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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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
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SUMMIT BANCORP.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1903313
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 987-3200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock $.80 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
8.625% Subordinated Notes Due December 10, 2002 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 15, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $4.4 billion.
As of February 15, 2000, there were 172,384,364 shares of common stock,
$.80 par value outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Summit Bancorp 1999 Annual Report to Shareholders
(portions) (Parts I, II and IV).
Proxy Statement dated March 7, 2000 (portions) (Parts I and III).
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SUMMIT BANCORP.
Index to Form 10-K
Part I
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Page
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Item 1. Business
a) General development of business ........................................... 3
b) Financial information about segments ...................................... 3
c) Narrative description of business ......................................... 4
d) Financial information about geographic areas .............................. 12
e) Statistical information ................................................... 12
Item 2. Properties .................................................................... 13
Item 3. Legal Proceedings ............................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders ........................... 16
Executive Officers of Summit Bancorp .......................................... 17
Part II
Item 5. Market for Summit Bancorp's Common Equity and Related Stockholder Matters ..... 18
Item 6. Selected Financial Data ....................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................... 18
Item 8. Financial Statements and Supplementary Data ................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................................... 18
Part III
Item 10. Directors and Executive Officers of Summit Bancorp ............................ 19
Item 11. Executive Compensation ........................................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management ................ 19
Item 13. Certain Relationships and Related Transactions ................................ 19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............. 20
Signatures .................................................................... 26
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PART I
Item 1. Business.
(a) General development of business.
Summit Bancorp. ("Summit") has its corporate office at 301 Carnegie Center,
P.O. Box 2066, Princeton, New Jersey 08543-2066.
Summit commenced operations on October 1, 1970 as a New Jersey corporation
and as a bank holding company registered under the Bank Holding Company Act of
1956. At December 31, 1999, Summit owned three banks and several active non-bank
subsidiaries and had total consolidated assets of $36.4 billion, which ranked it
as the largest New Jersey-based bank holding company. The bank subsidiaries
engage in a general banking business, and are as follows: Summit Bank ("Summit
Bank NJ"), operating in New Jersey; Summit Bank ("Summit Bank PA"), operating in
Pennsylvania; and Summit Bank ("Summit Bank CT"), operating in Connecticut. The
non-bank subsidiaries engage primarily in securities brokerage, insurance
brokerage, venture capital investment, commercial finance lending, lease
financing, asset-based lending, letter of credit issuance, data processing, and
reinsuring credit life and disability insurance policies related to consumer
loans made by the bank subsidiaries. For a discussion on the development of the
Company's business during 1999, see the "Financial Review" on pages 17 through
33 of the 1999 Annual Report to Shareholders which section is incorporated
herein by reference to Exhibit 13.
On March 31, 1999, Summit completed its acquisition of New Canaan Bank &
Trust Company ("New Canaan), a Connecticut bank and trust company with $182.0
million in assets and four banking offices in Fairfield County, Connecticut. On
August 1, 1999, Summit Bancorp completed the acquisition of Prime Bancorp, a
Pennsylvania corporation and bank holding company. Prime Bancorp was
headquartered in Fort Washington, Pennsylvania and operated 27 branches with
$1.1 billion in assets in the Greater Philadelphia region. Subsequently, Prime
Bank became a part of Summit Bank PA. Revenues and expenses from these purchase
acquisitions have been included in the consolidated results since their
respective dates of acquisition. For additional information on these and other
acquisitions, see Note 2 of the Consolidated Financial Statements on page 42 of
the 1999 Annual Report to Shareholders which information is incorporated by
reference herein.
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 transaction with the issuance of 1.3 million shares of
treasury stock.
On March 17, 2000, Summit completed its acquisition of the assets of Patgo
Insurance Agency, Inc., Patgo South, Inc., Patgo International, Inc. and Crown
Insurance Agency, Inc. These companies provide both property and casualty and
group benefit insurance services. The assets were acquired by W.M. Ross and Co.,
Inc., a subsidiary of Summit Bank NJ.
Summit anticipates completing the acquisition of NMBT Corp., the parent
company of NMBT, a Connecticut bank and trust company, on March 29, 2000. NMBT
Corp is headquartered in New Milford, Connecticut and through NMBT, operates ten
branches in western Connecticut with approximately $400 million in assets. The
transaction will be accounted for as a purchase with the issuance of
approximately 2.6 million treasury shares.
(b) Financial information about segments.
Summit is engaged in the business of managing or controlling banks and such
other businesses related to banking as may be authorized under the Bank Holding
Company Act of 1956, as amended. Summit is also engaged in furnishing services
to, or performing services for its present operating subsidiaries. Reference to
information about industry segments is made to Financial Review - Lines of
Business on pages 26 and 27 and Note 17 on page 50 of the Consolidated Financial
Statements of the 1999 Annual Report to Shareholders which information is
incorporated by reference herein.
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(c) (1) Narrative description of business.
Bank Subsidiaries
Summit Bank NJ (formerly United Jersey Bank) was organized in 1899 and is
Summit's largest bank subsidiary. Summit Bank NJ accounts for 85% of Summit's
assets. Based on the latest available data concerning deposit market share,
Summit Bank NJ ranked as the largest New Jersey-based commercial bank. Summit
Bank NJ operates 363 banking offices throughout 19 of the 21 counties in New
Jersey. Summit Bank PA (formerly First Valley Bank) was organized in 1968 and is
Summit's Pennsylvania bank subsidiary, accounting for 12% of consolidated
assets. Summit Bank PA operates 113 offices in 13 counties in eastern
Pennsylvania. Summit Bank CT (formerly Norwalk Savings Society Bank) was
organized in 1849 and is Summit's principal Connecticut bank subsidiary,
accounting for 2% of consolidated assets. Summit Bank CT operates 14 banking
offices in Fairfield County, Connecticut.
The bank subsidiaries provide a broad range of retail, corporate,
investment and private banking products and services to individuals and
businesses, through a line of business approach.
The Retail Banking line of business meets the banking needs of individuals
and small businesses through approximately 400 traditional and more than 80
supermarket branches in New Jersey, Pennsylvania, and Connecticut. Mortgage
loans, home equity loans and lines of credit, direct and indirect consumer loans
and small business commercial loans are offered through this broad network of
branches. Demand and interest-bearing deposit accounts and services are provided
through branches, automatic teller machines and the Internet.
The Corporate Banking line of business is focused on meeting the banking
requirements of large and middle-market businesses. Commercial loans and
mortgages, asset-based lending, international trade services, private placement,
mezzanine financing, equipment leasing, aircraft lending, correspondent banking,
direct and indirect leasing and leveraged financing are actively solicited
through a network of relationship managers. Demand and interest-bearing deposit
accounts and services are provided through the branch network.
The Private Bank delivers financial products and services to individuals
and businesses. The Private Bank provides personal credit services, professional
services for lawyers, accountants and their firms, and business loans and lines
of credit. This reporting 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. The line also markets a wide variety of insurance products and
services for the personal and corporate marketplace. Revenues are mostly in the
form of fees for services provided. The major sources of fee income are
generated from trust services, sales of mutual funds and annuities, insurance
and brokerage services and discount brokerage transactions.
Non-Bank Subsidiaries
Summit owns and operates Summit Commercial/Gibraltar Corp. and Summit
Commercial Corp., which are commercial finance companies operating in the New
York-New Jersey, Baltimore and the southwestern Connecticut metropolitan areas
and which specialize in making loans secured by accounts receivable, inventory
and equipment, as well as financing sales and leases of equipment. Summit,
through Summit Bank PA, owns and operates Summit Financial Services Group, Inc.,
which is engaged in the stock brokerage business, the underwriting of municipal
bonds, and the sale of non-deposit investment products. Summit, through its
wholly-owned bank subsidiaries, owns and operates Summit Service Corporation,
which provides data processing services to the subsidiaries. Summit, through
Summit Bank NJ, owns and operates Corporate Dynamics, an employee benefits
brokerage and consulting firm, Meeker Sharkey Financial Group, an insurance
brokerage group, Philadelphia Benefits Corporation, a group health insurance
general agency, W.M. Ross and Co., Inc., a property and casualty insurance
brokerage firm and Madison Consulting Group, an employee benefits brokerage
firm. Corporate Dynamics, Philadelphia Benefits, W.M. Ross and Co., Inc., Meeker
Sharkey Financial Group and Madison Consulting Group operate principally in the
Mid-Atlantic region. Total revenues (excluding intercompany revenues) for all
non-bank subsidiaries as a group during the last three years accounted for less
than 10% of consolidated revenues.
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Supervision and Regulation
The banking industry is highly regulated. This regulatory framework is
intended primarily for the protection of depositors and the preservation of the
federal deposit insurance funds and not for the protection of security holders.
Statutory and regulatory controls increase a bank holding company's cost of
doing business and limit the options of its management to employ assets and
maximize income. Areas subject to regulation and supervision by the bank
regulatory agencies include: nature of business activities; minimum capital
levels; dividends; affiliate transactions; expansion of locations; acquisitions
and mergers; interest rates paid on certain types of deposits; reserves against
deposits; terms, amounts and interest rates charged to various types of
borrowers; and investments. For additional information on regulatory matters,
see Note 20 of the Consolidated Financial Statements on page 53 of the 1999
Annual Report to Shareholders which information is incorporated by reference
herein.
Financial Modernization Legislation
Financial modernization legislation called the Gramm-Leach-Bliley Act (the
"GLB Act") was enacted late in 1999 and the principal provisions became
effective on March 11, 2000. The GLB Act makes major changes in the laws that
previously kept the banking industry largely separate from the securities and
insurance industries in the United States. The GLB Act authorizes the creation
of a new kind of financial institution known as a "financial holding company"
and a new kind of bank subsidiary called a "financial subsidiary." Financial
holding companies include banks as subsidiaries and will be authorized to engage
in a full range of investment banking activities, including merchant banking and
a full range of insurance agency, brokerage and underwriting activities.
Financial subsidiaries of banks will be entitled to slightly more limited
authority. Bank holding companies seeking to qualify as financial holding
companies must be "well-capitalized," "well-managed," and all of their bank
subsidiaries must be highly rated under the Community Reinvestment Act. Banks
seeking to form financial subsidiaries must meet even more stringent conditions.
As a result of the GLB Act, upon qualifying as a financial holding company or
becoming authorized to own a financial subsidiary, a banking organization may
acquire or affiliate with virtually any securities and insurance company and a
securities and insurance company may acquire or affiliate with a bank.
Banking organizations are not required to become financial holding
companies but instead may continue to operate as bank holding companies and to
provide the services that those organizations were authorized to provide prior
to enactment of the GLB Act, as described below under "Bank Holding Company
Regulation" The GLB Act makes other important changes as well, including that of
requiring banks to conduct most securities activities through subsidiaries or
affiliates, enhancing the access of community banks to favorable financing from
the Federal Home Loan Banks and adding "sunshine" provisions to the Community
Reinvestment Act to require disclosure of certain agreements between financial
institutions and third parties. Privacy provisions in the GLB Act that are
applicable to all financial institutions require, among other things, that the
organizations establish privacy policies and that customers be given the right
to opt-out of having certain information about them shared with nonaffiliated
third parties. While the impact of the GLB Act cannot be fully assessed until
the numerous regulations required to implement it have become effective, it is
expected that its enactment will make the market for banking and other financial
services in the United States even more competitive.
Bank Holding Company Regulation
Summit is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"). As a bank holding
company, Summit is supervised by the Board of Governors of the Federal Reserve
System (the "FRB") and is required to file reports with the FRB and provide such
additional information as the FRB may require. Summit is also regulated by the
New Jersey, Pennsylvania and Connecticut Departments of Banking.
The Holding Company Act prohibits Summit, with certain exceptions, from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to subsidiary banks, except that it may, upon application,
engage in, and may own shares of companies engaged in, certain businesses found
by the FRB to be so closely related to banking "as to be a proper incident
thereto" if the FRB determines that such acquisitions will be, on balance,
beneficial to the public. The Holding Company Act requires prior approval by the
FRB of the acquisition by Summit of more than five percent of the voting stock
of any additional bank. Acquisitions in any state were permitted after September
29, 1995. See "Interstate Banking" below. Satisfactory financial condition,
particularly with regard to capital adequacy, and satisfactory Community
Reinvestment Act ratings are generally prerequisites to obtaining federal
regulatory approval to make acquisitions.
