commercial paper* ................... 40,476 38,503
Other ............................... 82,798 63,014
- --------------------------------------------------------------------------------
$1,338,734 $1,042,556
- --------------------------------------------------------------------------------
</TABLE>
* Indicates Parent Corporation obligation.
Lines of credit at the Parent Corporation are available to support commercial
paper borrowings and for general corporate purposes. Interest on these lines of
credit approximates the prime lending rate at the time of borrowing. Unused
lines amounted to $38,000,000 at December 31, 1996.
NOTE 10 LEASE COMMITMENTS
- -------------------------------------------------------------------------------
Non-interest expenses include rentals for premises and equipment of $54,441,000
in 1996, $51,629,000 in 1995, and $46,881,000 in 1994, after reduction for
sublease rentals of $3,026,000, $3,683,000 and $2,986,000 in each of the
respective years. At December 31, 1996, Summit Bancorp was obligated under a
number of non-cancelable leases for premises and equipment, many of which
provide for increased rentals based upon increases in real estate taxes and the
cost of living index. These leases, most of which have renewal provisions, are
principally non-financing leases. Minimum rentals under the terms of these
leases for the years 1997 through 2001 are $29,647,000, $28,066,000,
$23,507,000, $20,634,000 and $18,929,000, respectively. Minimum rentals due
after 2002 are $151,409,000.
NOTE 11 CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
Summit Bancorp and its subsidiaries are, from time to time, defendants in legal
proceedings relating to the conduct of their businesses. In the best judgment of
management, the consolidated financial position of Summit Bancorp and its
subsidiaries will not be affected materially by the final outcome of any pending
legal proceedings or other contingent liabilities and commitments.
42
<PAGE> 45
NOTE 12 LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
FHLB Notes and advances, 4.00% to 8.05%,
due 1997 through 2010 .................... $426,442 $157,460
8.625% Subordinated notes due
December 10, 2002* ....................... 175,000 175,000
6.75% Subordinated notes due June 15, 2003.. 49,485 49,405
7.95% Senior notes due August 25, 2003* .... 20,000 20,000
Collateralized mortgage obligations ........ 10,391 13,148
7.75% Sinking fund debentures due
November 1, 1997* ........................ 8,659 9,349
Other ...................................... -- 500
- -----------------------------------------------------------------------
$689,977 $424,862
- -----------------------------------------------------------------------
</TABLE>
* Indicates Parent Corporation obligation.
The major banking subsidiaries of Summit Bancorp are members of the Federal Home
Loan Bank (FHLB) and have access to term financing from the FHLB having a
maturity of up to 15 years. The FHLB borrowings, reported as long-term debt, had
original maturities greater than one year and are secured by securities and
residential mortgages under a blanket collateral agreement.
The 8.625% subordinated notes were issued in 1992 and are unsecured. Interest is
payable semi-annually on June 10 and December 10 of each year. The subordinated
notes are not subject to redemption prior to maturity. This debt qualifies as
Tier II capital.
Summit Bank issued $50 million in 6.75% subordinated notes in 1993. Unamortized
discount on the subordinated notes was $515,000 and $595,000 at December 31,
1996 and 1995, respectively, resulting in an effective interest rate of 7.00%.
Interest is payable semiannually on June 15 and December 15 of each year. The
6.75% subordinated notes are not subject to redemption prior to maturity. This
debt qualifies as Tier II capital.
The 7.95% ten-year maturity private placement senior notes were issued in 1993
with interest payable quarterly. Summit Bancorp has the option to prepay the
notes, subject to certain prepayment provisions.
The collateralized mortgage obligations are secured by investments in
mortgage-backed securities having carrying values of $11,588,000 and $14,859,000
at December 31, 1996 and 1995. These mortgage-backed securities have interest
rates ranging from 7.25% to 9.50%. A trustee holds the collateral certificates,
collects all principal and interest payments thereon, and disburses all funds to
the noteholders.
Principal amounts due on long-term debt for the years 1997 through 2001 are
$93,024,000, $45,260,000, $141,495,000, $69,005,000 and $61,194,000,
respectively.
NOTE 13 PREFERRED AND COMMON STOCK
- --------------------------------------------------------------------------------
PREFERRED STOCK
There were 4,000,000 shares of preferred stock authorized as of December 31,
1996 and 1995, with no shares issued at year-end 1996 and 1,104,647 shares
issued and outstanding at year-end 1995.
The Series B Preferred Stock was redeemed and retired, in whole, at its stated
value of $50 per share on December 15, 1996, plus an accrued dividend of $.375
per share. Dividends in the amounts of $2.625, $3.04 and $3.07 per share were
declared for 1996, 1995 and 1994, respectively.
The Series C Preferred Stock was redeemed and retired, in whole, at its stated
value of $25 per share on December 15, 1996, plus a dividend of $.375 per share.
Dividends of $1.50 per share were declared for 1996, 1995 and 1994.
COMMON STOCK
The following table summarizes common stock reserved, issued, outstanding and
authorized as of December 31, 1996:
<TABLE>
<CAPTION>
Number
(In thousands) of Shares
- --------------------------------------------------------------------------------
<S> <C>
Dividend Reinvestment Plan .......................... 686
Savings Incentive Plan .............................. 471
Incentive Stock Option Plans ........................ 2,589
Other stock option plans ............................ 5,685
- --------------------------------------------------------------------------------
Unissued and reserved ............................. 9,431
Unissued ............................................ 26,606
Issued and outstanding .............................. 93,963
- --------------------------------------------------------------------------------
Total shares authorized ........................... 130,000
- --------------------------------------------------------------------------------
</TABLE>
The total shares reserved represent the amount of shares registered with the
Securities and Exchange Commission under current registration statements. Other
stock option plans consist primarily of plans acquired through acquisitions,
under which no new options can be granted.
During 1996 and 1995, Summit Bancorp issued 1,138,452 and 1,518,923 shares of
common stock, respectively, for the Dividend Reinvestment, Savings Incentive and
other stock option plans.
A Shareholder Rights Plan exists which is designed to ensure fair and equal
treatment for all shareholders in the event of any proposal to acquire Summit
Bancorp. The terms of the Plan provide that effective August 28, 1989, each
share of common stock also represents one "right." Each right will entitle the
holder to buy one one-hundredth of a share of a new series of preferred stock,
Series R, upon the occurrence of certain events. In addition, upon the
occurrence of certain other events, holders of the rights will be entitled to
purchase either shares of this new preferred stock or shares in an "acquiring
person" at half their fair market value as determined under the Plan.
43
<PAGE> 46
NOTE 14 BENEFIT PLANS
- --------------------------------------------------------------------------------
Summit Bancorp has several trusteed non-contributory defined benefit retirement
plans covering substantially all of its employees. The benefits are based on the
employees' years of service and final average compensation. The funding policy
is to contribute annually an amount that can be deducted for Federal income tax
purposes. Contributions are intended to provide not only for benefits attributed
for service to date, but also for those expected to be earned in the future.
The following table sets forth the qualified retirement plans' funding status
and amounts recognized in non-interest expenses at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$176,388 in 1996, $172,135 in 1995,
and $145,420 in 1994 ..................... $(188,580) $(184,262) $(155,855)
- -------------------------------------------------------------------------------------
Projected benefit obligation for services
rendered to date ......................... $(239,892) $(230,626) $(195,003)
Plan assets at fair value .................. 250,289 219,119 173,225
- -------------------------------------------------------------------------------------
Plan assets over (under) projected
benefit obligation ....................... 10,397 (11,507) (21,778)
Unrecognized transition asset .............. (5,293) (7,758) (10,319)
Unrecognized prior service cost ............ 327 354 667
Unrecognized net loss from past
experience, which is different from
that assumed, and effect of change
in assumptions ........................... 5,097 14,650 20,726
- -------------------------------------------------------------------------------------
Prepaid (accrued) pension cost ............. $ 10,528 $ (4,261) $ (10,704)
- -------------------------------------------------------------------------------------
Net pension expense components:
Service cost ............................. $ 11,226 $ 9,482 $ 9,063
Interest cost ............................ 17,862 16,315 14,309
Accrued return on plan assets ............ (27,203) (41,635) 7,890
Net deferral and amortization ............ 6,129 22,337 (25,726)
- -------------------------------------------------------------------------------------
Net pension expense ........................ $ 8,014 $ 6,499 $ 5,536
- -------------------------------------------------------------------------------------
</TABLE>
The plans' assets were principally invested in equities and fixed income
securities. The weighted average discount rates for the plans were 7.5% in 1996
and 1995 and 8.0% in 1994. The rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation was 5.0% in 1996 and 1995 and 5.5% in 1994. The weighted-average
expected long-term rate of return on plan assets was 9.0% in 1996, 1995 and
1994.
Summit Bancorp also maintains non-qualified supplemental retirement plans for
certain officers of the company. The plans, which are unfunded, provide benefits
in excess of that permitted to be paid by the pension plan under provisions of
the tax law. The plans' cost was $2,760,000 for 1996, $3,170,000 for 1995, and
$887,000 for 1994. At December 31, 1996, the projected benefit obligation
amounted to $13,351,000 and the accrued liability amounted to $9,049,000.
In addition to pension benefits, certain health care and life insurance benefits
are made available to retired employees. The cost of such benefits is accrued
based on actuarial assumptions from the date of hire to the date the employee is
fully eligible to receive benefits.
The following table sets forth the accumulated postretirement benefit obligation
and the net periodic postretirement benefit cost at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation (APBO)...................... $(29,921) $(36,160) $(38,062)
Fair value of assets................... -- -- --
---------------------------------------------------------------------------------
Projected benefit obligation funded
status ................................ (29,921) (36,160) (38,062)
Unrecognized transition obligation..... 16,087 20,983 24,514
Unrecognized prior service cost........ (619) 634 141
Unrecognized loss...................... (3,347) (2,695) (1,122)
---------------------------------------------------------------------------------
Accrued APBO............................. $(17,800) $(17,238) $(14,529)
---------------------------------------------------------------------------------
Net postretirement benefit cost
components:
Service cost........................... $ 422 $ 482 $ 574
Interest cost.......................... 2,191 2,670 2,696
Amortization of transition obligation.. 829 1,161 1,190
---------------------------------------------------------------------------------
Net postretirement benefit cost.......... $ 3,442 $ 4,313 $ 4,460
---------------------------------------------------------------------------------
</TABLE>
For measurement purposes, the cost of medical benefits was projected to increase
at a rate of 12.0% in 1996, 13.0% in 1995, and 14.0% in 1994 and thereafter
decreasing linearly to 6.0% after six years. Increasing the assumed health care
cost trend by one percent in each year would increase the accumulated
postretirement benefit obligation as of January 1, 1996, by $1,710,000 and the
aggregate of the service and interest components of net periodic postretirement
benefit cost for the year ended December 31, 1996, by $130,000. The present
value of the accumulated benefit obligation assumed a discount rate of 7.5% in
1996 and 1995 and 8.0% in 1994. The rate of increase used in future compensation
levels was 5.0% in 1996 and 1995 and 5.5% in 1994.
