- -----------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-----------------------------
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)
(609) 987-3200
---------------------------------------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
As of October 31, 1998 there were 173,356,542 shares of common
stock,
$.80 par value, outstanding.
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<PAGE>
SUMMIT BANCORP
FORM 10-Q
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements-unaudited
Consolidated Balance Sheets -
September 30, 1998, December 31, 1997 and
September 30, 1997................................................. 2
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1998 and 1997............ 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997...................... 4
Consolidated Statements of Shareholders' Equity -
Nine Months Ended September 30, 1998 and 1997...................... 5
Notes to Consolidated Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 21
Part II. Other Information.
Item 1. Legal Proceedings.............................................. 22
Item 2. Changes in Securities and Use of Proceeds...................... 22
Item 3. Defaults Upon Senior Securities................................ 22
Item 4. Submission of Matters to a Vote of Security Holders............ 22
Item 5. Other Information.............................................. 22
Item 6. Exhibits and Reports on Form 8-K............................... 22
Signature............................................................. 23
Exhibit Index......................................................... 24
1
<PAGE>
<TABLE>
Summit Bancorp and Subsidiaries
Consolidated Balance Sheets
Unaudited
(In thousands)
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 1,088,352 $ 1,173,118 $ 1,117,347
Federal funds sold and securities purchased
under agreements to resell 1,000 4,460 14,359
Interest-bearing deposits with banks 19,763 14,072 4,309
Securities:
Trading account securities 15,962 35,216 29,808
Securities available for sale 4,432,791 5,074,896 4,596,923
Securities held to maturity 5,358,215 4,157,543 4,078,729
------------ ------------ ------------
Total securities 9,806,968 9,267,655 8,705,460
------------ ------------ ------------
Loans (net of unearned discount):
Commercial 6,979,170 6,253,740 5,846,194
Commercial mortgage 2,868,823 2,703,793 2,808,423
Residential mortgage 5,417,412 5,671,200 5,803,498
Consumer 5,035,258 4,259,633 4,172,548
------------ ------------ ------------
Total loans 20,300,663 18,888,366 18,630,663
Less: Allowance for loan losses 314,271 296,494 294,114
------------ ------------ ------------
Net loans 19,986,392 18,591,872 18,336,549
Premises and equipment 259,033 244,913 239,209
Goodwill and other intangibles 187,367 188,620 174,336
Accrued interest receivable 195,107 175,170 170,857
Due from customers on acceptances 17,419 15,814 15,814
Other assets 290,813 288,478 312,866
------------ ------------ ------------
Total Assets $ 31,852,214 $ 29,964,172 $ 29,091,106
============ ============ ============
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 4,694,605 $ 4,530,690 $ 4,256,398
Interest-bearing deposits:
Savings and time deposits 16,249,801 16,914,485 16,780,101
Commercial certificates of deposit $100,000 and over 1,202,447 884,261 901,529
------------ ------------ ------------
Total deposits 22,146,853 22,329,436 21,938,028
Other borrowed funds 4,269,565 3,397,953 3,256,136
Accrued expenses and other liabilities 288,329 290,197 294,432
Accrued interest payable 100,248 71,602 67,640
Bank acceptances outstanding 17,419 15,814 15,814
Long-term debt 2,401,826 1,246,750 1,001,617
------------ ------------ ------------
Total liabilities 29,224,240 27,351,752 26,573,667
------------ ------------ ------------
Shareholders' equity:
Common stock par value $ .80: authorized 390,000 shares;
-issued: 177,648, 176,590 and 175,735
-outstanding: 172,968, 176,590 and 175,735 142,118 141,272 140,588
Surplus 1,004,332 987,281 968,881
Retained earnings 1,663,363 1,467,193 1,402,581
Employee stock ownership plan obligation (3,394) (4,201) (4,470)
Accumulated other comprehensive income, net of tax 37,012 20,875 9,859
Treasury stock; 4,680 shares (215,457) - -
------------ ------------ ------------
Total shareholders' equity 2,627,974 2,612,420 2,517,439
------------ ------------ ------------
Total Liabilities and Shareholders' Equity $ 31,852,214 $ 29,964,172 $ 29,091,106
============ ============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Income
Unaudited
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months
September 30, September 30,
-------------------- -------------------
1998 1997 1998 1997
--------- ---------
<S> <C> <C> <C> <C>
Interest Income
Loans $ 401,176 $ 380,000 $1,173,490 $1,121,321
Securities:
Trading account securities 260 772 1,145 1,876
Securities available for sale 67,764 60,313 229,110 164,594
Securities held to maturity 82,405 75,305 214,128 243,756
--------- -------- ---------- --------
Total securities 150,429 136,390 444,383 410,226
Federal funds sold and securities purchased
under agreements to resell 82 982 725 3,579
Deposits with banks 358 129 1,164 520
--------- -------- ---------- --------
Total interest income 552,045 517,501 1,619,762 1,535,646
--------- -------- ---------- --------
Interest Expense
Savings and time deposits 154,363 158,122 464,937 473,169
Commercial certificates of deposit $100,000 and over 14,359 12,271 38,918 35,445
Borrowed funds, including long-term debt 91,343 59,326 239,876 172,420
--------- -------- ---------- --------
Total interest expense 260,065 229,719 743,731 681,034
--------- -------- ---------- --------
Net interest income 291,980 287,782 876,031 854,612
Provision for loan losses 18,000 14,500 51,000 45,100
--------- -------- ---------- --------
Net interest income after provision for loan losses 273,980 273,282 825,031 809,512
--------- -------- ---------- ---------
Non-Interest Income
Service charges on deposit accounts 31,236 28,926 93,173 85,506
Service and loan fee income 15,619 12,490 43,732 36,753
Trust and investment services income 14,062 12,644 42,492 35,342
Securities gains (losses) (58) 1,265 4,440 3,471
Other 29,590 18,847 76,275 54,028
-------- -------- --------- ---------
Total non-interest income 90,449 74,172 260,112 215,100
-------- -------- --------- ---------
Non-Interest Expenses
Salaries 77,384 73,254 228,299 216,109
Pension and other employee benefits 27,872 22,233 81,692 69,887
Furniture and equipment 21,021 19,415 62,204 57,569
Occupancy, net 18,481 18,027 54,586 54,313
Communications 8,875 8,416 27,451 25,747
Merger-related charges - 56,500 - 83,000
Other 40,533 39,441 123,506 118,936
-------- --------- --------- ---------
Total non-interest expenses 194,166 237,286 577,738 625,561
-------- --------- --------- ---------
Income before income taxes 170,263 110,168 507,405 399,051
Federal and state income taxes 52,402 38,956 158,650 140,299
-------- -------- --------- ---------
Net Income $ 117,861 $ 71,212 $ 348,755 $ 258,752
======== ======= ========= =========
Net Income per Common Share:
Basic $ 0.68 $ 0.41 $ 1.99 $ 1.48
===== ===== ===== ======
Diluted 0.67 0.40 1.96 1.46
===== ===== ===== ======
Average Common Shares Outstanding:
Basic 173,379 175,396 175,466 174,896
======== ======= ======== ========
Diluted 175,080 177,864 177,505 177,235
======== ======= ======== ========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
(In thousands)
<CAPTION>
Nine Months Ended
September 30,
-----------------------
<S> <C> <C>
Operating activities 1998 1997
-----------------------
Net income $ 348,755 $ 258,752
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses and other real estate owned 51,120 46,308
Depreciation, amortization and accretion, net 35,051 58,794
Merger-related charges - 83,000
Gains on sales of securities (4,440) (3,471)
Gains on sales of mortgages held for sale (11,442) (4,791)
Gains on sales of other real estate owned (3,963) (2,691)
Proceeds from sales of other real estate owned 18,456 23,865
Proceeds from sales of mortgages held for sale 634,781 318,552
Originations of mortgages held for sale (731,263) (336,854)
Net decrease (increase) in trading account securities 19,254 (3,432)
Net (increase) decrease in accrued interest
receivable and other assets (47,664) 18,475
Net increase (decrease) in accrued interest payable,
accrued expenses and other liabilities 35,948 (107,240)
----------- ----------
Net cash provided by operating activities 344,593 349,267
----------- ----------
Investing activities
Purchases of securities held to maturity (2,889,338) (191,636)
Purchases of securities available for sale (2,009,148) (2,050,670)
Proceeds from maturities of securities held to maturity 1,673,354 738,691
Proceeds from maturities of securities available for sale 1,853,500 645,547
Proceeds from sales of securities available for sale 845,309 636,597
Net (increase) decrease in Federal funds sold,
securities purchased under agreements to resell
and interest-bearing deposits with banks (2,231) 169,494
Net increase in loans (1,342,886) (520,458)
Purchases of premises and equipment, net (44,940) (22,363)
----------- ----------
Net cash used in investing activities (1,916,380) (594,798)
----------- ----------
Financing activities
Net decrease in deposits (182,583) (541,583)
Net increase in short-term borrowings 871,612 325,394
Principal payments on long-term debt (235,703) (33,452)
Proceeds from issuance of long-term debt 1,391,405 327,211
Dividends paid (147,873) (120,199)
Purchases of Common Stock (242,084) -
Proceeds from issuance of common stock under dividend
reinvestment and other stock plans 32,247 21,704
----------- ----------
Net cash provided by <used in> financing activities 1,487,021 (20,925)
----------- ----------
Decrease in cash and due from banks (84,766) (266,456)
Beginning cash balance of acquired entities - 56,296
Cash and due from banks at beginning of period 1,173,118 1,327,507
----------- ----------
Cash and due from banks at end of period $ 1,088,352 $ 1,117,347
========== ==========
Supplemental disclosure of cash flow information
Cash paid:
Interest payments $ 715,085 $ 671,312
Income tax payments 146,896 145,500
Noncash investing activities:
Net transfer of securities from held to maturity to
available for sale resulting from acquisitions - 805,854
Net transfer of loans to other real estate owned 5,239 13,518
Issuance of treasury shares for acquisitions 12,277 -
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Shareholders' Equity
Unaudited
(In thousands)
<CAPTION> Accum. Other Total
Common Retained ESOP Treasury Comprehensive Shareholders'
Stock Surplus Earnings Obligation Stock Income Equity
-------- ---------- ---------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $134,637 $ 918,411 $1,237,892 $(5,816) $ - $ 5,714 $ 2,290,838
Adjustment for the pooling of a company with
a different fiscal year end (197 shares) (158) (4,771) 9,288 539 - 1,832 6,730
-------- ---------- ---------- ------- -------- ---------- -------------
Adjusted beginning balance 134,479 913,640 1,247,180 (5,277) - 7,546 2,297,568
Balances at beginning of period of immaterial
pooled acquisition (6,047 shares) 4,837 34,705 25,562 - - (278) 64,826
Comprehensive income:
Net income - - 258,752 - - - 258,752
Unrealized holding gains on
securities arising during the period - - - - - 2,591 2,591
-------------
Total comprehensive income 261,343
Cash dividend declared on common stock - - (128,913) - - - (128,913)
Common stock issued:
Dividend reinvestment and other stock plans
(185 shares) 148 5,427 - - - - 5,575
Exercise of stock options, net (1,404 shares) 1,124 15,005 - - - - 16,129
ESOP debt repayment - 104 - 807 - - 911
-------- ---------- ---------- ------- -------- ---------- -------------
Balance, September 30, 1997 $140,588 $ 968,881 $1,402,581 $(4,470) $ - $ 9,859 $ 2,517,439
======== ========== ========== ======= ========= ========== =============
Balance, December 31, 1997 $141,272 $ 987,281 $1,467,193 $(4,201) $ - $ 20,875 $ 2,612,420
Comprehensive income:
Net income - - 348,755 - - - 348,755
Unrealized holding gains on
securities arising during the period - - - - - 16,137 16,137
-------------
Total comprehensive income 364,892
Cash dividends declared on common stock - - (152,585) - - - (152,585)
Common stock issued:
Dividend reinvestment and other stock plans
(346 shares) 276 17,799 - - - 18,075
Exercise of stock options, net (976 shares) 570 470 - - 13,132 - 14,172
Treasury shares issued for acquisition (280 shares) (1,218) 13,495 12,277
Purchase of treasury stock (5,224 shares) (242,084) (242,084)
ESOP debt repayment - - - 807 - - 807
-------- ---------- ---------- ------- -------- ---------- -------------
Balance, September 30, 1998 $142,118 $1,004,332 $1,663,363 $(3,394) $(215,457) $ 37,012 $ 2,627,974
======== ========== ========== ======= ========= ========== =============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
5
<PAGE>
Summit Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1.) Basis of Presentation
The accompanying financial statements reflect, in the opinion of management,
all normal recurring adjustments necessary to present fairly the
consolidated financial position of Summit Bancorp and subsidiaries (the
"Company"), the consolidated results of operations, changes in cash flows
and changes in shareholders' equity. All significant intercompany accounts
and transactions have been eliminated in consolidation. In all material
respects, the financial statements presented comply with the current
reporting requirements of supervisory authorities. Certain prior period
amounts have been reclassified to conform to the financial statement
presentation of 1998. For additional information and disclosures required
under generally accepted accounting principles, reference is made to the
Company's 1997 Annual Report on Form 10-K.