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Summit Bank NJ, Summit Bank PA and Summit Bank CT are each currently rated
"outstanding" under the Community Reinvestment Act. NMBT is currently rated
"satisfactory".
In addition, Summit is subject to various requirements under New Jersey,
Pennsylvania and Connecticut laws concerning future acquisitions. Such laws
require the prior approval of the relevant Department of Banking to acquire any
bank chartered by that state. Statewide branching is permitted in New Jersey,
Pennsylvania and Connecticut. Branch approvals are subject to statutory
standards relating to safety and soundness, competition, and public convenience.
The Holding Company Act does not place territorial restrictions on the
activities of non-bank subsidiaries of bank holding companies.
The policy of the FRB provides that Summit is expected to act as a source
of financial strength to each of its subsidiary banks and to commit resources to
support such subsidiary banks in circumstances in which it might not do so
absent such policy. In addition, any capital loans by Summit to any subsidiary
bank would be subordinate in right of repayment to deposits and certain other
indebtedness of such subsidiary bank.
Summit is required by the Holding Company Act to file annual reports of its
operations with the FRB and is subject to examination by the FRB. Under Section
106 of the 1970 amendments to the Holding Company Act and the regulations of the
FRB, bank holding companies and their subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit or
provision of any property or services. Regulations of the FRB under the Federal
Reserve Act require that reserves be maintained by a bank subsidiary of Summit
on deposits. They also place limits upon the amount of Summit's equity
securities which may be repurchased or redeemed by Summit.
Interstate Banking and Regulatory Relief Legislation in 1994
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Act") permits full nationwide interstate banking (e.g., bank holding
company ("BHC") acquisition of bank subsidiaries anywhere in the U.S.) and, as
of June 1, 1997, interstate branching by merger. Importantly, states retain the
right to require that out-of-state BHCs and banks comply with certain state
rules governing entry.
A brief summary of the Act's major provisions follows:
(A) Interstate Banking. Adequately capitalized and adequately managed BHCs
are permitted to acquire banks in any state. States cannot opt-out of this
provision. State laws may prohibit the purchase of banks five years of age
or less. Concentration limits are imposed (10% of bank and thrift deposits
nationwide/30% in the state; the state supervisor may waive this 30%
limit). States retain existing authority to impose nondiscriminatory
deposit caps.
(B) Bank/Thrift Affiliate Agency Authority. An insured bank subsidiary may
act as agent for an affiliate bank or thrift in offering specified banking
services both within and across state lines without offices of the agent
being deemed branches of the affiliates on whose behalf they act. Summit
Bank NJ, Summit Bank PA and Summit Bank CT act as agents for each other
pursuant to this authority.
(C) Interstate Branching.
(1) Branching Through Bank Mergers. As of June 1, 1997, the appropriate
Federal regulator may approve the merger of adequately capitalized banks
across state lines, so long as the resulting institution is adequately
capitalized and adequately managed. Bank mergers have to conform with state
laws which impose age restrictions of up to five years on acquisitions of
new banks. Where the bank/BHC is effectively moving into a new state as a
result of the merger, regulators must consider Community Reinvestment Act
compliance of all bank affiliates before approving the merger application.
The 10% nationwide/30% state by state deposit concentration limits
discussed above also apply to bank mergers; states retain current authority
to impose deposit caps.
(2) Direct Branching by Banks. National and state banks are prohibited from
directly acquiring an existing branch (separate from the acquisition of a
charter), or establishing a de novo branch, in a host state unless the law
of the host state permits it. New Jersey permits the acquisition of an
existing branch but
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prohibits de novo; Pennsylvania permits both; and Connecticut permits both,
provided that reciprocity exists.
(D) Laws Applicable to State Interstate Branches. Branches of out-of-state
state chartered banks are subject to the laws of the host state, including
limits on permissible activities, as if they were branches of a bank whose
headquarters are located in that host state.
(E) Other. For financial institutions that maintain one or more branches
outside the home state, the appropriate Federal banking agency must prepare
a written evaluation of the entire institution's Community Reinvestment Act
performance and a separate evaluation of the institution's performance for
each state and metropolitan statistical area, and for the non-metropolitan
portion of the state. The Act prohibits the use of interstate branches
primarily for the purpose of deposit production, and requires that the
interstate bank's level of lending in the host state relative to deposits
from the host state (using available information) be greater than half the
average of all banks with home offices in that state. The appropriate
Federal regulator may require closure of a branch which fails this test. In
the case of an interstate bank that proposes to close any branch in a low-
or moderate-income area, the branch closure notices must contain the
mailing address of the bank's Federal regulator, and a statement that
comments regarding the closure may be mailed to that regulator. If a person
from the area in which the branch is located submits a written request and
includes a statement of specific reasons, and the request is not frivolous,
the agency must consult with community leaders and convene a meeting with
such leaders and depository institutions to explore the feasibility of
obtaining adequate alternative facilities and services. The legislation
specifically states that this process shall not affect the authority of the
bank to close the branch, or the timing of the closing.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which became law in December 1991, in addition to authorizing
increased funding for the Bank Insurance Fund ("BIF") by raising the FDIC's
borrowing limits and eliminating the cap on deposit insurance premiums, imposes
extensive additional statutory requirements regarding the roles,
responsibilities, and liabilities of a bank's senior management, directors,
independent auditors, and regulators in compliance, management and financial
affairs of a bank. FDICIA has required additional time, effort and resources to
be devoted to compliance and internal controls.
Pursuant to FDICIA, each federal banking agency has promulgated regulations
specifying the levels at which a financial institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized," and when it would take
certain mandatory and discretionary supervisory actions based on the capital
level of the institution.
Insured institutions are generally prohibited from paying dividends or
management fees if after making such payments, the institution would be
"undercapitalized." An "undercapitalized" institution also is required to
develop and submit to the appropriate federal banking agency a capital
restoration plan, and each company controlling such institution must guarantee
the institution's compliance with such plan. The liability of a holding company
under any such guarantee is limited to the lesser of five percent of the
institution's total assets at the time it became undercapitalized or the amount
needed to comply with all applicable capital standards. The FDIC is accorded a
priority over the claims of unsecured creditors in any bankruptcy proceeding of
a holding company that has guaranteed an institution's compliance with a capital
restoration plan. Further, "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized" institutions are subject to increasingly
extensive requirements and limitations, including mandatory sale of stock,
forced mergers, and ultimately receivership or conservatorship. A "critically
undercapitalized" institution, beginning 60 days after it becomes "critically
undercapitalized," generally is prohibited from making any payment of principal
or interest on the institution's subordinated debt.
FDICIA caused the FDIC insurance assessments to move from flat-rate
premiums to a system of risk-based premium assessments. The risk-based insurance
assessment evaluates an institution's potential for causing a loss to the
insurance fund and bases deposit insurance premiums upon individual bank
profiles. The majority of the subsidiary bank's FDIC insured deposits are
covered under the BIF. As a result of deposits acquired through the acquisition
of thrift institutions over the last several years, the bank subsidiaries have
approximately $5.5 billion of deposits that are insured under the Savings
Association Insurance Fund ("SAIF").
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The Deposit Insurance Funds Act of 1996, which became law on September 30,
1996, included measures to address the disparity in deposit insurance assessment
rates that had developed between institutions whose deposits are insured by BIF
and those whose deposits are insured by SAIF. The SAIF was recapitalized through
a special "one time only" assessment of 0.657 percent of all deposits insured by
that Fund; the proceeds of this assessment brought SAIF to its designated
reserve ratio. As part of this legislation, the assessment basis for the
Financing Corporation ("FICO") bonds issued to finance resolution of early
stages of the savings and loan crisis, was broadened to include banks; however,
banks were assessed for this purpose at only one-fifth the rate of the
assessment on savings associations until December 31, 1999. Commencing January
1, 2000, both the deposit insurance assessment and the special assessment FICO
bonds are the same for BIF-insured deposits and for SAIF-insured deposits.
FIRREA
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. These provisions have
commonly been referred to as FIRREA's "cross guarantee" provisions. Liability
under the "cross guarantee" provisions is subordinate to claims (other than
claims by shareholders, including bank holding companies, in their capacity as
shareholders, and affiliates of the institution) of depositors, secured
creditors, other general or senior creditors and holders of obligations
subordinated to depositors or other creditors.
FIRREA gives the FDIC as conservator or receiver of a failed depository
institution express authority to repudiate contracts with such institution which
it determines to be burdensome or if such repudiation will promote the orderly
administration of the institution's affairs. Certain "qualified financial
contracts," defined to include securities contracts, commodity contracts,
forward contracts, repurchase agreements, and swap agreements, are generally
excluded from the repudiation powers of the FDIC. The FDIC is also given
authority to enforce contracts made by a depository institution, notwithstanding
any contractual provision providing for termination, default, acceleration, or
exercise of rights upon, or solely by reason of, insolvency or the appointment
of a conservator or receiver. Insured depository institutions are also
prohibited from entering into contracts for goods, products or services which
would adversely affect the safety and soundness of the institution.
The bank regulatory agencies have broad discretion to issue cease and
desist orders if they determine that Summit or its subsidiaries are engaging in
"unsafe or unsound banking practices." In addition, the Federal bank regulatory
authorities are empowered to impose substantial civil money penalties for
violations of certain Federal banking statutes and regulations.
Dividend Restrictions
Various federal and state statutory provisions limit the amount of
dividends Summit's subsidiary banks can pay to Summit without prior regulatory
approval. The Federal Reserve Act, which affects both Summit Bank NJ and Summit
Bank PA, restricts the payment of dividends in any calendar year to the net
profit of the current year combined with retained net profits of the preceding
two years; and Connecticut's banking law imposes a similar limitation on Summit
Bank CT. Further, Summit Bank NJ, as a New Jersey state-chartered bank, may
declare a dividend only if, after payment thereof, its capital stock would be
unimpaired and its surplus would equal at least 50 percent of its capital stock
or its surplus would not be reduced and Summit Bank PA, as a
Pennsylvania-chartered bank, may declare and pay a dividend only out of
accumulated net earnings and only if it has surplus at least equal to its
capital and such surplus would not be reduced by payment of such dividend.
Summit may not pay dividends to its shareholders if after paying such dividends
it would be unable to pay its debts as they become due in the usual course of
business or its total assets would be less than its total liabilities. In
addition, under FDICIA all institutions are prohibited from paying dividends if
after doing so an institution would be undercapitalized. For additional
information on dividend restrictions and amounts available for dividend
distributions, see Note 20 of the Consolidated Financial Statements on page 53
of the 1999 Annual Report to Shareholders which information is incorporated by
reference herein.
Regulation of Subsidiaries
Various laws and the regulations thereunder applicable to Summit and its
bank subsidiaries impose restrictions and requirements in many areas, including
capital requirements, the maintenance of reserves,
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establishment of new offices, the making of loans and investments, consumer
privacy, consumer protection, employment practices and other matters. There are
various legal limitations, including Sections 23A and 23B of the Federal Reserve
Act, on the extent to which a bank subsidiary may finance or otherwise supply
funds to Summit or its non-bank subsidiaries or certain subsidiaries of the
bank. Under Federal law, a bank subsidiary is subject to individual and
aggregate limits with respect to loans or extensions of credit to, or
investments in the securities of, its parent and the nonbank subsidiaries of its
parent or certain subsidiaries of the bank. Any such loans to nonbank affiliates
or certain subsidiaries of the bank must be collateralized in keeping with a
sliding scale that varies in accordance with the quality of the collateral. For
additional information about loans to affiliates, see Note 20 of the
Consolidated Financial Statements on page 53 of the 1999 Annual Report to
Shareholders which information is incorporated by reference herein. Summit and
its banking and other subsidiaries are also subject to certain restrictions with
respect to engaging in the business of issuing, underwriting, public sale,
flotation or distribution of securities.