Various incentive plans have been established with the intention of providing
added incentive to middle and senior management to increase the profits of the
company. The amount of the awards are subject to limits as set forth in the
plans. Accruals for these plans amounted to $9,525,000, $9,649,000 and
$7,633,000 in 1996, 1995 and 1994, respectively.
There is a Savings Incentive Plan which covers employees with one or more years
of service. The plan permits eligible employees to make basic contributions to
the plan up to 5% of their base compensation with additional contributions up to
10% of their base compensation. Under the current plan, the employer matches
100% of the first 3% of the employee contribution and 50% of the next 2% of the
employee contribution. Matching contributions to the plan amounted to
$4,633,000, $3,270,000 and $2,446,000 in 1996, 1995 and 1994, respectively.
44
<PAGE> 47
NOTE 15 STOCK-BASED COMPENSATION
- --------------------------------------------------------------------------------
At December 31, 1996, Summit Bancorp had two types of stock award programs
referred to as Long-Term Performance Stock Programs and Incentive Stock Option
Programs which are described below. Summit Bancorp applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its stock-based compensation.
Incentive stock awards (i.e., nonvested stock awards) are issued under The
Long-Term Performance Stock Program to reward executives and to retain them by
distributing stock over a period of time. The nonvested stock awards granted
were 121,225 shares in 1996, 101,117 shares in 1995 and 130,306 shares in 1994.
The fair market value per share on these grants was $36.23 in 1996, $23.82 in
1995 and $21.10 in 1994. These shares vest over several years and are recognized
as compensation income to the employee. The compensation cost that has been
charged to non-interest expense for the nonvested stock awards was $4,145,000,
$3,264,000 and $3,168,000 for 1996, 1995 and 1994, respectively. In 1996,
$2,012,000 of compensation cost was recognized in the restructuring charge due
to accelerated vesting.
The Incentive Stock Option Programs are designed with a broad scope to align the
interests of a large number of employees with shareholder interests. These
options are intended to be either incentive stock options or non-qualified
options. Options have been granted to purchase common stock principally at the
fair market value of the stock at the date of grant. Options are exercisable
starting one year after the date of grant and generally expire ten years from
the date of grant. Upon the exercise of these options, proceeds received in
excess of par value of the shares are credited to surplus.
The fair value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
3.60% and 4.30%; expected volatility of 25% and 28%; risk-free interest rates of
5.40% and 7.80%; and expected lives of 5 years.
The weighted-average fair value at grant-date for the incentive options awarded
during 1996 and 1995 were $7.64 and $5.94, respectively.
Under APB Opinion No. 25, compensation cost for the stock options is not
recognized because the exercise price of the stock options equals the market
price of the underlying stock on the date of grant. Had compensation expense
been recorded for stock options granted as determined under SFAS No. 123, net
income would have been reduced by $3,523,000 in 1996 and $2,771,000 in 1995,
impacting per share net income by $.04 and $.03, for each respective year.
The following is a summary of the status of the Incentive Stock Option Programs
and changes during the past three years:
<TABLE>
<CAPTION>
Weighted-Avg.
Shares Exercise Price
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding, December 31, 1993............. 4,546,520 $15.77
Granted and acquired .................... 554,935 23.79
Exercised ............................... 750,754 10.17
Forfeited and expired ................... 98,845 23.52
- ------------------------------------------------------------------------
Outstanding, December 31, 1994
(3,513,475 exercisable shares at a
weighted-avg. exercise price of $16.71) 4,251,856 17.63
- ------------------------------------------------------------------------
Granted and acquired .................... 1,193,987 18.08
Exercised ............................... 1,142,601 11.75
Forfeited ............................... 29,115 23.97
Expired ................................. 1,010 17.56
- ------------------------------------------------------------------------
Outstanding, December 31, 1995
(3,402,035 exercisable shares at a
weighted-avg. exercise price of $18.28) 4,273,117 19.28
- ------------------------------------------------------------------------
Granted and acquired .................... 796,810 35.61
Exercised ............................... 969,504 18.07
Forfeited ............................... 15,660 35.49
Expired ................................. 5,625 28.33
- ------------------------------------------------------------------------
Outstanding, December 31, 1996
(3,313,338 exercisable shares at a
weighted-avg. exercise price of $19.62) 4,079,138 $22.68
- ------------------------------------------------------------------------
</TABLE>
The following table summarizes information about the Incentive Stock Option
Programs at December 31, 1996:
OUTSTANDING INCENTIVE STOCK OPTIONS
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Weighted-Avg.
Range of Options Remaining Weighted-Avg. Options Weighted-Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 6.80 to $15.16 895,224 3.5 years $11.46 895,224 $11.46
16.40 to 20.83 645,005 3.8 18.28 645,005 18.28
21.32 to 23.88 567,833 4.9 22.48 567,833 22.48
24.00 to 24.75 864,020 7.4 24.66 864,020 24.66
25.06 to 29.44 341,256 3.6 26.06 341,256 26.06
35.00 to 39.03 765,800 9.2 35.91 -- --
- -----------------------------------------------------------------------------------------------------------
4,079,138 4.6 years $22.68 3,313,338 $19.62
===========================================================================================================
</TABLE>
45
<PAGE> 48
NOTE 16 OTHER INCOME AND OTHER EXPENSES
- --------------------------------------------------------------------------------
Other income consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
International fees ............... $10,912 $10,288 $10,090
Automated teller fees ............ 11,531 5,039 4,801
Brokerage fees ................... 9,099 8,631 7,631
Insurance and annuity income ..... 7,770 5,359 5,986
Gain on sale of assets ........... 2,825 2,457 4,034
Other ............................ 20,729 23,451 20,768
- ----------------------------------------------------------------------
$62,866 $55,225 $53,310
======================================================================
</TABLE>
Other expenses consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Legal and professional fees ........ $ 28,575 $ 28,113 $ 26,268
Advertising and public relations ... 14,708 16,135 15,604
Amotization of goodwill and other
intangibles ...................... 10,823 8,932 5,934
Other real estate owned ............ 2,936 8,093 21,340
Loss on sale of assets (Crestmont).. -- -- 35,390
Other .............................. 72,736 65,382 67,706
- --------------------------------------------------------------------------
$129,778 $126,655 $172,242
==========================================================================
</TABLE>
NOTE 17 INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal ....................... $ 92,753 $ 89,760 $55,219
State ......................... 16,195 22,801 10,489
- ----------------------------------------------------------------------
108,948 112,561 65,708
Deferred provision:
Federal ....................... 9,662 19,684 17,636
State ......................... 1,254 4,104 5,608
- ----------------------------------------------------------------------
10,916 23,788 23,244
- ----------------------------------------------------------------------
Provision for income taxes .... $119,864 $136,349 $88,952
======================================================================
</TABLE>
A summary of the differences between the actual income tax provision and the
amounts computed by applying the statutory Federal income tax rate to income is
as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax at statutory rate ............. $ 122,164 $ 132,727 $ 85,832
Increase (decrease) in taxes resulting from:
Tax-exempt interest income .............. (8,407) (13,970) (10,886)
State taxes, net of Federal tax effect .. 11,342 17,488 10,452
Other, net .............................. (5,235) 104 3,554
- ----------------------------------------------------------------------------------------
$ 119,864 $ 136,349 $ 88,952
========================================================================================
</TABLE>
The significant Federal and state temporary differences which comprise the
deferred tax assets and liabilities presented at December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses ............. $105,252 $105,622
Provision for other real estate owned.. 4,625 8,704
Restructuring charges ................. 10,325 --
Other ................................. 36,144 34,911
- --------------------------------------------------------------------------------
156,346 149,237
Deferred tax liabilities:
Leasing operations .................... (30,420) (21,829)
Net unrealized gain on securities ..... (2,253) (3,524)
Other ................................. (9,973) (539)
- --------------------------------------------------------------------------------
(42,646) (25,892)
- --------------------------------------------------------------------------------
Net deferred tax assets $113,700 $123,345
================================================================================
</TABLE>
Included in deferred tax assets "Other" is a valuation allowance which has been
established against certain Federal and state temporary differences. The
valuation allowance was $8,501,000 at December 31, 1996, and $12,416,000 at
December 31, 1995. The net change in the total valuation allowance for the years
ended December 31, 1996 and 1995, was a decrease of $3,915,000 and an increase
of $510,000, respectively. At December 31, 1996, there was a deferred state tax
asset of $5,930,000 resulting from operating loss carryforwards. This asset was
reserved by the valuation allowance.
Management is not aware of any factors which would generate significant
differences between taxable income and pre-tax book income in future years
except for the effects of the reversal of current or future net deductible
temporary differences. However, there can be no assurances that there will not
be any significant differences in the future, if circumstances change.
Management believes, based upon current facts, that more likely than not there
will be sufficient taxable income in future years to realize the deferred tax
assets. However, there can be no assurance about the level of future earnings.
Included in shareholders' equity are income tax benefits attributable to
nonvested stock awards and the exercise of non-qualified incentive stock options
of $4,620,000, $1,359,000 and $1,957,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
46
<PAGE> 49
NOTE 18 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
In the ordinary course of business, Summit Bancorp and its subsidiaries enter
into a variety of financial instruments that are recorded off the balance sheet.
This reporting is considered appropriate where either the exchange of the
underlying asset or liability has not yet occurred or the notional amounts are
used solely as a means to determine the cash flows to be exchanged. These
off-balance-sheet financial instruments are primarily divided into two
categories: credit-related financial instruments and derivative financial
instruments.
Credit-related financial instruments are principally customer related, while
derivative financial instruments are acquired primarily for asset/liability
management purposes.