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The Statement
defines total comprehensive income as all changes in equity during a period
from transactions and other events and circumstances from nonowner sources.
The Company's other comprehensive income is generally comprised of
unrealized holding gains and losses on securities available for sale.
Disclosure of comprehensive income for the 1998 and 1997 periods is
presented in the accompanying Consolidated Statements of Shareholders'
Equity.
Effective January 1, 1998, the Company adopted Statement of Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" issued by the American Institute of Certified
Public Accountants. This Statement establishes standards for the
capitalization of computer software developed or obtained for internal use.
The impact of adopting this statement was not material to the financial
condition or results of operations of the Company.
2.) Acquisitions
On March 1, 1997, the Company completed the acquisition of B.M.J. Financial
Corp. ("BMJ"). This acquisition was accounted for as a pooling of interests,
and was recorded as an adjustment to shareholders' equity as of January 1,
1997, without restating the consolidated financial statements for 1996 and
prior years. Merger-related charges of $26.5 million ($16.7 million, after
tax) were recorded at the time of the acquisition.
On August 1, 1997, the Company completed the acquisition of Collective
Bancorp, Inc. ("Collective"). This acquisition was accounted for as a
pooling of interests and all financial information, prior to the acquisition
date, has been restated. Merger-related charges of $56.5 million ($37.1
million, after tax) were recorded at the time of the acquisition.
On December 12, 1997, the Company acquired Corporate Dynamics, an employee
benefits consulting firm, and Philadelphia Benefits Corp., a group health
insurance agency, with the issuance of 495,000 shares of common stock.
These acquisitions were accounted for as purchases.
On June 18, 1998, the Company entered into a definitive agreement to acquire
NSS Bancorp. Inc., a bank holding company headquartered in Norwalk,
Connecticut. Under the terms of the agreement, each share of NSS Bancorp,
Inc. common stock will be exchanged for 1.232 shares of the Company's common
stock. The transaction, which will be accounted for as a purchase, is
expected to be completed in November 1998. Approximately 2.8 million shares
of the Company's treasury stock will be reissued to effect the acquisition.
On August 25, 1998, the Company announced that it had entered into a
definitive merger agreement to acquire New Canaan Bank and Trust Company
("New Canaan"). New Canaan is a commercial bank head quartered in New Canaan,
Connecticut. The acquisition, which will be accounted for as a purchase, is
expected to be completed in the first quarter of 1999, subject to normal
regulatory and New Canaan shareholder approvals. Approximately 1.1 million
shares of the Company's treasury stock will be reissued to effect the
acquisition.
6
<PAGE>
On August 31, 1998, the Company acquired W.M. Ross and Company, Inc., one of
the largest privately held property and casualty insurance brokerage firms
in New Jersey. The acquisition was accounted for as a purchase, with the
issuance of 279,570 shares of the Company's treasury stock.
3.) Net Income per Common Share
Basic net income per common share is calculated by dividing net income by
the weighted average common shares outstanding during the period. Diluted
net income per common share is computed similarly to that of basic net
income per common share, except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally stock
options, were issued during the reporting period.
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
(In thousands, except per share data)
Three months ended Sept. 30, Nine months ended Sept. 30,
- ----------------------------------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $117,861 $71,212 $348,755 $258,752
===================================================================================
Basic weighted-average
common shares outstanding 173,379 175,396 175,466 174,896
Plus: Common stock
equivalents 1,701 2,468 2,039 2,339
- ------------------------------------------------------------------------------------
Diluted weighted-average
common shares outstanding 175,080 177,864 177,505 177,235
====================================================================================
Net income per common share:
Basic $0.68 $0.41 $1.99 $1.48
Diluted 0.67 0.40 1.96 1.46
- ------------------------------------------------------------------------------------
</TABLE>
4.) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standards "SFAS" No. 131, "Disclosures about Segments
of an Enterprise and Related information." SFAS No. 131 establishes standards
and disclosure requirements for the way companies report information about
operating segments, including related product information. Operating
segments are defined based upon the way management organizes segments for
making operational decisions and evaluating performance. Information such as
segment net earnings, revenues, expense items and certain balance sheet
amounts are required to be presented. These amounts are to be reconciled to
the Company's combined financial information. SFAS No. 131 is effective for
financial statements issued for annual periods ending after December 15,
1998, and interim periods beginning in 1999.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits." This Statement
standardizes the disclosure requirements for pension and other
postretirement benefits by requiring additional information that will
facilitate financial analysis, and eliminating certain disclosures that are
considered no longer useful. This Statement is effective for fiscal years
beginning after December 15, 1997, and will be adopted December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting
and reporting standards for derivative instruments, and for hedging
activities. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The adoption of SFAS No. 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.
5.) Subsequent Events
On October 30, 1998, the Company acquired Spectrum Financial Group, Inc.,
an employee benefits brokerage operation located in Morristown, New Jersey.
Its operations are conducted through its wholly owned subsidiary known by its
registered alternative name, Madison Consulting Group. The acquisition,
accounted for as a purchase, was transacted using 383,333 shares of the
Company's treasury stock.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
----------------------------------------------
Summit Bancorp is a bank holding company located in Princeton, New Jersey.
The Company owns two bank subsidiaries and several active non-bank
subsidiaries. The Company's bank subsidiaries provide a broad range of
retail, insurance, commercial and private banking services as well as trust
and investment services to individuals, businesses, not-for-profit
organizations, government entities and other financial institutions. These
services are provided through an extensive branch network, including
supermarket branches and private banking facilities, as well as through
automated teller machines and personal computers.
FINANCIAL CONDITION
Total assets at September 30, 1998, were $31.9 billion, an increase of $1.9
billion, or 6.3 percent, from year-end 1997. The growth came most notably
from the loan portfolios and was generally funded with long-term debt and
other borrowed funds.
Securities held to maturity at September 30, 1998, were $5.4 billion and
were mainly comprised of $3.6 billion of U.S. Government and Federal agency
securities, $1.6 billion of other securities, predominately corporate
collateralized mortgage obligations ("CMOs"), and $158.3 million of state
and political subdivision securities. These securities increased $1.2
billion or 28.9 percent from year-end 1997, primarily as cash flows from
securities available for sale were reinvested in securities held to
maturity. For the nine months of 1998, $2.9 billion of held to maturity
securities were purchased, partially offset by principal repayments and
maturities of $1.7 billion. At September 30, 1998, and December 31, 1997,
net unrealized gains(losses) on securities held to maturity amounted to
$53.8 million and $(6.0) million, respectively.
At September 30, 1998, securities available for sale amounted to $4.4
billion and were predominately comprised of U.S. Government and Federal
agency securities. These securities decreased $642.1 million, or 12.7
percent, from year-end 1997, primarily as cash flows from securities
available for sale were reinvested in securities held to maturity.
The decrease resulted from $1.9 billion in maturities and principal
repayments and $845.3 million in sales, partially offset by $2.0 billion in
purchases.
At September 30, 1998, total loans amounted to $20.3 billion, an increase of
$1.4 billion, or 7.5 percent, from year-end 1997. The increase in loans was
most significantly reflected in the consumer and commercial portfolios.
Consumer loans increased $775.6 million, or 18.2 percent, from year end
December 1997. The increase in the consumer loan portfolio can generally be
attributed to $629.4 million of purchased home equity loans. Commercial
loans increased $725.4 million, or 11.6 percent, as compared to December 31,
1997. The increase in commercial loans was primarily related to growth in
asset-based lending and leveraged finance. Commercial mortgage loans
increased $165.0 million, or 6.1 percent, as compared to December 31, 1997.
As a result of loan sales, residential mortgage loans decreased $253.8
million or 4.5 percent from December 31, 1997.
Total deposits were $22.1 billion at September 30, 1998, a decrease of
$182.6 million, or 0.8 percent, from December 31, 1997. Savings and time
deposits continued to be impacted by investors' desire for investment
alternatives such as mutual funds, annuities and the stock market. Savings
and time deposits at $16.2 billion, decreased $664.7 million, or
3.9 percent, from December 31, 1997. Partially offsetting this decrease was
an increase in commercial certificates of deposit $100,000 and over, which
were up $318.2 million, or 36.0 percent, compared to December 31, 1997. Also
increasing were demand deposits, which increased $163.9 million, or 3.6
percent, from year-end 1997 to $4.7 billion. The increase in demand deposits
came mainly from public funds, business and personal accounts.
Other borrowed funds at September 30, 1998, increased $871.6 million, or
25.7 percent, from December 31, 1997, to $4.3 billion. The increase in other
borrowed funds can be attributed to increases in short-term Federal Home Loan
Bank advances and Federal funds purchased, partially offset by a decrease in
short-term repurchase agreements. Long-term debt at September 30, 1998,
increased $1.2 billion, or 92.6 percent, from December 31, 1997, to $2.4
billion. The increase in long-term debt was principally the result of the
increase in long-term repurchase agreements of $975.0
8
<PAGE>
million. Included in long-term debt at each of the periods presented is
$150.0 million of 8.40 percent pass-through securities qualifying as
Tier I Capital. The increases in other borrowed funds and long-term debt
were generally used to fund the growth in the loan and investment
portfolios and to replace the reduction in core deposits.
Total shareholders' equity at September 30, 1998, was $2.6 billion,
generally unchanged from December 31, 1997. Net income for the period was
offset by the purchase of treasury stock and common stock dividends.
Treasury stock at September 30, 1998, amounted to $215.5 million and was
comprised of 4,680,000 shares. These shares will be used in conjunction
with announced acquisitions, employee benefit plans, and general corporate
purposes. Included in shareholders' equity at September 30, 1998, was
accumulated other comprehensive income, net of tax, amounting to $37.0
million, compared to $20.9 million at year-end 1997. Accumulated other
comprehensive income is comprised principally of unrealized gains on
securities available for sale.
The Company's capital ratios for September 30, 1998, compared to select
prior periods and regulatory requirements, are shown in the following table.
The Company's bank subsidiaries met the well-capitalized requirements for
each of the periods presented. The decreases in the ratios at September 30,
1998, were principally attributable to treasury stock purchases and asset
growth.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Minimum
Sept. 30, Dec. 31, Sept. 30, Required Well
Selected Capital Ratios: 1998 1997 1997 Capital Capitalized
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity to assets 8.25% 8.72% 8.65 % - -
Leverage ratio 8.25 8.76 8.72 3.00% 5.00%
Tier I capital 11.29 12.64 12.73 4.00 6.00
Total risk-based capital 13.33 14.83 15.13 8.00 10.00
- --------------------------------------------------------------------------------------------
</TABLE>
Non-Performing Assets
Non-performing assets include non-performing loans and other real estate
owned ("OREO") and are shown in the following table as of the dates
indicated.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Non-Performing Assets Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997
(In thousands)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-performing loans (1):
Commercial and industrial $57,194 $42,644 $31,368
Commercial mortgage 19,500 37,993 46,829
Construction and development 3,118 4,453 10,760
- ----------------------------------------------------------------------------------------------
Non-performing loans 79,812 85,090 88,957
OREO, net 3,233 14,249 19,121
- ----------------------------------------------------------------------------------------------
Non-performing assets $83,045 $99,339 $108,078
- ----------------------------------------------------------------------------------------------
Non-performing loans
to total loans .39% .45% .48%
Non-performing assets
to total loans and OREO .41 .53 .58
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Loans, not included above, past due 90 days or more amounted to $36.1
million, $48.6 million and $67.5 million at September 30, 1998, December 31,
1997, and September 30, 1997, respectively. These loans are primarily
residential mortgage and consumer loans which are well secured and in the
process of collection.
The average balances of non-performing loans for the nine months ended
September 30, 1998, and 1997, were $75.2 million and $113.1 million,
respectively. Interest income received on non-performing loans amounted to
$1.7 million for the nine months ended September 30, 1998, compared to $2.0
million in the same period in 1997.
9
<PAGE>
Allowance for Loan Losses
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.