The state-chartered subsidiary banks are subject to the supervision of, and
to regular examination by, the New Jersey Department of Banking and Insurance,
in the case of Summit Bank NJ, the Pennsylvania Department of Banking, in the
case of Summit Bank PA and the Connecticut Department of Banking, in the case of
Summit Bank CT. In addition, the subsidiary banks are subject to review by the
U.S. Department of Education with respect to student loan activity. Summit Bank
NJ and Summit Bank PA are subject to examination by the FRB. Summit Bank CT is
subject to examination by the FDIC. As a registered municipal securities dealer,
Summit Bank NJ is subject to the supervision of the Municipal Securities
Rulemaking Board.
None of the stocks of the subsidiary banks or other subsidiaries owned or
controlled by Summit carry statutory double liability. However, Article XIV,
Section 11 of the Constitution of the State of Arizona provides that the stock
of Summit Credit Life Insurance Company may be subject to assessment to restore
impaired capital under certain circumstances as, and to the extent, provided
therein. There is no such provision in New Jersey, Pennsylvania or Connecticut
law governing the stock of Summit's state-chartered banks.
Summit and its non-bank subsidiaries are subject to examination by the New
Jersey, Pennsylvania and Connecticut state bank regulatory agencies and the FRB,
and, in addition, the FDIC may, at its discretion, examine the New Jersey and
Pennsylvania bank subsidiaries. As a mortgagee approved by the Department of
Housing and Urban Development and a seller-servicer of mortgages approved by the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the New Jersey Housing and Mortgage Finance Agency, Summit Bank
NJ is subject to regulation or supervision by these government agencies. Summit
Bank PA is a participant in the mortgage program conducted by the Pennsylvania
Housing Finance Agency and is subject to the supervision of that agency. Summit
Financial Services Group, Inc. is subject to regulation and examination by the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and securities regulatory authorities of California, Connecticut,
Delaware, Florida, Georgia, Illinois, Maryland, Massachusetts, Nevada, New
Jersey, New York, Ohio, Pennsylvania, South Carolina, Texas, Virginia and
Washington and, as a municipal securities dealer, to regulation by the Municipal
Securities Rulemaking Board. Summit Credit Life Insurance Company is subject to
regulation and examination by the Department of Insurance of the State of
Arizona. Summit Commercial Corp. is subject to the jurisdiction of the New York,
Connecticut and Maryland Departments of Banking. Considered as a group,
Corporate Dynamics, Philadelphia Benefits Corporation, WM. Ross and Co., Inc.,
Meeker Sharkey Financial Group and Madison Consulting Group are licensed as
insurance brokers in all 50 states and the District of Columbia and are subject
to the jurisdiction of the insurance regulatory authorities of each state in
which they are licensed to do business. Summit Mortgage Banking Services, Inc.
is subject to the jurisdiction of the banking authorities of the states of New
York and Delaware.
Summit and its subsidiaries are also subject to various reporting
requirements of Federal and state securities laws, and regulations of the
Securities and Exchange Commission and the New York Stock Exchange.
In its operations in other countries, Summit Bank NJ is also subject to
restrictions imposed by the laws and banking authorities of such countries.
References under this caption, Supervision and Regulation, to applicable
statutes are brief summaries or portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to such
statutes.
9
<PAGE>
Monetary Policy and Economic Conditions
The earnings and business of Summit and its subsidiaries are affected by
the policies of regulatory authorities, including the FRB. The monetary policies
of the FRB have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the future. Because
of the changing conditions in the national and international economy and in the
money markets, as a result of actions by monetary and fiscal authorities,
interest rates, credit availability and deposit levels may change due to
circumstances beyond the control of Summit or its subsidiaries.
Effects of Inflation
A bank's asset and liability structure differs from that of an industrial
company, since its assets and liabilities fluctuate over time based upon
monetary policies and changes in interest rates. The growth in the bank's
earning assets, regardless of the effects of inflation, will increase net
interest income if the bank is able to maintain a consistent interest spread
between earning assets and supporting liabilities, of which there can be no
assurance.
A purchasing power gain or loss from holding net monetary assets during the
year represents the effect of general inflation on monetary assets and
liabilities. Almost all of the assets and liabilities of Summit are considered
monetary because they are fixed in terms of dollars and, therefore, are not
materially affected by inflation.
(c)(1)(i) Principal products and services rendered by industry segments.
See Financial Review - Lines of Business on pages 26 and 27 and Note
17 on page 50 of the Consolidated Financial Statements of the 1999 Annual Report
to Shareholders which information is incorporated by reference herein.
(c)(1)(ii) Description of new products or segments.
There were no new products or industry segments that required the
investment of a material amount of the assets of Summit or that otherwise were
material.
(c)(1)(iii) Sources and availability of raw materials.
Not applicable.
(c)(1)(iv) Importance of patents, trademarks, licenses, franchises and
concessions held.
Patents and licenses, as such, are not of importance to Summit or its
subsidiaries, but operating charters (similar to licenses) - approved banking
location authorizations granted by the New Jersey Department of Banking and
Insurance, the Pennsylvania Department of Banking, and the Connecticut
Department of Banking for state-chartered bank subsidiaries - are vital to the
operation and expansion of the bank subsidiaries. Such charters are perpetual
unless revoked by the granting authorities. Various licenses and approvals to do
business are also required by the other regulatory agencies referred to under
Supervision and Regulation above. Most of these licenses and approvals require
periodic renewal.
Summit has several registered service marks, none of which is considered
material to its business. The duration of each registration is perpetual so long
as Summit continues to use the mark and renews the registration every ten years.
(c)(1)(v) Seasonality of business.
Not applicable.
(c)(1)(vi) Working capital requirements related to inventory.
Not applicable.
10
<PAGE>
(c)(1)(vii) Concentration of customers.
The business of Summit and its subsidiaries is not dependent on a single
customer, nor on a small group of customers.
(c)(1)(viii) Backlog of orders.
Not applicable.
(c)(1)(ix) Government contracts.
No material portion of the business of Summit and its subsidiaries is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the U.S. Government.
(c)(1)(x) Competition.
Each bank subsidiary faces strong competition for local business in the
communities it serves from other banking institutions as well as from other
financial institutions. Summit's banking subsidiaries compete in the national
market with other major banking and financial institutions in the New York,
Philadelphia and Connecticut areas, many of which are substantially larger and
may have greater financial resources. A number of these institutions offer their
services throughout New Jersey, Pennsylvania, and Connecticut through bank and
non-bank subsidiaries, loan production offices and solicitations through
broadcast and print media, direct mail and the Internet. For international
business, Summit competes not only with a substantial number of United States
banks having foreign departments, but also with agencies and branches of foreign
banks located in the United States and with other major banks throughout the
world. The effect of liberalized branching and acquisition laws has been to
lower barriers to entry into the banking business and to increase competition
for banking business, as well as to increase both competition for and
opportunities to acquire other financial institutions. Nationwide interstate
banking has accelerated these trends.
For most of the services which the subsidiaries perform, there is
increasing competition from financial institutions other than commercial banks.
Money market and mutual funds actively compete with banks for deposits. Savings
banks, savings and loan associations and credit unions also actively compete for
deposits and for various types of loans; such institutions, as well as
securities brokers, consumer finance companies, mortgage companies, factors,
insurance companies and pension trusts, are important competitors. Financial
institutions such as these, as well as retailers and other non-bank entities,
have acquired so-called "non-bank banks" and "unitary thrift" charters
permitting them to offer traditional banking services without being subject to
the same degree of regulation. Insurance companies, mutual fund investment
counseling firms and other business firms and individuals offer competition for
personal and corporate trust services and investment advisory services. As
discussed earlier under "Regulation and Supervision-Financial Modernization
Legislation," recent legislation removing barriers between banking and the
securities and insurance industries is expected to result in greater competition
among these industries.
Competition for banking and permitted non-bank services is based on price,
nature of product, quality of service, and, in the case of retail activities,
convenience of location.
(c)(1)(xi) Research and development.
Summit and its subsidiaries conduct research activities, from time to time,
relating to the development of new services. Expenditures for these activities
are not considered material to the financial condition of Summit and its
subsidiaries.
(c)(1)(xii) Cost of compliance with environmental regulations.
It is not expected that compliance with Federal, state and local provisions
relating to the protection of the environment will have any material effect on
Summit or its subsidiaries.
11
<PAGE>
(c)(1)(xiii) Number of persons employed.
At December 31, 1999, there were 8,673 persons, on a full-time equivalent
basis, employed by Summit and its subsidiaries.
(d) Financial information about geographic areas.
Summit Bank NJ operates an International Trade Finance Department
principally for the benefit of its domestic customers and an offshore banking
facility on the island of Grand Cayman in the British West Indies. Summit Trade
Finance (HK), Limited, an indirect subsidiary of Summit Bank NJ, operating under
a Hong Kong charter, issues documentary letters of credit to Asian suppliers on
behalf of U.S. importers. Business at these offshore facilities constituted less
than one-half of one percent of the total assets and income of Summit Bank NJ in
1999.
(e) Statistical information.
The table below provides a cross reference to portions of Summit Bancorp's
1999 Annual Report to Shareholders incorporated by reference herein. Information
that is not applicable is indicated by (NA):
<TABLE>
<CAPTION>
Annual Report
Description of Financial Data Pages
----------------------------- -------------
<S> <C> <C>
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differential
A. Average Balance Sheets 22-23
B. Analysis of Net Interest Earnings 22-23
C. Rate/Volume Analysis 24
II. Investment Portfolio
A. Book value of investment securities 43
B. Investment securities by range of maturity with corresponding average
yields 43
C. Securities of issuers exceeding ten percent of stockholders' equity NA
III. Loan Portfolio
A. Types of loans 19
B. Maturities and sensitivities of loans to changes in interest rates 19
C. Risk elements
1) Nonaccrual, past due and restructured loans 28-29,38-39
2) Potential problem loans 28-29
3) Foreign outstandings NA
4) Loan concentrations 44
D. Other interest bearing assets NA
IV. Summary of Loan Loss Experience
A. Analysis of the allowance for loan losses 28-29
B. Allocation of the allowance for loan losses 28-29
V. Deposits
A. Average amount and average rate paid on major categories of deposits 22-23
B. Other categories of deposits NA
C. Deposits by foreign depositors in domestic offices NA
D. Time deposits of $100,000 or more by remaining maturity 30
E. Time deposits of $100,000 or more by foreign offices NA
VI. Return on Equity and Assets 1 and 56-58
VII. Short-term Borrowings 20-21
</TABLE>
12
<PAGE>
Item 2. Properties.
Summit owns its administrative headquarters building in West Windsor
Township, New Jersey. Summit Bank NJ leases its principal banking office located
in Hackensack, New Jersey. Summit Bank NJ also leases facilities in Cranford,
Fairlawn, Mount Laurel and Dayton, New Jersey, and owns a facility in Mays
Landing, New Jersey, all of which are used for various administrative and back
office operations. The principal banking and administrative offices of Summit
Bank PA are leased and located in Fort Washington, Pennsylvania. Summit PA also
leases an operational facility in Bethlehem, PA. The principal banking and
administrative offices of Summit Bank CT are leased and located in New Canaan,
CT. The bank subsidiaries conduct business in approximately 490 banking offices,
of which approximately 43% are owned, with the remaining leased. Office space in
certain of the owned buildings is leased to others. Summit Service Corporation,
a wholly owned subsidiary of Summit Bank NJ and Summit Bank PA, leases property
in Ridgefield Park, New Jersey for use as the principal data processing
facility.
For additional information on properties see Note 5 and Note 9 of the
Consolidated Financial Statements on pages 44 and 45, respectively, of the 1999
Annual Report to Shareholders which information is incorporated by reference
herein.
Item 3. 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
Summit 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.
The plaintiffs entered into retail installment sales contracts with United
Jersey Bank/South, N.A., a predecessor of Summit Bank NJ ("the Bank"), but
failed to keep insurance required by their contracts in force, as a result of
which the Bank obtained collateral protection insurance for them. Plaintiffs
allege that they are representatives of a class of persons who are or were
parties to consumer loan agreements with Summit Bank and/or United Jersey Bank
and/or any subsidiary of UJB Financial Corp (the prior name of Summit Bancorp),
and from whom any of those entities collected or sought to collect collateral
protection insurance premiums for the period October 4, 1989, to October 3,
1995. Their complaints allege breach of contract and breach of the implied
covenants of good faith and fair dealing, unconscionable commercial practices
under the New Jersey Consumer Fraud Act, unjust enrichment, and breach of
fiduciary duty. Their federal court complaints also alleged violations of the
National Bank Act and Depository Institution and Monetary Control Act.
