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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 March 31, 2000
------------------------------
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
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of April 30, 2000 there were 175,924,877 shares of common stock,
$.80 par value, outstanding.
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<PAGE>
Form 10-Q
Index
Page No.
Part I Financial Information
Item 1. Financial Statements-Unaudited
Consolidated Balance Sheets-
March 31, 2000, December 31, 1999, and March 31, 1999.........2
Consolidated Statements of Income-
Three Months Ended March 31, 2000, and 1999...................3
Consolidated Statements of Shareholders' Equity-
Three Months Ended March 31, 2000, and 1999...................4
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 2000, and 1999...................5
Notes to Consolidated Financial Statements (unaudited)............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.......20
Part II. Other Information
Item 1. Legal Proceedings................................................20
Item 2. Changes in Securities and Use of Proceeds........................21
Item 3. Defaults Upon Senior Securities..................................21
Item 4. Submissions of Matters to a Vote of Security Holders.............21
Item 5. Other Information................................................21
Item 6. Exhibits and Reports on Form 8-K.................................22
Signature........................................................23
Exhibit Index....................................................24
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Balance Sheets
Unaudited
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
------------ ------------ ------------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 1,144,686 $ 1,160,577 $ 1,000,977
Federal funds sold and securities purchased
under agreements to resell 6,400 5,000 11,701
Interest-bearing deposits with banks 53,879 32,870 27,407
Securities:
Trading account 22,463 20,118 10,217
Available for sale 6,185,191 5,199,121 3,860,136
Held to maturity 5,345,079 5,597,383 6,583,209
------------ ------------ ------------
Total securities 11,552,733 10,816,622 10,453,562
Loans (net of unearned discount):
Commercial 8,545,352 8,134,497 7,227,814
Commercial mortgage 3,215,014 3,174,370 2,922,418
Residential mortgage 5,912,510 5,747,927 5,612,161
Consumer 6,394,723 6,170,162 5,391,314
------------ ------------ ------------
Total loans 24,067,599 23,226,956 21,153,707
Less: Allowance for loan losses 332,755 328,828 328,302
------------ ------------ ------------
Net loans 23,734,844 22,898,128 20,825,405
------------ ------------ ------------
Goodwill and other intangibles 575,249 519,362 323,060
Premises and equipment 319,791 315,632 299,961
Accrued interest receivable 244,189 214,797 196,223
Due from customers on acceptances 19,203 22,311 21,499
Other assets 413,517 393,676 317,582
------------ ------------ ------------
Total Assets $ 38,064,491 $ 36,378,975 $ 33,477,377
============ ============ ============
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand deposits $ 5,162,634 $ 4,966,400 $ 4,619,694
Interest-bearing deposits:
Savings and time deposits 19,444,675 18,653,398 17,779,324
Commercial certificates of deposit $100,000 and over 857,882 1,018,848 821,130
------------ ------------ ------------
Total deposits 25,465,191 24,638,646 23,220,148
------------ ------------ ------------
Other borrowed funds 5,223,797 4,593,064 3,281,005
Accrued expenses and other liabilities 414,844 357,152 423,632
Accrued interest payable 112,006 100,845 84,660
Bank acceptances outstanding 19,203 22,311 21,499
Long-term debt 3,877,075 3,864,777 3,734,392
------------ ------------ ------------
Total liabilities 35,112,116 33,576,795 30,765,336
Shareholders' equity:
Common stock par value $ .80: Authorized 390,000 shares;
issued 177,369, 177,471, and 177,593 shares 141,895 141,977 142,074
Surplus 920,983 959,934 971,955
Retained earnings 2,016,080 1,948,985 1,794,863
Employee stock ownership plan obligation -- (1,250) (2,750)
Accumulated other comprehensive (loss) income, net of tax (102,050) (85,841) 9,488
Common stock held in treasury, at
cost (744, 4,825 and 4,901 shares) (24,533) (161,625) (203,589)
------------ ------------ ------------
Total shareholders' equity 2,952,375 2,802,180 2,712,041
------------ ------------ ------------
Total Liabilities and Shareholders' Equity $ 38,064,491 $ 36,378,975 $ 33,477,377
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Income
Unaudited
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
-------- --------
Interest Income
<S> <C> <C>
Loans $469,122 $403,667
Securities:
Trading account 395 82
Available for sale 94,875 59,561
Held to maturity 85,465 96,540
-------- --------
Total securities 180,735 156,183
Other interest income 691 595
-------- --------
Total interest income 650,548 560,445
-------- --------
Interest Expense
Savings and time deposits 175,433 151,402
Commercial certificates of deposit $100,000 and over 13,299 11,575
Borrowed funds, including long-term debt 125,909 92,124
-------- --------
Total interest expense 314,641 255,101
-------- --------
Net interest income 335,907 305,344
Provision for loan losses 20,000 16,500
-------- --------
Net interest income after provision for loan losses 315,907 288,844
-------- --------
Noninterest Income
Service charges on deposit accounts 31,545 30,076
Service and loan fee income 15,755 15,624
Trust income 13,772 11,926
Retail investment fees 12,739 10,158
Insurance service fees 10,804 7,870
Securities gains 85 217
Other 17,033 22,286
-------- --------
Total noninterest income 101,733 98,157
-------- --------
Noninterest Expenses
Salaries 87,964 80,326
Pension and other employee benefits 30,272 30,017
Furniture and equipment 25,449 22,451
Occupancy, net 22,135 19,835
Communications 9,514 9,618
Amoritization of goodwill and other intangibles 9,000 5,871
Advertising and public relations 6,144 5,528
Other 38,363 31,791
-------- --------
Total noninterest expenses 228,841 205,437
-------- --------
Net Income before taxes 188,799 181,564
Federal and state income taxes 63,886 62,823
-------- --------
Net Income $124,913 $118,741
======== ========
Net Income per Common Share:
Basic $ 0.72 $ 0.68
Diluted 0.72 0.68
Average Common Shares Outstanding:
Basic 173,181 173,794
Diluted 174,196 175,458
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Shareholders' Equity
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Accum. Other Total
Common Retained ESOP Comprehensive Treasury Shareholders'
Stock Surplus Earnings Obligation (Loss)Income Stock Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $142,106 $1,013,393 $1,728,135 $(3,394) $12,087 $(169,900) $2,722,427
Comprehensive income:
Net income -- -- 118,741 -- -- -- 118,741
Unrealized holding loss
on securities arising
during the period
(net of tax $1,324) -- -- -- -- (2,458) --
Less: Reclassification
adjustment for gains
included in net income
(net of tax $76) -- -- -- -- 141 --
Net unrealized holding loss
on securities arising during
the period (net of tax $1,399) -- -- -- -- (2,599) -- (2,599)
-----------
Total comprehensive income 116,142
Cash dividend declared on
common stock -- -- (52,013) -- -- -- (52,013)
Shares issued for employee
stock plans (545 shares) (32) (43,005) -- -- -- 25,616 (17,421)
Treasury shares issued for
acquisitions (1,131 shares) -- 1,567 -- -- -- 47,079 48,646
Purchase of common stock
(2,743 shares) -- -- -- -- -- (106,384) (106,384)
ESOP debt repayment -- -- -- 644 -- -- 644
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 $142,074 $971,955 $1,794,863 $(2,750) $9,488 $(203,589) $2,712,041
=========== =========== =========== =========== =========== =========== ===========
Balance, December 31, 1999 $141,977 $959,934 $1,948,985 $(1,250) $(85,841) $(161,625) $2,802,180
Comprehensive income:
Net income -- -- 124,913 -- -- -- 124,913
Unrealized holding loss
on securities arising
during the period
(net of tax $9,348) -- -- -- -- (16,147) --
Less: Reclassification
adjustment for gains included
in net income (net of tax $23) -- -- -- -- 62 --
Unrealized holding loss on
securities arising during
the period (net of tax $9,371) -- -- -- -- (16,209) -- (16,209)
-----------
Total comprehensive income 108,704
Cash dividend declared on
common stock -- -- (57,818) -- -- -- (57,818)
Shares issued for employee
stock plans (495 shares) (82) (13,282) -- -- -- 16,397 3,033
Treasury shares issued for
acquisitions (3,913 shares) -- (25,669) -- -- -- 129,933 104,264
Purchase of common stock
(327 shares) -- -- -- -- -- (9,238) (9,238)
ESOP debt repayment -- -- -- 1,250 -- -- 1,250
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 $141,895 $920,983 $2,016,080 $ -- $(102,050) $(24,533) $2,952,375
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
Operating Activities 2000 1999
----------- -----------
<S> <C> <C>
Net income $ 124,913 $ 118,741
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 20,000 16,500
Depreciation, amortization and accretion, net 20,349 16,806
Gains on sales of securities (85) (217)
Gains on sales of mortgages held for sale (1,688) (6,553)
Gains on sales of other real estate owned (242) (458)
Proceeds from sales of other real estate owned 1,611 1,015
Proceeds from sales of mortgages held for sale 82,192 273,407
Originations of mortgages held for sale (81,362) (275,731)
Net (increase) decrease in trading account securities (2,345) 2,336
Net change in other accrued and deferred income and expense 38,437 46,946
----------- -----------
Net cash provided by operating activities 201,780 192,792
----------- -----------
Investing Activities
Purchases of securities held to maturity (360) (1,247,707)
Purchases of securities available for sale (1,187,054) (717,850)
Proceeds from maturities of securities held to maturity 299,163 686,463
Proceeds from maturities of securities available for sale 206,703 639,319
Proceeds from the sales of securities available for sale 26,754 231,937
Net decrease in Federal funds sold, securities purchased under
agreements to resell and interest bearing deposits with banks (13,864) 21,281
Net (increase) decrease in loans (594,530) 66,756
Purchases of premises and equipment, net (30,284) (25,588)
----------- -----------
Net cash used in investing activities (1,293,472) (345,389)
----------- -----------
Financing Activities
Net increase (decrease) in deposits 523,211 (78,870)
Net increase in short-term borrowings 643,485 91,017
Principal payments on long-term debt, net (257,799) (23,630)
Proceeds from the issuance of long-term debt, net of related expenses 216,000 185,260
Dividends paid (56,966) (52,967)
Purchase of common stock (9,238) (106,384)
Proceeds from issuance of common stock under stock option plans 2,269 2,793
----------- -----------
Net cash provided by financing activities 1,060,962 17,219
----------- -----------
Decrease in cash and due from banks (30,730) (135,378)
Beginning cash balance of acquired entities 14,839 6,496
Cash and due from banks at beginning of period 1,160,577 1,129,859
----------- -----------
Cash and due from banks at end of period $ 1,144,686 $ 1,000,977
=========== ===========
Supplemental disclosure of cash flow information Cash paid:
Interest payments $ 303,480 $ 264,871
Income tax payments 7,644 4,875
Noncash investing activities:
Net transfer of loans to other real estate owned 912 4,921
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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 (Summit Bancorp), the
consolidated results of operations, changes in shareholders' equity and changes
in cash flows. 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 2000. For additional information and
disclosures required under generally accepted accounting principles, reference
is made to Summit Bancorp's 1999 Annual Report on Form 10-K.