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb anticipated loan losses. The unallocated
portion of the allowance for loan losses, in excess of specific and general
reserves, was $182.0 million at September 30, 1998, compared to $166.8
million at December 31, 1997. The 1998 provision for loan losses has
increased over the prior year as a result of the growth of the loan
portfolios.
Transactions in the allowance for loan losses, by loan category, for the
three and nine month periods ended September 30, 1998, and 1997 and selected
loan quality ratios for the dates indicated are shown in the following
tables:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Allowance for Loan Losses Three months ended Nine months ended
September 30, September 30,
(In thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $308,753 $294,066 $296,494 $280,611
Acquisition adjustments, net - - - 9,994
Provision for loan losses 18,000 14,500 51,000 45,100
- ---------------------------------------------------------------------------------------
326,753 308,566 347,494 335,705
- ---------------------------------------------------------------------------------------
Loans charged off:
Commercial and industrial 4,197 4,714 15,687 19,143
Construction and development 920 - 2,215 2,872
Commercial mortgage 632 3,759 2,739 9,687
Residential mortgage 4,044 6,054 7,693 11,622
Consumer 8,248 7,537 26,104 21,522
- ---------------------------------------------------------------------------------------
Total loans charged off 18,041 22,064 54,438 64,846
- ---------------------------------------------------------------------------------------
Recoveries:
Commercial and industrial 2,728 3,029 9,132 10,562
Construction and development 151 49 2,968 3,274
Commercial mortgage 82 3,009 1,800 3,841
Residential mortgage 316 176 1,145 769
Consumer 2,282 1,349 6,170 4,809
- ---------------------------------------------------------------------------------------
Total recoveries 5,559 7,612 21,215 23,255
- ---------------------------------------------------------------------------------------
Net charge offs 12,482 14,452 33,223 41,591
- ---------------------------------------------------------------------------------------
Balance, end of period $314,271 $294,114 $314,271 $294,114
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30,
1998 1997 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net charge offs to average loans:
Quarter-to date .25% .25% .31%
Year-to-date .23 .29 .30
Allowance for loan losses to:
Total loans 1.55 1.57 1.58
Non-performing loans 393.76 348.45 330.62
Non-performing assets 378.43 298.47 272.13
- ------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1998, was $117.9 million,
or $.68 per basic share, compared to $71.2 million, or $.41 per basic share,
for the third quarter of 1997. On a diluted per share basis, net income for
the three months ended September 30, 1998, was $.67 per diluted share
compared to $.40 for the same period in 1997. The results for the third
quarter of 1997 include $56.5 million ($37.1 million after tax), of
merger-related charges resulting from the acquisition of Collective which
amounted to $.21 per share for both basic and diluted earnings per share.
For the nine months ended September 30, 1998, net income was $348.8 million,
or $1.99 per basic share, compared to $258.8 million or $1.48 per basic
share for the same period a year ago. On a diluted basis, net income for
the nine months ended September 30, 1998, was $1.96 per diluted share,
compared to $1.46 for the 1997 period. The results for the nine months ended
September 30, 1997, included merger-related charges resulting from the
acquisition of Collective and $26.5 million ($16.7 million, after tax)
recorded in the first quarter of 1997 associated with the acquisition of
BMJ. For the nine months ended September 30, 1997, total merger-related
charges on a per share basis amounted to $.31 basic and $.30 diluted.
The following are key performance indicators for the three and nine month
periods ended September 30, 1998, and 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(In thousands, except per share)
Three months ended Sept. 30, Nine months ended Sept. 30,
- -----------------------------------------------------------------------------------------
Before merger-
related charges 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $117,861 $108,312 $348,755 $312,532
Net income per share:
Basic $0.68 $0.62 $1.99 $1.79
Diluted 0.67 0.61 1.96 1.76
Dividends per share 0.30 0.27 0.87 0.75
Return on:
Average assets 1.50% 1.50% 1.53% 1.46%
Average common equity 17.95 17.02 17.62 16.99
Efficiency ratio 50.71 49.64 50.79 50.12
- ------------------------------------------------------------------------------------------
After merger-related charges
- ------------------------------------------------------------------------------------------
Net income $117,861 $71,212 $348,755 $258,752
Net income per share: :
Basic $0.68 $0.41 $1.99 $1.48
Diluted 0.67 0.40 1.96 1.46
Return on:
Average assets 1.50% .98% 1.53% 1.20%
Average common equity 17.95 11.19 17.62 14.06
Efficiency ratio 50.71 65.15 50.79 57.82
- ------------------------------------------------------------------------------------------
</TABLE>
Net Interest Income
Interest income on a tax-equivalent basis was $1.6 billion for the nine
months ended September 30, 1998, an increase of $82.5 million, or 5.3 percent,
compared to a year ago. Interest-earning assets averaged $28.9 billion, an
increase of $1.8 billion, or 6.8 percent, compared to the prior year period.
The increase in interest-earning assets contributed $106.5 million to the
increase in tax-equivalent interest income, partially offset by a decline of
$24.0 million due to the reduction in the yield. The rate earned on
interest-earning assets decreased 10 basis points to 7.54 percent in 1998. The
decrease was generally the result of maturing assets with higher rates being
reinvested at lower yields.
Interest expense increased $62.7 million, or 9.2 percent, for the nine months
ended September 30, 1998, compared to the same period in 1997. The $1.3 billion
growth in the average balance of interest-bearing liabilities to $23.1 billion
11
<PAGE>
in the 1998 period contributed $59.9 million to the increase in interest
expense. The remaining $2.8 million increase was attributed to higher rates
paid on interest-bearing liabilities.
The rate/volume table below presents an analysis of the impact on interest
income and expense resulting from changes in average volumes and rates over the
periods. Changes that are not due to volume or rate variances have been
allocated proportionally to both, based on their relative absolute values.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Rate/Volume Table
Amount of
Increase(Decrease)
--------------------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
1998 versus 1997 1998 versus 1997
----------------------------------- ---------------------------
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 $23.1 $(3.4) $19.7 $58.5 $(6.8) $51.7
Commercial mortgage 1.0 (2.6) (1.6) 1.1 (5.4) (4.3)
Residential mortgage (6.5) (2.7) (9.2) (18.1) (5.8) (23.9)
Consumer 13.1 (1.0) 12.1 29.0 (0.9) 28.1
- --------------------------------------------------------------------------------------------
Total loans 30.7 (9.7) 21.0 70.5 (18.9) 51.6
Securities held
to maturity 8.2 (1.8) 6.4 (27.0) (4.2) (31.2)
Securities available
for sale 9.2 (1.5) 7.7 66.2 (1.3) 64.9
Other interest-
earning assets (1.0) (0.2) (1.2) (3.2) 0.4 (2.8)
- ---------------------------------------------------------------------------------------------
Total interest
income $47.1 $(13.2) $33.9 $106.5 $(24.0) $82.5
- ---------------------------------------------------------------------------------------------
Interest Expense
Deposits:
Savings deposits $(1.6) $(0.5) $(2.1) $(4.0) $(1.4) $(5.4)
Time deposits (3.4) 1.8 (1.6) (10.4) 7.5 (2.9)
Commercial
CD's > $100 M 2.1 0.0 2.1 3.2 0.2 3.4
- ----------------------------------------------------------------------------------------------
Total deposits (2.9) 1.3 (1.6) (11.2) 6.3 (4.9)
Other interest-
bearing liabilities 33.9 (1.9) 32.0 71.1 (3.5) 67.6
- ----------------------------------------------------------------------------------------------
Total interest
expense 31.0 (0.6) 30.4 59.9 2.8 62.7
- ----------------------------------------------------------------------------------------------
Net interest income $16.1 $(12.6) $3.5 $46.6 $(26.8) $19.8
==============================================================================================
</TABLE>
Net interest income on a tax-equivalent basis was $885.2 million for the
nine months ended September 30, 1998, an increase of $19.8 million, or
2.3 percent, compared to the same period in 1997. The net interest spread
percentage on a tax-equivalent basis (the difference between the rate earned
on average interest-earning assets and the rate paid on average interest-
bearing liabilities) was 3.23 percent for the nine months ended
September 30, 1998, compared to 3.47 percent for the prior year period.
Net interest income on a tax-equivalent basis as a percentage of average
interest- earning assets) was 4.10 percent for the nine months ended
September 1998, compared to 4.28 percent during the same period in 1997.
The decline in net interest spread and net interest margin can be attributed
primarily to maturing assets being invested in a lower interest rate
environment, the purchase of treasury stock, and the change in the mix of
funding as long-term debt and other borrowed funds were used to fund asset
growth.
12
<PAGE>
<TABLE>
Summit Bancorp and Subsidiaries
Consolidated Average Balance Sheets with Resultant Interest and Rates
Unaudited
(Tax-equivalent basis, dollars in thousands)
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------
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 $ 5,226 $ 82 6.23 % $ 65,642 $ 982 5.94 %
Interest-bearing deposits with banks 20,816 358 6.82 9,178 129 5.58
Securities:
Trading account securities 21,246 275 5.14 36,712 791 8.55
Securities available for sale 4,309,938 68,195 6.33 3,727,818 60,502 6.49
Securities held to maturity 5,258,401 83,584 6.36 4,743,169 77,250 6.51
------------ ---------- ------ ------------ ---------- ------
Total securities 9,589,585 152,054 6.34 8,507,699 138,543 6.51
------------ ---------- ------ ------------ ---------- ------
Loans:
Commercial 6,818,345 141,484 8.23 5,710,453 121,759 8.46
Commercial mortgage 2,843,079 60,312 8.49 2,799,108 61,984 8.86
Residential mortgage 5,534,399 100,453 7.26 5,893,393 109,697 7.45
Consumer 4,748,341 100,129 8.37 4,124,299 87,941 8.46
------------ ---------- ------ ------------ ---------- ------
Total loans 19,944,164 402,378 8.00 18,527,253 381,381 8.17
------------ ---------- ------ ------------ ---------- ------
Total interest-earning assets 29,559,791 554,872 7.45 27,109,772 521,035 7.63
------------ ---------- ------ ------------ ---------- ------
Non-interest earning assets:
Cash and due from banks 1,009,560 984,750
Allowance for loan losses (314,481) (300,731)
Other assets 962,213 924,116
------------ ------------
Total non-interest earning assets 1,657,292 1,608,135
------------ ------------
Total Assets $ 31,217,083 $ 28,717,907
============ ============
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings deposits $ 9,354,200 61,597 2.61 $ 9,599,076 63,698 2.63
Time deposits 6,944,902 92,766 5.30 7,199,575 94,424 5.20
Commercial certificates of deposit
$100,000 and over 1,051,402 14,359 5.42 896,287 12,271 5.43
------------ ---------- ------ ------------ ---------- ------
Total interest-bearing deposits 17,350,504 168,722 3.86 17,694,938 170,393 3.82
------------ ---------- ------ ------------ ---------- ------
Other borrowed funds 4,241,502 58,330 5.46 3,059,421 42,418 5.50
Long-term debt 2,125,216 33,013 6.21 951,840 16,908 7.11
------------ ---------- ------ ------------ ---------- ------
Total interest-bearing liabilities 23,717,222 260,065 4.35 21,706,199 229,719 4.20
------------ ---------- ------ ------------ ---------- ------
Non-interest bearing liabilities:
Demand deposits 4,514,032 4,147,423
Other liabilities 380,879 339,233
------------ ------------
Total non-interest bearing liabilities 4,894,911 4,486,656
Shareholders' Equity 2,604,950 2,525,052
------------ ------------
Total Liabilities and Shareholders' Equity $ 31,217,083 $ 28,717,907
============ ---------- ============ ----------
Net interest income (tax-equivalent basis) 294,807 3.10 % 291,316 3.43 %
---------- ====== ---------- ======
Tax-equivalent basis adjustment (based on a
Federal income tax rate of 35%) (2,827) (3,534)
---------- ----------
Net interest income $ 291,980 $ 287,782
========== ==========
Net interest income as a percent of interest
earning assets (tax-equivalent basis) 3.96 % 4.26 %
====== ======
</TABLE>
13
<PAGE>
<TABLE>
Summit Bancorp and Subsidiaries
Consolidated Average Balance Sheets with Resultant Interest and Rates
Unaudited
(Tax-equivalent basis, dollars in thousands)
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
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 $ 16,395 $ 725 5.91 % $ 87,395 $ 3,579 5.48 %
Interest-bearing deposits with banks 24,194 1,164 6.43 12,483 520 5.57
Securities:
Trading account securities 25,633 1,217 6.35 35,327 1,929 7.30
Securities available for sale 4,827,005 230,776 6.37 3,446,290 165,933 6.42
Securities held to maturity 4,548,299 217,886 6.39 5,104,860 249,036 6.50
------------ ---------- ------ ------------ ---------- ------
Total securities 9,400,937 449,879 6.38 8,586,477 416,898 6.47
------------ ---------- ------ ------------ ---------- ------
Loans:
Commercial 6,516,600 407,143 8.35 5,586,702 355,418 8.51
Commercial mortgage 2,815,705 179,144 8.48 2,798,431 183,432 8.74
Residential mortgage 5,658,856 310,081 7.31 5,985,504 333,928 7.44
Consumer 4,460,655 280,783 8.42 3,997,691 252,690 8.45
------------ ---------- ------ ------------ ---------- ------
Total loans 19,451,816 1,177,151 8.09 18,368,328 1,125,468 8.19
------------ ---------- ------ ------------ ---------- ------