The following table summarizes the notional amount of off-balance-sheet
financial instruments at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Credit-related instruments:
Commitments to extend credit ....... $5,053,963 $4,578,939
Standby letters of credit .......... 302,825 298,327
Commercial letters of credit ....... 94,961 104,845
Derivative instruments
Interest rate swaps ................ 386,314 967,537
Interest rate floors ............... 430,000 --
Interest rate caps ................. 73,326 63,892
Foreign exchange contracts ......... 33,259 24,382
==============================================================
</TABLE>
CREDIT-RELATED FINANCIAL INSTRUMENTS
Commitments to extend credit are legally binding agreements to lend to a
customer provided all established contractual conditions are met. These
commitments generally have fixed expiration dates and usually require the
payment of a fee. Summit Bancorp does not issue long-term fixed-rate loan
commitments that can be locked in during the commitment period.
Standby letters of credit are conditional guarantees issued to ensure the
performance of a customer to a third party and are generally terminated through
the fulfillment of a specific condition or through the lapse of time.
Commercial letters of credit are conditional commitments, generally less than
180 days, issued to guarantee payment by a customer to a third party upon proof
of an international trade shipment. The short-term nature of these instruments
limit their credit risk.
Fees received from credit-related financial instruments are recognized over the
terms of the contracts and are generally included in other non-interest income.
The credit risk associated with these financial instruments is essentially the
same as that involved in extending loans to customers and is incorporated in the
assessment of the adequacy of the allowance for loan losses. Credit risk is
managed by limiting the total amount of arrangements outstanding and by applying
normal credit policies. Many of the commitments to extend credit are expected to
expire without being drawn upon and, therefore, the amounts do not necessarily
represent future cash flow requirements.
DERIVATIVE FINANCIAL INSTRUMENTS
Activities involving interest rate swaps are primarily attributed to
asset/liability risk management efforts aimed at stabilizing net interest income
through periods of changing interest rates. The interest rate swaps were
acquired to hedge interest rate risk on certain interest-earning assets and
interest-bearing liabilities.
Interest rate swaps are contractual agreements between two parties to exchange
interest payments at particular intervals, computed on different terms, on a
specified notional amount. The notional amounts represent the base on which
interest due each counterparty is calculated and do not represent the potential
for gains or losses associated with the market risk or credit risk of such
transactions.
Under the terms of the interest rate swaps at December 31, 1996, there were
$161,314,000 of contracts to receive fixed payments of 5.65% with an expected
maturity of August 1998, and an average payout based on three-month LIBOR.
Additionally, there were $225,000,000 of interest rate swaps to receive payments
at the effective Federal funds rate and make fixed payments of 5.64% with an
expected maturity of October 1997. These swaps have resulted in a decrease of
$1,952,000 and $9,846,000 in net interest income during 1996 and 1995,
respectively, and an increase of $530,000 in 1994.
Interest rate caps and floors are agreements in which, for an upfront premium
and on predetermined future dates, the counterparty agrees to pay an interest
amount based on the movement of specified market interest rates either above or
below a strike rate. The payments, if applicable, are derived from the measured
rate differential multiplied by the contractual notional volume. The interest
rate floors were purchased primarily to hedge adjustable rate LIBOR based
assets. Interest rate caps were purchased to accommodate customers who desire
interest rate protection on variable rate loans.
Credit-related losses can occur in the event of non-performance by the
counterparties to the derivative financial instruments. The credit risk that
results from interest rate swaps and interest rate floors is represented by the
fair value of contracts that have a positive value at the reporting date. At
December 31, 1996, the total amount of credit risk was $1,362,000; however, this
amount can increase or decrease if interest rates change. To minimize the risk
of credit losses, Summit Bancorp monitors the credit standing of the
counterparties and only transacts with those that have credit ratings of AA or
better.
Summit Bancorp enters into contracts to purchase or sell foreign currency to be
delivered at a future date to facilitate customer transactions. The notional
amount represents the outstanding contracts at year end.
47
<PAGE> 50
NOTE 19 FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The fair value of financial instruments is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced liquidation. Fair value estimates are made at a specific
point in time based on the type of financial instrument and relevant market
information.
Because no quoted market price exists for a significant portion of these
financial instruments, the fair values of such financial instruments are derived
based on the amount and timing of future cash flows, estimated discount rates,
as well as management's best judgment with respect to current economic
conditions. Many of these estimates involve uncertainties and matters of
significant judgment and cannot be determined with precision.
The fair value information provided is indicative of the estimated fair values
of those financial instruments and should not be interpreted as an estimate of
the value of Summit Bancorp taken as a whole. The disclosures do not address the
value of recognized and unrecognized non-financial assets and liabilities or the
value of future anticipated business. The following methods and assumptions were
used to estimate the fair values of significant financial instruments at
December 31, 1996 and 1995.
FINANCIAL ASSETS
Cash, short-term investments and customer acceptances have relatively short
maturities or no defined maturities, but are payable on demand, with little or
no credit risk. The carrying amounts reported in the Consolidated Balance Sheets
approximate fair value.
Trading account securities and securities available for sale are reported at
their respective fair values in the Consolidated Balance Sheets. These values
were based on quoted market prices. The fair values of securities held to
maturity were also based upon quoted market prices.
The fair value of loans is estimated using a combination of techniques including
discounted estimated future cash flows and, where available, quoted market
prices of similar instruments. The loan portfolios are segmented based upon loan
type, credit quality and repricing characteristics. The fair values of most
fixed-rate loans are estimated using discounted cash flow models taking into
consideration current rates that would be offered to borrowers with similar
credit risk for loans with similar remaining terms. The fair values of variable
rate loans are estimated by reducing their carrying values by their
corresponding general and specific credit reserves. Non-performing loans are
primarily valued based upon the net realizable value of the loan's underlying
collateral.
FINANCIAL LIABILITIES
The estimated fair values of demand and savings deposits are equal to the
amounts recognized in the Consolidated Balance Sheets. These amounts do not
recognize the fair value of core deposit intangibles, which represent the value
of a core deposit base with an expected duration. The fair values for medium- to
long-term deposit liabilities are calculated by discounting estimated future
cash flows using current rates offered for deposits of similar remaining
maturities.
The fair values for borrowed funds are calculated by discounting estimated
future cash flows using current rates offered for borrowings of similar
remaining maturities. Due to the short maturities of bank acceptances, their
carrying value approximates fair value.
The fair value of long-term debt is based upon quoted market prices. For
long-term debt issuances where quoted market prices are not available, the fair
values are determined using discounted cash flow analyses.
The estimated fair values of accrued interest receivable and accrued interest
payable are considered to be equal to the amounts recognized in the Consolidated
Balance Sheets.
OFF-BALANCE-SHEET INSTRUMENTS
The estimated fair values of derivative financial instruments are based upon
quoted market prices, without consideration of the market values related to the
hedged on-balance-sheet financial instruments. For commitments to extend credit
and letters of credit, the fair values would approximate fees currently charged
to enter into similar agreements. The following table presents the carrying
amounts and fair values of financial instruments at December 31:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- ---------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term
investments .................. $ 1,392.7 $ 1,392.7 $ 1,517.7 $ 1,517.7
Trading account securities ..... 26.4 26.4 28.6 28.6
Securities available for
sale ......................... 2,670.4 2,670.4 2,408.1 2,408.1
Securities held to
maturity ..................... 3,217.4 3,198.3 3,047.1 3,040.8
Loans, net ..................... 14,551.9 14,859.8 13,740.5 14,080.0
Accrued interest
receivable ................... 140.4 140.4 132.4 132.4
Due from customers on
acceptance ................... 15.7 15.7 26.7 26.7
FINANCIAL LIABILITIES:
Deposits ....................... $18,375.0 $18,417.0 $17,955.1 $18,002.0
Other borrowed funds ........... 1,338.7 1,343.0 1,042.6 1,042.6
Long-term debt ................. 690.0 704.3 424.9 449.2
Accrued interest payable ....... 50.3 50.3 45.6 45.6
Bank acceptances
outstanding .................. 15.7 15.7 26.7 26.7
OFF-BALANCE-SHEET
INSTRUMENTS:
Interest rate swaps ............ NA $ (1.3) NA $ (1.1)
Interest rate floors
and caps ..................... NA 1.4 NA --
Loan commitments ............... NA (26.9) NA (25.6)
Standby letters of credit ...... NA (2.0) NA (1.9)
Commercial letters of
credit ....................... NA (.1) NA (.1)
=============================================================================================
</TABLE>
NA - Not applicable.
48
<PAGE> 51
NOTE 20 REGULATORY MATTERS
- --------------------------------------------------------------------------------
CASH AND DUE FROM BANKS
Certain subsidiary banks are required to maintain reserve balances with a
Federal Reserve Bank based principally upon deposits. These non-interest-earning
reserve balances averaged $492,027,000 in 1996 and $486,373,000 in 1995.
LOANS TO AFFILIATES
Summit Bancorp's subsidiary banks are restricted, with certain limited
exceptions, by the Federal Reserve Act, from extending credit to affiliated
companies, including the Parent Corporation. Each subsidiary bank is also
subject to collateral security requirements for any loans or extensions of
credit permitted by exception. Further, a subsidiary bank may only engage in
most transactions with other subsidiaries if terms and conditions are at least
as favorable to the bank as those prevailing for transactions with unaffiliated
companies. Such secured loans and other regulated transactions are limited in
amount to each of its affiliates, including the Parent Corporation. The
limitation is 10% of the bank's capital stock and defined surplus per affiliate,
and 20% in aggregate to all of its affiliates. At December 31, 1996, the Parent
Corporation had available credit from its subsidiary banks of approximately
$200,000,000.
SUBSIDIARY DIVIDENDS
Certain bank regulatory limitations exist on the availability of subsidiary bank
undistributed net assets for the payment of dividends to the Parent Corporation
without prior approval of bank regulatory authorities.
The Federal Reserve Act, which affects the New Jersey state-member bank,
restricts the payment of dividends in any calendar year to the net profit of the
current year combined with retained net profits of the preceding two years. The
Pennsylvania state-chartered bank may declare a dividend up to the amount of
accumulated net profit. In addition to these statutory restrictions, the
subsidiary banks are required to maintain adequate levels of capital. At
December 31, 1996, the total undistributed net assets of the subsidiary banks
were $1,774,383,000, of which $238,634,000 was available, under the most
restrictive limitations, for the payment of dividends to the Parent Corporation.