2.) Acquisitions
On March 29, 2000, Summit Bancorp completed the acquisition of NMBT Corp. NMBT
was headquartered in New Milford, Connecticut and operated ten branches in
western Connecticut with $430.0 million in assets. This acquisition was
accounted for as a purchase, with the issuance of 2.6 million shares of treasury
stock. The cost in excess of the fair value of net assets acquired resulted in
goodwill and other intangibles of $36.6 million which will be amortized over a
20 year period.
On March 17, 2000, Summit completed its acquisition of selected assets of Patgo
Insurance Agency, Inc., Patgo South, Inc., Patgo International, Inc. and Crown
Insurance Agency, Inc. These companies provide both property and casualty
insurance and group benefit services. This acquisition was accounted for as a
purchase with the cost in excess of the fair value of net assets acquired
resulting in goodwill and other intangibles of $4.3 million which will be
amortized over a 10 year period.
On February 29, 2000, Summit completed its acquisition of Meeker Sharkey
Financial Group, creating the 16th largest insurance brokerage in the United
States, and the largest New Jersey-based insurance broker. Meeker Sharkey
Financial Group offers an array of property and casualty products, group health
insurance benefits and retirement plan services. This transaction was accounted
for as a purchase with the issuance of 1.3 million shares of treasury stock. The
cost in excess of the fair value of net assets acquired resulted in goodwill and
other intangibles of $24.1 million which will be amortized over a 10 year
period.
On August 1, 1999, Summit Bancorp completed the acquisition of Prime Bancorp.
Prime Bancorp was headquartered in Fort Washington, Pennsylvania and operated 27
branches in the greater Philadelphia area with $1.1 billion in assets. This
acquisition was accounted for as a purchase, with the issuance of 7.4 million
shares of treasury stock. The cost in excess of the fair value of net assets
acquired resulted in goodwill and other intangibles of $220.5 million which will
be amortized over a 20 year period.
On March 31, 1999, Summit Bancorp completed the acquisition of New Canaan Bank
and Trust Company. New Canaan Bank and Trust Company was headquartered in New
Canaan, Connecticut and operated four branches with $182.0 million in assets.
This acquisition was accounted for as a purchase, with the issuance of 1.1
million shares of treasury stock. The cost in excess of the fair value of net
assets acquired resulted in goodwill and other intangibles of $35.1 million
which will be amortized over a 20 year period.
6
<PAGE>
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.
- -----------------------------------------------------------------------------
(In thousands, except per share data) Three months ended Mar. 31,
- -----------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------
Net Income $124,913 $ 118,741
=============================================================================
Basic weighted-average common shares outstanding 173,181 173,794
Plus: Common stock equivalents 1,015 1,664
- -----------------------------------------------------------------------------
Diluted weighted-average common shares outstanding 174,196 175,458
=============================================================================
Net Income per Common Share:
Basic $ 0.72 $ 0.68
Diluted 0.72 0.68
- -----------------------------------------------------------------------------
4.) Restructuring Charges
During the fourth quarter of 1999, a restructuring charge of $27.9 million
pretax, ($17.1 million, or $0.10 per diluted share after tax) was recorded in
conjunction with the realignment of key lines of business and lines of support.
The realignment eliminated approximately 260 positions. All employees affected
by the realignment have been notified. Liquidity is not anticipated to be
significantly impacted by this charge. The table below displays the status of
accrual reserves for business restructuring charges at March 31, 2000. The
majority of the restructuring charge is expected to be utilized within one year.
- ---------------------------------------------------------------------
Restructuring Charges
(In millions)
- ---------------------------------------------------------------------
Estimated Utilization Remaining
Type of cost Liability to date Liability
- ---------------------------------------------------------------------
Severance and benefits $ 26.1 $ 9.4 $ 16.7
Real estate and other 1.8 0.5 1.3
- ---------------------------------------------------------------------
Total $ 27.9 $ 9.9 $ 18.0
- ---------------------------------------------------------------------
5.) Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." This statement amends FASB Statement No. 133 by delaying the
effective date one year. SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires recognition of all
derivative instruments as either assets or liabilities in the statement of
financial position and measurement of those instruments at fair value. This
statement is now effective for all fiscal quarters of fiscal years beginning
after June 15, 2000, on a prospective basis. The adoption of SFAS No. 133 is not
expected to have a material impact on the financial position or results of
operations of Summit Bancorp.
6.) Subsequent Events
On April 12, 2000, Summit Bancorp's Board of Directors approved a 6.1 percent
increase in the quarterly cash dividend on Summit Bancorp's common stock from
$0.33 to $0.35 per common share, for an annualized dividend of $1.40. The second
quarter dividend is payable on August 1, 2000, to shareholders of record July 6,
2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
---------------------------------------------
Summit Bancorp is a bank holding company headquartered in Princeton, New Jersey.
Summit Bancorp owns bank subsidiaries in New Jersey, Pennsylvania, and
Connecticut and several active non-bank subsidiaries. Summit Bancorp'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 the Internet.
FINANCIAL CONDITION
Total assets at March 31, 2000, were $38.1 billion, an increase of $1.7 billion,
or 4.6 percent, from year-end 1999. The growth came most notably from the loan
and securities portfolios and was generally funded with an increase in savings
and time deposits and other borrowed funds. The purchase of NMBT Corp. in March
2000, added approximately $430.0 million to total assets.
Total securities at March 31, 2000, were $11.6 billion, an increase of $736.1
million, or 6.8 percent, from year-end 1999. Securities held to maturity, which
are carried at amortized historical cost, are investments for which there is a
positive intent and ability to hold to maturity. Securities held to maturity at
March 31, 2000, were $5.3 billion and were comprised of U.S. Government and
Federal agency securities of $3.5 billion, other securities, predominately
corporate collateralized mortgage obligations ("CMOs") totaling $1.7 billion,
and securities of state and political subdivisions of $109.3 million. Held to
maturity securities decreased $252.3 million, or 4.5 percent, from year-end 1999
due primarily to principal repayments and maturities of $299.2 million. At March
31, 2000, and December 31, 1999, net unrealized losses on securities held to
maturity amounted to $232.8 million and $209.3 million, respectively.
Securities available for sale are investments that may be sold in response to
changing market and interest rate conditions or for other business purposes.
Activity in this portfolio is initiated primarily to manage liquidity and
interest rate risk and to take advantage of certain market conditions. At March
31, 2000, securities available for sale amounted to $6.2 billion and were
predominately comprised of $4.6 billion of U.S. Government and Federal agency
securities and $1.0 billion of CMOs. Total available for sale securities
increased $1.0 billion, or 19.0 percent, from year-end 1999. The increase
resulted from $1.2 billion in purchases partially offset by sales and maturities
of $233.5 million.
The loan portfolio, which represents Summit's largest asset, is a significant
source of both interest and fee income. Elements of the loan portfolio are
subject to differing levels of credit and interest rate risk. Summit's lending
strategy stresses quality loan growth and portfolio diversification by product,
geography, and industry. At March 31, 2000, total loans amounted to $24.1
billion, an increase of $840.6 million, or 3.6 percent, from year-end 1999. The
largest increases were in commercial and consumer loans which grew $410.9
million and $224.6 million respectively. Additionally, residential mortgages
grew $164.5 million and commercial mortgages increased $40.6 million. The
increase in commercial loans was primarily related to loan growth in the
commercial and industrial and specialized industry portfolios. The increase in
the consumer loan portfolio can generally be attributed to purchases of home
equity loans and the acquisition of NMBT Corp. The growth in the residential and
commercial mortgage portfolios was also largely a result of the acquisition of
NMBT Corp. Mortgage loans held for sale amounted to $47.6 million and $65.5
million for the periods ended March 31, 2000, and December 31, 1999,
respectively.
Deposits, which include noninterest-bearing and interest-bearing savings and
time deposits, are a fundamental and cost-effective source of funding. Summit
offers a variety of products designed to attract and retain customers, with the
primary focus on building and expanding relationships. Total deposits were $25.5
billion at March 31, 2000, an increase of $826.5 million, or 3.4 percent, from
December 31, 1999. Savings and time deposits at $19.4 billion, increased $791.3
million, or 4.2 percent, from December 31, 1999. The growth came most notably
from Summit's cash management solution, the Summit Navigator Account, which
increased $554.4 million, or 18.6 percent, from year-end 1999. The Summit
Navigator Account is a relationship sweep account that combines banking,
investment, and brokerage services into one account. In addition, retail
certificates of deposit increased $425.9 million as a result of the introduction
of several new certificate of deposit products. Savings and time deposit growth
was also impacted by the NMBT Corp. acquisition which contributed $260.5
million. These increases more than offset the decline of $256.5 million in
preferred savings, money market, and interest-bearing checking products. Demand
deposits, also increased by $196.2 million, or 4.0 percent, from year-end 1999
to total $5.2 billion at March 31, 2000. The increase in demand
8
<PAGE>
deposits came mainly from business and personal accounts. In addition, the
acquisition of NMBT Corp. contributed $42.9 million of the growth. Partially
offsetting these deposit increases was a decrease in commercial certificates of
deposit $100,000 and over which were down $161.0 million, or 15.8 percent,
compared to December 31, 1999. Commercial certificates of deposit $100,000 and
over are primarily used as an additional funding source to support balance sheet
growth and as an alternative to other sources of borrowed funds. The decline in
commercial certificates of deposit is principally related to the strong growth
in other deposit products in the first quarter of 2000.
Other borrowed funds are mainly comprised of repurchase agreements, Federal
funds purchased, Federal Home Loan Bank borrowings ("FHLB"), and other
short-term borrowings. Other borrowed funds totaled $5.2 billion at March 31,
2000, an increase of $630.7 million, or 13.7 percent, from December 31, 1999.
The increase in other borrowed funds can be attributed to growth in short-term
repurchase agreements which contributed to the funding necessary to support the
growth in earning assets.
Total shareholders' equity at March 31, 2000, was $3.0 billion, an increase of
$150.2 million, or 5.4 percent, from December 31, 1999. The increase was
primarily attributed to retained profits and the issuance of treasury stock for
acquisitions. Treasury stock at March 31, 2000, amounted to $24.5 million, a
reduction of $137.1 million, or 84.8 percent, compared to December 31, 1999, and
was comprised of 744 thousand shares. The reduction in treasury stock was a
result of the issuance of shares for the purchase acquisitions of NMBT Corp. and
Meeker Sharkey Financial Group. Treasury shares will be used for acquisitions,
employee benefit plans, and general corporate purposes. Included in
shareholders' equity at March 31, 2000, was accumulated other comprehensive
loss, net of tax, totaling $102.1 million, compared to a loss of $85.8 million
at year-end 1999. Accumulated other comprehensive loss is comprised principally
of unrealized gains and losses on securities available for sale. The decline in
accumulated other comprehensive loss was due to the decline in the market value
of Summit's fixed income securities as a result of the increase in interest
rates.