Total interest-earning assets 28,893,342 1,628,919 7.54 27,054,683 1,546,465 7.64
------------ ---------- ------ ------------ ---------- ------
Non-interest earning assets:
Cash and due from banks 1,014,882 1,033,494
Allowance for loan losses (307,418) (298,651)
Other assets 958,338 921,838
------------ ------------
Total non-interest earning assets 1,665,802 1,656,681
------------ ------------
Total Assets $ 30,559,144 $ 28,711,364
============ ============
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings deposits $ 9,436,582 183,478 2.60 $ 9,641,202 188,871 2.62
Time deposits 7,089,932 281,459 5.31 7,351,386 284,298 5.17
Commercial certificates of deposit
$100,000 and over 959,234 38,918 5.42 880,414 35,445 5.38
------------ ---------- ------ ------------ ---------- ------
Total interest-bearing deposits 17,485,748 503,855 3.85 17,873,002 508,614 3.80
------------ ---------- ------ ------------ ---------- ------
Other borrowed funds 3,808,597 155,223 5.45 3,110,042 127,568 5.48
Long-term debt 1,797,203 84,653 6.28 850,173 44,852 7.03
------------ ---------- ------ ------------ ---------- ------
Total interest-bearing liabilities 23,091,548 743,731 4.31 21,833,217 681,034 4.17
------------ ---------- ------ ------------ ---------- ------
Non-interest bearing liabilities:
Demand deposits 4,440,046 4,083,140
Other liabilities 381,271 335,259
------------ ------------
Total non-interest bearing liabilities 4,821,317 4,418,399
Shareholders' Equity 2,646,279 2,459,748
------------ ------------
Total Liabilities and Shareholders' Equity $ 30,559,144 $ 28,711,364
============ --------- ============ ----------
Net interest income (tax-equivalent basis) 885,188 3.23 % 865,431 3.47 %
---------- ====== ---------- ======
Tax-equivalent basis adjustment (based on a
Federal income tax rate of 35%) (9,157) (10,819)
---------- ----------
Net interest income $ 876,031 $ 854,612
========== ==========
Net interest income as a percent of interest
earning assets (tax-equivalent basis) 4.10 % 4.28 %
====== ======
</TABLE>
14
<PAGE>
Non-Interest Income
Non-interest income categories for the three and nine month periods ended
September 30, 1998, and 1997 are shown in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(In millions) Three months ended Sept. 30, Nine months ended Sept. 30,
Percent Percent
1998 1997 Change 1998 1997 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges
on deposit accounts $31.2 $28.9 8.0% $93.2 $85.5 9.0%
Service and loan
fee income 15.6 12.5 25.1 43.7 36.8 19.0
Trust and investment
services income 14.1 12.6 11.2 42.5 35.3 20.2
Other 29.6 18.9 57.0 76.3 54.0 41.2
- ------------------------------------------------------------------------------------------
Total non-interest
operating income 90.5 72.9 24.1 255.7 211.6 20.8
Securities
gains(losses) (0.1) 1.3 (104.6) 4.4 3.5 27.9
- ------------------------------------------------------------------------------------------
Total non-interest
income $90.4 $74.2 21.9% $260.1 $215.1 20.9%
- ------------------------------------------------------------------------------------------
</TABLE>
Service charges on deposits increased $2.3 million or 8.0 percent for the
quarter ended September 30, 1998, compared with 1997, and increased $7.7
million, or 9.0 percent, for the nine months ended, compared with the same
period a year ago. The increases were primarily the result of the increase in
fees charged for nonsufficient funds and a change in the method used to
calculate the assessment.
Service and loan fee income increased $3.1 million, or 25.1 percent, for the
quarter ended September 30, 1998, compared with 1997, and increased $6.9
million or 19.0 percent for the nine months ended September 30, 1998, compared
with the nine months ended 1997. The increase in service and loan fee income
for the three and nine months ended, was primarily due to increased
originations and gains on sales of those loans into the secondary markets.
Trust and investment services income increased $1.5 million, or 11.2 percent,
for the quarter ended September 30, 1998, compared with 1997, and increased
$7.2 million, or 20.2 percent, for the nine months ended September 30, 1998,
compared with the nine months ended 1997. The increase was generally due to
increases in asset management advisory fees, and fees from sales of proprietary
and third party mutual funds.
Other income increased $10.7 million, or 57.0 percent, for the quarter ended
September 30, 1998, compared with 1997, and increased $22.3 million, or 41.2
percent, for the nine months ended September 30, 1998, compared with the nine
months ended 1997. The increase in other non-interest income for the 1998
periods was generally attributable to increases in insurance fees from the
acquisitions of Corporate Dynamics and Philadelphia Benefits and ATM access
fees. Included in the results for the quarter and the nine months ended
September 30, 1998, are realized gains of $7.0 million generated by
investments in limited partnerships.
15
<PAGE>
Non-Interest Expenses
Non-interest expense categories for the three and nine month periods ended
September 30, 1998, and 1997, are shown in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(In millions) Three months ended Sept. 30, Nine months ended Sept. 30,
Percent Percent
1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $77.4 $73.3 5.6% $228.3 $216.1 5.6%
Pension and other
employee benefits 27.9 22.2 25.4 81.7 69.9 16.9
Furniture and
equipment 21.0 19.4 8.3 62.2 57.6 8.1
Occupancy, net 18.5 18.0 2.5 54.6 54.3 0.5
Communications 8.9 8.4 5.5 27.5 25.7 6.6
Other 40.5 39.5 2.8 123.4 119.0 3.8
- ------------------------------------------------------------------------------------
Total non-
interest
operating
expenses 194.2 180.8 7.4 577.7 542.6 6.5
- ------------------------------------------------------------------------------------
Merger-related
charges - 56.5 (100.0) - 83.0 (100.0)
- ------------------------------------------------------------------------------------
Total non-
interest
expenses $194.2 $237.3 (18.2) $577.7 $625.6 (7.6)%
====================================================================================
</TABLE>
Salaries increased $4.1 million, or 5.6 percent, for the quarter ended
September 30, 1998, compared to 1997. For the nine months ended September
30, 1998, compared to 1997, these costs increased $12.2 million, or 5.6
percent. Salaries reflect merit increases and increased commission
compensation linked to sales efforts. Partially offsetting the increases in
salaries was the impact of adopting Statement of Position No. 98-1 providing
for the capitalization of certain salary and benefit costs associated with
internally developed software, which for the nine months ended September 30,
1998, amounted to $2.2 million.
Pension and employee benefits increased $5.7 million, or 25.4 percent, for
the three months ended September 1998 compared with 1997. For the nine month
periods then ended, benefits increased $11.8 million, or 16.9 percent. The
increases were generally related to pension and incentive compensation plans.
Furniture and equipment expenses increased $1.6 million, or 8.3 percent, for
the quarter ended September 30, 1998, compared with 1997, and increased $4.6
million, or 8.1 percent, for the nine months ended September 30, 1998,
compared with the same period a year ago. This increase was primarily due to
increases in leasing expenses associated with computer equipment installed
at branches to support teller and on-line operations.
Communications expense increased $.5 million, or 5.5 percent, for the three
months ended September 30, 1998, compared with 1997, and increased $1.8
million, or 6.6 percent, for the nine months ended 1998 when compared with
the nine months ended 1997. The increase was primarily due to expanded
telephone system usage and equipment costs to support on-line operations.
Other expenses, which did not vary significantly from period to period, were
largely comprised of legal and professional fees of $23.9 million,
advertising and public relations expenses of $18.9 million and amortization
of goodwill and intangibles of $14.3 million for the nine months ended
September 30, 1998.
The effective income tax rate was 30.8 percent for the three months ended
September 30, 1998, and 31.3 percent for the nine months then ended, compared
with 35.4 percent and 35.2 percent, respectively, for each of the comparable
1997 periods. The decrease in the effective income tax rate was the result of
the implementation of business strategies, including the realignment of
corporate entities. The lower effective income tax rate is expected to
continue throughout the remainder of 1998.
16
<PAGE>
Year 2000 Initiative
Issues surrounding the Year 2000 arise out of the fact that many
existing computer programs use only two digits to identify a year in
the date field. With the approach of the Year 2000, computer
hardware and software that are not made Year 2000 ready might
interpret "00" as Year 1900 rather than Year 2000. The Year 2000
problem is not just a technology issue; it also involves the
Company's building equipment, environmental systems, customers,
suppliers and other third parties. The Company began taking a
proactive stance regarding this issue in 1995 and has been working
since then to remediate its information technology ("IT") and non-IT
systems for the Year 2000.
The following discussion of the implications of the Year 2000 problem
for the Company contains numerous forward-looking statements based
on inherently uncertain information. The cost of the project and the
date on which the Company plans to complete the internal Year 2000
modifications are based on management's best estimates, which were
derived utilizing a number of assumptions of future events including
the continued availability of internal and external resources, third
party modifications and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results
could differ.
The Company's State of Readiness
The Company remains on schedule to have programming changes and
testing for internal mission critical computer systems substantially
completed by year end 1998, and to have all of its systems
remediated, tested and Year 2000 ready by first quarter 1999. The
Company's Year 2000 project includes seven phases. The first three
phases, which include: Developing a Strategic Approach; Creating
Organizational Awareness; Assessing Actions and Developing Detailed
Plans, have been completed. The remaining four phases of the project
and progress toward completion of those phases are as follows:
Renovating (remediating) - approximately 95%; Validating (testing)
- approximately 85%; Implementing (remediated code into production)
- approximately 85%; and Implementing (totally future date
certified) - approximately 75%. Of the mission critical software
systems approximately 95% have been remediated and are in the
testing phase with approximately 50% of the testing completed.
Testing of automated interfaces with customers and other third
parties is scheduled for completion by the second quarter 1999. Many
of the Company's day-to-day operations involve systems of other
financial institutions and governmental agencies to settle
transactions. Principal settlement methods associated with major
payment systems will be tested by the end of the second quarter 1999
as part of their associated systems projects.
Non-IT systems, such as building facilities, security and
telecommunications have been evaluated. The Company is currently
involved in testing and expects to have systems with embedded chip
technology for all building, environmental, and security systems
remediated, tested and confirmed as Year 2000 ready by first quarter
1999. Telecommunications, both voice and data, are expected to be
remediated, tested and confirmed as Year 2000 ready by July 1999.
In addition, the Company has initiated communications with third
parties, such as vendors, customers, governmental entities and
others, to determine whether they have appropriate plans to be Year
2000 ready. During the first nine months of 1998, the Company has
been identifying and assessing the Year 2000 readiness of suppliers
and other third parties that have a material relationship with the
Company. Confidence levels were developed based on the quality of
vendors' response to the Company's written inquiries and by
determining the vendors' previous track record in meeting their
commitments to the Company. An initial inventory and risk
assessment of vendors was completed in March, 1998, and a
preliminary evaluation of vendor responses was completed in May,
1998. The quality of responses from vendors has been uneven and
additional inquiries are being made to supplement the information
obtained during the initial evaluation. Those third-party
providers found to pose a significant risk are being asked to
demonstrate how that risk will be addressed and appropriate measures
to minimize risk, including vendor specific contingency planning,
will be taken by the Company on an ongoing basis over the next five
quarters.
The Year 2000 issue has the potential to materially affect the
business operations of the customers of the Company. Business
customers who have not adequately considered Year 2000 issues may
experience a disruption in their operations, including their ability
to transact business with their own customers and with the Company,
resulting in potential financial difficulties that are business
critical. To minimize the Company's risk from the impact of Year
2000 on customers, the
17
<PAGE>
Company has implemented a program for
monitoring and measuring customer Year 2000 readiness. All existing
customers with borrowing commitments of $1 million or more or
customers on the Company's potential problem or non-performing loan
lists with outstanding loan balances of $500 thousand or more, have
been reviewed for Year 2000 readiness as of September 30, 1998, and
will continue to be reviewed on a quarterly basis over the next five
quarters. All new loan customers and renewals of existing loans at
or above those loan amounts will be assessed as part of the
underwriting process.