CAPITAL REQUIREMENTS
Summit Bancorp is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have an adverse
material impact on Summit Bancorp. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Summit Bancorp must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Summit Bancorp's capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Summit Bancorp and its subsidiary banks to maintain amounts and ratios
(set forth in the table below) of Total and Tier I risk-based capital (as
defined in the regulations) to risk-weighted assets, and of Tier I leverage to
average assets.
At December 31, 1996, Summit Bancorp and its banking subsidiaries were well
capitalized under the regulatory framework for prompt and corrective action. To
be well capitalized, Tier I leverage, Tier I risk-based capital and Total
risk-based capital must equal or exceed the ratios set forth in the table below.
There are no conditions or events that management believes have changed Summit
Bancorp's or its subsidiary banks' well capitalized rating.
CAPITAL RATIOS FOR SUMMIT BANCORP AND SIGNIFICANT SUBSIDIARY BANKS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31, Minimum Statutory
------------------ Required Well As of Minimum
1996 1995 Capital Capitalized December 31, 1996 Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier I Leverage
Summit Bancorp ................ 8.06% 7.97% ) $1,779,517 $ 883,682
Summit Bank NJ ................ 7.22 7.24 ) 4.00% 5.00% 1,387,275 769,037
Summit Bank PA ................ 7.97 7.79 ) 215,997 108,381
Tier I Risk-Based Capital
Summit Bancorp ................ 11.09% 10.75% ) $1,779,517 $ 641,793
Summit Bank NJ ................ 10.05 9.87 ) 4.00% 6.00% 1,387,275 552,403
Summit Bank PA ................ 10.65 10.12 ) 215,997 81,089
Total Risk-Based Capital
Summit Bancorp ................ 13.75% 13.46% ) $2,205,390 $1,283,586
Summit Bank NJ ................ 12.32 12.16 ) 8.00% 10.00% 1,701,163 1,104,805
Summit Bank PA ................ 12.60 12.05 ) 255,478 162,178
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 52
NOTE 21 PARENT CORPORATION INFORMATION
- --------------------------------------------------------------------------------
Condensed financial information of Summit Bancorp Parent Corporation is
presented below. For information on long-term debt, see Note 12.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) December 31,
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks .................. $ 11,180 $ 3,570
Securities purchased under agreements
to resell .............................. 136,585 191,250
Interest-bearing deposits with banks ..... 5,000 5,000
Securities available for sale ............ 40,611 34,276
Investment in subsidiaries ............... 1,800,714 1,673,115
Due from subsidiaries .................... 237,250 181,142
Premises and equipment, net .............. 1,094 500
Other assets ............................. 24,588 20,481
- ----------------------------------------------------------------------------
TOTAL ASSETS ............................. $2,257,022 $2,109,334
============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities ... $ 86,014 $ 64,166
Commercial paper ......................... 40,476 38,503
Long-term debt ........................... 203,659 204,349
- ----------------------------------------------------------------------------
Total liabilities ...................... 330,149 307,018
Total shareholders' equity ............... 1,926,873 1,802,316
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,257,022 $2,109,334
============================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
- ------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Dividends from subsidiaries ............. $ 225,003 $ 121,010 $ 80,640
Management fees from subsidiaries ....... 34,090 32,761 29,322
Interest from subsidiaries .............. 22,063 22,925 17,026
Securities gains ........................ 5,831 18,829 123
Other interest .......................... 1,119 102 3,719
Other ................................... 616 2,564 684
- ------------------------------------------------------------------------------------------
Total operating income ................ 288,722 198,191 131,514
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES
Services charges to subsidiaries ........ 37,055 33,144 --
Interest ................................ 19,726 20,412 19,586
Salaries and employee benefits .......... 5,183 4,193 26,491
Occupancy and equipment ................. 68 70 4,340
Other ................................... 1,355 522 11,314
- ------------------------------------------------------------------------------------------
Total operating expenses .............. 63,387 58,341 61,731
- ------------------------------------------------------------------------------------------
Income before taxes and equity in
undistributed net income of
subsidiaries ........................ 225,335 139,850 69,783
Federal and state income taxes (benefits) (7,196) 4,891 (3,758)
- ------------------------------------------------------------------------------------------
232,531 134,959 73,541
Equity in undistributed net income
of subsidiaries ....................... (3,356) 107,911 81,009
- ------------------------------------------------------------------------------------------
Net income ............................ $ 229,175 $ 242,870 $ 154,550
==========================================================================================
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
- -------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .............................. $ 229,175 $ 242,870 $ 154,550
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ....... 150 3 1,794
(Increase) decrease in other assets . (3,924) (50) 18,421
Increase (decrease) in accrued
expenses and other liabilities .... 23,280 15,830 (30,531)
Equity in undistributed net income
of subsidiaries ................... 3,356 (107,911) (81,009)
Securities gains .................... (5,831) (18,829) (123)
- -------------------------------------------------------------------------------------------
Net cash provided by operating
activities ...................... 246,206 131,913 63,102
- -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of securities
available for sale .................... 27,434 28,332 16,819
Net decrease in securities purchased
under agreements to resell ............ 54,665 3,376 9,213
Purchase of securities available for sale (23,054) -- --
Payments received on advances to
subsidiaries .......................... 451,776 180,278 205,611
Purchase acquisitions ................... -- (36,273) (42,156)
Advances to subsidiaries ................ (507,884) (204,588) (198,189)
Purchases of premises and equipment,
net ................................... (744) -- (2,069)
Capital contributions to subsidiaries ... (1,500) (10,310) (11,525)
- -------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities ............ 693 (39,185) (22,296)
- -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in commercial
paper ................................. 1,973 (3,708) 8,852
Principal payments on long-term debt .... (690) (15,689) (3,134)
Dividends paid .......................... (133,185) (94,784) (74,042)
Repurchase of common stock .............. (91,175) -- --
Proceeds from issuance of common
stock, net ............................ 30,301 32,631 24,962
Redemption of preferred stock ........... (42,620) (5,984) --
Other, net .............................. (3,966) (4,186) (714)
- -------------------------------------------------------------------------------------------
Net cash used in financing
activities ...................... (239,362) (91,720) (44,076)
- -------------------------------------------------------------------------------------------
Increase (decrease) in cash and due
from banks ............................ 7,537 1,008 (3,270)
Cash and due from banks at
beginning of year ..................... 3,570 2,562 5,832
Beginning cash balance of acquired
entities .............................. 73 -- --
- -------------------------------------------------------------------------------------------
Cash and due from banks at end of year .. $ 11,180 $ 3,570 $ 2,562
===========================================================================================
</TABLE>
50
<PAGE> 53
Summit Bancorp and Subsidiaries
MANAGEMENT'S REPORT
Summit Bancorp and its subsidiaries are responsible for the preparation,
integrity, and fair presentation of the audited consolidated financial
statements and notes contained on pages 32 through 50 in this report. The
statements were prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and include amounts that are
based on management's estimates and judgments. Other financial information
presented throughout the annual report is prepared on a basis consistent with
these financial statements.
The consolidated financial statements of Summit Bancorp have been audited by
KPMG Peat Marwick LLP, independent auditors, whose selection has been
ratified by the shareholders. Their audit was made in accordance with
generally accepted auditing standards and considered the internal control
structure to the extent deemed necessary to support their independent
auditors' report appearing herein.
Summit Bancorp is responsible for establishing and maintaining an internal
control structure to provide reasonable assurance that the financial
statements are presented in conformity with generally accepted accounting
principles. There are inherent limitations in the effectiveness of any
internal control structure, no matter how well designed, including the
possibility of human error, the circumvention or overriding of controls, and
the consideration of cost in relation to the benefit of the control.
Accordingly, even an effective internal control structure can provide only
reasonable assurance with respect to financial statement preparation.
Furthermore, because of changes in conditions, the effectiveness of an
internal control structure may vary over time. To monitor compliance, Summit
Bancorp maintains an internal auditing program. This program includes a
review for compliance with written policies and procedures and a review of
the adequacy and effectiveness of internal controls.
The Audit Committee of the Board of Directors of Summit Bancorp, composed
entirely of outside directors, meets periodically with the independent
auditors, management and internal auditors to review the work of each and
ensure that each is properly discharging its responsibilities. The
independent auditors and internal auditors have full and free access to the
Committee to discuss the results of their audit work, their evaluation of
internal controls, and the quality of financial reporting.
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Summit Bancorp:
We have audited the accompanying consolidated balance sheets of Summit
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Summit
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
Short Hills, New Jersey
January 20, 1997, except as to the third paragraph of note 2, which is as of
February 28, 1997.