Summit Bancorp's capital ratios for March 31, 2000, compared to select prior
periods and regulatory requirements, are shown in the following table. Summit
Bancorp's bank subsidiaries met the well-capitalized requirements for each of
the periods presented. The increases in the ratios at March 31, 2000, were
principally attributable to the decline in the amount of treasury stock
outstanding.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Minimum
Mar. 31, Dec. 31, Mar. 31, Required Well
Selected Capital Ratios: 2000 1999 1999 Capital Capitalized
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity to assets 7.76 % 7.70 % 8.10 % - % - %
Leverage ratio 7.13 7.06 7.67 3.00 5.00
Tier I capital 9.52 9.46 10.47 4.00 6.00
Total risk-based capital 11.09 11.06 12.33 8.00 10.00
- --------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming Assets
Nonperforming assets include nonperforming loans and other real estate owned
(OREO) and are shown in the following table as of the dates indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Nonperforming Assets Mar. 31, Dec. 31, Mar. 31,
(In thousands) 2000 1999 1999
- -----------------------------------------------------------------------------------------------------------------
Nonperforming loans:
<S> <C> <C> <C>
Commercial and industrial $81,458 $ 78,303 $ 51,731
Commercial mortgage 17,804 18,480 36,435
Construction and development 2,378 3,538 1,899
- -----------------------------------------------------------------------------------------------------------------
Nonperforming loans 101,640 100,321 90,065
OREO, net 6,528 6,881 7,137
- -----------------------------------------------------------------------------------------------------------------
Nonperforming assets $108,168 $ 107,202 $ 97,202
- -----------------------------------------------------------------------------------------------------------------
Loans, not included above, past due 90 days or more $44,975 $ 41,378 $ 38,971
- -----------------------------------------------------------------------------------------------------------------
Nonperforming loans to total loans 0.42 % 0.43 % 0.43 %
Nonperforming assets to total loans and OREO 0.45 0.46 0.46
=================================================================================================================
</TABLE>
9
<PAGE>
Average nonperforming loans were $100.7 million at March 31, 2000, compared to
$93.9 million and $83.8 million at December 31, 1999, and March 31, 1999,
respectively. Interest income received on nonperforming loans amounted to $0.4
million for the three months ended March 31, 2000, compared to $0.4 million and
$1.0 million for the three months ended December 31, 1999, and March 31, 1999,
respectively.
Loans which are past due 90 days or more but are not included in nonperforming
assets are primarily residential mortgage and consumer loans which are well
secured and in the process of collection.
Potential problem loans, which are excluded from nonperforming assets, are loans
where information about possible credit problems of borrowers causes management
to have doubts as to the ability of such borrowers to comply with loan repayment
terms. These loans amounted to $11.1 million at March 31, 2000, compared to
$11.9 million and $63.6 million at December 31, 1999, and March 31, 1999,
respectively.
Allowance for Loan Losses
The allowance for loan losses is a valuation reserve available for losses
incurred or inherent in the loan portfolio and other extensions of credit.
Credit losses arise primarily from the loan portfolio, but may also be derived
from other credit-related sources including commitments and other extensions of
credit, guarantees, and standby letters of credit. Additions are made to the
allowance through periodic provisions which are charged to expense. All losses
of principal are charged to the allowance when incurred or when a determination
is made that a loss is expected. Subsequent recoveries, if any, are credited to
the allowance.
A process has been established to assess the appropriateness of the allowance
for loan losses and to identify the risks inherent in the loan portfolio. This
process consists of the identification of specific reserves for identified
problem loans, the calculation of general reserves, which includes a combination
of formula-driven allocations and minimum reserve levels by loan type and grade,
and the determination of the unallocated reserves.
Specific reserves are determined through assessment of the borrower's ability to
repay and the fair value of the underlying collateral, for collateral dependent
loans, for each nonperforming loan. If the carrying value of a loan exceeds the
discounted expected cash flows or the value of the underlying collateral, the
excess is specifically reserved or charged off. The level of specific reserves
is generally the smallest component of the allowance for loan losses.
The calculation of the general reserve involves several steps. An historical
loss factor is applied to each loan and unused commitment by business segment
and loan grade. The historical loss factors are calculated using a trailing six
quarter loss migration analysis. Adjustments are then made to the historical
loss factors based on six quantitative objective elements (delinquency,
nonperforming assets, watch lists, charge offs, concentrations of credit, and
recoveries) and three subjective elements (economic conditions, the rating
assigned by the internal credit audit department, and other factors). This
methodology is applied to the commercial portfolio. The methodology for the
retail portfolio involves a six quarter loss migration anlysis which may be
adjusted due to rising trends or charge offs. For the commercial loan
portfolios, the historical loss factor, inclusive of the adjustment, is then
compared to minimum reserve levels for each loan grade. The larger of the two
factors is used in the determination of the reserves. The reserves calculated
for the residential and consumer loans employ an historical six quarter
migration analysis.
The last component of the loan loss reserve is the unallocated reserve. The
unallocated reserve is based upon management's evaluation of the underlying
inherent risk in the loan portfolio. The analysis of the appropriate level of
reserves, in the aggregate, is based on the level of specific and general
reserves previously discussed and is also inclusive of: industry concentrations,
delinquency trends, economic trends, loan growth relative to the overall
allowance, the level of substandard assets, and the amount of allocated and
unallocated reserves relative to the total loan portfolio. The unallocated
portion of the allowance for loan losses, in excess of specific and general
reserves, was $122.2 million at March 31, 2000, compared to $119.8 million at
December 31, 1999.
The provision for loan losses for the first quarter of 2000 was $20.0 million, a
$3.5 million increase from the same period a year ago. The increase in the
provision for loan losses for the three months ended March 31, 2000, was
primarily attributed to loan growth and an increase in the level of charge offs.
The provision for loan losses is charged to expense to bring the allowance for
loan losses to a level deemed appropriate by management to cover the credit risk
inherent in the loan portfolio. The provision for
10
<PAGE>
loan losses may vary from quarter to quarter due to loan growth, the level of
charge offs, or an increase in the inherent risk in the loan portfolio. The
allowance as a percentage of total loans was 1.38 percent at March 31, 2000,
compared to 1.42 percent and 1.55 percent at December 31, 1999, and March 31,
1999, respectively.
The following tables show the transactions in the allowance for loan losses, by
loan category, for the three month periods ended March 31, 2000, and March 31,
1999, and selected loan quality ratios for the periods ending March 31, 2000,
December 31, 1999, and March 31, 1999.
- ---------------------------------------------------------------------------
Allowance for Loan Losses Three months ended
March 31,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------
Balance, beginning of period $ 328,828 $ 322,814
Allowance of acquired institutions 4,357 2,140
Provision for loan losses 20,000 16,500
- ---------------------------------------------------------------------------
353,185 341,454
- ---------------------------------------------------------------------------
Loans charged off:
Commercial and industrial 20,024 8,131
Construction and development - 13
Commercial mortgage 23 1,202
Residential mortgage 1,084 2,626
Consumer 6,253 7,987
- ---------------------------------------------------------------------------
Total loans charged off 27,384 19,959
- ---------------------------------------------------------------------------
Recoveries:
Commercial and industrial 4,707 3,517
Construction and development - 395
Commercial mortgage 28 548
Residential mortgage 60 319
Consumer 2,159 2,028
- ---------------------------------------------------------------------------
Total recoveries 6,954 6,807
- ---------------------------------------------------------------------------
Net charge offs 20,430 13,152
- ---------------------------------------------------------------------------
Balance, end of period $ 332,755 $ 328,302
===========================================================================
- ----------------------------------------------------------------------
Selected Loan Quality Ratios Mar. 31, Dec. 31, Mar. 31,
2000 1999 1999
- ----------------------------------------------------------------------
Net charge offs to average loans:
Quarter-to-date 0.35 % 0.32 % 0.25 %
Year-to-date 0.35 0.61 0.25
Allowance for loan losses to:
Total loans at period end 1.38 1.42 1.55
Nonperforming loans 327.39 327.78 364.52
Nonperforming assets 307.63 306.74 337.75
- ----------------------------------------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
Summit Bancorp and Subsidiaries
Consolidated Average Balance Sheets with Resultant Interest and Rates
Unaudited
(Tax-equivalent basis, dollars in thousands)
Three Months Ended
March 31, 2000 March 31, 1999
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 $ 10,564 $ 134 5.10% $ 10,648 $ 145 5.52%
Interest-bearing deposits with banks 43,590 557 5.14 33,737 450 5.41
Securities:
Trading account 20,641 426 8.30 9,969 103 4.19
Available for sale 5,703,575 95,088 6.67 3,956,908 59,951 6.06
Held to maturity 5,449,924 86,281 6.33 6,226,526 97,587 6.27
----------- ----------- ---- ----------- ----------- ----
Total securities 11,174,140 181,795 6.51 10,193,403 157,641 6.19
----------- ----------- ---- ----------- ----------- ----
Loans, net of unearned discount:
Commercial 8,251,370 173,436 8.45 7,157,347 137,063 7.77
Commercial mortgage 3,153,094 63,426 8.05 2,874,357 57,513 8.00
Residential mortgage 5,747,663 103,366 7.19 5,717,998 101,847 7.12
Consumer 6,283,712 130,026 8.32 5,417,311 108,672 8.14
----------- ----------- ---- ----------- ----------- ----
Total loans 23,435,839 470,254 8.07 21,167,013 405,095 7.76
----------- ----------- ---- ----------- ----------- ----
Total interest-earning assets 34,664,133 652,740 7.57 31,404,801 563,331 7.27
----------- ----------- ---- ----------- ----------- ----
Noninterest-earning assets:
Cash and due from banks 1,040,509 955,002
Allowance for loan losses (329,402) (325,323)
Other assets 1,485,150 1,123,019
----------- -----------
Total noninterest-earning assets 2,196,257 1,752,698
----------- -----------
Total Assets $36,860,390 $33,157,499
=========== ===========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings deposits $11,660,799 83,711 2.89 $10,297,383 61,889 2.44
Time deposits 7,104,022 91,722 5.19 7,123,211 89,513 5.10
Commercial certificates of
deposit $100,000 and over 958,475 13,299 5.58 975,331 11,575 4.81
----------- ----------- ---- ----------- ----------- ----
Total interest-bearing deposits 19,723,296 188,732 3.85 18,395,925 162,977 3.59
----------- ----------- ---- ----------- ----------- ----
Other borrowed funds 5,090,496 72,351 5.72 3,411,876 41,487 4.93
Long-term debt 3,866,897 53,558 5.54 3,684,708 50,637 5.50
----------- ----------- ---- ----------- ----------- ----
Total interest-bearing liabilities 28,680,689 314,641 4.41 25,492,509 255,101 4.06
----------- ----------- ---- ----------- ----------- ----
Noninterest-bearing liabilities:
Demand deposits 4,855,739 4,455,354
Other liabilities 491,030 478,000
----------- -----------
Total noninterest-bearing
liabilities 5,346,769 4,933,354
Shareholders' equity 2,832,932 2,731,636
----------- -----------
Total Liabilities and
Shareholders' Equity $36,860,390 $33,157,499
=========== ===========
Net Interest Spread 338,099 3.16 % 308,230 3.21 %
======= =======
Tax-equivalent basis adjustment (2,192) (2,886)
----------- -----------
Net Interest Income $ 335,907 $ 305,344
=========== ===========
Net Interest Margin 3.92 % 3.98 %
======= =======
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 2000, was $124.9 million, or $.72 per
basic share, compared to $118.7 million, or $.68 per basic share, for the first
quarter of 1999. On a diluted per share basis, net income for the three months
ended March 31, 2000, was $.72 per diluted share compared to $.68 for the same
period in 1999.