Risks of Year 2000 Issues
Management believes that the Company is on schedule with its Year
2000 project and that its efforts are adequate to address its Year
2000 issues. However, if the Company fails to successfully resolve
critical Year 2000 issues, there could be a material impact on the
Company's operations. The primary risks associated with the Year
2000 issue can be classified into three groups. The first is the
risk that the Company's systems are not ready for operation by
January 1, 2000. The second is the risk of disruption of Company
operations due to operational failures of third parties. The third
is the risk of business interruption among fund providers and
borrowers such that funding and repayment do not take place in a
timely manner.
The first risk relates to the failure of the Company to successfully
resolve its internal Year 2000 issues. Due to the fact that
computer systems are such an integral part of the Company's internal
operations, these systems must be remediated, tested and made ready
for the Year 2000 in a timely manner. Failure to achieve that goal
could have a material impact on the Company's operations.
The second risk is operational disruptions due to suppliers and other
third parties not being Year 2000 ready. Although the Company is
assessing the readiness of third parties and is preparing
contingency plans, there is no assurance that a failure of one or
more third parties to modify their systems in a timely manner would
not have a material and adverse effect on the Company.
The final risk is that major customers may experience Year 2000
problems which may adversely affect repayment and funding to the
Company. Although the Company is assessing the Year 2000 readiness
of certain borrowers and formulating detailed contingency plans to
address the potential impact on the Company, it cannot currently
predict whether all of its borrowers will be successful in becoming
Year 2000 compliant. As a result, there may be increases in the
Company's problem loans and credit losses in future years. However,
it is not possible to quantify the potential impact of such losses
at this time.
Costs to Address Year 2000 Issues
The cost of the Company's Year 2000 project is estimated to be $23
million and will be funded by normal operating cash. The project is
staffed with both external contract and internal personnel. This
estimate includes the cost of retention programs for key systems
personnel, a portion of which, will be paid beyond January 1, 2000.
To date, the Company has incurred $ 7.8 million in total costs.
Contingency Plans
The Company is developing remediation contingency plans and business
resumption contingency plans specific to the Year 2000 readiness
project. Remediation contingency plans address the actions to be
taken if the current approach to remediating a mission critical
system is falling behind schedule or otherwise appears in jeopardy
of failing to deliver a Year 2000 ready system when needed.
Business resumption contingency plans address the actions that will
be taken if critical business functions cannot be carried out in the
normal manner due to system or third-party failures.
Remediation contingency plans with trigger dates for review and
implementation have been developed for those mission critical IT
systems that have not completed testing by September 30, 1998.
Monitoring the progress of the repair and testing activities will
continue until these systems are Year 2000 ready. If failure to
meet critical milestones for one of these mission critical IT
systems continues beyond the preset trigger date, the remediation
contingency alternative would be activated.
18
<PAGE>
The Company, as part of its normal business practice, has
comprehensive business resumption and disaster recovery plans to
facilitate timely restoration of services and processes in the event
of a business disruption. The effort to update these business
resumption contingency plans to reflect the potential of Year 2000
related failures is underway, using the current plans as a
foundation. The first phase of this effort, Organizational Planning
and Business Impact Analysis, is scheduled to be completed by the
end of the fourth quarter 1998. Creation, updating and testing of
Year 2000 related business resumption and disaster recovery
contingency plans will continue throughout 1999.
19
<PAGE>
LIQUIDITY
Liquidity is the ability to meet the borrowing needs and deposit withdrawal
requirements of customers and support asset growth. Principal sources of
liquidity are deposit generation, access to purchased funds, maturities and
repayments of loans and investment securities and interest and fee income.
The consolidated statements of cash flows present the change in cash and due
from banks from operating, investing and financing activities. During the first
nine months of 1998, net cash provided by operating activities totaled $344.6
million. Contributing to net cash provided by operating activities were the
results of operations, plus noncash expenses, and proceeds from the sales of
mortgages held for sale. Partially offsetting the contributions to operating
cash were funds used to originate mortgage loans held for sale and noncash
revenues.
Net cash used in investing activities totaled $1.9 billion. For the nine months
ended September 30, 1998, net cash used in transactions involving the
investment portfolios totaled $526.3 million, while the growth in the loan
portfolio used $1.3 billion.
Scheduled maturities and anticipated principal repayments of the held to
maturity portfolio will approximate $597.3 million throughout the balance of
1998. In addition, the securities available for sale portfolio provides another
source of liquidity. These sources can also be used to meet the funding needs
during periods of loan growth.
Net cash provided by financing activities totaled $1.5 billion. During the
first nine months of 1998, other borrowed funds and long-term debt increased
$2.3 billion. This increase was partially offset by the decrease in total
deposits of $182.6 million, the purchase of the Company's common stock of
$242.1 million, and the payment of common stock dividends.
Liquidity is also available through additional lines of credit and the ability
to incur additional debt. The banking subsidiaries have established lines of
credit with the Federal Reserve Bank and the Federal Home Loan Bank of New York
and other correspondent banks which further support and enhance liquidity. In
addition, the banking subsidiaries of the Company, Summit Bank (New Jersey) and
Summit Bank (Pennsylvania), are currently in the process of issuing an
underwritten offering circular providing for the issuance of senior and
subordinated notes.
Liquidity is also important at the Parent Company in order to provide funds for
operations and to pay dividends to shareholders. Parent Company cash
requirements are met primarily through management fees and dividends from its
subsidiaries, the issuance of short and long-term debt and the exercise of
stock options. The amount of dividends that can be assessed to the bank
subsidiaries is subject to certain regulatory restrictions.
LOOKING AHEAD
This report contains certain forward-looking statements, either expressed or
implied, which are provided to assist the reader to understand anticipated
future financial performance. These forward-looking statements involve certain
risks, uncertainties, estimates and assumptions made by management.
Factors that may cause actual results to differ from those results expressed or
implied include, but are not limited to, the interest rate environment and the
overall economy, the ability of customers to repay their obligations, the
adequacy of the allowance for loan losses, the progress of integrating acquired
financial institutions, competition and technological changes, including the
Year 2000 issue. Although management has taken certain steps to mitigate the
negative effect of the above mentioned items, significant unfavorable changes
could severely impact the assumptions used and have an adverse affect on
profitability.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- -------------------------------------------------------------------
Due to the nature of the Company's business, the Company's market risk is
primarily its exposure to interest rate risk. Interest rate risk is the impact
that changes in interest rates have on future earnings. The principal objective
in managing interest rate risk is to maximize net interest income within the
acceptable levels of risk that have been previously established by policy. This
risk can be reduced by various strategies, including the administration of
liability costs, the reinvestment of asset maturities and the use of
off-balance sheet financial instruments. The Company has limited risks
associated with foreign currencies.
Interest rate risk is monitored through the use of simulation modeling
techniques which apply alternative interest rate scenarios to periodic
forecasts of future business activity, projecting the related impact to net
interest income. The use of simulation modeling assists management in its
continuing efforts to achieve earnings growth in varying interest rate
environments.
Key assumptions in the model include anticipated prepayments on mortgage-
related instruments, contractual cash flow and maturities of all financial
instruments including derivatives, anticipated future business activity,
deposit sensitivity and changes in market conditions. Selected core deposit
rates are held constant based on the results of analysis of historical rate
movements.
These assumptions are inherently uncertain, and as a result, these models
cannot precisely estimate the impact that higher or lower rate environments
will have on net interest income. Actual results will differ from simulated
results due to timing, magnitude and frequency of interest rate changes,
changes in market conditions, as well as changes in management's strategies.
Based on the results of the interest simulation model as of September 30, 1998,
if interest rates increase or decrease 100 basis points from current rates in
an immediate and parallel shock over a twelve month period, the Company would
expect a decrease of $21.0 million in net interest income and an increase of
$13.0 million in net interest income, respectively. The results of the interest
simulation model as of September 30, 1998, do not represent a material change
from the amounts previously reported as of December 31, 1997.
Interest rate risk management efforts also involve the use of certain
derivative financial instruments for the purpose of stabilizing net interest
income in a changing interest rate environment. The derivative financial
instruments portfolio consists principally of interest rate swaps, floors
and caps. At September 30, 1998, the notional values of the swaps, floors
and caps were $495.0 million, $430.0 million and $106.0 million,
respectively. These derivatives resulted in a net interest income reduction
of $1.3 million for the first nine months of 1998. The cost to terminate
these contracts at September 30, 1998, would have been $3.2 million.
21
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
- --------------------------
1. 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. 95-5258 (JBS), filed on October 4, 1995. 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), filed on October 14, 1996, and Annette
--------
Loatman, on behalf of herself and all others similarly situated v. United
- ---------------------------------------------------------------------------
Jersey Bank, Superior Court of New Jersey, Camden County, Docket No.
- -------------
L-3527-96 ("the State Action"), filed April 24, 1996, dismissed without
prejudice pending the outcome of the federal actions on December 9, 1996,
and reinstated October 15, 1997 with Robert M. Gundle, III as an additional
named plaintiff. Reported on Form 10-K for the period ended December 31,
1997 and on Forms 10-Q for the periods ended March 31, 1998 and June 30, 1998.
On September 9, 1998, the trial court entered an order denying the Bank's
cross-motion for partial class decertification and granting plaintiffs' motion
to extend dissemination of the notice of class action to the entire class. On
September 24, 1998, the Bank filed a motion seeking leave to appeal the
September 9, 1998 order. No decision has been rendered on the motion.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- --------------------------------------------------
(c) On August 31, 1998, the Registrant, through its wholly owned subsidiary
Summit Bank, issued 279,570 shares of the Registrant's common stock to the
shareholders of W.M. Ross & Co. ("Ross & Co."), a New Jersey corporation, in
exchange for all of the outstanding shares of Ross & Co. The Registrant's
common stock was issued without registration under Securities Act of 1933 (the
"Securities Act") in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act. In making the sale, the Registrant relied
on representations from the shareholders of Ross & Co. that they had such
knowledge and experience as to make an informed investment decision.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ----------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION.
- --------------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -----------------------------------------
(a) Exhibits
--------
3(A) Restated Certificate of Incorporation of Summit Bancorp.
27 Summit Bancorp. Financial Data Schedule - September 30, 1998.
(b) Reports on Form 8-K
-------------------
In a current report on Form 8-K dated November 6, 1998, the Registrant
under Item 5, Other Events and Item 7, Financial Statements and
Exhibits, filed a portion of the consolidated financial statements and
notes thereto to be included in the Registrant's Form 10-Q for the quarterly
period ended September 30, 1998, being filed herewith.
22
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT BANCORP.
-----------------
Registrant
DATE: November 13, 1998 BY: /s/ WILLIAM J. HEALY
---------------------
William J. Healy
Executive Vice President,
Comptroller and Chief Accounting Officer
(Duly Authorized Officer)
23
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
------------ ------------------------------------------------------------
3(A) Restated Certificate of Incorporation of Summit Bancorp.
27 Summit Bancorp. Financial Data Schedule - September 30, 1998.
24
Restated 8/19/98 Exhibit 3(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMIT BANCORP.
SUMMIT BANCORP., a corporation formed pursuant to the
provisions of the New Jersey Business Corporation Act (N.J.S.A.
14A: 1-1 et. seq.), hereby restates its Certificate of
Incorporation pursuant to the provisions of the New Jersey
Business Corporation Act (N.J.S.A. 14A:9-5).
1.The name of the Corporation is SUMMIT BANCORP.
2.The purposes for which the corporation is formed are:
A. To engage in and carry
on the business of a registered bank holding company.
B. To acquire, by purchase, subscription or
otherwise, own, hold for investment or otherwise, use,
sell, exchange, mortgage, pledge, hypothecate, create a
security interest in, or otherwise deal with and dispose
of, any and all securities, as hereinafter defined, and to
possess and exercise any and all rights, powers and
privileges of ownership of any and all such securities,
including the right to vote thereon and to consent, assent
or dissent with respect thereto for any and all purposes,
and to issue or deliver its own securities in payment or
exchange, in whole or in part, for any securities or to
make payment therefor by any other lawful means; to aid by
loan, subsidy or in any other lawful manner any
corporation, firm, organization, association or other
entity in which the Corporation may be or become interested
through the direct or indirect holding of securities or in
any other manner; to do any and all acts and things for the
enhancement, protection or preservation of any securities
which are in any manner, directly or indirectly, held or
guaranteed by the Corporation, and to do any and all acts
and things designed to accomplish any such purpose.