On August 28, 1997, the U.S. District Court entered an order directing the
Bank to compensate Loatman's attorneys for fees and costs stemming from their
efforts to enjoin the Bank and its employees from contacting plaintiff Loatman
directly. Loatman's attorneys then filed an application for a specific amount,
which the Bank opposed. On September 24, 1997, the Bank filed a notice of appeal
from the August 28, 1997, order to the United States Court of Appeals for the
Third Circuit.
On August 29, 1997, the U.S. District Court granted the Bank's motion for
summary judgment as to all federal claims (excluding attorney's fee claims)
asserted in both the Loatman and Gundle matters, and declined to exercise
supplemental jurisdiction over the remaining counts of the complaint.
On October 15, 1997, the Superior Court of New Jersey reinstated the state
court actions. On December 19, 1997, the court denied the Bank's motion for
summary judgment, without reaching its merits, holding that questions of fact
existed which precluded summary judgment at that time.
13
<PAGE>
On March 20, 1998, the Superior Court of New Jersey granted plaintiffs'
motion for class certification. The Appellate Division denied the Bank's motion
for leave to appeal from the trial court's certification of the class on April
27, 1998. On May 26, 1998, the trial court approved a form of class notice, but
ruled that it need only be provided to class members who were customers of
United Jersey Bank/South, N.A.
On July 8, 1998, plaintiffs filed a motion to extend dissemination of class
notice to the entire certified class. The Bank opposed that motion and filed a
cross-motion to decertify the class as to all persons who were not customers of
United Jersey Bank/South, N.A. On September 11, 1998, the court granted
plaintiffs' motion to extend dissemination of class notice and denied the Bank's
cross-motion to decertify the class. On October 29, 1998, the Appellate Division
denied the Bank's motion for leave to appeal from the court's September 11,
1998 Order. Notice of the pendency of this litigation has now been provided to
the entire plaintiff class.
On March 30, 1999, plaintiffs filed a motion for partial summary judgment
as to liability on their New Jersey Consumer Fraud Act claims. The Bank opposed
this motion and filed a cross-motion for dismissal of plaintiffs' Consumer Fraud
Act claims, as well as a motion to compel certain discovery from plaintiffs. On
July 23, 1999, the Superior Court of New Jersey denied plaintiffs' motion and
granted partial summary judgment to the Bank, dismissing plaintiffs' Consumer
Fraud Act claims. Plaintiffs moved for reconsideration of the decision, which
the Superior Court denied on October 8, 1999. Thereafter, plaintiffs sought
leave to appeal the court's rulings. The Appellate Division denied plaintiffs'
application.
On October 15, 1999, the District Court ruled on plaintiffs' 1997 fee
application, awarding plaintiffs an amount significantly reduced from what had
been sought in their application. On October 25, 1999, the Bank filed a notice
of appeal of the District Court's October 15, 1999 Order and the District
Court's August 28, 1977 Order, posting a supersedeas bond to stay enforcement
of the October 15, 1999 Order.
On February 4, 2000, the Superior Court of New Jersey granted summary
judgment, dismissing all of plaintiffs' remaining state court claims against the
Bank.
2. In re Payroll Express Corporation et al - John S. Pereira as Chapter 11
Trustee of the Estate of Payroll Express Corporation et al v. United Jersey
Bank, United States District Court for the Southern District of New York, Civil
Action No. 94-1565 (LAP) ("the Preference Action"), filed December 29, 1993; In
re Payroll Express Corporation of New York and Payroll Express Corporation,
United States Bankruptcy Court for the Southern District of New York. Case Nos.
92-B-43 149 (CB) and 92-B-43 150 (CB), Adversary Proceeding No. 94-8297A, filed
April 22, 1994 ("the Fraudulent Conveyance Action"); Beth Israel Medical Center,
et al v. United Jersey Bank and National Westminster Bank New Jersey, United
States District Court for the Southern District of New York, Civil Action No.
94-8256 (LAP), filed September 28, 1993; Frederick Goldman, Inc. v. United
Jersey Bank and National Westminster Bank New Jersey, United States District
Court for the Southern District of New York, Civil Action No, 94-8256 (LAP),
filed March 21, 1994; Towers Financial Corporation v. United Jersey Bank, United
States District Court for the District of New Jersey, Civil Action No.92-3175
(WGB), filed June 2, 1992, removed to federal court September 2, 1992; New York
City Transit Authority v. United Jersey Bank and National Westminster Bank New
Jersey, United States District Court for the Southern District of New York,
Civil Action No.95-3685 (LAP), filed May 19, 1995; and Copytone, Inc. on behalf
of itself and others similarly situated v. United Jersey Bank, National
Westminster Bank New Jersey and John Does I through 20, United States District
Court for the Southern District of New York, Civil Action No. 95-8217 (LAP),
filed November 1995.
Payroll Express Corp. ("Payroll"), a former customer of United Jersey Bank
(a predecessor to Summit Bank NJ ("the Bank"), was primarily in the business of
providing on-site check cashing services. Customers of Payroll deposited funds
into a general deposit account ("Account") at the Bank to cover their payrolls
and cash was obtained by debiting the Account.
Payroll perpetrated a substantial check-kiting scheme using the Account and
another account at National Westminster Bank, NJ ("NatWest"). NatWest apparently
discovered this scheme in late May 1992 and ceased honoring checks drawn by
Payroll on its account. The Bank was left with a loss of approximately $4
million in the Account. In March 1994, Robert Felzenberg, the President of
Payroll, pled guilty to wire and tax fraud, and was sentenced to 6 1/2 years
imprisonment.
14
<PAGE>
After Payroll filed a petition in bankruptcy, a trustee (the "Trustee") was
appointed by the court. In his Preference Action, the Trustee alleges that the
Account received incoming wire transfers of at least $17 million within the 90
days prior to the filing of bankruptcy by Payroll, that these wire transfers
were used by the Bank to reduce its losses on the check kiting scheme, and that
these monies are recoverable by the Trustee as preferences under the Bankruptcy
Code. The Bank successfully moved to withdraw the reference to the United States
District Court for the Southern District of New York.
Following the conclusion of discovery, the trial in the Preference Action
took place from September 13, 1999 to September 22, 1999. At the conclusion of
the trial, the court ordered the parties to submit proposed findings of fact and
conclusions of law. To date, no decision has been rendered by the court.
The Fraudulent Conveyance Action was settled in 1997 for $300,000. The
settlement was approved by the Bankruptcy Court and the matter was dismissed.
A number of Payroll's customers who had deposited money into the Account
have also filed lawsuits against the Bank seeking monetary damages and alleging
various common law causes of action, including unjust enrichment, restitution,
conversion, fraud, negligence and/or breach of fiduciary duty. Only the Beth
Israel Medical Center, Frederick Goldman, New York City Transit Authority, and
Copytone matters, which were consolidated by the Court, and the Towers Financial
Corporation matter are still pending. The Bank filed motions to dismiss the
consolidated complaints and, on October 11, 1996, the court granted the Bank's
motion in part, dismissing the claims which were based on negligence, aiding and
abetting the wrongful conduct of Payroll Express, breach of fiduciary duty,
fraud, equitable fraud, conspiracy to conceal check-kiting by Payroll Express,
as well as a part of the conversion claims. The court denied the remainder of
the Bank's motion but stayed the proceedings until the completion of the
Trustee's Preference Action. On November 17, 1996, an order was entered
dismissing the Towers Financial Corporation matter without prejudice, pending
the resolution of the Trustee's Preference Action.
3. Daniel Iverson, Lawrence Cohen and Terri Cohen, on behalf of themselves and
all others similarly situated v. Collective Bank, a federally chartered savings
bank organized under the laws of the United States of America (improperly named
as Collective Bancorp, Inc., a Delaware corporation), on behalf of itself and
all others similarly situated. Superior Court of New Jersey, Atlantic County,
Docket No. ATL-L-2578-95, filed on July 26, 1995.
In their complaint against Collective Bank (a predecessor to Summit Bank
NJ) ("the Bank"), plaintiffs contended that, under the New Jersey Mortgage
Financing Law, a lender may not charge an attorney review fee to a borrower in
connection with a residential mortgage transaction. They contended that
Collective's so doing was a violation of that law and of the New Jersey Consumer
Fraud Act. The measure of damages sought was the total amount of review fees
paid by members of the putative (but as yet uncertified) class. Plaintiffs also
sought treble damages under the Consumer Fraud Act.
On October 2, 1997, the court entered an order granting partial summary
judgment in favor of plaintiffs. On October 17, 1997, the Bank filed a notice of
motion for leave to appeal to the Appellate Division of the Superior Court of
New Jersey. This motion was granted and the Iverson matter was consolidated with
two other pending appeals (in which other institutional lenders were the
defendants) relating to the same or similar issues. On July 9, 1998, the
Appellate Division reversed the trial court's decision and held that a bank may
charge an attorney review fee in connection with a residential mortgage loan.
The Appellate Division agreed with the trial court in declining to find that the
New Jersey statute is preempted by federal law.
On August 19, 1998, plaintiffs filed a notice of motion for leave to appeal
nunc pro tunc, along with a notice of motion for leave to appeal. The court
granted plaintiffs' nunc pro tunc motion (which was not opposed by the Bank) on
October 9, 1998. On November 19, 1998, the New Jersey Supreme Court granted
plaintiffs' motion for leave to appeal. On November 30, 1998, the Bank filed a
notice of motion for leave to cross-appeal that portion of the Appellate
Division's ruling concerning federal preemption. The New Jersey Supreme Court
granted the Bank leave to cross-appeal on January 27,1999.
On December 9, 1999, the New Jersey Supreme Court ruled that N.J.S.A.
46:10A-6(d) allows lenders to charge a fee for the review of loan documents
prepared or submitted by or at the direction of borrowers, regardless of whether
the borrowers are represented by counsel or whether the submission of documents
on the borrowers' behalf creates "extra work" for the lenders. The New Jersey
Supreme Court reversed the Appellate Division,
15
<PAGE>
holding that N.J.S.A. 46:10A-6 is expressly preempted by Federal banking
regulations addressing the issue of attorneys' fees. This matter is now
concluded.
4. Noel Hassett, on behalf of himself and all others similarly situated v.
Summit Bank, Superior Court of New Jersey, Essex County, Docket No.
ESX-L-11224-97, filed on October 3, 1997.
The allegations of the complaint and the measure of damages sought in this
matter are substantially similar to those in the Iverson matter. The parties
agreed to stay all proceedings in this matter until completion of the Iverson
appeal and the complaint was dismissed without prejudice on February 5, 1999.
This matter is now concluded.
5. John Baker, Margaret Baker, Elaine Coopersmith, and Arnold Coopersmith on
behalf of themselves and all others similarly situated v. Summit Bank, United
States District Court for the Eastern District of Pennsylvania, Civil Action No.
CV-2010, filed April 21, 1999.
Plaintiffs are representatives of a class of holders of demand and/or fixed
rate certificates of Walnut Equipment Leasing Company ("Walnut") and its
wholly-owned subsidiary, Equipment Leasing Corporation of America ("ELCOA"), for
which Summit Bank PA (formerly known as First Valley Bank) acted as Indenture
Trustee. Plaintiffs allege that the bank breached contractual and fiduciary
duties and violated the Trust Indenture Act by (1) continuing to act as
Indenture Trustee despite knowledge that the money being raised under the Walnut
and ELCOA indentures was being used to pay off the companies' debt to past
purchasers; (2) permitting Walnut and ELCOA to default on their obligations
under the Trust Indenture Act and the Trust Indenture Agreement by submitting
false and misleading reports and Registration Statements with the Securities and
Exchange Commission; and (3) acting as Indenture Trustee with respect to the
issuance of certificates of both ELCOA and Walnut despite knowledge that the
interests of the two groups of holders were adverse to one another.
Plaintiffs also alleged violations of the Pennsylvania Unfair Trade
Practices and Consumer Protection Acts. On September 17, 1999, the court granted
Summit Bank PA's motion to dismiss this claim.
In November, 1999, Summit Bank PA filed its Answer to the Complaint,
denying the essential allegations of Plaintiffs' claims. Discovery is proceeding
in this case and is scheduled to be completed by March 30, 2000.