The following are key performance indicators for the three month periods ended
March 31, 2000, and 1999.
- ---------------------------------------------------------------------------
(In thousands) Three months ended
March 31,
2000 1999
- ---------------------------------------------------------------------------
Financial data:
Net income $ 124,913 $ 118,741
Per share-diluted 0.72 0.68
Return on average assets 1.36 % 1.45 %
Return on average equity 17.73 17.63
Efficiency ratio 51.97 50.55
- ---------------------------------------------------------------------------
Cash-basis financial data*:
Net income $ 133,451 $ 124,403
Per share-diluted 0.77 0.71
Return on average tangible assets 1.48 % 1.53 %
Return on average tangible equity 23.04 20.63
Efficiency Ratio 49.93 49.11
- ---------------------------------------------------------------------------
* Cash-basis financial data excludes the after tax impact of amortization of
goodwill and other intangibles.
Net Interest Income
Interest income on a tax-equivalent basis was $652.7 million for the three
months ended March 31, 2000, an increase of $89.4 million, or 15.9 percent,
compared to a year ago. Interest-earning assets averaged $34.7 billion, an
increase of $3.3 billion, or 10.4 percent, compared to the prior year period.
The growth in interest-earning assets contributed $69.1 million to the increase
in tax-equivalent interest income while the increase in yield contributed $20.3
million. The rate earned on interest-earning assets increased 30 basis points to
7.57 percent in the 2000 period. The increase was generally the result of a
higher interest rate environment compared to last year as both the average Prime
rate and the average London Interbank Offerring Rate ("LIBOR") were
significantly higher than the prior year.
Interest expense increased $59.5 million, or 23.3 percent, for the three months
ended March 31, 2000, compared to the same period in 1999. Interest-bearing
liabilities averaged $28.7 billion, an increase of $3.2 billion, or 12.5
percent, compared to the prior year. The growth in interest-bearing liabilities
contributed $34.6 million to the increase in interest expense while the increase
in rates paid on interest-bearing liabilities contributed the remaining $24.9
million. The rate paid on interest-bearing liabilities increased 35 basis points
to 4.41 percent in the 2000 period due to the higher interest-rate environment.
Net interest income on a tax-equivalent basis was $338.1 million for the three
months ended March 31, 2000, an increase of $29.9 million, or 9.7 percent,
compared to the same period in 1999. 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 3.16 percent for the three months ended March 31, 2000,
compared to 3.21 percent for the prior year period. Net interest margin (net
interest income on a tax-equivalent basis as a percentage of average
interest-earning assets) was 3.92 percent for the three months ended March 31,
2000, compared to 3.98 percent during the same period in 1999. The decline in
net interest margin resulted from a funding mix that was more dependent on
borrowed funds and long-term debt while the decline in net interest spread can
be attributed to an increase in the cost of funds that exceed the growth in the
yield on earning assets.
13
<PAGE>
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 Mar. 31,
2000 versus 1999
------------------------------------------------
Due to Change in:
----------------------------------
(Tax-equivalent basis, in millions) Volume Rate Total
- ----------------------------------------------------------------------------------------------------
Interest Income
Loans
<S> <C> <C> <C>
Commercial $ 27.5 $ 8.9 $36.4
Commercial mortgage 5.6 0.3 5.9
Residential mortgage 0.5 1.0 1.5
Consumer 18.8 2.6 21.4
- ----------------------------------------------------------------------------------------------------
Total loans 52.4 12.8 65.2
Securities held to maturity (12.2) 0.9 (11.3)
Securities available for sale 28.6 6.5 35.1
Other interest earning assets 0.3 0.1 0.4
- ----------------------------------------------------------------------------------------------------
Total Interest Income 69.1 20.3 89.4
- ----------------------------------------------------------------------------------------------------
Interest Expense
Deposits
Savings deposits 9.1 12.7 21.8
Time deposits (0.1) 2.3 2.2
Commercial certificates of deposit > $100M (0.2) 1.9 1.7
- ----------------------------------------------------------------------------------------------------
Total interest-bearing deposits 8.8 16.9 25.7
Other borrowed funds 23.3 7.6 30.9
Long-term debt 2.5 0.4 2.9
- ----------------------------------------------------------------------------------------------------
Total Interest Expense 34.6 24.9 59.5
- ----------------------------------------------------------------------------------------------------
Net Interest Income (fully taxable equivalent) $ 34.5 $ (4.6) 29.9
- ----------------------------------------------------------------------------------------------------
Less: Decrease in tax-equivalent adjustment (0.7)
- ----------------------------------------------------------------------------------------------------
Increase in Net Interest Income $30.6
- ----------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Noninterest Income
Noninterest income categories for the three month periods ended March 31, 2000,
and 1999 are shown in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(In millions) Three months ended Mar. 31,
- -----------------------------------------------------------------------------------------
Percent
2000 1999 Change
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges on deposit accounts $ 31.5 $ 30.1 4.9 %
Service and loan fee income 15.8 15.6 0.8
Trust income 13.8 11.9 15.5
Retail Investment fees 12.7 10.2 25.4
Insurance fees 10.8 7.9 37.3
Other 17.0 22.3 (23.6)
- -----------------------------------------------------------------------------------------
Total noninterest operating income 101.6 98.0 3.8
Securities gains 0.1 0.2 (60.8)
- -----------------------------------------------------------------------------------------
Total noninterest income $ 101.7 $ 98.2 3.6 %
=========================================================================================
</TABLE>
Service charges on deposit accounts increased $1.4 million, or 4.9 percent, for
the quarter ended March 31, 2000, compared with 1999. This was primarily due to
growth in demand deposits and increased volume of Non Sufficient Fund fees.
Partially offsetting these favorable factors were lower minimum balance
requirements on regular checking accounts, savings accounts, and certificates of
deposit resulting in lower monthly maintenance fees. These lower minimum balance
requirements were instituted in April 1999.
Trust income increased $1.9 million, or 15.5 percent, for the quarter ended
March 31, 2000, compared with 1999. This was generally due to an increase in
investment advisory fees, including advisory fees from the Pillar Funds.
Retail Investment fees increased $2.5 million, or 25.4 percent, for the quarter
ended March 31, 2000, compared with 1999. This growth was a result of increased
brokerage fees resulting from higher trading volumes, as well as increased fees
from the sale of third party mutual funds and annuities.
Insurance service fees increased $2.9 million, or 37.3 percent, for the quarter
ended March 31, 2000, compared to the same period a year ago. This is primarily
due to the acquisition of Meeker Sharkey Financial Group. In addition, fees from
core insurance business also experienced growth.
Other income which primarily consists of ATM fees, international fees, other
fees, and gains on sales of assets, decreased $5.3 million, or 23.6 percent, for
the three months ended March 31, 2000, compared with 1999. The decrease was
primarily attributable to a first quarter 1999 gain on the sale of the credit
card portfolio of $5.9 million.
15
<PAGE>
Noninterest Expense
Noninterest expense categories for the three month periods ended March 31, 2000,
and 1999 are shown in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(In millions) Three months ended Mar. 31,
- --------------------------------------------------------------------------------------------
Percent
2000 1999 Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $ 88.0 $ 80.3 9.5 %
Pension and other employee benefits 30.3 30.0 0.8
Furniture and equipment 25.4 22.5 13.4
Occupancy, net 22.1 19.8 11.6
Communications 9.5 9.6 (1.1)
Amortization of goodwill and other intangibles 9.0 5.9 53.3
Advertising and public relations 6.1 5.5 11.1
Other 38.4 31.8 20.7
- --------------------------------------------------------------------------------------------
Total noninterest expense $ 228.8 $ 205.4 11.4 %
============================================================================================
</TABLE>
Salaries increased $7.7 million, or 9.5 percent, for the quarter ended March 31,
2000, compared to the same quarter in 1999. In addition to the annual merit
increases, salaries rose approximately $4.4 million from acquisitions. Partially
offsetting these increases was the benefit of the fourth quarter 1999 corporate
realignment which resulted in a reduction of approximately 260 employees. There
were 9,185 full-time equivalent employees at March 31, 2000, compared to 8,670
the same period a year ago. The increase is primarily a result of acquisitions
(NMBT Corp., Prime Bancorp and Meeker Sharkey Financial Group) partially offset
by the decline due to the corporate realignment.
Furniture and equipment expenses increased $2.9 million, or 13.4 percent, for
the quarter ended March 31, 2000, compared with the same quarter in 1999. This
increase was primarily due to the recent bank acquisitions, increases in
equipment maintenance, increased amortization expense relating to mainframe
application software, and increased computer equipment expenses.
Occupancy expense increased $2.3 million, or 11.6 percent, for the quarter ended
March 31, 2000, compared with the same quarter in 1999. The increase was largely
a result of recent bank acquisitions.
Amortization of goodwill and intangibles increased $3.1 million, or 53.3
percent, for the three months ended March 31, 2000, compared to the same period
a year ago. The increase was due to the purchase acquisitions of Prime Bancorp,
New Canaan Bank & Trust Company, and Meeker Sharkey Financial Group.
Other expenses increased $6.6 million, or 20.7 percent, for the three months
ended March 31, 2000, compared with the same quarter in 1999. This was a result
of increased consultant fees, increased second mortgage servicing fees resulting
from home equity purchases, and an increase in commissions due to increased
sales of insurance and retail investment products. Recent bank acquisitions also
contributed to the increase. Included in other expenses were legal and
professional fees of $9.4 million, for the three month period ended March 31,
2000, compared to $9.7 million for the same quarter in 1999.
The effective income tax rate was 33.8 percent for the three months ended March
31, 2000, compared with 34.6 percent for the same quarter in 1999.
16
<PAGE>
LINES OF BUSINESS
For management purposes, Summit Bancorp is segmented into the following lines of
business: Retail Banking, Corporate Banking and The Private Bank. Activities not
included in these lines are reflected in Other. The lines have been structured
according to the customer groups served. Financial performance of business lines
is monitored with an internal profitability measurement system. Line of business
information is based on management accounting practices that conform to and
support the current management structure and is not necessarily comparable with
similar information from any other financial institution. The profitability
measurement system uses internal management accounting policies that ensure
business line results reflect the underlying economics of each business line and
are compiled on a consistent basis.