The term "securities", as used in this article,
shall mean any and all shares, stocks, bonds, debentures,
notes, acceptances, voting trust certificates, certificates
of deposit, evidences of indebtedness, other obligations,
certificates of any interest in or of the deposit of any of
the foregoing, scrip, interim or other receipts, warrants
or rights to subscribe for or purchase, or guarantees of,
any of the foregoing, or any other interests or instruments
commonly known as securities.
C. To the extent permitted by law, to cause to be
formed, organized, reorganized, consolidated, merged or
liquidated and to take charge of, any corporation, firm,
organization, association or other entity, foreign or
domestic.
D. To the extent permitted by law, to furnish
services to and perform services for, and to act in any
representative capacity for, any corporation, firm,
organization, association, or other entity in which the
Corporation may be or become interested through the direct
or indirect holding of securities or in any other manner,
whether in the development, exploitation, promotion,
operation, management, liquidation, or otherwise, of any of
the business or property thereof or of any lawful
enterprise related thereto.
E. To make loans and give other forms of credit with
or without security.
F. To borrow money for its corporate purposes; to
draw, make, accept, endorse, execute, issue, deliver and
negotiate bonds, debentures, promissory notes, drafts,
bills of exchange and other negotiable or transferable
instruments and to secure the payment thereof and the
interest thereon by a deed or deeds of trust or by mortgage
or pledge of or upon, or by the creation of a security
interest in, all or any part of the property of the
Corporation, real or personal, or any interest therein,
wherever situated, whether at the time owned or thereafter
acquired, and to sell, pledge, create a security interest
in or otherwise dispose of such bonds, debentures, notes or
other obligations.
G. To purchase, lease or otherwise acquire, take,
hold, own, use, improve, maintain, develop, complete,
extend, manage, operate, mortgage or otherwise impose a
lien upon or create a security interest in, sell, exchange,
lease or otherwise dispose of or convey or transfer in any
manner, buildings, storage and other facilities, real and
personal property of all kinds, and any and all rights,
interests or easements therein, without limit as to amount
and wherever situated.
H. To engage in any such activity directly or through
a subsidiary or subsidiaries, and to take all acts deemed
appropriate to promote the interest of such subsidiary or
subsidiaries, including without limiting the foregoing,
making contracts and incurring liabilities for the benefit
of such subsidiary or subsidiaries; and transferring or
causing to be transferred to any such subsidiary or
subsidiaries assets of the Corporation.
I. To guarantee the bonds, debentures, notes or other
evidences of indebtedness issued, or obligations incurred
by subsidiary companies in which the Corporation holds,
directly or indirectly, at least a majority of the voting
stock, or by any corporation, partnership, limited
partnership, joint venture or other association where the
Corporation has or may acquire a substantial interest in
such corporation, partnership, limited partnership, joint
venture or other association or where such guarantee is
otherwise in furtherance of the interest of the
Corporation.
J. To provide that the obligations of such subsidiary
companies may be convertible into, or exchangeable for, or
carry rights or options to purchase or subscribe to, or
both, shares of the Corporation of any class.
K. In general, to do any and all of the acts and
things herein set forth to the same extent as natural
persons could do, and in any part of the world, as
principal, factor, agent, contractor or otherwise, either
alone or in company with any person, entity, syndicate,
partnership, association, corporation or others; to
establish and maintain offices and agencies within and
anywhere outside of the State of New Jersey; and to
exercise all or any of its corporate powers and rights in
the State of New Jersey and in any and all other states,
territories, districts, possessions or dependencies of the
United States of America and in any other countries or
places.
L. To do everything necessary, proper, advisable or
convenient for the accomplishment of any of the purposes
herein set forth and to do every other act and thing
incidental thereto or connected therewith, provided the
same be not forbidden by law.
3. The total number of shares of capital stock authorized
and which may be issued by this Corporation is Three Hundred
Ninety-Six Million (396,000,000) shares, of which Three Hundred
Ninety Million (390,000,000) shares of Eighty Cents ($0.80) par
value each shall be designated as Common Stock, and of which Six
Million (6,000,000) shares without par value shall be designed
as Preferred Stock. All or any part of such authorized Common
Stock and Preferred Stock may be issued by the Corporation from
time to time and for such consideration as may be determined
upon and fixed by the Board of Directors as provided by law.
No holders of shares of Common Stock or Preferred Stock of
the Corporation shall be entitled, as such, as a matter of
preemptive or preferential right, to subscribe for or purchase
any part of any new or additional issue of shares of Common
Stock or Preferred Stock, or any treasury shares of Common Stock
or Preferred Stock, or of securities of the Corporation or of
any subsidiary of the Corporation convertible into or
exchangeable for, or carrying rights or options to purchase or
subscribe to, or both, shares of any class whatsoever, whether
now or hereafter authorized, and whether issued for cash,
property, services or otherwise.
The Board of Directors of the Corporation is, pursuant
to the New Jersey Business Corporation Law (N.J.S.A. 14A:7-2),
authorized to amend this Restated Certificate of Incorporation
of the Corporation so as (a) to divide the authorized shares of
Preferred Stock of the Corporation into series within such
class, (b) to determine the designation and the number of shares
of any such series, and (c) to determine the relative voting,
dividend, conversion, redemption, liquidation and other rights,
preferences and limitations of the authorized shares of
Preferred Stock of the Corporation.
A. Creation of Preferred Stock, Series R. A series
of Preferred Stock of the Corporation, consisting of
1,500,000 Shares, is hereby created and designated as
"Series R Preferred Stock" (the "Series R Preferred Stock")
which series of Preferred Stock shall have a stated value
of $100 per share and the following rights and preferences:
(a) Dividends and Distributions.
(1) Subject to the provisions for adjustment
hereinafter set forth, the holders of shares of Series R
Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount
per share (rounded to the nearest cent) equal to one
hundred (100) times the aggregate per share amount of all
cash dividends declared or paid on the Common Shares, $1.20
par value per share, of the Corporation (the "Common
Shares"), and (ii) a preferential cash dividend (the
"Preferential Dividends"), if any, on the first business
day of February, May, August and November of each year
(each a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series R
Preferred Stock in an amount equal to $1.00 per share of
Series R Preferred Stock reduced (but not to an amount less
than zero) by the per share amount of all cash dividends
declared on the Series R Preferred Stock pursuant to clause
(i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series R
Preferred Stock. In the event the Corporation shall, at
any time after the issuance of any share or fraction of a
share of Series R Preferred Stock, make any distribution on
the Common Shares of the Corporation, whether by way of a
dividend or a reclassification of stock, a
recapitalization, reorganization or partial liquidation of
the Corporation or otherwise, which is payable in cash or
any debt security, debt instrument, real or personal
property or any other property (other than cash dividends
subject to the immediately preceding sentence, a
distribution of Common Shares or other capital stock of the
Corporation or a distribution of rights or warrants to
acquire any such share, including any debt security
convertible into or exchangeable for any such share, at a
price less than the Fair Market Value (as hereinafter
defined) of such share), then and in each such event the
Corporation shall simultaneously pay on each then
outstanding share of Series R Preferred Stock of the
Corporation a distribution, in like kind, of one hundred
(100) times such distribution paid on a Common Share
(subject to the provisions for adjustment hereinafter set
forth). The dividends and distributions on the Series R
Preferred Stock to which holders thereof are entitled
pursuant to clause (i) of the first sentence of this
paragraph and pursuant to the second sentence of this
paragraph are hereinafter referred to as "Participating
Dividends" and the multiple of such cash and non-cash
dividends on the Common Shares applicable to the
determination of the Participating Dividends, which shall
be one hundred (100) initially but shall be adjusted from
time to time ashereinafter provided, is hereinafter
referred to as the "Dividend Multiple". In the event the
Corporation shall at any time after August 28, 1989 declare
or pay any dividend or make any distribution on Common
Shares payable in Common Shares or any class or series
thereof, or effect a subdivision or split or a combination,
consolidation or reverse split of the outstanding Common
Shares into a greater or lesser number of Common Shares,
then in each such case the Dividend Multiple thereafter
applicable to the determination of the amount of
Participating Dividends which holders of shares of Series R
Preferred Stock shall be entitled to receive shall be the
Dividend Multiple applicable immediately prior to such
event multiplied by a fraction the numerator of which is
the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to
such event.
(2) The Corporation shall declare each
Participating Dividend at the same time it declares any
cash or non-cash dividend or distribution on the Common
Shares in respect of which a Participating Dividend is
required to be paid. No cash or non-cash dividend or
distribution on the Common Shares in respect of which a
Participating Dividend is required to be paid shall be paid
or set aside for payment on the Common Shares unless a
Participating Dividend in respect of such dividend or
distribution on the Common Shares shall be simultaneously
paid, or set aside for payment, on the Series R Preferred
Stock.
(3) Preferential Dividends shall begin to
accrue on outstanding shares of Series R Preferred Stock
commencing with the Quarterly Dividend Payment Date next
following the date of issuance of any shares of Series R
Preferred Stock and shall accrue on and as of such date and
each successive Quarterly Dividend Payment Date thereafter.
Accrued but unpaid Preferential Dividends shall cumulate
but shall not bear interest. Preferential Dividends paid
on the shares of Series R Preferred Stock in an amount less
than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time
outstanding.
b) Voting Rights. The holders of shares of
Series R Preferred Stock shall have the following voting
rights:
(1) Subject to the provisions for adjustment
hereinafter set forth, each share of Series R Preferred
Stock shall entitle the holder thereof to one hundred (100)
votes on all matters submitted to a vote of the
shareholders of the Corporation. The number of votes which
a holder of Series R Preferred Stock is entitled to cast,
as the samemay be adjusted from time to time as hereinafter
provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time
after August 28, 1989 declare or pay any dividend on Common
Stock payable in Common Shares, or effect a subdivision or
split or a combination, consolidation or reverse split of
the outstanding Common Shares into a greater or lesser
number of Common Shares, then in each such case the Vote
Multiple thereafter applicable to the determination of the
number of votes per share to which holders of shares of
Series R Preferred Stock shall be entitled after such event
shall be the Vote Multiple immediately prior to such event
multiplied by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such
event and the denominator of which is the number of Common
Shares that were outstanding immediately prior to such
event.
(2) Except as otherwise provided herein, or
by law, the Certificate of Incorporation or the By-laws,
the holders of shares of Series R Preferred Stock and the
holders of Common Shares shall vote together as one class
on all matters submitted to a vote of shareholders of the
Corporation.
(3) If at the time of any annual meeting of
shareholders of the Corporation for the election of directors,
the Corporation shall have failed to pay the Preferential
Dividends on the shares of the Series R Preferred Stock for six
dividend payment periods, whether or not consecutive, or shall
fail to pay in full such dividends, if any, as may accumulate on
any other series of Preferred Stock for a period of 18 months
(referred to herein as a "Dividend Payment Default"), the number
of directors of the Corporation shall be increased by two and
the holders of the all outstanding series of Preferred Stock in
respect of which such a default in payment of dividends as
described hereinabove exists, voting as a single class without
regard to series, will be entitled to elect such additional two
directors until full cumulative dividends for all past dividend
periods upon all series of Preferred Stock have been paid or
declared and set apart for payment. If and when the full
cumulative dividends on all series of Preferred Stock for all
past dividend payment periods shall have been paid or declared
and set apart for payment, the holders of Preferred Stock shall
be divested of the foregoing special voting right, subject to
revesting in the event of each and every subsequent Dividend
Payment Default. Upon the termination of each such special
voting right, the term of office of each director elected by the
holders of shares of Preferred Stock in respect of which a
default exists in the payment of dividends as described
hereinabove (herein referred to as a "Preferred Director")
pursuant to such special voting right shall forthwith terminate
and the number of directors constituting the Board of Directors
shall be reduced by two. Any Preferred Director may beremoved
by, and shall not be removed except by, the vote of the holders
of record of the outstanding shares of Preferred Stock in
respect of which such a default exists, voting together as a
single class without regard to series, at a meeting of the
shareholders, or of the holders of shares of such Preferred
Stock, called for the purpose. As long as a Dividend Payment
Default shall continue (A) any vacancy in the office of a
Preferred Director may be filled (except as provided in the
following clause (B)) by an instrument in writing signed by the
remaining Preferred Director and filed with the Corporation and
(B) in the case of the removal of any Preferred Director, the
vacancy may be filled by the vote of the holders of the
outstanding shares of Preferred Stock in respect of which such a
default exists, voting together as a single class without regard
to series, at the same meeting at which such removal shall be
voted or a subsequent meeting. Each director appointed as
aforesaid by the remaining Preferred Director shall be deemed,
for all purposes hereof, to be a Preferred Director.