Plaintiffs' complaint does not specify and Summit Bank PA is currently
unable to ascertain or approximate the amount of damages sought against it.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
16
<PAGE>
Executive Officers of Summit Bancorp.
The following data is supplied as of March 17, 2000:
<TABLE>
<CAPTION>
Title (All positions and offices presently held with
Name Age Summit Bancorp.) and year appointed to office(s)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
T. Joseph Semrod 63 Chairman of the Board (1981), Chief Executive Officer (1981) and
President (1981-1996; 2000)
John G. Collins 63 Vice Chairman (1986)
Douglas L. Kennedy 43 Senior Executive Vice President and Deputy Manager/Corporate Banking
(2000)
James J. Lynch 50 Senior Executive Vice President (1999)
Sabry J. Mackoul 59 Senior Executive Vice President/ Corporate Banking (1998)
Stewart E. McClure, Jr. 49 Senior Executive Vice President/ The Private Bank (1999)
Joseph A. Micali, Jr. 44 Senior Executive Vice President/Bank Operations Support (2000)
William J. Wolverton 56 Senior Executive Vice President/ Retail Banking (1998)
Alfred M. D'Augusta 58 Executive Vice President/Human Resources (1988)
Barry S. Duerk 54 Executive Vice President/Bank Investments (1999)
John R. Feeney 50 Executive Vice President/Asset Liability Management (1996)
Elaine M. Fettig 52 Executive Vice President/Data Processing Services (1999)
William J. Healy 55 Executive Vice President/Finance (1988), Chief Financial Officer
(1999), Treasurer (1999) and Assistant Secretary (1980)
Virginia Ibarra 67 Executive Vice President/Diversity (1997) and Growth Markets (1999)
Dorinda Jenkins 42 Executive Vice President/Marketing (1997)
Richard F. Ober, Jr. 56 Executive Vice President (1988), General Counsel (1975) and Secretary
(1978)
Alan N. Posencheg 58 Executive Vice President/Corporate Operations and
Information Services (1984)
George J. Soltys, Jr. 53 Executive Vice President/Corporate Planning (1996)
Timothy S. Tracey 47 Executive Vice President/Credit and Risk Management (1998)
Edmund C. Weiss, Jr. 57 Executive Vice President (1990) and Auditor (1977)
</TABLE>
The term of each of the above officers is until the next organization
meeting of the Board of Directors, which occurs immediately following the annual
meeting of shareholders, and until a successor is appointed by the Board of
Directors. Each officer may be removed at any time by the Board of Directors
without cause. Management of Summit is not aware of any family relationship
between any director or executive officer or person nominated or chosen to
become a director or executive officer. All of the executive officers named
above have been employed in executive positions by Summit, a subsidiary of
Summit or a bank holding company merged into Summit for more than the last five
years, except for Mr. Kennedy, Mr. Lynch and Mr. Micali. Mr. Kennedy joined
Summit in January of 2000. From 1998 to 2000, Mr. Kennedy was President and
Chief Executive Officer of Fleet Bank-NJ. Prior to that, Mr. Kennedy was Senior
Vice President of Natwest Bank and upon its merger into Fleet Bancorp in 1996,
was named an Executive Vice President. Mr. Lynch joined Summit in August of 1999
as a result of the Prime Bancorp merger. From 1994 to 1995, he was an Executive
Vice President of Midlantic Bank (a predecessor to PNC Bank). From 1996 to 1999,
he was Chairman and CEO of Prime Bancorp. Mr. Micali joined Summit in 1997. From
1991 to 1997, Mr. Micali was employed as Senior Vice President (Operations and
Systems) of First Union Corporation and a predecessor bank.
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
See the Shareholders' Equity and Dividends section in the Financial Review
on page 21 and Notes 2, 11 and 20 to the Consolidated Financial Statements on
pages 42, 46 and 53, respectively, Unaudited Quarterly Financial Data on page
58, and Quarterly Common Stock Price and Dividend Information on page 21 of the
1999 Annual Report to Shareholders which information is incorporated by
reference herein. At March 17, 2000, there were 27,728 record holders of Summit
Common Stock.
Item 6. Selected Financial Data.
See Summary of Selected Consolidated Financial Data on pages 56 and 57 of
the 1999 Annual Report to Shareholders which information is incorporated by
reference herein.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
See Financial Review on pages 17 through 33 of the 1999 Annual Report to
Shareholders which information is incorporated by reference herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Financial Review-Asset/Liability Management on pages 30 and 31, and
Notes 1, 18 and 19 to the Consolidated Financial Statements on pages 38 through
41, 51 and 52, respectively, of the 1999 Annual Report to Shareholders which
information is incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data.
See Consolidated Financial Statements and Notes to Consolidated Financial
Statements on pages 34 through 54 and Supplementary Data on page 58 of the 1999
Annual Report to Shareholders which information is incorporated by reference
herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of Summit Bancorp.
Certain information on Executive Officers of Summit Bancorp. is included in
Part I of this report. A definitive proxy statement, dated March 7, 2000 (the
"Proxy Statement"), was filed with the Securities and Exchange Commission on
March 7, 2000. Information required by Item 401 of Regulation S-K is provided at
page 17 of this Annual Report on Form 10-K and in the Proxy Statement at pages
2-6 under the caption "Election of Directors", which is incorporated herein by
reference. Information required by Item 405 of Regulation S-K is provided in the
Proxy Statement at page 20 under the caption "Additional Information Regarding
Directors and Officers - Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.
Item 11. Executive Compensation.
Information required by Item 402 of Regulation S-K is provided in the Proxy
Statement at pages 11-24 under the captions "Remuneration of Outside Directors,"
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and FY-End Option Values," "Long-Term
Incentive Plans - Awards in Last Fiscal Year" and "Certain Information As To
Executive Officers," all of which information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by Item 403 of Regulation S-K is provided at pages 7-8
of the Proxy Statement under the caption "Beneficial Ownership of Summit Common
Stock by Directors and Executive Officers," all of which is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
Information required by Item 404 of Regulation S-K is provided in the Proxy
Statement at page 20 under the caption "Additional Information Regarding
Directors and Officers," which is incorporated herein by reference.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
a) (1) Financial statements, Summit Bancorp. and Subsidiaries:
<TABLE>
<CAPTION>
Page*
-----
<S> <C> <C>
Consolidated Balance Sheets - December 31, 1999 and 1998 ................... 34
Consolidated Statements of Income - Three Years Ended December 31, 1999 .... 35
Consolidated Statements of Shareholders' Equity - Three Years Ended
December 31, 1999 ..................................................... 36
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 1999 ..................................................... 37
Notes to Consolidated Financial Statements ................................. 38
Management's Report and Independent Auditors' Report ....................... 55
Unaudited Quarterly Financial Data ......................................... 58
</TABLE>
Financial statement schedules are omitted as the required information is not
applicable or the information is presented in the financial statements or
related notes thereto.
(2) Other Exhibits (All references to Forms 8-K, 10-K, 10-Q, 8-A, S-1, S-3,
S-4, S-8 and other Forms provided for by the Securities Act of 1933, Securities
Exchange Act of 1934 or the Trust Indenture Act of 1940 refer to Securities and
Exchange Commission File No. 1-6451 of Summit Bancorp., unless otherwise
specifically noted below. Specific exhibits are numbered in accordance with Item
601 of Regulation S-K):
(3) Articles of incorporation; By-Laws.
A. Restated Certificate of Incorporation of Summit Bancorp., as
restated August 16, 1999, (incorporated by reference to Exhibit
(3) A. on Form 10-Q for the quarter ended June 30, 1999).
B. By-Laws of Summit Bancorp., as restated October 18, 1995
(incorporated by reference to Exhibit (3)B. on Form 10-K for the
year ended December 31, 1995).
(4) Instruments defining the rights of security holders, including
indentures.
A. (i) Rights Agreement, dated as of June 16, 1999, by and between
Summit Bancorp. and First Chicago Trust Company of New York, as
Rights Agent (incorporated by reference to Exhibit 4.1 on Form
8-K dated June 16, 1999).
B. (deleted)
C. (deleted)
- ----------
* Refers to the respective page numbers of Summit Bancorp. 1999 Annual Report to
Shareholders included as Exhibit 13. Such pages are incorporated herein by
reference.
20
<PAGE>
D. Note Agreement, dated as of August 19, 1993, between Summit
Bancorp. (under former name UJB Financial Corp.) and The
Northwestern Mutual Life Insurance Company relating to
$20,000,000 of 7.95% Senior Notes Due August 25, 2003,
(incorporated by reference to Exhibit (4)D. on Form 10-Q for the
quarter ended September 30, 1993).
E. (i) Fiscal and Paying Agency Agreement, dated as of June 30,
1993, between Summit Bank, as issuer, and Summit Bank, as fiscal
and paying agent acting through its Trust Department, relating to
$50,000,000 of 6 3/4% Subordinated Notes due June 15, 2003, of
Summit Bank (incorporated by reference to Exhibit (4)E.(i) on
Form 8-K, dated April 11, 1996), and (ii) Specimen of Global
Certificate for 6 3/4% Subordinated Notes due June 15, 2003, of
Summit Bank (incorporated by reference to Exhibit (4)E.(ii) on
Form 8-K, dated April 11, 1996).
F. (deleted)
G. (i) Subordinated Indenture, dated as of December 1, 1992, between
Summit Bancorp. (under former name UJB Financial Corp.) and
Citibank, N.A., Trustee, relating to $175,000,000 of 8 5/8%
Subordinated Notes Due December 10, 2002, of Summit Bancorp.
(incorporated by reference to Exhibit (4) G. on Form 10-K for the
year ended December 31, 1992), and (ii) Specimen of Summit
Bancorp.'s 8 5/8% Subordinated Notes Due December 10, 2002,
(incorporated by reference to Exhibit 4 on Form 8-K, dated
December 10, 1992).
H. Indenture, dated as of March 20, 1997, between Summit Bancorp.
and the First National Bank of Chicago, as Trustee, for
Subordinated Debt Securities (incorporated by reference to
Exhibit 4.1 to Registration Statement No. 333-29019 on Form S-4
filed June 12, 1997).
I. First Supplemental Indenture, dated as of March 20, 1997, between
Summit Bancorp. and the First National Bank of Chicago, as
Trustee for $154,640,000 8.40% Junior Subordinated Deferrable
Interest Debentures due 2027 (incorporated by reference to
Exhibit 4.2 to Registration Statement No. 333-29019 on Form S-4
filed June 12, 1997).
J. Amended and restated Declaration of Trust for Summit Capital
Trust I dated March 20, 1997, (incorporated by reference to
Exhibit 4.5 to Registration Statement No. 333-29019 on Form S-4
filed June 12, 1997).
K. Capital Securities Guarantee Agreement for Summit Capital Trust I
dated as of March 20, 1997, (incorporated by reference to Exhibit
4.7 to Registration Statement No. 333-29019 on Form S-4 filed
June 12, 1997).
(10) Material Contracts
**A. Converted Summit Bancorporation Stock Option Plan of Summit
Bancorp. (incorporated by reference to Exhibit 10 to Registration
Statement No. 333-02625 on Form S-8, filed April 17, 1996).
B. (i) Master Agreement of Lease, dated January 26, 1982, between
Summit Bancorp. (under former name United Jersey Banks) and
Sha-Li Leasing Associates, Inc. relating to equipment leases in
excess of $10,000,000 in aggregate lease obligations, including
form of Equipment Schedule (incorporated by referenced to Exhibit
(10) B. (i) on Form 10-Q for the quarter ended September 30,
1993), (ii) Assignment and Assumption of Equipment Lease,
effective December 31, 1991, between Summit Bancorp. (under
former name UJB Financial Corp.) and UJB Financial Service
Corporation (relating to assignment of Master Agreement of Lease)
(incorporated by reference to Exhibit (10) B. (ii) on Form 10-Q
for the quarter ended September 30, 1993), and (iii) Form of
Guaranty Agreement between Summit Bancorp. (under former name UJB
Financial Corp.) and various lenders under the Master Agreement
of Lease relating to certain equipment leases
21
<PAGE>
in excess of $10,000,000 in aggregate lease obligations
(incorporated by reference to Exhibit (10) B. (iii) on Form 10-Q
for the quarter ended September 30, 1993).