Net income includes revenues and expenses directly associated with each line in
addition to allocations of revenue earned and expenses incurred by support units
such as operations and technology. Centrally provided corporate services and
general overhead are allocated on a per-unit cost basis or on an "ability to
pay" basis related to each particular business lines contribution to income. A
matched maturity funds transfer pricing methodology is employed to assign a cost
of funds to the earning assets, as well as a value of funds to the liabilities
of each business line. The provision for loan losses is allocated based on
management's assessment of the historical net charge off ratio for each business
segment. Income taxes are allocated based upon the consolidated effective tax
rates, after consideration of certain permanent differences that may be
allocated to a specific line of business.
The table below summarizes results by lines of business as if operated on a
stand-alone basis for the first quarter of 2000 and 1999. Certain prior period
information has been restated to conform with the current period presentation.
<TABLE>
<CAPTION>
Results of Operations
Quarter Ended Mar 31, Retail Banking Corporate Banking The Private Bank Other Consolidated
-----------------------------------------------------------------------------------------
(In millions) 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $211 $199 $77 $67 $15 $14 $33 $25 $336 $305
Provision for loan losses 8 10 12 6 -- -- -- -- 20 16
-----------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 203 189 65 61 15 14 33 25 316 289
Noninterest income 49 55 15 12 38 30 -- 1 102 98
Noninterest expense 140 133 42 34 36 31 11 7 229 205
-----------------------------------------------------------------------------------------
Income before taxes 112 111 38 39 17 13 22 19 189 182
Federal and state income taxes 39 39 12 13 6 4 7 7 64 63
-----------------------------------------------------------------------------------------
Net income $73 $72 $26 $26 $11 $9 $15 $12 $125 $119
=========================================================================================
Selected Average Balances:
Securities $ -- $55 $10 $ -- $15 $10 $11,149 $10,129 $11,174 $10,194
Loans 12,462 11,827 9,500 8,106 1,474 1,234 -- -- 23,436 21,167
Assets 12,834 12,190 9,500 8,090 1,578 1,322 12,948 11,555 36,860 33,157
Deposits 21,683 19,990 1,145 1,004 835 735 916 1,122 24,579 22,851
</TABLE>
Retail Banking
Retail Banking sells and delivers retail banking products and services to
individuals and small businesses through more than 400 traditional and
approximately 80 supermarket branches in New Jersey, eastern Pennsylvania, and
Connecticut. In addition to traditional banking services, Retail Banking offers
its customers an expanding array of 24-hour banking services through
approximately 600 automated teller machines, telephone banking centers, and the
Internet. It also includes a broad selection of small business and consumer
loans, deposit products, and a complete range of full-service mortgage banking
activities.
17
<PAGE>
Average loans for the quarter ended March 31, 2000, increased $635 million, or
5.4 percent, to $12.5 billion from the same period in 1999, primarily related to
home equity loan purchases and increases in home equity credit lines. Total
average deposits for the first quarter of 2000 increased to $21.7 billion, up
$1.7 billion from a year ago. This increase was attributable to the growth in
the Summit Navigator Account. Net interest income for the quarter increased $12
million, or 6.0 percent, over last year, primarily due to loan growth. The
decrease in noninterest income of $6 million is primarily attributable to a $5.9
million gain on the sale of the credit card portfolio in the first quarter of
last year. Noninterest expenses for the quarter increased $7 million, or 5.3
percent, over last year, primary due to salaries, other expenses, and
acquisitions. Net income for the quarter was $73 million, an increase of $1
million or 1.4 percent, from the prior year.
Corporate Banking
Corporate Banking provides a full array of commercial financial services,
including asset-based lending, international trade services, equipment leasing,
real estate financing, private placement, mezzanine financing, aircraft lending,
correspondent banking, treasury services, and structured finance. Demand and
interest-bearing deposit accounts and services are provided through the branch
network.
Total average loans for the quarter ended March 31, 2000, were $9.5 billion, an
increase of $1.4 billion, or 17.2 percent, over the same period in 1999
primarily in asset-based, aircraft, media, specialized industries lending and
commercial mortgages. Net interest income for the first quarter of 2000
increased $10 million, or 14.9 percent, from 1999, driven primarily by the
increase in average loans. Partially offsetting the loan increase was a $6
million, or 100.0 percent, increase in the provision for loan losses. This was
attributed to the increase in the level of charge offs and loan growth.
Noninterest income for the quarter ended March 31, 2000, increased $3 million,
or 25.0 percent, from the prior year due to an increase in loan and deposit fee
income as well as additional capital market fee income. Noninterest expense
increased $8 million over the prior year to $42 million due to higher salaries
and benefits expense. Net income remained unchanged at $26 million.
The Private Bank
The Private Bank provides personal credit services; professional services for
lawyers, accountants and their firms; and business loans and lines of credit.
This segment also includes investment services which provide a full range of
trust, administrative, and custodial services to individuals and institutions,
in addition to investment products and discount brokerage. In addition, the line
markets a wide variety of insurance products for the personal and corporate
marketplace.
Noninterest income increased $8 million, or 26.7 percent, from first quarter
1999. This was primarily due to a $1.9 million, or 15.5 percent, increase in
trust income and a $2.5 million, or 25.4 percent, increase in retail investment
fees. The growth in retail investment fees were primarily due to increased
brokerage fees resulting from higher trading volumes as well as increased fees
from sales of third party mutual fund and annuity products. In addition, the
acquisition of the Meeker Sharkey Financial Group contributed $2.3 million of
insurance income for the quarter. The $5 million, or 16.1 percent, increase in
expenses is due to increases in salaries and commissions related to the
increased sale of trust, retail investment, and insurance products. Net income
for the quarter was $11 million, up $2 million, or 22.2 percent, from a year
ago.
Other
Other includes the treasury function which is responsible for managing interest
rate risk and the investment portfolios. In addition, certain revenues and
expenses not considered allocable to a line of business are reflected in this
area.
Net interest income increased $8 million, or 32.0 percent, from 1999, primarily
due to growth in the securities portfolio. Securities averaged $11.1 billion for
the first quarter of 2000, up $1.0 billion, or 10.1 percent, from the prior
year. Net income was up for the quarter $3 million, or 25.0 percent, to $15
million when compared to the same quarter the prior year.
18
<PAGE>
LIQUIDITY
Liquidity is the ability to support asset growth while satisfying the borrowing
needs and deposit withdrawal requirements of customers. Traditional sources of
liquidity include asset maturities, asset repayments, and deposit growth. In
addition, borrowed funds represent another major source of funding. The bank
subsidiaries have established borrowing relationships with the FHLB and other
correspondent banks which further support and enhance liquidity. Summit Bank, NJ
and Summit Bank, PA executed a distribution agreement, in November 1998,
providing for the possible issuance of senior and subordinated notes to a
maximum of $3.75 billion on an underwritten or agency basis. Through March 31,
2000, no funds have been drawn from this source.
Liquidity is also important at the Parent Corporation in order to provide funds
for operations and to pay dividends to shareholders. Parent Corporation cash
requirements are met primarily through management fees and dividends from its
subsidiaries and the issuance of short and long-term debt. The amount of
dividends that can be assessed to the bank subsidiaries is subject to certain
regulatory restrictions. Lines of credit are available at the Parent Corporation
to support commercial paper borrowings and for general corporate purposes.
Interest on these lines of credit approximates the prime lending rate at the
time of borrowing. Unused lines amounted to $33.0 million at March 31, 2000. On
July 2, 1999, a shelf registration statement providing for the possible
issuance, from time to time, of senior and subordinated debt securities and
preferred stock to a maximum of $1.0 billion was declared effective by the
Securities and Exchange Commission. Terms of the securities will be set at the
time of issuance. As of March 31, 2000, none of this debt or preferred stock had
been issued.
Liquidity management includes monitoring current and projected cash flows, as
well as economic forecasts for the industry. A liquidity contingency plan is in
place which is designed to effectively manage potential liquidity concerns due
to changes in interest rates, credit markets, or other external risks.
The Consolidated Statements of Cash Flows present the change in cash and due
from banks from operating, investing and financing activities. During the first
three months of 2000, net cash provided by operating activities totaled $201.8
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 $1.3 billion. For the three months
ended March 31, 2000, net cash used in transactions involving the investment
portfolios totaled $654.8 million, while the loan portfolio used net cash $594.5
million.
Scheduled maturities and anticipated principal repayments of the available for
sale and held to maturity securities portfolios will approximate $1.3 billion
throughout the balance of 2000. In addition, all or part of the remaining
securities available for sale could be sold, providing 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 $1.1 billion. During the first
three months of 2000, other borrowed funds and long-term debt increased $601.7
million and deposits increased $523.2 million. These increases were partially
offset by the payment of common stock dividends.
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.
One of Summit Bancorp's primary objectives is to achieve balanced asset and
revenue growth, and at the same time expand market presence and diversify the
line of financial products. However, it is recognized that objectives, no matter
how focused, are subject to factors beyond the control of Summit Bancorp which
can impede our ability to achieve these goals.
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, including realizable collateral
valuations, charge offs and recoveries, the progress of integrating acquired
financial institutions, competition and technological changes. Although
management has taken certain steps to mitigate any negative
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effect of the above mentioned items, significant unfavorable changes could
severely impact the assumptions used and have an adverse affect on
profitability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Due to the nature of Summit Bancorp's business, market risk is primarily limited
to its exposure to interest rate risk which is the impact that changes in
interest rates would have on future earnings. The principal objective in
managing interest rate risk is to maximize net interest income within the
acceptable levels of risk 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.
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 and estimate 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 flows and maturities of all financial instruments
including derivatives, anticipated future business activity, deposit
sensitivity, and changes in market conditions. Selected core deposit rates have
not been changed 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
the timing, magnitude, and frequency of interest rate changes, changes in cash
flow patterns and market conditions, as well as changes in management's
strategies.
Based on the results of the interest simulation model, as of March 31, 2000,
Summit Bancorp would expect a decrease of approximately $87.4 million in net
interest income and an increase of approximately $73.6 million in net interest
income if interest rates increase or decrease by 100 basis points, respectively,
from current interest rates in an immediate and parallel shock over a
twelve-month period. At December 31, 1999, Summit Bancorp expected a decrease of
$74.2 million in net interest income and an increase of $66.5 million in net
interest income if interest rates increased or decreased by 100 basis points,
respectively. The interest simulation model does not include asset and liability
strategies that could be deployed to mitigate the impact of changes in the
interest rate environment.
Interest rate risk management efforts also involve the use of certain derivative
financial instruments, primarily interest rate swaps, for the purpose of
stabilizing net interest income in a changing interest rate environment. At
March 31, 2000, the notional values of these instruments totaled $210.0 million.
These derivatives resulted in an increase in net interest income of $0.1 million
for the first three months of 2000. The cost to terminate these contracts at
March 31, 2000, would have been $0.8 million.