51
<PAGE> 54
Summit Bancorp and Subsidiaries
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Not covered by independent
auditors' report.) 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS (IN
THOUSANDS)
Interest income ..................... $ 1,550,807 $ 1,495,617 $ 1,302,800
Interest expense .................... 639,296 626,376 475,973
- -------------------------------------------------------------------------------------------
Net interest income ............... 911,511 869,241 826,827
Provision for loan losses ........... 62,000 71,850 91,995
- -------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ....... 849,511 797,391 734,832
Non-interest income ................. 247,463 224,189 210,066
Non-interest expenses ............... 626,176 642,361 650,710
Non-recurring charges ............... 121,759 -- 48,955
- -------------------------------------------------------------------------------------------
Income(loss) before income
taxes ........................... 349,039 379,219 245,233
Federal and state income taxes
(benefit) ......................... 119,864 136,349 88,952
- -------------------------------------------------------------------------------------------
Income (loss) before cumulative
effect of a change in
accounting principle ............ 229,175 242,870 156,281
Cumulative effect of a change in
accounting principle .............. -- -- (1,731)
- -------------------------------------------------------------------------------------------
Net income (loss) ................. $ 229,175 $ 242,870 $ 154,550
===========================================================================================
COMMON SHARE DATA
Net income (loss) ................... $ 2.44 $ 2.77 $ 1.80
Net income (loss) (before
non-recurring items*) ............. 3.26 2.77 2.22
Cash dividends declared ............. 1.36 1.19 .94
Book value at year end .............. 20.51 19.89 17.45
Market value at year end ............ 43.75 35.63 24.13
Average common shares outstanding
(in thousands) .................... 93,061 86,674 84,381
Common shares outstanding at year
end (in thousands) ................ 93,963 88,471 85,004
Common stock dividend payout
ratio ............................. 55.74% 42.96% 52.22%
===========================================================================================
BALANCE SHEET DATA (AT YEAR END,
IN THOUSANDS)
Total assets ........................ $22,668,012 $21,536,935 $20,894,815
Total deposits ...................... 18,374,986 17,955,103 16,977,109
Total loans ......................... 14,819,595 14,019,574 13,105,179
Shareholders' equity ................ 1,926,873 1,802,316 1,533,717
Long-term debt ...................... 689,977 424,862 544,936
Allowance for loan losses ........... 267,719 279,034 305,330
===========================================================================================
OPERATING RATIOS
Before non-recurring items*
Return on average assets .......... 1.38% 1.16% .94%
Return on average common equity ... 16.61 14.82 12.80
After non-recurring items*
Return on average assets .......... 1.03 1.16 .76
Return on average common equity ... 12.41 14.82 10.37
Net interest margin ................. 4.52 4.60 4.53
Efficiency ratio .................... 53.39 57.55 59.71
===========================================================================================
LOAN QUALITY RATIOS
Allowance for loan losses to
year-end loans .................... 1.81% 1.99% 2.33%
Net charge offs to average loans .... .56 .78 .73
Non-performing loans to year-end
loans ............................. .89 1.34 1.53
===========================================================================================
CAPITAL RATIOS
Average total equity to average
total assets ...................... 8.42% 7.97% 7.46%
Tier I capital to average assets
(leverage) ........................ 8.06 7.97 7.27
Tier I capital to risk-adjusted
assets ............................ 11.09 10.75 9.95
Total capital to risk-adjusted
assets ............................ 13.75 13.46 12.69
===========================================================================================
OTHER DATA (AT YEAR END)
Number of banking offices ........... 345 354 361
Number of automated teller
machines .......................... 503 398 260
Number of employees (full-time
equivalent) ....................... 7,333 7,547 7,766
Number of employees (full-time) ..... 6,263 6,560 6,816
Number of employees (part-time) ..... 1,369 1,259 1,323
===========================================================================================
- -------------------------------------------------------------------------------------------
</TABLE>
*See Glossary on page 18 for definition of non-recurring items.
NR - Not reported. NA - Not applicable.
52
<PAGE> 55
<TABLE>
<CAPTION>
(Not covered by independent
auditors' report.) 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (IN
THOUSANDS)
Interest income ..................... $ 1,236,658 $ 1,341,504 $ 1,562,393 $ 1,704,795 $ 1,654,498 $ 1,396,494
Interest expense .................... 456,797 594,757 882,605 1,035,637 986,011 784,590
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income ............... 779,861 746,747 679,788 669,158 668,487 611,904
Provision for loan losses ........... 112,885 165,553 192,417 335,416 97,245 49,480
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ....... 666,976 581,194 487,371 333,742 571,242 562,424
Non-interest income ................. 212,802 205,058 178,463 202,218 189,732 151,814
Non-interest expenses ............... 685,330 660,207 604,893 580,863 542,647 491,333
Non-recurring charges ............... 21,500 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Income(loss) before income
taxes ........................... 172,948 126,045 60,941 (44,903) 218,327 222,905
Federal and state income taxes
(benefit) ......................... 48,925 35,770 14,445 (21,291) 65,020 59,888
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative
effect of a change in
accounting principle ............ 124,023 90,275 46,496 (23,612) 153,307 163,017
Cumulative effect of a change in
accounting principle .............. 9,119 -- -- -- (10,730) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ................. $ 133,142 $ 90,275 $ 46,496 $ (23,612) $ 142,577 $ 163,017
==================================================================================================================================
COMMON SHARE DATA
Net income (loss) ................... $ 1.57 $ 1.13 $ .60 $ (.38) $ 1.98 $ 2.32
Net income (loss) (before
non-recurring items*) ............. 1.61 1.13 .60 (.38) 2.14 2.32
Cash dividends declared ............. .69 .60 .60 1.02 1.11 1.01
Book value at year end .............. 16.89 15.93 15.35 15.32 16.79 15.72
Market value at year end ............ 24.00 24.25 14.63 7.13 18.88 20.75
Average common shares outstanding
(in thousands) .................... 82,712 77,499 72,496 71,291 67,764 66,740
Common shares outstanding at year
end (in thousands) ................ 83,251 82,039 73,186 71,792 68,129 67,067
Common stock dividend payout
ratio ............................. 43.95% 53.10% 100.00% NA 56.06% 43.53%
==================================================================================================================================
BALANCE SHEET DATA (AT YEAR END,
IN THOUSANDS)
Total assets ........................ $19,139,498 $19,204,120 $18,636,270 $ 18,158,687 $ 17,953,260 $16,458,403
Total deposits ...................... 16,164,226 16,462,089 15,790,487 14,991,980 13,896,961 13,324,326
Total loans ......................... 11,881,426 11,972,053 12,145,189 12,280,607 12,382,014 11,041,416
Shareholders' equity ................ 1,456,527 1,356,744 1,173,160 1,150,098 1,239,311 1,157,545
Long-term debt ...................... 467,501 364,762 270,044 394,143 448,848 501,350
Allowance for loan losses ........... 339,028 374,639 388,846 359,258 179,286 142,997
==================================================================================================================================
OPERATING RATIOS
Before non-recurring items*
Return on average assets .......... .72% .48% .25% (.13)% .91% 1.05%
Return on average common equity ... 9.81 7.22 3.89 (2.25) 12.83 15.32
After non-recurring items*
Return on average assets .......... .70 .48 .25 (.13) .84 1.05
Return on average common equity ... 9.54 7.22 3.89 (2.25) 11.90 15.32
Net interest margin ................. 4.56 4.46 4.13 4.13 4.52 4.56
Efficiency ratio .................... 63.48 64.44 66.32 64.96 60.68 61.44
==================================================================================================================================
LOAN QUALITY RATIOS
Allowance for loan losses to
year-end loans .................... 2.85% 3.13% 3.20% 2.93% 1.45% 1.29%
Net charge offs to average loans .... 1.25 1.49 1.34 1.24 .52 .32
Non-performing loans to year-end
loans ............................. 2.69 3.83 4.82 4.80 2.13 1.25
==================================================================================================================================
CAPITAL RATIOS
Average total equity to average
total assets ...................... 7.39% 6.73% 6.30% 6.83% 7.26% 7.17%
Tier I capital to average assets
(leverage) ........................ 7.42 7.03 6.18 6.02 6.97 7.01
Tier I capital to risk-adjusted
assets ............................ 10.74 9.77 8.55 8.25 NA NA
Total capital to risk-adjusted
assets ............................ 13.78 12.45 10.06 9.90 NA NA
==================================================================================================================================
OTHER DATA (AT YEAR END)
Number of banking offices ........... 366 361 361 369 364 355
Number of automated teller
machines .......................... 243 235 207 NR NR NR
Number of employees (full-time
equivalent) ....................... 8,160 8,295 8,549 8,594 8,587 8,624
Number of employees (full-time) ..... 7,270 7,470 7,692 7,701 7,607 7,738
Number of employees (part-time) ..... 1,224 1,160 1,234 1,254 1,228 1,439
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Not covered by independent
auditors' report.) 1987 1986
- ----------------------------------------------------------------------
<S> <C> <C>
SUMMARY OF OPERATIONS (IN
THOUSANDS)
Interest income ..................... $ 1,198,911 $ 1,080,713
Interest expense .................... 645,534 609,930
- ----------------------------------------------------------------------
Net interest income ............... 553,377 470,783
Provision for loan losses ........... 40,996 45,599
- ----------------------------------------------------------------------
Net interest income after
provision for loan losses ....... 512,381 425,184
Non-interest income ................. 148,002 156,580
Non-interest expenses ............... 451,508 411,737
Non-recurring charges ............... -- --
- ----------------------------------------------------------------------
Income(loss) before income
taxes ........................... 208,875 170,027
Federal and state income taxes
(benefit) ......................... 58,601 38,436
- ----------------------------------------------------------------------
Income (loss) before cumulative
effect of a change in
accounting principle ............ 150,274 131,591
Cumulative effect of a change in
accounting principle .............. -- --
- ----------------------------------------------------------------------
Net income (loss) ................. $ 150,274 $ 131,591
======================================================================
COMMON SHARE DATA
Net income (loss) ................... $ 2.13 $ 2.03
Net income (loss) (before
non-recurring items*) ............. 2.13 2.03
Cash dividends declared ............. .91 .82
Book value at year end .............. 14.78 13.58
Market value at year end ............ 22.25 23.75
Average common shares outstanding
(in thousands) .................... 65,791 61,542
Common shares outstanding at year
end (in thousands) ................ 64,105 61,235
Common stock dividend payout
ratio ............................. 42.72% 40.39%
======================================================================
BALANCE SHEET DATA (AT YEAR END,
IN THOUSANDS)
Total assets ........................ $15,060,173 $13,669,747
Total deposits ...................... 11,765,187 11,324,119
Total loans ......................... 9,864,525 8,602,955
Shareholders' equity ................ 1,078,339 898,857
Long-term debt ...................... 431,284 388,854
Allowance for loan losses ........... 127,460 109,905
======================================================================
OPERATING RATIOS
Before non-recurring items*
Return on average assets .......... 1.07% 1.07%