**C. (i) Summit Bancorp. 1993 Incentive Stock and Option Plan
(incorporated by reference to Attachment A to the Proxy Statement
of Summit dated April 12, 1996), (ii) Compensation Committee
Regulations for the Grant and Exercise of Stock Options and
Restricted Stock (adopted July 19, 1993) (incorporated by
reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter
ended June 30, 1993), (iii) Compensation Committee Interpretation
of Section 5 (e) (ii) (F) (incorporated by reference to Exhibit
(10) C. (iii) on Form 10-Q for the quarter ended March 31, 1994),
(iv) Compensation Committee Interpretation of Stock Incentive
Plans adopted June 19, 1996, (incorporated by reference to
Exhibit (10) C.(iv) on Form 10-Q for the quarter ended June 30,
1996), (v) Compensation Committee Consent adopted February 18,
1998, (incorporated by reference to Exhibit (10) C. (v) on Form
10-K for the year ended December 31, 1997), (vi) Amendment dated
April 17, 1998, to Summit Bancorp. 1993 Incentive Stock and
Option Plan (incorporated by reference to Exhibit (10) C.(vi) on
Form 10-Q for the quarter ended March 31, 1998) and (vii)
Amendment dated August 18, 1999, to Summit Bancorp. 1993
Incentive Stock and Option Plan (incorporated by reference to
Exhibit (10) C. (vii) on Form 10-Q for the quarter ended
September 30, 1999).
**D. (i) UJB Financial Corp. (former name of Summit Bancorp.) 1990
Stock Option Plan (incorporated by reference to Exhibit (10) to
Registration Statement No. 33 -36209 on Form S-8, filed July 26,
1990), (ii) Compensation Committee Regulations for the Grant and
Exercise of Stock Options and Restricted Stock (adopted July 19,
1993) (incorporated by reference to Exhibit (10) C. (ii) on Form
10-Q for the quarter ended June 30, 1993), (iii) Compensation
Committee Consent dated February 18, 1998, (Incorporated by
reference to Exhibit (10) C. (v) on Form 10-K for the year ended
December 31, 1997), and (iv) Amendment dated April 17, 1998, to
UJB Financial Corp. 1990 Stock Option Plan (incorporated by
reference to Exhibit (10) C. (vi) on Form 10-Q for the quarter
ended March 31, 1998).
**E. Supplemental Executive Retirement Plan of The Summit
Bancorporation (incorporated by reference to Exhibit (10)E. on
Form 8-K, dated April 11, 1996).
**F. Management Incentive Plan, effective January 1, 1999,
(incorporated by reference to Exhibit (10) F. on Form 10-K for
the year ended December 31, 1998).
**G. (i) Deferred Compensation Plan for Directors, as revised October
17, 1979, (incorporated by reference to Exhibit (10) G. (i) on
Form 10-K for the year ended December 31, 1994), and (ii)
Amendment adopted April 25, 1994, (incorporated by reference to
Exhibit (10) G. (ii) on Form 10-K for the year ended December 31,
1994).
**H. (i) Agreement dated April 2, 1981, between Summit Bancorp. (under
former name United Jersey Banks) and T. Joseph Semrod
(incorporated by reference to Exhibit (10) H. (i) on Form 10-K
for the year ended December 31, 1994), with (ii) Amendment No. 1
dated May 5, 1981, (incorporated by reference to Exhibit (10)
H.(ii) on Form 10-K for the year ended December 31, 1994), (iii)
Amendment No. 2 dated December 15, 1982, (incorporated by
reference to Exhibit (10) H. (iii) on Form 10-K for the year
ended December 31, 1994), (iv) Amendment No. 3 dated August 20,
1986, (incorporated by reference to Exhibit (10) H. (iv) on Form
10-K for the year ended December 31, 1994), and (v) Amendment No.
4 dated January 20, 1999, (incorporated by reference to Exhibit
(10) H (v) on Form 10-K for the year ended December 31, 1998).
**I. (i) Employment Agreement, dated March 1, 1996, between Summit
Bancorp. and Robert G. Cox (incorporated by reference to Exhibit
(10)I.(i) on Form 10-K for the year ended December 31, 1995),
(ii) Agreement, dated as of September 1, 1995, between The Summit
Bancorporation (predecessor corporation to Summit Bancorp.) and
Robert G. Cox assumed by Summit Bancorp. (incorporated by
reference to Exhibit (10)I.(ii) on
22
<PAGE>
Form 10-K for the year ended December 31, 1995) and (iii)
Amendment No. 1 dated March 1, 1999, to Employment Agreement
dated March 1, 1996, between Summit Bancorp. and Robert G. Cox
(incorporated by reference to Exhibit (10) I (iii) on Form 10-K
for the year ended December 31, 1998).
**J. Retirement Program for Outside Directors of Franklin State Bank
(incorporated by reference to Exhibit (10)J. on Form 10-K for the
year ended December 31, 1996).
**K. Franklin State Bank Deferred Compensation Plan adopted January
10, 1984, (incorporated by reference to Exhibit (10)K. on Form
10-K for the year ended December 31, 1996).
**L. (i) United Jersey Banks (former name of Summit Bancorp.) 1982
Stock Option Plan (incorporated by reference to Exhibit 4 to
Registration Statement No. 2-78500 on Form S-8, filed July 21,
1982) with (ii) Amendment No. 1, dated June 16, 1984,
(incorporated by reference to Exhibit (10) L. (ii) on Form 10-K
for the year ended December 31, 1994), (iii) Amendment No. 2,
dated December 19, 1990, (incorporated by reference to Exhibit
(10)L.(iii) on Form 10-K for the year ended December 31, 1995),
and (iv) Compensation Committee Regulations for the Grant and
Exercise of Stock Options and Restricted Stock (adopted July 19,
1993) (incorporated by reference to Exhibit (10) C. (ii) on Form
10-Q for the quarter ended June 30, 1993) (File No. 1-6451).
**M. (i) Retirement Restoration Plan, adopted April 19, 1983,
(incorporated by reference to Exhibit (10) M.(i) on Form 10-K for
the year ended December 31, 1994), (ii) Supplemental Retirement
Plan, adopted August 16, 1989, (incorporated by reference to
Exhibit (10) M. (ii) on Form 10-K for the year ended December 31,
1994), (iii) Written Consent of UJB Financial Corp. (former name
of Summit Bancorp.) Benefits Committee interpreting the
Retirement Restoration Plan, adopted August 30, 1989,
(incorporated by reference to Exhibit (10) M. (iii) on Form 10-K
for the year ended December 31, 1994), (iv) Amendments to the
Retirement Restoration Plan and Supplemental Retirement Plan
adopted April 25, 1994 (incorporated by reference to Exhibit (10)
M. (iv) on Form 10-K for the year ended December 31, 1994) and
(v) Enhanced Retirement Income Plan, effective July 15, 1998,
(incorporated by reference to Exhibit (10) M (v) on Form 10-K for
the year ended December 31, 1998).
**N. (i) Summit Bancorp, 1999 Non-Executive Option Plan (incorporated
by reference to Appendix A to the Proxy Statement of Summit dated
March 9, 1999), and (ii) Amendment dated August 19, 1999, to
Summit Bancorp. 1999 Non-Executive Option Plan (incorporated by
reference to Exhibit (10) C (vii) on Form 10-Q for the quarter
ended September 30, 1999).
O. (i) Agreement of Purchase and Sale between United Trust Fund
Limited Partnership, as purchaser, and Summit Bank, as seller,
(relating to sale and leaseback of 250 Moore Street, 214 Main
Street, 210 Main Street and 210 Moore Street, Hackensack, NJ)
dated November 5, 1999, (incorporated by reference to Exhibit
(10) O. (i) on Form 10-Q for the quarter ended September 30,
1999).
P. Twenty-year real estate lease executed and dated December 12,
1988, from Hartz Mountain Industries, Inc. for real property
located in Ridgefield Park, New Jersey used as a data processing
facility (incorporated by reference to Exhibit (10) P. on Form
10-K for the year ended December 31, 1993).
Q. (i) Twenty-five year real property lease, dated June 5, 1990,
between Summit Bancorp. (under name of predecessor corporation
The Summit Bancorporation) and Hartz Mountain Industries, Inc.
for data processing and operations center located in Cranford,
New Jersey (incorporated by reference to Exhibit (10)Q.(i) on
Form 8-K, dated April 11, 1996), and (ii) Lease Modification
Agreement, dated February 22, 1995, and effective October 1,
1994, between Summit Bancorp. (under name of predecessor
corporation The
23
<PAGE>
Summit Bancorporation) and Hartz Mountain Industries, Inc.
relating to the twenty-five year lease for data processing and
operations center in Cranford, New Jersey (incorporated by
reference to Exhibit (10)Q.(ii) on Form 8-K, dated April 11,
1996).
**R. Deferred Compensation Plan for Directors of the Summit
Bancorporation and its Subsidiary Banks.
S.-V. (deleted)
**W. (i) Retirement Plan for Outside Directors of UJB Financial
Corp., (former name of Summit Bancorp.), as amended and
restated February 20, 1991, (incorporated by reference to
Exhibit (10)W.(i) on Form 10-K for the year ended December 31,
1995), (ii) Interpretation, dated March 15, 1993, of the
Retirement Plan for Outside Directors of UJB Financial Corp.
(former name of Summit Bancorp.) (incorporated by reference to
Exhibit (10) W. (ii) on Form 10-K for the year ended December
31, 1992), and (iii) Amendment adopted April 25, 1994,
(incorporated by reference to Exhibit (10) W. (iii) on Form
10-K for the year ended December 31, 1994).
X.-DD. (deleted)
**EE. (i) Form of Termination Agreement between Summit Bancorp. and
each of T. Joseph Semrod, John G. Collins, Douglas L. Kennedy,
Sabry J. Mackoul, William J. Wolverton, Alfred M. D'Augusta,
John R. Feeney, William J. Healy, Dorinda Jenkins, Stewart
McClure, Jr., Joseph A. Micali, Jr., Richard F. Ober, Jr., Alan
N. Posencheg, Timothy S. Tracey, Edmund C. Weiss (incorporated
by reference to Exhibit (10)EE(i) on Form 10-Q for the quarter
ended March 31, 1998).
**FF. (i) Summit Bancorp. Executive Severance Plan, as amended
through October 15, 1997, (incorporated by reference to Exhibit
(10) FF (i) on Form 10-Q for the quarter ended March 31, 1998),
and (ii) Summit Bancorp. Executive Severance Plan Participation
Letter (incorporated by reference to Exhibit (10) FF (ii) on
Form 10-Q for the quarter ended June 30, 1998).
GG. (deleted)
**HH. (i) Summit Bancorp. Executive Severance Plan Participation
Letter for James J. Lynch (incorporated by reference to Exhibit
(10) H. (i) on Form 10-Q for the quarter ended June 30, 1999),
and (ii) Termination Agreement between Summit Bancorp and James
J. Lynch (incorporated by reference to Exhibit (10) H. (ii) on
Form 10-Q for the quarter ended June 30, 1999).
II. (deleted)
**JJ. (i) Retirement Plan for Outside Directors of Commercial
Bancshares, Inc. adopted May 1, 1986, (incorporated by
reference to Exhibit (10)JJ. on Form 10-K for the year ended
December 31, 1996) and (ii) Compensation Committee
Interpretation, dated July 19, 1993, (incorporated by reference
to Exhibit (10) JJ. (ii) on Form 10-Q for the quarter ended
June 30, 1993).
**KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation
Plan adopted May 20, 1986, (substantially identical plans were
adopted by former subsidiaries of Commercial Bancshares, Inc.)
and (ii) related Master Trust Agreement (incorporated by
reference to Exhibit (10)KK.(i) and (ii), respectively, on Form
10-K for the year ended December 31, 1996).