(4) Except as otherwise set forth herein or
required by law, the Certificate of Incorporation or the
By-laws, holders of Series R Preferred Stock shall have no
special voting rights and their consent shall not be
required (except to the extent they are entitled to vote
with holders of Common Shares as set forth herein) for the
taking of any corporate action.
(c) Certain Restrictions.
(1) Whenever Preferential Dividends or
Participating Dividends are in arrears or the Corporation
shall be in default of payment thereof, thereafter and
until all accrued and unpaid Preferential Dividends and
Participating Dividends, whether or not declared, on shares
of Series R Preferred Stock outstanding shall have been
paid or declared and a sum sufficient for the payment
thereof set apart for payment, and in addition to any and
all other rights which any holder of shares of Series R
Preferred Stock may have in such circumstances, the
Corporation shall not:
(i) declare or pay or set apart for
payment dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration,
any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the
Series R Preferred Stock;
(ii) declare or pay or set apart for
payment dividends on or make any other distributions on any
shares of stock ranking on a parity as to dividends with
the Series R Preferred Stock, unless dividends are paid
ratably on the Series RPreferred Stock and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled if the full dividends accrued
thereon were to be paid;
(iii) except as permitted by subparagraph
(iv) of this paragraph (c)(1), redeem or purchase or
otherwise acquire for consideration shares of any stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series R
Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of
the Corporation ranking junior (both as to dividends and
upon liquidation, dissolution or winding up) to the Series
R Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series R Preferred Stock, or
any shares of stock ranking on a parity with the Series R
Preferred Stock (either as to dividends or upon
liquidation, dissolution or winding up), except in
accordance with a purchase offer made to all holders of
such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective
series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective
series or classes.
(2) The Corporation shall not permit any
Subsidiary (as hereinafter defined) of the Corporation to
purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could,
under paragraph (1) of this Section (c), purchase or
otherwise acquire such shares at such time and in such
manner. A "Subsidiary" of the Corporation shall mean any
corporation or other entity of which securities or other
ownership interests having ordinary voting power sufficient
to elect a majority of the board of directors or other
persons performing similar functions are beneficially
owned, directly or indirectly, by the Corporation or by any
corporation or other entity that is otherwise controlled by
the Corporation.
(3) The Corporation shall not issue any
shares of Series R Preferred Stock except upon exercise of
rights issued pursuant to that certain Rights Agreement
dated as of August 16, 1989 between the Corporation and
First Chicago Trust Company of New York, as Rights Agent, a
copy of which is on file with the Secretary of the
Corporation at its principal executive office and shall be
made available to shareholders of record without charge
upon written request thereforaddressed to said Secretary.
Notwithstanding the foregoing sentence, nothing contained
in the provisions hereof shall prohibit or restrict the
Corporation from issuing for any purpose any series of
Preferred Stock with rights and privileges similar to,
different from, or greater than, those of the Series R
Preferred Stock.
(d) Reacquired Shares. Any shares of Series R
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such
shares upon their retirement and cancellation shall become
authorized but unissued shares of Preferred Stock, without
designation as to series, and such shares may be reissued
as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors.
(e) Liquidation, Dissolution or Winding Up. Upon
the dissolution, liquidation or winding up of the
Corporation, no distribution shall be made (i) to the
holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up)
to the Series R Preferred Stock unless the holders of
shares of Series R Preferred Stock shall have received,
subject to adjustment as hereinafter provided, (1) $1.00
per one-hundredth share ($100 per share) plus an amount
equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such
payment, or (2) if greater than the amount specified in
clause (i)(1) of this sentence, an amount equal to one
hundred (100) times the aggregate amount to be distributed
per share to holders of Common Shares, as the same may be
adjusted as hereinafter provided, and (ii) to the holders
of stock ranking on a parity upon liquidation, dissolution
or winding up with the Series R Preferred Stock, unless
simultaneously therewith distributions are made ratably on
the Series R Preferred Stock and all other shares of such
parity stock in proportion to the total amounts to which
the holders of shares of Series R Preferred Stock are
entitled under clause (i)(1) of this sentence and to which
the holders of such parity shares are entitled, in each
case upon such liquidation, dissolution or winding up. The
amount to which holders of Series R Preferred Stock may be
entitled upon liquidation, dissolution or winding up of the
Corporation pursuant to clause (i)(2) of the foregoing
sentence is hereinafter referred to as the "Participating
Liquidation Amount" and the multiple of the amount to be
distributed to holders of Common Shares upon the
liquidation, dissolution or winding up of the Corporation
applicable, pursuant to said clause, to the determination
of the Participating Liquidation Amount, as said multiple
may be adjusted from time to time as hereinafter provided,
is hereinafter referred to as the "Liquidation Multiple".
In the event the Corporation shall at any time after
August 28, 1989 declare or pay any dividend on Common
Shares payable in Common Shares or any class or series
thereof, or effect a subdivision or split or a combination,
consolidation or reverse split of the outstanding Common
Shares into a greater or lesser number of Common Shares,
then in eachsuch case the Liquidation Multiple thereafter
applicable to the determination of the Participating
Liquidation Amount to which holders of Series R Preferred
Stock shall be entitled after such event shall be the
Liquidation Multiple applicable immediately prior to such
event multiplied by a fraction the numerator of which is
the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to
such event. The sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other
consideration) of all or substantially all the property and
assets of the Corporation shall not be deemed a
dissolution, liquidation or winding up of the Corporation
for the purposes of this Section (e), nor shall the merger
or consolidation of the Corporation into or with any other
corporation or association or the merger or consolidation
of any other corporation or association into or with the
Corporation, be deemed to be a dissolution, liquidation or
winding up of the Corporation for the purposes of this
Section (e).
(f) Certain Reclassifications and Other Events.
(1) In the event that holders of Common
Shares of the Corporation receive after August 28, 1989 in
respect of their Common Shares any share of capital stock
of the Corporation (other than any Common Shares of the
Corporation of the same class and series as such
outstanding Common Shares), whether by way of
reclassification, recapitalization, reorganization,
dividend or other distribution or otherwise (a
"Transaction"), then and in each such event the dividend
rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares
of Series R Preferred Stock shall be adjusted so that after
such event the holders of Series R Preferred Stock shall be
entitled, in respect of each share of Series R Preferred
Stock held, in addition to such rights in respect thereof
to which such holder was entitled immediately prior to such
adjustment, to (i) such additional dividends as equal the
Dividend Multiple in effect immediately prior to such
Transaction multiplied by the additional dividends which
the holder of a Common Share shall be entitled to receive
by virtue of the receipt in the Transaction of such capital
stock; (ii) such additional voting rights as equal the Vote
Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder
of a Common Share shall be entitled to receive by virtue of
the receipt in the Transaction of such capital stock; and
(iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the
Liquidation Multiple in effect immediately prior to such
Transaction multiplied by the additional amount which the
holder of a Common Share shall be entitled to receive upon
liquidation, dissolution or winding up of the Corporation
by virtue ofthe receipt in the Transaction of such capital
stock, as the case may be, all as provided by the terms of
such capital stock.
(2) In the event that all holders of Common
Shares of the Corporation receive after August 28, 1989 in
respect of their Common Shares any right or warrant to
purchase Common Shares (including as such a right, for all
purposes of this paragraph, any security convertible into
or exchangeable for Common Shares) at a purchase price per
share less than the Fair Market Value of a Common Share on
the date of issuance of such right or warrant, then and in
each such event the dividend rights, voting rights and
rights upon the liquidation, dissolution or winding up of
the Corporation of the shares of Series R Preferred Stock
shall each be adjusted so that after such event the
Dividend Multiple, the Vote Multiple and the Liquidation
Multiple shall each be the product of the Dividend
Multiple, the Vote Multiple and the Liquidation Multiple,
as the case may be, in effect immediately prior to such
event multiplied by a fraction the numerator of which shall
be the number of Common Shares outstanding immediately
before such issuance of rights or warrants plus the maximum
number of Common Shares which could be acquired upon
exercise in full of all such rights or warrants and the
denominator of which shall be the number of Common Shares
outstanding immediately before such issuance of rights or
warrants plus the number of Common Shares which could be
purchased, at the Fair Market Value of the Common Shares at
the time of such issuance, by the maximum aggregate
consideration payable upon exercise in full of all such
rights or warrants.
(3) In the event that holders of Common
Shares of the Corporation receive after August 28, 1989 in
respect of their Common Shares any right or warrant to
purchase capital stock of the Corporation (other than
Common Shares of any class or series), including as such a
right, for all purposes of this paragraph, any security
convertible into or exchangeable for capital stock of the
Corporation (other than Common Shares of any class or
series), at a purchase price per share less than the Fair
Market Value of such shares of capital stock on the date of
issuance of such right or warrant, then and in each such
event the dividend rights, voting rights and rights upon
liquidation, dissolution or winding up of the Corporation
of the shares of Series R Preferred Stock shall each be
adjusted so that after such event each holder of a share of
Series R Preferred Stock shall be entitled, in respect of
each share of Series R Preferred Stock held, in addition to
such rights in respect thereof to which such holder was
entitled immediately prior to such event, to receive (i)
such additional dividends as equal the Dividend Multiple in
effect immediately prior to such event multiplied, first,
by the additional dividends to which the holder of a Common
Share shall be entitled upon exercise of such right or
warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the
Discount Fraction (as hereinafter defined); (ii) such
additional voting rights as equal the Vote Multiple in
effect immediately prior to such event multiplied, first,
by the additional voting rights to which the holder of a
Common Share shall be entitled upon exercise of such right
or warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the
Discount Fraction; and (iii) such additional distributions
upon liquidation, dissolution or winding up of the
Corporation as equal the Liquidation Multiple in effect
immediately prior to such event multiplied, first, by the
additional amount which the holder of a Common Share shall
be entitled to receive upon liquidation, dissolution or
winding up of the Corporation upon exercise of such right
or warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the
Discount Fraction. For purposes of this paragraph, the
"Discount Fraction" shall be a fraction the numerator of
which shall be the difference between the Fair Market Value
of a share of the capital stock subject to a right or
warrant distributed to holders of Common Shares of the
Corporation as contemplated by this paragraph immediately
after the distribution thereof and the purchase price per
share for such share of capital stock pursuant to such
right or warrant and the denominator of which shall be the
Fair Market Value of a share of such capital stock
immediately after the distribution of such right or
warrant.
(4) For purposes hereof, the "Fair Market
Value" of a share of capital stock of the Corporation
(including a Common Share) on any date shall be deemed to
be the average of the daily closing price per share thereof
over the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date;
provided, however, that, in the event that such Fair Market
Value of any such share of capital stock is determined
during a period which includes any date that is within 30
Trading Days after (i) the ex-dividend date for a dividend
or distribution on stock payable in shares of such stock or
securities convertible into shares of such stock, or (ii)
the effective date of any subdivision, split, combination,
consolidation, reverse stock split or reclassification of
such stock, then, and in each such case, the Fair Market
Value shall be appropriately adjusted by the Board of
Directors of the Corporation to take into account
ex-dividend or post-effective date trading. The closing
price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way
(in either case, as reported in the applicable transaction
reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange), or, if
the shares are not listed or admitted to trading on the New
York Stock Exchange, as reported in the applicable
transaction reporting system with respect to securities
listed on the principal national securities exchange on
which the shares are listed or admitted to trading or, if
the shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in
use, or if on any such date the shares are not quoted by
any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker
making a market in the shares selected by the Board of
Directors of the Corporation. The term "Trading Day" shall
mean a day on which the principal national securities
exchange on which the shares are listed or admitted to
trading is open for the transaction of business or, if the
shares are not listed or admitted to trading on any
national securities exchange, on which the New York Stock
Exchange or such other national securities exchange as may
be selected by the Board of Directors of the Corporation is
open. If the shares are not publicly held or not so listed
or traded on any day within the period of 30 Trading Days
applicable to the determination of Fair Market Value
thereof as aforesaid, "Fair Market Value" shall mean the
fair market value thereof per share as determined in good
faith by the Board of Directors of the Corporation. In
either case referred to in the foregoing sentence, the
determination of Fair Market Value shall be described in a
statement filed with the Secretary of the Corporation.
(g) Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the Common Shares
are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any
such case each outstanding share of Series R Preferred
Stock shall at the same time be similarly exchanged for or
changed into the aggregate amount of stock, securities,
cash and/or other property (payable in like kind), as the
case may be, for which or into which each Common Share is
changed or exchanged multiplied by the highest of the
Dividend Multiple, the Vote Multiple or the Liquidation
Multiple in effect immediately prior to such event.