Return on average common equity ... 15.68 17.05
After non-recurring items*
Return on average assets .......... 1.07 1.07
Return on average common equity ... 15.68 17.05
Net interest margin ................. 4.73 5.22
Efficiency ratio .................... 59.76 60.92
======================================================================
LOAN QUALITY RATIOS
Allowance for loan losses to
year-end loans .................... 1.29% 1.28%
Net charge offs to average loans .... .25 .31
Non-performing loans to year-end
loans ............................. .76 .83
======================================================================
CAPITAL RATIOS
Average total equity to average
total assets ...................... 7.16% 6.51%
Tier I capital to average assets
(leverage) ........................ 7.11 NA
Tier I capital to risk-adjusted
assets ............................ NA NA
Total capital to risk-adjusted
assets ............................ NA NA
======================================================================
OTHER DATA (AT YEAR END)
Number of banking offices ........... 345 334
Number of automated teller
machines .......................... NR NR
Number of employees (full-time
equivalent) ....................... 8,320 8,050
Number of employees (full-time) ..... 7,513 7,264
Number of employees (part-time) ..... 1,370 1,325
======================================================================
- ----------------------------------------------------------------------
</TABLE>
53
<PAGE> 56
Summit Bancorp and Subsidiaries
UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996
- -----------------------------------------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .......................... $ 390,495 $ 386,713 $ 385,846 $ 387,753
Interest expense ......................... 162,007 157,791 157,736 161,762
- -----------------------------------------------------------------------------------------------------------------
Net interest income .................... 228,488 228,922 228,110 225,991
Provision for loan losses ................ 15,500 15,500 15,500 15,500
- -----------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ............ 212,988 213,422 212,610 210,491
Non-interest income ...................... 65,318 61,044 62,838 58,263
Non-interest expenses .................... 155,247 149,270 159,624 162,035
Non-recurring charges .................... -- 11,059 -- 110,700
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before taxes ............. 123,059 114,137 115,824 (3,981)
Federal and state income taxes ........... 40,987 40,159 40,460 (1,742)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) ...................... $ 82,072 $ 73,978 $ 75,364 $ (2,239)
=================================================================================================================
COMMON SHARE DATA
Net income (loss) ........................ $ .88 $ .79 $ .80 $ (.03)
Net income (before non-recurring
items*) ................................ .88 .86 .80 .72
Cash dividends declared .................. .36 .36 .32 .32
Book value at quarter end ................ 20.51 19.59 19.39 19.00
Market value at quarter end .............. 43.75 39.75 35.13 37.00
Common stock dividend payout ............. 40.91% 45.57% 40.00% NM
Average common shares outstanding ........ 92,338 93,205 93,574 93,134
Common shares outstanding ................ 93,963 91,628 93,713 93,399
=================================================================================================================
BALANCE SHEET DATA (QUARTER END)
Total assets ............................. $ 22,668,012 $ 22,388,229 $ 22,386,787 $ 22,329,776
Total deposits ........................... 18,374,986 18,309,952 18,198,466 18,093,804
Total loans .............................. 14,819,595 14,817,455 14,749,667 14,556,090
Shareholders' equity ..................... 1,926,873 1,837,852 1,859,781 1,816,922
Long-term debt ........................... 689,977 391,777 392,863 398,605
Allowance for loan losses ................ 267,719 271,138 276,017 280,590
=================================================================================================================
OPERATING RATIOS
Before non-recurring items*
Return on average assets ............... 1.47% 1.45% 1.37% 1.23%
Return on average common equity ........ 17.46 17.54 16.72 14.72
After non-recurring items*
Return on average assets ............... 1.47 1.33 1.37 (.04)
Return on average common equity ........ 17.46 16.06 16.72 (.63)
Efficiency ratio ......................... 53.34 50.80 53.86 55.60
=================================================================================================================
TAX-EQUIVALENT YIELDS AND RATES
Interest earning assets .................. 7.63% 7.62% 7.62% 7.70%
Interest bearing liabilities ............. 4.00 3.92 3.88 3.97
Net interest spread ...................... 3.63 3.70 3.74 3.73
Net interest margin ...................... 4.50 4.53 4.53 4.52
=================================================================================================================
LOAN QUALITY RATIOS
Allowance for loan losses
to quarter-end loans ................... 1.81% 1.83% 1.87% 1.93%
Net charge offs to average loans ......... .57 .55 .55 .57
Non-performing loans to
quarter-end loans ...................... .89 1.09 1.18 1.30
=================================================================================================================
CAPITAL RATIOS
Tier I leverage to average assets ........ 8.06% 7.81% 8.01% 7.79%
Tier I capital to risk-adjusted assets ... 11.09 10.61 10.75 10.57
Total capital to risk-adjusted assets .... 13.75 13.30 13.42 13.23
=================================================================================================================
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except per share data) 1995
- -----------------------------------------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .......................... $ 381,053 $ 377,514 $ 373,890 $ 363,160
Interest expense ......................... 158,492 161,134 159,178 147,572
- -----------------------------------------------------------------------------------------------------------------
Net interest income .................... 222,561 216,380 214,712 215,588
Provision for loan losses ................ 19,500 19,200 16,950 16,200
- -----------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ............ 203,061 197,180 197,762 199,388
Non-interest income ...................... 58,150 58,131 55,918 51,990
Non-interest expenses .................... 159,348 158,322 162,318 162,373
Non-recurring charges .................... -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before taxes ............. 101,863 96,989 91,362 89,005
Federal and state income taxes ........... 36,707 34,812 33,092 31,738
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) ...................... $ 65,156 $ 62,177 $ 58,270 $ 57,267
=================================================================================================================
COMMON SHARE DATA
Net income (loss) ........................ $ .73 $ .70 $ .68 $ .66
Net income (before non-recurring
items*) ................................ .73 .70 .68 .66
Cash dividends declared .................. .32 .29 .29 .29
Book value at quarter end ................ 19.89 19.36 18.50 17.98
Market value at quarter end .............. 35.63 32.00 30.38 27.50
Common stock dividend payout ............. 43.84% 41.43% 42.65% 43.94%
Average common shares outstanding ........ 88,252 87,627 85,563 85,208
Common shares outstanding ................ 88,471 87,993 85,719 85,403
=================================================================================================================
BALANCE SHEET DATA (QUARTER END)
Total assets ............................. $ 21,536,935 $ 21,149,787 $ 20,952,796 $ 20,750,376
Total deposits ........................... 17,955,103 17,513,124 17,185,629 16,834,242
Total loans .............................. 14,019,574 13,730,520 13,221,085 13,165,614
Shareholders' equity ..................... 1,802,316 1,745,997 1,628,324 1,578,397
Long-term debt ........................... 424,862 475,530 522,890 513,331
Allowance for loan losses ................ 279,034 291,156 290,366 296,936
=================================================================================================================
OPERATING RATIOS
Before non-recurring items*
Return on average assets ............... 1.22% 1.17% 1.13% 1.13%
Return on average common equity ........ 14.81 14.63 14.74 15.14
After non-recurring items*
Return on average assets ............... 1.22 1.17 1.13 1.13
Return on average common equity ........ 14.81 14.63 14.74 15.14
Efficiency ratio ......................... 56.22 55.70 58.95 59.43
=================================================================================================================
TAX-EQUIVALENT YIELDS AND RATES
Interest earning assets .................. 7.80% 7.80% 7.94% 7.87%
Interest bearing liabilities ............. 4.04 4.11 4.15 3.89
Net interest spread ...................... 3.76 3.69 3.79 3.98
Net interest margin ...................... 4.59 4.51 4.60 4.71
=================================================================================================================
LOAN QUALITY RATIOS
Allowance for loan losses
to quarter-end loans ................... 1.99% 2.12% 2.20% 2.26%
Net charge offs to average loans ......... .91 .72 .72 .76
Non-performing loans to
quarter-end loans ...................... 1.34 1.51 1.67 1.53
=================================================================================================================
CAPITAL RATIOS
Tier I leverage to average assets ........ 7.97% 7.82% 7.69% 7.49%
Tier I capital to risk-adjusted assets ... 10.75 10.60 10.49 10.22
Total capital to risk-adjusted assets .... 13.46 13.33 13.25 12.98
=================================================================================================================
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*See Glossary on page 18 for definition of non-recurring items.
NM - not meaningful
54
<PAGE> 57
Summit Bancorp and Subsidiaries
CORPORATE DIRECTORY
SUMMIT BANCORP
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey
08543-2066
609-987-3200
Corporate Management
Chairman and
Chief Executive Officer
T. Joseph Semrod
President
Robert G. Cox
Vice Chairmen
John G. Collins
John R. Howell
Senior Executive Vice Presidents
John R. Haggerty
Sabry J. Mackoul
Stephen H. Paneyko
Executive Vice Presidents
Larry L. Betsinger
Alfred M. D'Augusta
John R. Feeney
William J. Healy
Richard F. Ober, Jr.
Dennis Porterfield
Alan N. Posencheg
Gary F. Simmerman
George J. Soltys, Jr.
Edmund C. Weiss, Jr.
Senior Vice Presidents
Susan U. Bredehoft
Kerry K. Calaiaro
Barry S. Duerk
Peter J. Gindin
Faith P. Goldstein
Robert A. Gunther
James J. Kreig
Katherine Piell
Paul V. Stahlin
Robert Steinberg
Timothy S. Tracey
Dennis A. Williams
Board of Directors
S. Rodgers Benjamin
Chairman and
Chief Executive Officer
Flemington Fur Company
Robert L. Boyle
Representative
William H. Hintelmann Firm
James C. Brady, Jr.
Partner
Mill House Associates, L.P.
John G. Collins
Vice Chairman
Summit Bancorp
Robert G. Cox
President
Summit Bancorp
T.J. Dermot Dunphy
Chairman and
Chief Executive Officer
Sealed Air Corporation
Anne Evans Estabrook
Owner
Elberon Development Co.
Elinor J. Ferdon
Volunteer Professional
National President
Girl Scouts of U.S.A.
Fred G. Harvey
Vice President
E&E Corporation
John R. Howell
Vice Chairman
Summit Bancorp
Francis J. Mertz
President
Fairleigh Dickinson University
George L. Miles, Jr., CPA
President and
Chief Executive Officer
WQED Pittsburgh
Henry S. Patterson II
President
E'town Corporation
Thomas D. Sayles, Jr.
Former Chairman
The Summit Bancorporation
T. Joseph Semrod
Chairman and
Chief Executive Officer
Summit Bancorp
Raymond Silverstein, CPA
Consultant
Alloy, Silverstein, Shapiro,
Adams, Mulford & Co., P.C.
Orin R. Smith
Chairman and
Chief Executive Officer
Engelhard Corporation
Joseph M. Tabak
President and
Chief Executive Officer
JPC Enterprises, Inc.
Douglas G. Watson
President and
Chief Executive Officer
Novartis Corporation
Summit Bank
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey
08543-2066
609-987-3200
Senior Management
Chairman and
Chief Executive Officer
T. Joseph Semrod
President
Robert G. Cox
Vice Chairman
John G. Collins
Senior Executive Vice Presidents
John R. Haggerty
Sabry J. Mackoul
Stephen H. Paneyko
Executive Vice Presidents
Anthony J. Allora
Alfred M. D'Augusta
Robert Eberhardt, Jr.
Gerald L. Facciani
John R. Feeney
Peter D. Halstead
William J. Healy
James S. Little
Stewart E. McClure, Jr.
H. Richard Minette
Richard F. Ober, Jr.