Summit Bancorp has limited risks associated with foreign currencies, commodities
or other marketable instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Based upon advice of Summit's Legal Department, management does not believe that
the ultimate disposition of the litigation discussed below will have a material
adverse effect on the financial position and results of operation of the company
and its subsidiaries, taken as a whole.
1. 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.
20
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Last reported on Form 10-K for the period ended December 31, 1999. On
March 14, 2000, plaintiffs filed Notice of Appeal to the Appellate Division from
the trial court's February 4, 2000, summary judgment, dismissing their common
law claims. On March 30, 2000, the Bank filed Notice of Cross Appeal from the
trial court's earlier decisions granting class certification, denying the Bank's
motion to decertify the class, and extending dissemination of the class notice
to borrowers of banks other than UJB South.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the shareholders of Summit Bancorp was held April 14,
2000. The following is a brief description of each matter voted on at the
meeting.
PROPOSAL 1 - ELECTION OF DIRECTORS
The following directors were nominated for election to the Board of Directors as
Class I Directors for a three-year term: James C. Brady, T. J. Dermot Dunphy,
Thomas H. Hamilton, Francis J. Mertz, T. Joseph Semrod and Douglas G. Watson.
Arthur J. Kania was nominated for election as a Class III Director for a
two-year term.
PROPOSAL 2 - INDEPENDENT ACCOUNTANTS
Shareholders were presented with a proposal to ratify the selection of KPMG LLP,
independent certified public accountants, to audit the consolidated financial
statements of Summit Bancorp. and its subsidiaries for the year ending December
31, 2000.
The results of the voting at the annual meeting were as follows:
SHARES
PROPOSAL FOR WITHHELD
- -----------------------------------------------------------------------------
1 - Election of Directors
James C. Brady 140,072,481 6,185,691
T.J. Dermot Dunphy 138,596,717 7,661,455
Thomas H. Hamilton 140,016,697 6,241,475
Arthur J. Kania 140,280,609 5,977,563
Francis J. Mertz 138,599,969 7,658,203
T. Joseph Semrod 138,070,863 8,187,309
Douglas G. Watson 125,068,550 21,189,622
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------
2 - Independent Accountants 141,743,902 2,785,382 1,728,888
ITEM 5. OTHER INFORMATION.
Not applicable.
21
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
* (10) F. Management Incentive Plan, effective January 1, 1999.
* (10) I. (iv) Release, Covenant Not to Sue, Non-Disclosure and
Non-Solicitation Agreement between Robert G. Cox and Summit Bancorp
dated as of April 18, 2000.
(27) Summit Bancorp. Financial Data Schedule - March 31, 2000.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Not applicable.
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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: May 12, 2000 by: /s/ PAUL V. STAHLIN
-------------------
PAUL V. STAHLIN
Senior Vice President, Comptroller
and Principal Accounting Officer
(Duly Authorized Officer)
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EXHIBIT INDEX
Exhibit No. Description
(10) * F. Management Incentive Plan, effective January 1, 1999.
(10) * I. (iv) Release, Covenant Not To Sue, Non-Disclosure and
Non-Solicitation Agreement between Robert G. Cox and
Summit Bancorp dated as of April 18, 2000.
(27) Summit Bancorp. Financial Data Schedule - March 31, 2000.
* Management contract or compensatory plan or arrangement.
24
SUMMIT BANCORP
MANAGEMENT INCENTIVE PLAN
January 1, 1999
I. Purpose
The Purpose of the Management Incentive Plan (MIP) is to:
* Encourage the achievement of corporate and profit center
performance goals and other business development objectives.
* Reinforce the importance of coordination among the sectors that
together form the total corporation.
* Enable Summit to attract and retain key employees by providing
the opportunity to receive awards which reflect their
contribution to achieving corporate objectives.
II. Overview
The Plan is designed to reward the attainment of predetermined annual
performance objectives. While the measurement factors that will be
considered in determining whether performance objectives have been met
will generally remain constant, the qualitative and quantitative goals
with respect to these factors will inevitably change from year to year.
The expectation is that the goals set for each year will represent a
management challenge that will be comparable to that of any other year,
in light of internal resources and the external environment facing the
business at the time.
III. Administration
The Plan shall be administered under the direction of the Compensation
Committee (The Committee) of the Board of Directors of Summit. No
member of the Committee while serving as such shall be eligible for
participation in the Plan. The Committee has exclusive and final
authority in all determinations affecting the Plan and shall have the
authority to interpret the Plan, establish and revise rules and
regulations for the Plan and make an other determinations that it
believes necessary or advisable for the administration of the Plan.
IV. Eligibility
All full time and part time salaried employees of Summit Bancorp and
subsidiaries (Summit) in salary grades determined by the Compensation
Committee of Summit from time to time, who are not participating in
another incentive plan, are eligible to participate in the Plan. The
initial salary grades will be A66 and above and salary grades TL1 -
TL5. An employee must be on the active payroll and in one of these
salary grades for a minimum of 3 months in any Plan year to be eligible
for an incentive award.
<PAGE>
V. Incentive Award Opportunity
Each eligible salary grade is assigned to a target award opportunity
expressed as a percent of base salary. The range of earned award
opportunity is 0-150% of the target award based on attainment of
corporate performance objectives and management's assessment of
individual performance.
VI. Annual Performance Objectives
Specific annual performance objectives are established which emphasize
different measures of Summit's performance. In recent years, these have
included achievement of Financial Plan Objectives, Peer Group
Comparisons and Franchise Positioning Objectives.
In addition to specific performance objectives:
The Chief Executive evaluates the performance of key
executives eligible for awards with respect to their
leadership in support of Summit's overall business development
strategy and human resources development.
The Chief Executive may also adjust results derived from the
guidelines to reflect top management and Board judgments
concerning the quality of the performance in the economic
environment in which the results were obtained.
VII. Determination of Awards
Based on the achievement of annual performance objectives, the
Committee will determine the funding of the incentive pool as a percent
of target award guidelines. The pool is then allocated to participants
based on individual performance. Incentives may be paid up to 150
percent of target award for performance that clearly goes beyond
expectation. When performance falls below expectation, an individual's
incentive may be reduced or withheld.
An employee's incentive award payment will be prorated, as appropriate,
to reflect his/her time in an eligible position during the Plan year.
In addition to new hires, employee movement that may result in a
prorated award include; promotion, demotion, retirement, death, leave
of absence, certain terminations without cause and movement into or out
of another incentive plan.
VIII. Time of Payment
All incentives earned under the Plan will be paid in cash during the
first quarter following the end of the Plan Year as defined in Section
12.
IX. No Right to Payment of the Incentive
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The Plan does not confer enforceable rights on any participant to seek
in any manner to compel the payment of an award under the Plan; the
decision to make any payment to any participant rests within the sole
and unfettered discretion of the Committee and the Chief Executive.
In order to receive an award, a participant must be on the active
payroll as of the date of the payout unless the participant has left
the payroll through retirement, disability, death, or certain
terminations as determined by the Committee.
X. Special Limitations
The aggregate incentive paid under this Plan to the participant group
shall not exceed 50 percent of the participants' aggregate base
salaries at the end of the year for which the incentives are paid.
No incentives will normally be paid for any Plan year in which the
after-tax income is less than seven percent of average capital employed
for the year.
The above limitations notwithstanding, the Committee may, in its
judgment, provide for incentive awards to any individual whose
performance clearly so warrants. No participant in this Plan will be
eligible for any other annual incentive arrangement, except that
prorated awards may be made to participants shifted from one incentive
arrangement to another during the year.
XI. Miscellaneous Provisions
In the case of an employee's death, any payment under the Plan shall be
made to his/her designated beneficiary, under the defined benefit
pension plan covering the individual, or in the absence of such
designation, by will or the laws of descent and distribution.
Neither this Plan nor any action taken hereunder shall be construed as
giving any employee any right to be retained in the employ of Summit.
Summit shall have the right to deduct from all incentive any taxes and
other amounts required by law to be withheld with respect to such
awards.
The Board of Directors of Summit may amend, suspend or terminate the
Plan or any portion thereof at any time. This Plan shall be governed by
the laws of the State of New Jersey, without consideration of
principles of conflict of laws.
XII. Fiscal Year
The Plan is designated to operate on an annual basis commencing January
1, 1999. The Plan year shall be January 1 through December 31.
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RELEASE, COVENANT NOT TO SUE,
NON-DISCLOSURE AND NON-SOLICITATION
AGREEMENT
This RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON- SOLICITATION
AGREEMENT (the "AGREEMENT") dated as of April 18, 2000 among (1) Robert G. Cox
("Executive"), and (2) Summit Bancorp. and all parent and subsidiary
corporations, partnerships and other entities and affiliates controlled by,
controlling or under common control with Summit Bancorp. (together with any
predecessor and successor entities hereinafter being collectively referred to as
"SUB") sets forth the agreements of the parties hereto with regard to the
matters set forth herein:
1. Background. Executive is an Executive of SUB and a party to a Participation
Agreement last amended October 15, 1997 pursuant to which Executive
participates in SUB's Executive Severance Plan (the "Plan") and a
Termination Agreement last amended October 15, 1997 and an Employment
Agreement dated as of March 1, 1996, as amended by Amendment No. 1 dated as
of March 1, 1999 (the Plan and these Agreements together being collectively
referred to as the "Contracts"). Any capitalized terms used but not defined
herein shall have the meaning set forth in the applicable Contract.
a. A Change of Control has NOT occurred. If a Change of Control has NOT
occurred, Executive is not entitled to any benefits under the
Termination Agreement.
b. Executive's employment with SUB has terminated on April 30, 2000,
which shall be the Date of Termination for purposes of the Contracts,
notwithstanding any failure to adhere to the provisions for giving a
Notice of Termination and the method of determining the Date of
Termination set forth in the Contracts, any such failures being hereby
waived by the parties.
c. This termination shall constitute a termination "by retirement" for
purposes of any stock options and restricted stock which Executive
holds, and the Termination Date shall be the termination date for the
purposes of such options. Attached hereto as Appendix A is a list of
all outstanding SUB options held by Executive on the date hereof, and
the last date for exercise of each, subject to the subsequent death or
disability of the Executive.
2. Payments.
a. Executive shall receive within two business days following the
EFFECTIVE DATE (as defined in paragraph 7 hereof) $1,999,300, the
gross amount due to Executive under the Contracts, which shall be paid
to Executive by check or deposit in Executive's bank account, less
amounts withheld in respect of federal, state and local taxes and
benefits contributions, which Executive acknowledges represents all
amounts currently due Executive under the Contracts. Executive
acknowledges and agrees that Executive is not entitled to any
severance payments under any other contract or severance program of
SUB, the Contracts and this Agreement being intended
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to substitute for any such other severance program. SUB continues to
be obligated to provide certain welfare and pension benefits and
perquisites, as more fully set forth herein and in the Contracts.