**LL. (i) United Jersey Banks (former name of Summit Bancorp.) 1987
Stock Option Plan, (incorporated by reference to Exhibit
(10)LL.(i) on Form 10-K for the year ended December 31, 1996)
with (ii) Amendment dated April 25, 1989, (incorporated by
24
<PAGE>
reference to Exhibit (10) LL. (ii) on Form 10-K for the year
ended December 31, 1994), (iii) amendment dated June 30, 1990,
(iv) Compensation Committee Regulations for the Grant and
Exercise of Stock Options and Restricted Stock (adopted July
19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on
Form 10-Q for the quarter ended June 30, 1993), (v)
Compensation Committee Consent dated February 18, 1998,
(incorporated by reference to Exhibit (10) C (v) on Form 10-Q
for the quarter ended March 31, 1998) and (vi) Amendment dated
April 17, 1998, to United Jersey Banks 1987 Stock Option Plan
(incorporated by reference to Exhibit (10) C. (vi) on Form 10-Q
for the quarter ended March 31, 1998).
**MM. Converted Collective Bancorp, Inc. Stock Option Plan of Summit
Bancorp. (incorporated by reference to Exhibit (10) to
Registration Statement No. 333-35075 on Form S-8, filed
September 5, 1997).
**NN. (i) Collective Federal Savings and Loan Association Directors
Deferred Compensation Plan, Amendment No. 1 effective January
1, 1989, Amendment No. 2 effective July 22, 1997, and Rabbi
Trust Agreement under Collective Bancorp. Directors Deferred
Compensation Plan dated as of July 15, 1997, (incorporated by
reference to Exhibit (10)NN. on Form 10-K for the year ended
December 31, 1997).
(13) Portions of the Summit Bancorp 1999 Annual Report to Shareholders.
(21) Subsidiaries of Summit.
(23) Consents of Experts and Counsel
A. Independent Auditors' Consent - KPMG LLP
(27) Summit Bancorp. financial data schedule - December 31, 1999
** Management contract or compensatory plan or arrangement.
None of the Exhibits listed above other than portions of the Summit Bancorp
1999 Annual Report to Shareholders are furnished herewith (other than certain
copies filed with the Securities and Exchange Commission). Any of such Exhibits
will be furnished to any requesting security holder upon payment of a fee of 15
cents per page. Contact Lori A. Wierzbinsky, Assistant Corporate Secretary,
Summit Bancorp., P.O. Box 2066, Princeton, NJ 08543-2066 for a determination of
the fee necessary to fulfill any request.
b) Reports on Form 8-K.
None.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Summit Bancorp has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUMMIT BANCORP.
Dated: March 28, 2000 By: /s/ William J. Healy
--------------------------------
William J. Healy
Executive Vice President/Finance
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Summit and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ T. JOSEPH SEMROD Chairman of the Board, March 28, 2000
------------------------- Director (Chief Executive Officer
T. Joseph Semrod and President)
/s/ JOHN G. COLLINS Vice Chairman and Director March 28, 2000
-------------------------
John G. Collins
/s/ WILLIAM J. HEALY Executive Vice President/Finance March 28, 2000
------------------------- (Principal Financial Officer)
William J. Healy
/s/ PAUL V. STAHLIN Senior Vice President and March 28, 2000
------------------------- Comptroller (Principal Accounting
Paul V. Stahlin Officer)
/s/ ROBERT L. BOYLE Director March 28, 2000
-------------------------
Robert L. Boyle
/s/ JAMES C. BRADY Director March 28, 2000
-------------------------
James C. Brady
/s/ T. J. DERMOT DUNPHY Director March 28, 2000
-------------------------
T. J. Dermot Dunphy
/s/ ANNE EVANS ESTABROOK Director March 28, 2000
-------------------------
Anne Evans Estabrook
/s/ ELINOR J. FERDON Director March 28, 2000
-------------------------
Elinor J. Ferdon
/s/ WILLIAM M. FREEMAN Director March 28, 2000
-------------------------
William M. Freeman
/s/ THOMAS H. HAMILTON Director March 28, 2000
-------------------------
Thomas H. Hamilton
/s/ FRED G. HARVEY Director March 28, 2000
-------------------------
Fred G. Harvey
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
/s/ ARTHUR J. KANIA Director March 28, 2000
-------------------------
Arthur J. Kania
/s/ FRANCIS J. MERTZ Director March 28, 2000
-------------------------
Francis J. Mertz
/s/ GEORGE L. MILES, JR. Director March 28, 2000
-------------------------
George L. Miles Jr.
/s/ WILLIAM R. MILLER Director March 28, 2000
-------------------------
William R. Miller
/s/ RAYMOND SILVERSTEIN Director March 28,2000
-------------------------
Raymond Silverstein
/s/ ORIN R. SMITH Director March 28, 2000
-------------------------
Orin R. Smith
/s/ JOSEPH M. TABAK Director March 28, 2000
-------------------------
Joseph M. Tabak
/s/ DOUGLAS G. WATSON Director March 28, 2000
-------------------------
Douglas G. Watson
</TABLE>
27
Deferred Compensation Plan
For Directors Of
The Summit Bancorporation
And Its Subsidiary Banks
Section 1. Effective Date
The effective date of the Plan is January 1, 1981.
Section 2. Eligibility
Each Director of The Summit Bancorporation (the "Corporation") or any of its
subsidiary banks ("Bank") is eligible to participate in the Plan.
Section 3. Deferred Compensation Account
There shall be established for each participant a deferred compensation account
in the participant's name.
Section 4. Amount of Deferral
A participant may elect to defer receipt for a calendar year of: (a) the
retainer payable to the participant for board and committee service, or (b) the
fees payable to the participant for attendance at board and committee meetings,
or (c) both the amounts of (a) and (b). The amount deferred shall be credited to
the participant's deferred compensation account.
Section 5. Interest on Deferred Accounts
Each participant's deferred compensation account shall be credited with interest
on December 31 of each year (if on such date there is a balance in the account)
equal to the amount of interest which would have been earned on the average
balance in his account for the year at an annual rate of interest equal to the
average one-year United States Treasury Bill rate for the year. If the entire
amount is withdrawn prior to any December 31, the account shall be credited with
interest to the date of withdrawal on the average balance in the account from
the beginning of the year to such date calculated at a pro-rated annual rate
equal to the average one-year United States Treasury Bill rate from the
beginning of the year to the date of withdrawal.
Section 6. Period of Deferral
A participant may elect to defer payment of the compensation deferred under the
Plan until (a) a specified year in the future, (b) his attainment of age 70, or
(c) termination of his service as a Director. If alternative (a) is elected by
the participant, payment will be made or will commence within sixty days after
the beginning of the year specified in his election. If alternative (b) or (c)
is elected by the participant, payment will be made or will commence within
sixty days after his attainment of age 70 or termination of his service as a
Director, as applicable.
<PAGE>
Section 7. Form of Payment
A participant may elect to receive payment of the compensation deferred under
the Plan in either (a) a lump sum or (b) up to five (5) approximately equal
annual installments.
Section 8. Death Prior to Receipt
In the event that a participant dies prior to receipt of any or all of the
amounts payable to him pursuant to the Plan, any amounts remaining in the
participant's deferred compensation account shall be paid to his estate in a
lump sum within sixty days following notification of the participant's death.
Section 9. Election by Nominee for Director
An election to defer compensation under the Plan may be made by a nominee for
election as a Director. Such election to defer compensation must be made not
later than ten days prior to this election as a Director.
Section 10. Manner of Electing Deferral
A participant may elect to defer compensation under the Plan for a calendar year
by giving written notice to the Executive Committee of the Corporation (the
"Committee"), through the Corporate Secretary, on a form provided to and signed
by the participant, which notice shall include the amount to be deferred, the
period of deferral, and the form of payment. Such election must be made by the
participant not later than December 20 of the year preceding the year for which
the election is to apply, except in the case of a nominee for election as a
Director.
Section 11. Effect of Election
A participant's election to defer compensation and as to the period of deferral
and form of payment of the amount deferred shall be irrevocable once the period
to which it applies has commenced, and can only be revoked or modified upon (a)
the application of the participant to the Committee for permission to withdraw
part or all of his deferred compensation account balance and (b) a showing by
the participant of financial emergency or hardship and (c) the concurrence of
the Committee. The Committee shall have sole discretion in granting or denying
such permission and in establishing guidelines for the administration of this
Section 11. A participant making application for withdrawal who is also a member
of the Committee shall not take part in the Committee's consideration of such
application or in the Committee's determination as to the request made therein.
An election covering more than one calendar year may be revoked or modified by a
participant with respect to calendar years not yet begun by written notice to
the Committee received by not later than December 20 of the year prior to the
first calendar year for which such revocation or modification is to apply.
<PAGE>
Section 12. Participant's Rights Unsecured
Nothing contained herein shall be deemed to create a trust of any kind or create
any fiduciary relationship. Funds invested hereunder shall continue for all
purposes to be a part of the general funds of the Corporation or the Bank on
whose board the participant serves. To the extent that a participant acquires a
right to receive payments from the Corporation or the Bank under the Plan, such
right shall be no greater than the right of any unsecured general creditor of
the Corporation or the Bank and such right shall be an unsecured claim against
the general assets of the Corporation or the Bank.
Section 13. Title to Funds Remains with the Corporation or the Bank
Deferred amounts credited to each participant's account shall not be
specifically set aside or otherwise segregated, but will be combined with
corporate assets. Title to such funds will remain with the Corporation or the
Bank, and the Corporation's or the Bank's only obligation will be to make timely
payments to participants in accordance with the Plan.
Section 14. Statement of Account
A statement will be furnished to each participant on or about May 1 of each year
stating the balance of his deferred compensation account as of the preceding
December 31.
Section 15. Assignability
No right to receive payments hereunder shall be transferrable or assignable by a
participant, except by will or by the laws of descent and distribution.
Section 16. Administration
The Plan shall be administered by the Committee which shall maintain, or cause
to be maintained, the records of the Plan. The Committee shall have the
authority to adopt rules and regulations for the administration of the Plan and
to interpret, construe and implement the provisions of the Plan. The Committee
may delegate certain administrative functions to the Banks.
The decision of the Committee as to matters pertaining to the Plan shall be
conclusive and binding.
Section 17. Amendment
The Plan may at any time or from time to time be amended, modified or terminated
by the Committee. No amendment, modification or termination shall, without the
consent of the participant, reduce the balance of his deferred compensation
account to this credit on the date of such amendment, modification or
termination.
<PAGE>
Deferred Compensation Plan
For Directors Of
The Summit Bancorporation
And Its Subsidiary Banks
Notice of Election
In accordance with the Deferred Compensation Plan for Directors (the "Plan"), I
hereby elect to defer receipt of the compensation payable to me for my services
as a Director of _________________ for the calendar year beginning
______________________as follows:
1) AMOUNT TO BE DEFERRED (check one)
(a) The retainer payable to me for board and
committee services _______
(b) The fees payable to me for attendance at
board and committee meetings _______
(c) Both the retainer and meeting fees _______
2) PERIOD OF DEFERRAL (check one)
(a) Until the termination of my services as
a Director _______
(b) Until the attainment of age 70 in _______
(c) Until the year shown below:
Specify year in which payment should
be made or commence _______
3) FORM OF PAYMENT OF DEFERRED COMPENSATION PLUS
INTEREST CREDIT THEREON (check one)
(d) Lump sum _______
(e) Approximately equal annual installments
over ________ years (up to five years --
specify number)
<PAGE>
-2-
I understand that in the event of my death prior to receipt of all amounts
payable to me pursuant to the Plan, the balance shown in my Deferred
Compensation Account will be paid to my estate in a lump sum.
I understand further that upon commencement of the year for which this election
applies, this election is irrevocable as to amounts deferred for that year and
that any change in the timing or form of payment thereafter can only be made by
me on a showing of hardship and with the approval of the Executive Committee of
the Corporation.
I acknowledge that I have received a copy of the Plan and have read its
provisions and agree to be bound by the terms contained therein.