(h) Effective Time of Adjustments.
(1) Adjustments to the Series R Preferred
Stock required by the provisions hereof shall be effective
as of the time at which the event requiring such
adjustments occurs.
(2) The Corporation shall give prompt
written notice to each holder of a share of Series R
Preferred Stock of the effect of any adjustment to the
voting rights, dividend rights or rights uponliquidation,
dissolution or winding up of the Corporation of such shares
required by the provisions hereof. Notwithstanding the
foregoing sentence, the failure of the Corporation to give
such notice shall not affect the validity of or the force
or effect of or the requirement for such adjustment.
(i) No Redemption. The shares of Series R
Preferred Stock shall not be redeemable at the option of
the Corporation or any holder thereof. Notwithstanding the
foregoing sentence of this Section, the Corporation may
acquire shares of Series R Preferred Stock in any other
manner permitted by law, the provisions hereof and the
Certificate of Incorporation of the Corporation.
(j) Ranking. Unless otherwise provided in the
Certificate of Incorporation of the Corporation or a
Certificate of Amendment relating to a subsequent series of
preferred stock of the Corporation, the Series R Preferred
Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets on liquidation,
dissolution or winding up and senior to the Common Shares.
(k) Conversion or Exchange. The holders of
shares of Series R Preferred Stock shall not have any
rights to convert such shares into or exchange such shares
for Common Shares of the Corporation or any other stock of
the Corporation.
(l) Preemptive Rights. Shares of the Series R
Preferred Stock are not entitled to any preemptive rights.
(m) Amendment. Unless the vote or consent of the
holders of a greater number of shares shall then be
required by law, the consent of the holders of at least
66-2/3% of all of the shares of this Series R Preferred
Stock at the time outstanding given in person or by proxy,
either in writing or by a vote at a meeting called for the
purpose, on which matter the holders of shares of this
Series R Preferred Stock shall vote together as a separate
class, shall be necessary to authorize, effect or validate
any amendment, alteration or repeal of any of the
provisions of the Restated Certificate of Incorporation of
the Corporation or of any certificate amendatory or
supplemental thereto which amendment, alteration or repeal
would, if effected, adversely affect the preferences,
rights, powers or privileges of this Series R Preferred
Stock.
4. The location of the current registered office of the
Corporation in this State is 301 Carnegie Center, P. O. Box
2066, Princeton, New Jersey 08543-2066, and the name of the
current agent therein and in charge thereof upon whom process
against this Corporation may be served is Richard F. Ober, Jr.
5. The current Board of Directors consists of eighteen
persons whose names and addresses are as follows:
S. RODGERS BENJAMIN Chairman
Flemington Fur Company
8 Spring Street
Flemington, NJ 08822
ROBERT L. BOYLE Publisher Emeritus
of the Dispatch
7 Orchard Lane
Rumson, NJ 07760
JAMES C. BRADY, JR. Partner
Mill House Associates, Inc.
Box 351
Gladstone, NJ 07934
JOHN G. COLLINS Vice Chairman
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
ROBERT G. COX President
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
T. J. DERMOT DUNPHY Chairman & CEO
Sealed Air Corporation
Park 80 Plaza East
Saddle Brook, NJ 07662
ANNE EVANS ESTABROOK Owner
Elberon Development Co.
P.O. Box 677
Kenilworth, NJ 07033-0677
ELINOR J. FERDON National President
Girls Scouts of the USA
Litchfield Way
Alpine, NJ 07620
THOMAS H. HAMILTON 218 Philadelphia Avenue
Egg Harbor, NJ 08215
FRED G. HARVEY Vice President
E. & E. Corp.
225 West 2nd Street
Bethlehem, PA 18015
FRANCIS J. MERTZ President
Fairleigh Dickinson University
1000 River Road
Teaneck, NJ 07666
GEORGE L. MILES, JR. President & CEO
WQED Pittsburgh
4802 Fifth Avenue
Pittsburgh, PA 15213
WILLIAM R. MILLER 1812 Franklin Boulevard
Linwood, NJ 08221
T. JOSEPH SEMROD Chairman and CEO
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
RAYMOND SILVERSTEIN Consultant
Alloy, Silverstein, Shapiro, Adams
Mulford & Co.
900 North Kings Highway
Cherry Hill, NJ 08034
ORIN R. SMITH Chairman and CEO
Engelhard Corporation
101 Wood Avenue
Iselin, NJ 08830
JOSEPH M. TABAK President and CEO
JPC Enterprises, Inc.
30 South Adelaide Avenue
Penthouse F
Highland Park, NJ 08904
DOUGLAS G. WATSON President & CEO
Novartis Corporation
564 Morris Avenue
Summit, NJ 07901
The Board of Directors shall consist of not less than
five (5) persons and not more than forty (40) persons, as may be
determined from time to time in the discretion of the Board of
Directors.
Except as otherwise provided by statute, by this
Restated Certificate of Incorporation as the same may be amended
from time to time, or by By-Laws as the same may be amended from
time to time, all corporate powers may be exercised by the Board
of Directors. Without limiting the foregoing, the Board of
Directors shall have power, without shareholders' action:
A. To authorize and cause to be executed and/or
issued mortgages, liens, bonds, debentures or other
obligations including bonds, debentures or other
obligations convertible into, or exchangeable for stock of
any class, or bearing, warrants or other evidences of
optional rights to purchase or subscribe to, or both, stock
of any class, upon the terms, in the manner and under the
condition fixed by resolution of the Board of Directors
prior to the issue thereof, secured or not secured, upon
the real and personal or other property of the Corporation,
or any part thereof, provided that a majority of the whole
Board of Directors concur therein by resolution or in
writing.
B. With the sanction of a resolution passed by the
holders of two-thirds of the shares issued and outstanding
at any annual or special meeting of shareholders duly
called for that purpose, to sell, assign, transfer or
otherwise dispose of all the rights, franchises and
property of the Corporation as an entirety; and any such
sale may be wholly or partly in consideration of the bonds,
mortgages, debenture obligations, securities or evidences
of indebtedness, or shares of the capital stock, of any
corporation or corporations of any state, territory or
foreign country, formed or to be formed for the purpose of
purchasing the same.
C. To loan money to, or guarantee an obligation of,
or otherwise assist any officer or other employee of the
Corporation or of any subsidiary, including an officer or
employee who is also a director of the Corporation,
whenever, in the judgment of the Board of Directors, such
loan, guarantee, or assistance may reasonably be expected
to benefit the Corporation.
D. To designate three (3) or more of their number to
constitute an executive committee, which committee shall
for the time being and subject to the control and direction
of the Board of Directors have and exercise all the powers
of the Board of Directors which may be lawfully delegated
for the management of the business and affairs of the
Corporation, and shall have power to authorize the seal of
the Corporation to be affixed to all papers which may
require it.
6. Except to the extent prohibited by law, no Director or
officer of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for breach of any
duty owed to the Corporation or its shareholders, provided that
a Director or officer shall not be relieved from liability for
any breach of duty based upon an act or omission (a) in breach
of such person's duty of loyalty to the Corporation or its
shareholders, (b) not in good faith or involving a knowing
violation of law or (c) resultingin receipt by such person of an
improper personal benefit. Neither the amendment or repeal of
this Article 6 nor the adoption of any provision of this
Restated Certificate of Incorporation inconsistent with this
Article 6 shall eliminate or reduce the effect of this Article 6
in respect of any matter which occurred, or any cause of action,
suit or claim which but for this Article 6 would have accrued or
arisen, prior to such amendment, repeal or adoption.
7. Except as may be otherwise provided in respect of
directors to be elected by the holders of Preferred Stock, or
any series thereof, by the terms of any resolution or
resolutions of the Board of Directors providing for any series
of Preferred Stock adopted pursuant to the provisions of Article
3 hereof, the Board of Directors shall be classified, with
respect to the time for which directors shall hold office, into
three classes, as determined by the Board of Directors, each as
nearly equal in number as possible. At the annual meeting of
the shareholders of the Corporation at which this Article 7 is
adopted, the first such class of directors shall be elected for
a term expiring upon the next following annual meeting of
shareholders and upon the election and qualification of their
respective successors, the second such class of directors shall
be elected for a term expiring upon the second following annual
meeting of shareholders and upon the election and qualification
of their respective successors, and the third such class of
directors shall be elected for a term expiring upon the third
following annual meeting of shareholders and upon the election
and qualification of their respective successors. At each
annual meeting of shareholders following the annual meeting at
which this Article 7 is adopted, directors of the class of
directors whose term expires at such annual meeting shall be
elected for a term expiring upon the third following annual
meeting of shareholders and upon the election and qualification
of their respective successors. Whenever the number of
directors constituting the whole Board of Directors is changed,
except as may be otherwise provided in respect of directors to
be elected by the holders of Preferred Stock, or any series
thereof, by the terms of any resolution or resolutions of the
Board of Directors providing for any series of Preferred Stock
adopted pursuant to the provisions of Article 3 hereof, any
increase or decrease in the number of directors shall be
apportioned by the Board of Directors among the three classes so
as to maintain all the classes as equal in number as possible,
and each such director shall hold office until the next annual
meeting of shareholders and until such director's successor
shall have been elected and qualified; provided, however, that
no decrease in the number of directors shall effect the
then-current term of any director then in office.
A director may be disqualified from office as required
by law or under any applicable rules, regulations or orders of
any federal or state regulatory authority or by provisions of
general applicability in the Restated Certificate of
Incorporation or By-Laws adopted prior to such director's
election.
Any action by the Board of Directors or shareholders
creating one or more vacancies on the Board of Directors by
increasing the authorized number of directors shall be effective
only if such action has received the affirmative vote, in the
case of the Board of Directors, of eighty percent (80%) or more
of the directors then holding office or, in the case of the
shareholders, of eighty percent (80%) or more of the combined
voting power of the then outstanding shares of all classes and
series of stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
8. Subject to the rights of the holders of shares of any
series of Preferred Stock or any other class of stock or series
thereof having a preference over the Common Stock as to
dividends or upon liquidation, any action required or permitted
to be taken by the shareholders of the Corporation must be
effected exclusively either at a duly called annual or special
meeting of shareholders of the Corporation or by the unanimous
(but no less than unanimous) written consent of the
shareholders.
9. In addition to any requirements of law and any other
provision of the Restated Certificate of Incorporation of the
Corporation or any resolution or resolutions of the Board of
Directors providing for any series of Preferred Stock adopted
pursuant to Article 3 hereof (and notwithstanding the fact that
approval by a lesser vote may be permitted by law, any other
Article, or other provisions hereof or any such resolution or
resolutions), the affirmative vote of the holders of eighty
percent (80%) or more of the combined voting power of the then
outstanding shares of all classes and series of stock of the
Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required
to amend, alter or repeal, or adopted any provision or take
action inconsistent with, this Article 9 or Articles 7 or 8
hereof.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SEPTEMBER 30, 1998 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,088,352
<INT-BEARING-DEPOSITS> 19,763
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 15,962
<INVESTMENTS-HELD-FOR-SALE> 4,432,791
<INVESTMENTS-CARRYING> 5,358,215
<INVESTMENTS-MARKET> 5,412,020
<LOANS> 20,300,663
<ALLOWANCE> 314,271
<TOTAL-ASSETS> 31,852,214
<DEPOSITS> 22,146,853
<SHORT-TERM> 4,269,565
<LIABILITIES-OTHER> 405,996
<LONG-TERM> 2,401,826
0
0
<COMMON> 142,118
<OTHER-SE> 2,485,856
<TOTAL-LIABILITIES-AND-EQUITY> 31,852,214
<INTEREST-LOAN> 1,173,490
<INTEREST-INVEST> 444,383
<INTEREST-OTHER> 1,889
<INTEREST-TOTAL> 1,619,762
<INTEREST-DEPOSIT> 503,855
<INTEREST-EXPENSE> 743,731
<INTEREST-INCOME-NET> 876,031
<LOAN-LOSSES> 51,000
<SECURITIES-GAINS> 4,440
<EXPENSE-OTHER> 577,738
<INCOME-PRETAX> 507,405
<INCOME-PRE-EXTRAORDINARY> 348,755
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348,755
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.96
<YIELD-ACTUAL> 4.10
<LOANS-NON> 79,812
<LOANS-PAST> 36,144
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 58,989
<ALLOWANCE-OPEN> 296,494
<CHARGE-OFFS> 54,438
<RECOVERIES> 21,215
<ALLOWANCE-CLOSE> 314,271
<ALLOWANCE-DOMESTIC> 132,253
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 182,018
</TABLE>