Executive has been provided with a summary of these benefits, but, in
the event of any conflict between the terms of (1) this Agreement
versus the Contracts, this Agreement will govern, or (2) this
Agreement and the Contracts and SUB's various benefits plans versus
the summary, this Agreement and the Contracts and benefits plans will
govern. SUB will also pay Executive's reasonable legal expenses for
review of this Agreement.
b. Subject to any applicable withholding obligations, Executive shall
receive a total monthly pension of $45,200 during his lifetime based
on Executive's binding election under all pension plans and contracts
of the "qualified joint and survivor annuity" (as defined in Section
4.01(a) of the Summit Bancorp Retirement Plan for Executive for a
married person as "an annuity for the life of the Participant with a
survivor annuity for the life of his spouse which is fifty percent
(50%) of the amount of the annuity payable during the joint lives of
the Participant and his spouse and which is the Actuarial Equivalent
of a single annuity for the life of the Participant"). Executive's
spouse shall receive a total monthly pension of $22,600 after the
death of Executive for the balance of her lifetime if she survives
him. Pension payments shall be coincident in time and form with the
benefits paid to, or on behalf of, Executive or a beneficiary by the
Summit Bancorp Retirement Plan, and shall be inclusive of all payments
under all past and present defined benefit retirement plans (which may
include qualified, non-qualified, supplemental and excess benefits
plans ), previously or presently maintained by SUB and any
predecessor, and under the Contracts. The monthly pension benefit
payable to the Executive or Executive's spouse and the "alternate
payee," as defined in Section 17.02(f) of the Summit Bancorp
Retirement Plan as a former spouse who is recognized in a domestic
relations order, under this subparagraph shall, in the aggregate,
equal the difference between (1) $45,200 per month during the
Executive's lifetime and $22,600 during the life of the surviving
spouse based on the "qualified joint and survivor annuity," less (2)
the monthly retirement benefits that are payable to the Executive or
the Executive's spouse and "alternate payee" under all retirement
plans and other employment contracts of SUB in which the Executive
participates (the "Special Retirement Benefits"). These Special
Retirement Benefits are provided on an unfunded basis, are not
intended to meet the qualification requirements of Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall be
payable solely from the general assets of SUB.
c. Executive shall receive a grant of 5,000 shares of incentive stock
under the SUB 1993 Incentive Stock and Option Plan, effective February
29, 2000, which shares will vest on the Termination Date due to
Executive's retirement.
d. Executive's non-qualified options granted under the former 1994 The
Summit Bancorporation Stock Incentive Plan as noted on Appendix A
which are currently outstanding and exercisable shall be exercisable
until the earlier of the expiration of such options or April 30, 2003,
subject to the subsequent death or disability of the Executive.
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3. Restrictive Covenants. In consideration of the payments to Executive as
specified in paragraph 2 above, Executive agrees as follows:
a. Non-Solicitation of SUB Customers. For a period of two (2) years from
the date hereof, Executive will not actively solicit or induce any
person, corporation, or other entity that is a customer of SUB to
become a customer of any other person, firm, corporation, or other
entity which directly or indirectly competes with SUB, or approach any
such person, firm, corporation, or other entity for such purpose or
authorize or knowingly approve the taking of such actions by other
persons, without the prior written consent of SUB. This shall not be
deemed to prohibit (i) responding to requests for service initiated by
customers of SUB, (ii) solicitation of the public at large through
television, radio, newspapers, magazines, newsletters or Internet home
pages, or (iii) resolicitation by the competitor of persons, firms,
corporations or other entities who were customers of both SUB and the
competitor on the date hereof for those services provided to the
customer by the competitor on the date hereof.
b. Non-Solicitation of SUB Employees. For a period of five (5) years from
the date hereof, Executive will not solicit or induce any person who
is an employee of SUB or was such at any time within three months
prior to the date hereof to become employed by any other person, firm
or corporation or approach any such employee for such purpose or
authorize or knowingly approve the taking of such actions by other
persons, without the prior written consent of SUB.
c. Non-Disclosure of Proprietary Information. Executive acknowledges that
during the course of Executive's employment with SUB Executive
received, obtained or became aware of or had access to proprietary
information, lists and records of customers and trade secrets which
are the property of SUB and which are not known by competitors or
generally by the public ("Proprietary Information") and recognizes
such Proprietary Information to be valuable and unique assets of SUB.
For purposes of this subparagraph: (i) Proprietary Information is
deemed to include, without limitation, (A) marketing materials,
marketing manuals, policy manuals, procedure manuals, policy and
procedure manuals, operating manuals and procedures and product
documentation, (B) all information about pricing, products,
procedures, practices, business methods, systems, plans, strategies or
personnel of SUB, (C) circumstances surrounding the relationships
with, knowledge of, or information about the customers, clients, and
accounts of SUB, including but not limited to the identity of current
active customers or prospects who have been contacted by SUB, the
expiration dates and other terms of loans or deposit or other banking
relationships, details or special product provisions or special
combinations of products, or special prices, and (D) all other
information about SUB which has not been disclosed in documents filed
with the U.S. Securities and Exchange Commission or otherwise publicly
disseminated by SUB, whether or not that information is recorded and
notwithstanding the method of recordation, if any; and (ii)
Proprietary Information is deemed to exclude all information legally
in the public domain. Executive agrees to hold the Proprietary
Information in the strictest confidence and agrees not to use or
disclose any Proprietary Information, directly or indirectly, at any
time for any purpose, without the prior written consent of SUB or to
use
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for Executive's benefit or the benefit of any person, firm,
corporation or other entity (other than SUB), any Proprietary
Information, and to use Executive's best efforts to prevent such
prohibited use or disclosure by any other persons. Executive has
returned all Proprietary Information in Executive's possession or
control to SUB. In the event that Executive is required or compelled
by judicial or investigative process to disclose Proprietary
Information, such disclosure shall be permitted, provided that
Executive shall promptly notify SUB upon receipt of such process in
order to afford SUB the opportunity to obtain an appropriate
protective order concerning the Proprietary Information, and Executive
agrees to cooperate with SUB in the event that SUB seeks such a
protective order.
d. Covenant Not to Compete. The parties recognize that the Executive was
an important officer of SUB, that Executive's reputation and business
and personal relationships were of significant benefit to SUB, and
that Executive had access to information about SUB's plans and
projections as well as other confidential information. The parties
further agree that SUB is in direct competition with certain banks and
bank holding companies and thrifts and the Executive agrees that
Executive will not, for a period of two (2) years from the date
hereof, accept employment or serve in any capacity with any national
or state bank or a thrift institution (collectively "depository
institution") or any affiliate thereof (which affiliate is engaged in
a business competitive with SUB's existing businesses), other than
SUB, at a principal place of employment within 25 miles of any
existing branch location of SUB or any of its existing subsidiaries,
without the written permission of SUB, except that Executive may serve
as a director but not as an employee or in an other active capacity of
an affiliate of a depository institution or institutions having
deposits in the aggregate of not more than $500 million at the time of
commencement of service.
e. Cooperation, No Detrimental Actions. Executive will cooperate with SUB
in enforcing its claims against customers and former customers of SUB,
including appearing as a witness for SUB in court or administrative
proceedings, subject to reasonable reimbursement for Executive's time
and expenses. Executive will not take actions or make disparaging
statements which are detrimental to SUB or the RELEASEES, as defined
in paragraph 5 below.
f. Remedies. Executive hereby acknowledges that Executive's duties and
responsibilities under this paragraph 3 are unique and extraordinary
and that irreparable injury may result to SUB in the event of a breach
of the terms and conditions of this paragraph 3, which may be
difficult to ascertain, and that the award of damages would not be
adequate relief to SUB and the RELEASEES. Executive therefore agrees
that in the event of Executive's breach of any of the terms or
conditions of this paragraph 3, SUB shall have the right, without
posting any bond or other security, to preliminary and permanent
injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation,
which rights shall be cumulative and in addition to any other rights
or remedies in law or equity to which SUB may be entitled against
Executive. The covenants of Executive in paragraphs 3a, 3b, 3c, 3d and
3e of this Agreement shall each be construed as an agreement
independent of any other provision in this AGREEMENT, and the
existence of any claim or cause of action of Executive against SUB,
whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by SUB of paragraphs 3a, 3b,
3c, 3d and 3e.
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g. Enforcement. If at the time of the enforcement of subparagraphs 3a,
3b, 3c, 3d, 3e or 3f above a court shall hold that the period or scope
of the provisions thereof are unreasonable under the circumstances
then existing, the parties hereby agree that the maximum period or
scope permitted by the court under the circumstances shall be
substituted for the period or scope stated in those subparagraphs.
4. Short-Swing Securities Profits. Executive acknowledges that Executive will
remain subject to the short-swing liability provisions of Section 16 of the
federal Securities Exchange Act of 1934 for six months following
termination of employment.
5. Release. In consideration of the payments to Executive as specified in
paragraph 2 above, Executive grants SUB a RELEASE of only all claims, both
known and unknown, that Executive may have that relate to the termination
of Executive's employment (hereafter a "WRONGFUL TERMINATION CLAIM"). The
Executive and SUB agree that a WRONGFUL TERMINATION CLAIM, specifically and
without limitation, does not include claims:
a. for indemnification as a corporate agent of SUB against claims by
third parties;
b. under employee benefit plans, including supplemental employee
retirement plans, maintained by SUB or any of the predecessor
organizations thereof, including but not limited to rights under any
workers compensation program, Section 502(a) of the Employee
Retirement Income Security Act, as amended, 29 U.S.C.ss.1001 et seq.,
and under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA");
c. arising out of enforcement of the Contracts or this Agreement by
Executive; or
d. constituting cross-claims against SUB as a result of claims brought by
unaffiliated third parties against Executive based on Executive's
service as an executive of SUB.
The statutes which could form the basis for a WRONGFUL TERMINATION
CLAIM include, but are not limited to, Title VII of the Civil Rights
Act of 1964, as amended, 42 U.S.C.ss.1971 et seq.; the Age
Discrimination in Employment Act of 1967, as amended, 29 U.S.C.ss.621
et seq.; Section 510 of the Employee Retirement Income Security Act of
1974, as amended, 29 U.S.C.ss.1001 et seq.; the Americans With
Disabilities Act, as amended, 42 U.S.C.ss.12101 et seq.; the Older
Workers Benefit Protection Act, as amended, 29 U.S.C.ss.621 et seq.;
the Civil Rights Act of 1866, as amended, 42 U.S.C.ss.1981 et seq.;
the New Jersey Law Against Discrimination, as amended, N.J.S.A. 10:5-1
et seq.; the New Jersey Conscientious Employee Protection Act, as
amended, N.J.S.A. 34:19-1 et seq.; the New York Human Rights Law,
Executive Lawss.290 et seq.; the Pennsylvania Human Relations Act, as
amended, 43 P.S.ss.951 et seq.; and the Pennsylvania Whistleblower
Law, as amended, 43 P.S.ss.1421 et seq. The common law (non-
statutory) theories under which a WRONGFUL TERMINATION CLAIM could be
made include, but are not limited to, breach of an express employment
contract, breach of a contract implied from a personnel handbook or
manual, or commission of a civil wrong (known as a "tort") resulting
in Executive's termination, or for alleged violation of the public
policy of the United States or any state. Granting a RELEASE of any
WRONGFUL TERMINATION CLAIM pursuant to this AGREEMENT means that on
behalf of Executive and all who succeed to
-5-
<PAGE>
Executive's rights and responsibilities, Executive releases and gives
up only any and all WRONGFUL TERMINATION CLAIMS that Executive may
have against SUB, and any of its subsidiaries, affiliates or
divisions, and all of their directors, officers, representatives,
shareholders, agents, employees, and all who succeed to their rights
and responsibilities (collectively referred to as "RELEASEES"). With
respect to any charges filed concerning events or actions relating to
a WRONGFUL TERMINATION CLAIM that occurred on or before the date of
this AGREEMENT or Executive's Termination Date (whichever is later),
Executive waives and releases any right that Executive may have to
recover in any lawsuit or proceeding brought by Executive or by an
administrative agency on Executive's behalf against the RELEASEES.