Robert J. Peters
Dennis Porterfield
Christophe-Pierre Terlizzi
Timothy S. Tracey
Regional Presidents
Fredric B. Cort
Stephen T. Emr
J. Michael Feeks
Michael J. Giacobello
Gary F. Simmerman
William J. Wolverton
Senior Vice Presidents
John P. Babcock
John D. Battaglia
Bette A. Bauer
Donald W. Blum
Susan U. Bredehoft
Arthur J. Brown
Thomas B. Butler
Richard O. Carmichael
Paul J. Cavaliere
Stephen Chaberski
Carol Coles
J. Michael Cunnane
Gaetana P. Cunsolo
Jack Cussen
James F. Deutsch
Margaret L. Domber
Barry S. Duerk
Kermit Dyke
Anne Ferguson
James N. Ferrier
Thomas M. Finn
William R. Frasca
Laura Gilardini
Ferdinand R. Horn IV
Virginia A. Ibarra
Dorinda Jenkins-Glover
Hilton M. Jervey
55
<PAGE> 58
Summit Bancorp and Subsidiaries
CORPORATE DIRECTORY (continued)
Jeffrey J. Kraft
James B. Kurdek
Christopher Lahoda
George B. Littlejohn
Michael J. Maiorino, Jr.
Charles A. Maraziti
Simone Marino
Stephen J. Mauger
Richard J. Morbee
George L. Nichols
William C. Pasko
Ronald Phillips
Peter C. Platt
Edward E. Poor IV
Bindigana Ramaprasad
Richard D. Rein
Mary Reither
Garrett W. Roberts
Irwin Schwartz
Thomas P. Smyth
Alfred J. Soles
Paul V. Stahlin
Frank J. Stanziola
J. Page Stiger, Jr.
Richard Tappen
Francis P. Testa
Paul A. Towers
Roger M. Tully
Harold W. Ullmann
Joseph Verbaro, Jr.
Thomas M. Wick
Arty C. Zulawski
Senior Regional Managers
Michael Alicea
Barbara Baldino
Thomas J. D'Angelo
Barbara Oldt
Jorge Rojas
Daniel Slocum
Gregory M. Smith
Maurice J. Spagnoletti
Edward Stahl
Karen Sweeney
Board of Directors
Bjorn Ahlstrom
Robert L. Boyle
James C. Brady, Jr.
Barry D. Brown
John G. Collins
Robert G. Cox
T.J. Dermot Dunphy
Anne Evans Estabrook
Elinor J. Ferdon
Samuel Gerstein, Esq.
Richard H. Goldberger
Robert S. Hekemian
Thomas C. Jamieson, Jr., Esq.
Vincent P. Langone
Francis J. Mertz
George L. Miles, Jr., CPA
Bertram B. Miller
Henry S. Patterson II
T. Joseph Semrod
Raymond Silverstein, CPA
Orin R. Smith
Sylvester L. Sullivan
Joseph M. Tabak
Alexander von Summer
Robert A. Woodruff, Sr.
SUMMIT BANK
One Bethlehem Plaza
Bethlehem, Pennsylvania 18018
610-865-8411
Senior Management
Chairman, President
and Chief Executive Officer
John R. Howell
Executive Vice President
Tomas J. Bamberger
Regional Presidents
Fredric B. Cort
Gary F. Simmerman
Senior Vice Presidents
Philip D. Beck
Michael L. Brown
Thomas L. Burns
Francis P. Testa
Senior Regional Manager
Gary F. Lamont
Board of Directors
Charles J. Bufalino, Esq.
Walter J. Dealtrey
Ronald D. Ertley
Alfred M. Giannangeli
Henry A. Giuliani, Esq.
Allan L. Goodman
John R. Haggerty
Fred G. Harvey
John R. Howell
William L. Morse, Jr.
Donald M. Pachence
Richard H. Penske
Robert J. Tunnessen
John W. Woltjen
Summit Service Corporation
55 Challenger Road
Ridgefield Park, New Jersey
07660
201-296-3000
Senior Management
Chairman of the Board
John G. Collins
President and
Chief Executive Officer
Alan N. Posencheg
Executive Vice President
Larry L. Betsinger
Senior Vice Presidents
Hubert P. Clarke
Elaine Fettig
Frank J. Litterio
Ray W. Mead
Santiago Patino
Eugene E. Schwarzenbek
John J. Smith
SUMMIT DISCOUNT BROKERAGE CO.
305 Route 17 South
P.O. Box 929
Paramus, New Jersey 07652
201-262-8400
1-800-631-1635
Senior Management
President and
Chief Executive Officer
Joseph J. McCaffrey
Executive Vice President
Jack R. Ader
Senior Vice Presidents
Gerard Hallman
Loretta Kane
SUMMIT VENTURE CAPITAL, INC.
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543
609-987-3200
President and
Chief Executive Officer
Stephen H. Paneyko
Summit Commercial/
Gibraltar Corp.
546 Fifth Avenue
New York, New York 10036
212-997-3350
Senior Management
Chairman of the Board
Robert J. Peters
President and
Chief Executive Officer
Irwin Schwartz
Executive Vice President
Harvey Friedman
Senior Vice President
Robert A. Schnitzer
56
<PAGE> 59
Summit Bancorp and Subsidiaries
Shareholder and Corporate Information
Headquarters
Summit Bancorp
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
(609) 987-3200
www.summitbank.com
Annual Shareholders Meeting
Friday, April 18, 1997 at 10 a.m.
Hyatt Regency Princeton
Route 1 and Alexander Road
Princeton, New Jersey
Common Stock Data
Common stock is traded on the New York Stock Exchange under the
symbol SUB. Daily stock quotes:
The New York Times - SumtBc
The Wall Street Journal - SummitBcp
Dividend Reinvestment and
Stock Purchase Plan
Stockholders may have quarterly dividends automatically reinvested in additional
shares without service charges. Optional cash payments, up to $25,000 per
quarter, toward the purchase of shares are permitted. Plan prospectus and
enrollment card: First Chicago Trust Company of New York, (201) 324-0498.
Transfer and Dividend Paying Agent/Registrar
First Chicago Trust Company
of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
(201) 324-0498
Co-Transfer Agent: Summit Bank
Other Reports
Copies of Form 10-K are available
without charge. Write:
Summit Bancorp
Corporate Comptroller
P.O. Box 2066
Princeton, New Jersey 08543-2066
Contacts
Security analysts, portfolio managers and others seeking financial information:
(609) 987-3226.
News media: (609) 514-7872.
Shareholder inquiries: (609) 987-3452.
Stock records: First Chicago Trust Company of New York (201) 324-0498.
Hours: Representatives 8:30 a.m.-7 p.m. EST weekdays; Automated response 8 a.m.-
10 p.m. weekdays, 8 a.m.-3:30 p.m. Sat.
[TABLE: SUMMIT BANCORP FIVE-YEAR CUMULATIVE TOTAL RETURN]
<TABLE>
<CAPTION>
Year Summit S&P 500 KBW 50
---- ------- ------- -------
<S> <C> <C> <C>
1992 $172.92 $107.64 $127.42
1993 175.71 118.5 134.48
1994 183.08 120.06 127.62
1995 278.04 165.18 204.41
1996 353.75 203.11 289.15
</TABLE>
Quarterly Common Stock Price and Dividend Information
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------- ----------------------------------------------
Dividends Dividends
High Low Close Declared High Low Close Declared
------ ------ ------ --------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4th Quarter $45.13 $39.50 $43.75 $.36 $35.75 $31.50 $35.63 $.32
3rd Quarter 41.13 32.63 39.75 .36 37.25 30.00 32.00 .29
2nd Quarter 39.50 34.00 35.13 .32 30.75 27.13 30.38 .29
1st Quarter 40.13 34.38 37.00 .32 28.75 24.13 27.50 .29
</TABLE>
57
<PAGE> 60
[SUMMIT BANCORP LOGO]
301 Carnegie Center
P.O. Box 2066
Princeton,
New Jersey 08543-2066
<PAGE> 1
EXHIBIT (21)
<PAGE> 2
Exhibit (21)
Subsidiaries of Summit Bancorp.
Summit Bancorp. is the parent corporation. Detailed information on its
present subsidiaries appears in the Narrative description of business.