Nothing contained herein shall diminish Executive's rights under the
law, SUB's by-laws, or any contract of insurance to indemnification
and advancement of defense costs respecting liabilities and expenses
arising in connection with actions performed by Executive as a
corporate agent for SUB.
6. Covenant Not to Sue. Executive covenants not to sue the RELEASEES over any
WRONGFUL TERMINATION CLAIM. Such a covenant not to sue the RELEASEES means
that Executive represents that Executive has not through the date of
execution of this Agreement filed a WRONGFUL TERMINATION CLAIM, charge or
lawsuit with any court or government agency against the RELEASEES, and that
Executive will not file such a lawsuit subsequent to execution of this
Agreement. Executive also waives any right to become, and promises not to
become, a member of any class in a case in which WRONGFUL TERMINATION
CLAIMS are asserted against any of the RELEASEES.
7. Review Period. Executive acknowledges that Executive has up to 21 days to
review this AGREEMENT, and was advised to review it with an attorney of
Executive's choice. Executive also acknowledges that Executive was further
advised that Executive has seven days after Executive signs this AGREEMENT
to revoke it by notifying SUB in writing, of such revocation as set forth
under Notices below. This AGREEMENT shall become effective on the tenth
(10th) day following its execution by Executive (the "EFFECTIVE DATE"),
unless revoked in accordance with the preceding sentence.
8. Revocation of Authority. Executive agrees and acknowledges that as of the
Termination Date Executive shall no longer be empowered to bind SUB in any
agreement, whether verbal or written, and that Executive shall have no
authority to execute any documents, deeds, leases, or other contracts on
behalf of SUB. To the extent not effected by termination of Executive under
the Contracts, Executive resigns from all offices and positions with SUB.
9. Successors and Assigns. All rights and duties of SUB under this Agreement
shall be binding on and inure to the benefit of SUB, its successors and
assigns. All rights of Executive hereunder shall be binding upon and inure
to the benefit of Executive's personal or legal representatives.
10. Notices. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered personally with receipt acknowledged or sent by registered or
certified mail, postage prepaid or by reputable national overnight delivery
service, to the addresses shown below, unless changed by notices given as
herein provided, except that notice of change of address only shall be
effective upon actual receipt:
-6-
<PAGE>
If to SUB, to:
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
Attention: Executive Vice President
of Human Resources
With a copy to:
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
Attention: General Counsel
If to the Executive, to:
Mr. Robert G. Cox
211 Liberty Corner Road
Far Hills, New Jersey 07931
With a copy to:
John F. Kuntz, Esquire
Bourne, Noll & Kenyon
382 Springfield Avenue, P.O. Box 690
Summit, New Jersey 07902-0690
11. Covenant Not to Challenge Enforceability. Both Executive and SUB understand
that this AGREEMENT is final and binding when executed by both parties,
subject to paragraph 7 above, and both agree not to thereafter challenge
its enforceability.
12. Applicable Law. This AGREEMENT shall be deemed to have been made within the
State of New Jersey, and it shall be interpreted, construed, and enforced
in accordance with the law of the State of New Jersey, and before the
Courts of the State of New Jersey.
13. Amendments, Modifications, Waivers. This AGREEMENT cannot be amended or
modified except by a written document signed by both SUB and Executive and
no provision can be waived except by a written document signed by the
waiving party.
14. By signing this AGREEMENT, Executive acknowledges:
a. EXECUTIVE HAS READ THIS AGREEMENT COMPLETELY.
b. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSIDER THE TERMS OF THIS
AGREEMENT.
-7-
<PAGE>
c. EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY OF EXECUTIVE'S
CHOOSING PRIOR TO EXECUTING THIS AGREEMENT.
d. EXECUTIVE KNOWS THAT EXECUTIVE MAY BE GIVING UP IMPORTANT LEGAL RIGHTS
BY SIGNING THIS AGREEMENT.
e. EXECUTIVE UNDERSTANDS AND MEANS EVERYTHING THAT EXECUTIVE HAS SAID IN
THIS AGREEMENT, AND EXECUTIVE AGREES TO ALL ITS TERMS.
f. EXECUTIVE IS NOT RELYING ON SUB OR ANY REPRESENTATIVE OF SUB TO
EXPLAIN THIS AGREEMENT AND RELEASE TO EXECUTIVE. EXECUTIVE HAS HAD AN
OPPORTUNITY TO CONSULT AN ATTORNEY OR OTHER ADVISOR TO EXPLAIN THIS
AGREEMENT AND ITS CONSEQUENCES TO EXECUTIVE BEFORE EXECUTIVE SIGNED
IT, AND EXECUTIVE HAS AVAILED HIMSELF OR HERSELF OF THIS OPPORTUNITY
TO WHATEVER EXTENT EXECUTIVE DESIRED.
g. EXECUTIVE HAS SIGNED THIS AGREEMENT VOLUNTARILY AND ENTIRELY OF
EXECUTIVE'S OWN FREE WILL, WITHOUT ANY PRESSURE FROM SUB OR ANY
REPRESENTATIVE OF SUB, OR ANYONE ELSE.
-8-
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby,
this Agreement has been executed as of the day and year first above written.
ATTEST: SUMMIT BANCORP.
/s/ Richard F. Ober, Jr. By: /s/ Alfred M. D'Augusta
Secretary Executive Vice President
/s/ Robert G. Cox
EXECUTIVE: Robert G. Cox
STATE OF NEW JERSEY:
COUNTY OF UNION:
I certify that on this 18th day of April, 2000 personally came before
me Robert G. Cox (Executive), who, being duly sworn, acknowledged under oath to
my satisfaction that such person is named in and personally executed the
foregoing Receipt and Release as such person's voluntary act and deed, for the
purposes set forth therein.
IN WITNESS WHEREOF, I have set my hand this 18th day of April, 2000.
By: /s/ Colleen Adamson
Notary Public of the State of New Jersey
My Commission expires February 3, 2005
-9-
<PAGE>
Appendix A
===============================================================================
Closing Statement
Summit Bancorp.
ID: 22-1903313
301 Carnegie Center
Princeton, NJ 08543
Retirement Date: 4/30/2000
Robert G. Cox
211 Liberty Corner Road
Far Hills, NJ 07931
===============================================================================
<TABLE>
<CAPTION>
Exercisable Options
Vesting Last
Option Option Plan/ Option Shares Shares Stop Shares Date to
Number Date Type Price Granted Exercised Date Exercisable Total Price Exercise
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CM000283 12/18/1984 SUMM/NS $6.9400 42,267 42,267 4/30/2000 0 $0.00
CM000285 3/13/1986 SUMM/NS $12.5800 14,557 14,557 4/30/2000 0 $0.00
CM000289 6/29/1988 SUMM/NS $13.2445 11,953 11,953 4/30/2000 0 $0.00
CM000291 3/2/1989 SUMM/NS $13.8889 11,137 11,137 4/30/2000 0 $0.00
CM000293 12/21/1989 SUMM/NS $10.9407 11,137 11,137 4/30/2000 0 $0.00
CM000295 3/6/1991 SUMM/NS $7.2371 29,700 29,700 4/30/2000 0 $0.00
CM000298 3/10/1992 SUMM/NS $10.1037 35,640 35,640 4/30/2000 0 $0.00
CM000300 3/9/1993 SUMM/NS $14.4815 26,730 0 4/30/2000 26,730 $387,090.50 3/9/2003
CM000301 3/8/1994 SUMM/NS $13.2963 22,275 0 4/30/2000 22,275 $296,175.08 4/30/2003
CM000304 1/17/1995 SUMM/NS $14.3519 64,665 0 4/30/2000 64,665 $928,065.61 4/30/2003
CM000305 1/17/1995 SUMI/IS $14.3519 6,885 6,885 4/30/2000 0 $0.00
CM000307 2/20/1996 SUMM/NS $26.0185 82,755 0 4/30/2000 82,755 $2,153,160.97 4/30/2003
ES004242 1/24/1997 1993/NQ $29.4167 95,625 0 4/30/2000 95,625 $2,812,971.94 4/30/2003
00000138 1/23/1998 1993/NQ $49.2188 109,000 0 4/30/2000 109,000 $5,364,849.20 4/30/2003
ES6846 1/22/1999 1993/NQ $39.8750 81,000 0 4/30/2000 81,000 $3,229,875.00 4/30/2003
--------- --------------
T O T A L S 482,050 $15,172,188.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE March 31, 2000 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 1,144,686
<INT-BEARING-DEPOSITS> 53,879
<FED-FUNDS-SOLD> 6,400
<TRADING-ASSETS> 22,463
<INVESTMENTS-HELD-FOR-SALE> 6,185,191
<INVESTMENTS-CARRYING> 5,345,079
<INVESTMENTS-MARKET> 5,112,249
<LOANS> 24,067,599
<ALLOWANCE> 332,755
<TOTAL-ASSETS> 38,064,491
<DEPOSITS> 25,465,191
<SHORT-TERM> 5,223,797
<LIABILITIES-OTHER> 546,053
<LONG-TERM> 3,877,075
0
0
<COMMON> 141,895
<OTHER-SE> 2,810,480
<TOTAL-LIABILITIES-AND-EQUITY> 38,064,491
<INTEREST-LOAN> 469,122
<INTEREST-INVEST> 180,735
<INTEREST-OTHER> 691
<INTEREST-TOTAL> 650,548
<INTEREST-DEPOSIT> 188,732
<INTEREST-EXPENSE> 314,641
<INTEREST-INCOME-NET> 335,907
<LOAN-LOSSES> 20,000
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 228,841
<INCOME-PRETAX> 188,799
<INCOME-PRE-EXTRAORDINARY> 124,913
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,913
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 3.92
<LOANS-NON> 108,168
<LOANS-PAST> 44,975
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,108
<ALLOWANCE-OPEN> 328,828
<CHARGE-OFFS> 27,384
<RECOVERIES> 6,954
<ALLOWANCE-CLOSE> 332,755
<ALLOWANCE-DOMESTIC> 210,599
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 122,156
</TABLE>