Additional information is as follows:
Jurisdiction of
Name Incorporation
Summit Bank New Jersey
Sethmark Holding Corp. New York
Sethmark Capital Corporation New York
MJD Asset Corporation New Jersey
Old Reliable Corporation New Jersey
Palisade Funding Corp. New Jersey
Palvest Corp. New Jersey
Palservco, Inc. New Jersey
Palisade Financial Services, Inc. New Jersey
Nelav, Inc. New Jersey
VerValen, Inc. New Jersey
Flemington National Investment Co. New Jersey
UJB International Trade Finance Corp. New Jersey
UJB Trade Finance (HK), Limited Hong Kong
First Pipco, Inc. New Jersey
C.I. Pip Restaurant Co. New Jersey
CiPip Properties Co. New Jersey
Summit Leasing Corporation New Jersey
United Jersey Hackensack Investment Corporation New Jersey
CTC Investment Co. Delaware
S.A.R. Realty Holding Corporation New Jersey
Pipco-On-The-Hudson, Inc. New Jersey
Pipco/TM8, Inc. New Jersey
Pipco/TM10, Inc. New Jersey
Pipco/TM13, Inc. New Jersey
Pipco/Spring Hill, Inc. New Jersey
Pipco 205 Park, Inc. New Jersey
Pipco Schoolhouse Estates, Inc. New Jersey
Pipco Urban Restoration, Inc. New Jersey
Pipco Windsong, Inc. New Jersey
Pipco Parsippany, Inc. New Jersey
Pipco 121-123 Grand Avenue, Inc. New Jersey
Pipco Bright, Inc. New Jersey
Pipco Oakland, Inc. New Jersey
Pipco Raintree, Inc. New Jersey
Pipco Underhill, Inc. New York
Pipco MK, Inc. New Jersey
Pipco Carlstadt, Inc. New Jersey
<PAGE> 3
Pipco Ewing, Inc. New Jersey
Pipco 851 Boulevard, Inc. New Jersey
Pipco Alpine, Inc. New Jersey
Pipco Norte, Inc. New Jersey
Alternative Financial Group, Inc. Pennsylvania
PipHam Gardens, Inc. New York
PipAshley, Inc. New Jersey
Pipco Urban Renewal Corporation, Inc. New Jersey
Commonwealth Pipco Corp. Pennsylvania
Pipco Hansen Land Corp. Pennsylvania
PipCRA, Inc. New Jersey
PipLandCo, Inc. New Jersey
PipCondoCo, Inc. New Jersey
PipWarehouseCo, Inc. New Jersey
PipQuarryCo, Inc. New Jersey
PipPomonaCo, Inc. New York
Second PipLandCo, Inc. New Jersey
Second PipCondoCo, Inc. New Jersey
Houses-R-Pip, Inc. New Jersey
PipGate Mill Properties, Ltd. New Jersey
PipHyde Park, Limited New York
NewPip Properties Co., Ltd. New Jersey
FSB Investment Corp. New Jersey
Franklin State Armored Corporation New Jersey
Central Pipco, Inc. New Jersey
Central Pipco Sanson, Inc. New Jersey
Central Pipco Petrocella/Temes, Inc. New Jersey
Central Pipco Spring Knolls, Inc. New Jersey
Evergreen Cenpipco, Inc. New Jersey
CenPipMaple, Inc. New Jersey
CenPipPRD, Inc. New Jersey
CenPipCho35, Inc. New Jersey
Central Pipco Thom, Inc. New Jersey
CenPipColt, Inc. New Jersey
CenPipUnited, Inc. New Jersey
ExeCenPip EM1, Inc. New Jersey
MorCenPip EM2, Inc. New Jersey
EmsCenPip EM3, Inc. New Jersey
ProCentip Plains, Inc. New Jersey
SayCenPip Ville, Inc. New Jersey
HalCenPip Tides, Inc. New Jersey
VolCenPipChik, Inc. New Jersey
StakCenPipWood, Inc. New Jersey
Alternative Financial Group, Inc. New Jersey
34 Cen Pip Plaza, Inc. New Jersey
BunnCenPip 202, Inc. New Jersey
Central Residential Properties, Inc. New Jersey
Madison CenPipRidge, Inc. New Jersey
<PAGE> 4
Clearbrook ProCenPip, Inc. Pennsylvania
CenPipMatawan, Inc. New Jersey
EIN Cen Pip Binder, Inc. New Jersey
CenPipChowderPot, Inc. New Jersey
South Pipco, Inc. New Jersey
ManSoPip Management Corp. New Jersey
PropSoPip Properties Corp. New Jersey
DevSoPip Development Corp. New Jersey
Aristone So Pip, Inc. New Jersey
New Jersey Affiliated Financial Services, Inc. New Jersey
STC Investment Holding Company New Jersey
Beechwood Insurance Agency Corporation New Jersey
One Main Properties - Berkeley Heights, Inc. New Jersey
One Main Properties - Lebanon, Inc. New Jersey
One Main Properties - New Brunswick, Inc. New Jersey
One Main Properties - Millburn, Inc. New Jersey
One Main Properties - Atlantic Highlands, Inc. New Jersey
One Main Properties - Union Township, Inc. New Jersey
One Main Properties - Red Bank, Inc. New Jersey
One Main Properties - Chatham, Inc. New Jersey
Smithcrest Realty, Inc. New Jersey
34 West - Bethlehem Corporation New Jersey
34 West - Memorial Parkway Corporation New Jersey
34 West - Rte. 22/523 Corporation New Jersey
34 West - White Twp. Corporation New Jersey
34 West - Lafayette Corporation New Jersey
34 West - Main Street Hackettstown Corporation New Jersey
34 West - Route 206 Hillsborough Corporation New Jersey
34 West - Route 31 Flemington Corporation New Jersey
34 West - Omni Drive Hillsborough Corporation New Jersey
34 West - Greenwich TP., Inc. New Jersey
34 West - Route 206 Branchburg Corporation New Jersey
34 West - Route 31/Pennsylvania Ave. Corp. New Jersey
34 West - Washington Office Corp. New Jersey
34 West - Leland Ave. Plainfield Corporation New Jersey
34 West - Arbor Glen Corporation New Jersey
34 West - Rt. 22 Branchburg Corp. New Jersey
Seagull Red Bank, Inc. New Jersey
Seagull Landmark, Inc. New Jersey
Seagull Beaver Dam, Inc. New Jersey
Seagull Richmond, Inc. New Jersey
Seagull Ninth Street, Inc. New Jersey
Seagull Dock Inc. New Jersey
Seagull 15th Street, Inc. New Jersey
Seagull Lacey, Inc. New Jersey
Seagull Manahawkin, Inc. New Jersey
Seagull Atlantic, Inc. New Jersey
Crestmont Finance Corporation I New Jersey
<PAGE> 5
GS Holdings NJ, Inc. New Jersey
GS Holdings, Inc. New Jersey
Pro One, Inc. New Jersey
Pro Two, Inc. New Jersey
Pro Three, Inc. New Jersey
Pro Four, Inc. New Jersey
Pro Five, Inc. New Jersey
Garden Financial, Inc. New Jersey
GSB Financial Services, Inc. New Jersey
Greenbriar Service Corporation New Jersey
Crestmont Insurance Agency, Inc. New Jersey
Crestmont Securities, Inc. New Jersey
Colts Neck Orchard Construction Service Corporation New Jersey
GLP, Inc. New Jersey
173 Elm Street Leasing Corp., Inc. New Jersey
Eastern Monmouth Service Corporation New Jersey
Central Monmouth Service Corporation New Jersey
Crestmont Hospitality, Inc. New Jersey
Crestmont Residential Service Corp. I New Jersey
Crestmont Residential Service Corp. II New Jersey
Crestmont Residential Service Corp. III New Jersey
Crestmont Middletown 35, Inc. New Jersey
Crestmont Orange 209, Inc. New Jersey
Crestmont Lodi 17, Inc. New Jersey
Crestmont Residential Edison Alva, Inc. New Jersey
Crestmont Residential Asbury Park, Inc. New Jersey
Ocean Investment Company New Jersey
Somerset Investment Company New Jersey
First Valley Corporation Pennsylvania
Summit Bank Pennsylvania
Valbeth, Inc. Pennsylvania
North-Val, Inc. Pennsylvania
Summit Discount Brokerage Co. Pennsylvania
First Valley Capital Corporation Pennsylvania
First Valprop, Inc. Delaware
First North-Val, Inc. Pennsylvania
Second North-Val, Inc. Pennsylvania
Third North-Val, Inc. Pennsylvania
Fourth North-Val, Inc. Pennsylvania
Fifth North-Val, Inc. Pennsylvania
Sixth North-Val, Inc. Pennsylvania
Seventh North-Val, Inc. Pennsylvania
Eighth North-Val, Inc. Pennsylvania
Ninth North-Val, Inc. Pennsylvania
HBP Financial Corp. Pennsylvania
First Valley Financial Services, Inc. Pennsylvania
First Valley Life Insurance Company Arizona
FirstVal Properties, Inc. Pennsylvania
<PAGE> 6
The Summit Mortgage Company, Inc. New Jersey
Summit Credit Corp. Delaware
Gibraltar Corporation of America New York
Asset Management Corp. New Jersey
Rahway Avenue Urban Renewal Corporation New Jersey
Trico Mortgage Company, Inc. New Jersey
Securitization Subsidiary I, Inc. New Jersey
Zumbadora Corporation New Jersey
United Jersey Credit Life Insurance Company Arizona
Summit Venture Capital, Inc. New Jersey
India, Inc. Delaware
United Jersey Financial Corp. New Jersey
UJB Financial Service Corporation d/b/a Summit Service Corp. New Jersey
UJB Financial Payment Systems, Inc. New Jersey
Summit Corporate Secretary, Inc. New Jersey
Summit Commercial Corp. New Jersey
The Bank of Mid-Jersey New Jersey
Oxmead Corporation New Jersey
Bank of Delaware Valley Pennsylvania
Hopkins Corp. New Jersey
B.M.J. Leasing Co., Inc. New Jersey
The B.M.J. Investment Corporation New Jersey
All listed subsidiaries in existence during 1996 are included in the
consolidated financial statements in the Summit Bancorp. 1996 Annual Report to
Shareholders contained herein as Exhibit 13.
As of 3/1/97
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Summit Bancorp:
We consent to incorporation by reference in Registration Statement No. 2-78500
on Form S-8, Registration Statement No. 33-13930 on Form S-8, Registration
Statement No. 33-36209 on Form S-8, Registration Statement No. 33-38172 on Form
S-8, Registration Statement No. 33-53870 on Form S-3, Registration Statement No.
33-58152 on Form S-3, Registration Statement No. 33-62972 on Form S-8,
Registration Statement No. 33-54667 on Form S-8, Registration Statement No.
33-61353 on Form S-8, and Registration Statement No. 333-02625 on Form S-8 of
Summit Bancorp of our report dated January 20, 1997 except as to the third
paragraph of Note 2, which is as of February 28, 1997, relating to the
consolidated balance sheets of Summit Bancorp and subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996 which report is incorporated by reference in the
December 31, 1996 Annual Report on Form 10-K of Summit Bancorp.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 10-K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1256684
<INT-BEARING-DEPOSITS> 24825
<FED-FUNDS-SOLD> 111143
<TRADING-ASSETS> 26376
<INVESTMENTS-HELD-FOR-SALE> 2670414
<INVESTMENTS-CARRYING> 3217384
<INVESTMENTS-MARKET> 3198347
<LOANS> 14819595
<ALLOWANCE> 267719
<TOTAL-ASSETS> 22668012
<DEPOSITS> 18374986
<SHORT-TERM> 1338734
<LIABILITIES-OTHER> 337442
<LONG-TERM> 689977
0
0
<COMMON> 112755
<OTHER-SE> 1814118
<TOTAL-LIABILITIES-AND-EQUITY> 22668012
<INTEREST-LOAN> 1191805
<INTEREST-INVEST> 353807
<INTEREST-OTHER> 5195
<INTEREST-TOTAL> 1550807
<INTEREST-DEPOSIT> 527535
<INTEREST-EXPENSE> 639296
<INTEREST-INCOME-NET> 911511
<LOAN-LOSSES> 62000
<SECURITIES-GAINS> 5217
<EXPENSE-OTHER> 747935
<INCOME-PRETAX> 349039
<INCOME-PRE-EXTRAORDINARY> 229175
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229175
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.44
<YIELD-ACTUAL> 4.52
<LOANS-NON> 132086
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11048
<ALLOWANCE-OPEN> 285376
<CHARGE-OFFS> 105037
<RECOVERIES> 23230
<ALLOWANCE-CLOSE> 267719
<ALLOWANCE-DOMESTIC> 134495
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 133224
</TABLE>