----------------- ------------------------------------------
Date Signature
Financial Highlights
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) Percent Change
For the years ended December 31 1999 1998 1997 '99 vs. '98 '98 vs. '97
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Highlights
Before non-recurring items(1):
Net income $ 459.8 $ 465.8 $ 424.7 (1.3)% 9.7%
Per share - diluted 2.64 2.63 2.39 0.4 10.0
Return on average assets 1.33% 1.51% 1.47% (11.9) 2.7
Return on average equity 16.80 17.50 17.08 (4.0) 2.5
After non-recurring items:
Net income $ 442.6 $ 465.8 $ 371.0 (5.0)% 25.6%
Per share - basic 2.56 2.66 2.12 (3.8) 25.5
Per share - diluted 2.54 2.63 2.09 (3.4) 25.8
Return on average assets 1.28% 1.51% 1.28% (15.2) 18.0
Return on average equity 16.17 17.50 14.92 (7.6) 17.3
Efficiency ratio 51.12 51.41 50.28 (0.6) 2.2
- ---------------------------------------------------------------------------------------------------------------------------
Cash-Based Financial Data(2)
Net income $ 471.1 $ 483.6 $ 371.0 (2.6)% 30.4%
Per share - diluted 2.70 2.73 2.19 (1.1) 24.7
Return on average tangible assets 1.38% 1.57% 1.35% (12.1) 16.3
Return on average tangible equity 19.96 19.55 16.82 2.1 16.2
Efficiency ratio 49.34 50.13 48.96 (1.6) 2.4
- ---------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Net interest income $ 1,266.2 $ 1,173.8 $ 1,145.1 7.9% 2.5%
Provision for loan losses 128.0 66.0 59.1 93.9 11.7
Non-interest income 397.3 350.2 301.9 13.4 16.0
Non-interest expenses,
excluding non-recurring items 850.2 782.8 733.7 8.6 6.7
Non-recurring items, net of taxes 17.1 -- 53.7 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data at December 31
Total assets $36,379.0 $33,101.3 $29,964.2 9.9% 10.5%
Total deposits 24,638.6 23,145.1 22,329.4 6.5 3.7
Total loans 23,227.0 21,126.6 18,888.4 9.9 11.8
Shareholders' equity 2,802.2 2,722.4 2,612.4 2.9 4.2
Goodwill and intangibles 519.4 295.5 188.6 75.8 56.7
Allowance for loan losses 328.8 322.8 296.5 1.9 8.9
- ---------------------------------------------------------------------------------------------------------------------------
Share Information
Closing price per share $ 30.63 $ 43.69 $ 52.88
Cash dividends declared 1.29 1.17 1.02
Book value per share 16.23 15.67 14.79
Average diluted shares outstanding
(in thousands) 174,471 177,043 177,459
- --------------------------------------------------------------------------------------
Capital Ratios
Average equity to average assets 7.92% 8.60% 8.61%
Tier I capital to
average assets (leverage) 7.06 8.00 8.76
Tier I capital to risk-adjusted assets 9.46 10.86 12.64
Total capital to risk-adjusted assets 11.06 12.72 14.83
- --------------------------------------------------------------------------------------
</TABLE>
(1) Non-recurring items generally include the cumulative effect of a change in
accounting principle, restructuring charges and gains or losses on the sale
of acquired assets.
(2) Cash-based data excludes the after-tax impact of amortization of goodwill
and other intangibles.
Net Income per
Common Share
(before non-recurring items)
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
1995 1.87
1996 2.12
1997 2.39
1998 2.63
1999 2.64
Annual Indicated Dividend
(per share)
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
1995 0.85
1996 0.96
1997 1.08
1998 1.20
1999 1.32
<PAGE>
Summit Bancorp and Subsidiaries
Financial Review
The Financial Review should be read in conjunction with the Consolidated
Comparative Average Balance Sheets on pages 22 and 23, the Consolidated
Financial Statements and Notes beginning on page 34, and the Summary of Selected
Consolidated Financial Data on pages 56 and 57.
Overview
Summit Bancorp (the "Company"), with assets of $36.4 billion at December 31,
1999, was the 25th largest banking company in the United States. Summit
Bancorp's performance for 1999 was highlighted by loan growth supported by core
deposit growth, increased fee income and continued success in controlling
expenses while integrating recent mergers.
Several acquisitions were announced or completed during 1999 which expanded the
banking franchise in Connecticut and eastern Pennsylvania. On March 31, 1999,
the Company acquired New Canaan Bank and Trust Company ("New Canaan") with
assets of $182.0 million, loans of $106.4 million, deposits of $153.9 million
and four banking offices in Fairfield County, Connecticut. On August 1, 1999,
the Company acquired Prime Bancorp with assets of $1.1 billion, loans of $690.8
million, deposits of $846.8 million and 27 branches located in the greater
Philadelphia region. On October 4, 1999, a definitive merger agreement was
announced to acquire NMBT Corp. ("NMBT"). NMBT had assets of $403.1 million at
December 31, 1999, and operates 10 branches in western Connecticut. This
purchase acquisition is expected to close in March 2000.
On January 3, 2000, in keeping with Summit's strategy to enhance fee-based
revenues, a definitive agreement was announced to acquire 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. The transaction, which will be
accounted for as a purchase, is expected to be consummated in the first quarter
of 2000.
Summary of Performance
Net income for the year ended December 31, 1999, was $442.6 million compared to
$465.8 million in 1998. Net income per diluted share for 1999 was $2.54 compared
to $2.63 in 1998. These results yielded a return on average assets of 1.28%, a
return on average equity of 16.17% and an efficiency ratio of 51.12%.
Net income for 1999 included non-recurring charges of $27.9 million ($17.1
million, or $.10 per diluted share, after tax) recorded in conjunction with the
realignment of key lines of business and support. Net income, excluding
non-recurring items, for the year ended December 31, 1999, was $459.8 million
compared to $465.8 million in 1998. Net income per diluted share, before
non-recurring items, for 1999 was $2.64 compared to $2.63 in 1998. Net income
for 1999 also included an additional provision for loan losses of $60.0 million
($35.5 million, or $.20 per diluted share, after tax). The increase in the
provision for loan losses for the year ended December 31, 1999, was due to an
increase in the level of charge offs, loan growth and the inherent risk in the
loan portfolio.
The chart below illustrates net income before non-recurring items for the past
five years.
[GRAPHIC]
in the printed document there appears a bar chart with the following plot
points depicted.
Net Income before non-recurring items
(in millions)
1995 300.412
1996 360.419
1997 424.745
1998 465.819
1999 459.8
Average total loans amounted to $21.9 billion for 1999, an increase of $2.1
billion, or 10.6%, from 1998. The consumer, commercial and commercial mortgage
loan portfolios accounted for $1.0 billion, $936.3 million and $170.7 million,
respectively, of the overall loan growth. These increases were partially offset
by a slight reduction in residential mortgage loans.
Average total deposits amounted to $23.7 billion for 1999, an increase of $1.7
billion, or 7.5%, from 1998. Interest-bearing savings deposits and non-interest
bearing demand deposits accounted for $1.5 billion and $391.4 million,
respectively, of the overall increase. The increase in savings deposits came
from the introduction in late 1998 of the Summit Navigator Account, Summit's
cash management solution. This increase was partially offset by reductions in
higher costing time deposits and commercial certificates of deposit.
Net interest income on a tax-equivalent basis rose $90.8 million, or 7.7%, over
the prior year to $1.3 billion, primarily attributable to the increases in the
loan portfolio, funded by growth in savings and demand deposits. Non-interest
income rose $47.1 million, or 13.4%, in 1999 to $397.3 million. All categories
of fee income except service charges on deposits increased in 1999. The most
significant growth was in insurance fees, which increased $15.3 million, or
90.4%, from 1998. The increase was the result of the acquisitions of W. M. Ross
and Company (August 1998), and Madison Consulting Group (October 1998).
Non-interest expenses, before non-recurring items, increased $67.4 million, or
8.6%, to $850.2 million. Approximately $44.0 million of the increase was related
to recent acquisitions.
17
<PAGE>
Financial Condition
Interest-Earning Assets and Interest-Bearing Liabilities:
Average interest-earning assets totaled $32.6 billion in 1999, an increase of
$3.4 billion, or 11.5%, compared to 1998, reflecting growth in the loan and
securities portfolios. Loans increased $2.1 billion, or 10.6%, to average $21.9
billion, while investment securities increased $1.2 billion, or 13.2%, to
average $10.7 billion. The growth in interest-earning assets was funded by
increases in savings deposits, long-term debt, demand deposits and shareholders'
equity.
While interest rates began rising in the latter part of 1999, the annual average
rate earned on interest-earning assets decreased 22 basis points from 7.48% in
1998 to 7.26% in 1999. The decrease was the result of reinvestment of cash flows
from maturities and the repricing of floating-rate assets in a lower
interest-rate environment. Three key rates affect the yield on earning assets
and the cost of borrowed funds: the prime rate and the one-month and three-month
London Interbank Offered Rate ("LIBOR") rates. The average prime rate decreased
from 8.35% in 1998 to 8.00% in 1999 and the average one-month and three-month
LIBOR rates decreased from 5.57% and 5.56% in 1998 to 5.25% and 5.42% in 1999,
respectively.
Average interest-bearing liabilities totaled $26.4 billion in 1999, an increase
of $3.1 billion, or 13.1%, compared to 1998. The increase resulted from growth
in savings deposits and long-term debt. The average balance of savings deposits
increased $1.5 billion to $10.9 billion, principally due to growth in the Summit
Navigator Account. The average balance of long-term debt increased $1.8 billion,
or 86.0%, to $3.9 billion in 1999 primarily due to increases in long-term
repurchase agreements and Federal Home Loan Bank ("FHLB") borrowings. The
average interest rate paid on interest-bearing liabilities decreased 16 basis
points to 4.12% in 1999, as a result of a lower interest-rate environment.
Securities:
Securities available for sale are investments that may be sold in response to
changing market and interest rate conditions or for other business purposes.
Securities available for sale consist primarily of U.S. Government and Federal
agency securities and municipals, as well as collateralized mortgage obligations
("CMOs") and equity securities. Activity in this portfolio is undertaken
primarily to manage liquidity and interest rate risk and to take advantage of
market conditions that create economically more attractive returns. At December
31, 1999, available-for-sale securities amounted to $5.2 billion, an increase of
$1.2 billion, or 30.9%, from year-end 1998. The largest component of the
portfolio, U.S. Government and Federal agency securities, amounted to $3.8
billion at December 31, 1999, compared to $2.9 billion at year-end 1998.
While securities available for sale increased from year to year, the average
balance decreased $165.8 million or 3.6% to $4.5 billion in 1999. During the
latter part of 1999, proceeds from maturities of securities held to maturity
were reinvested in securities available for sale in order to take advantage of
market conditions.
As a result of the lower interest-rate environment, the average yield earned on
the available-for-sale portfolio decreased 14 basis points, from 6.35% in 1998
to 6.21% in 1999. Sales of securities available for sale aggregated $697.1
million in 1999, generating a gain of $9.8 million, compared to sales of $1.3
billion and a gain of $6.6 million in 1998. Maturities of securitites available
for sale amounted to $1.6 billion in 1999 and $2.5 billion in 1998. The average
estimated life of securities available for sale, adjusted for historical
prepayment patterns on mortgage-backed securities, was 5 years and 6 months at
December 31, 1999. At December 31, 1999, the portfolio had net unrealized losses
of $136.0 million, as a result of increased interest rates in the latter part of
1999, compared to net unrealized gains of $20.0 million at the end of the prior
year. These unrealized gains or losses are reflected net of tax in shareholders'
equity as other comprehensive income or loss.
Securities held to maturity, which are carried at amortized historical cost, are
investments for which there is the positive intent and ability to hold to
maturity. The held-to-maturity portfolio consists primarily of U.S. Government
and Federal agency securities and corporate CMOs. At December 31, 1999,
securities held to maturity totaled $5.6 billion, a decrease of $418.4 million,
or 7.0%, from $6.0 billion the prior year. During the latter part of 1999,
proceeds from maturities of securities held to maturity were reinvested in
securities available for sale in order to take advantage of market conditions.
The average balance of held-to-maturity investments increased $1.4 billion, or
29.8%, to $6.2 billion in 1999, as a result of purchases made in the latter part
of 1998. U.S. Government and Federal agency securities, the largest segment of
the portfolio, averaged $4.0 billion in 1999 compared to $3.3 billion in 1998,
while corporate CMOs and other debt securities averaged $2.0 billion in 1999
compared to $1.3 billion the prior year. The average yield earned on this
portfolio was 6.27% in 1999, a decrease of 9 basis points from 6.36% earned in
1998, as a result of the lower interest-rate environment.
The market value of the held-to-maturity portfolio at year-end 1999 was $5.4
billion, resulting in a net unrealized loss of $209.3 million. The average
estimated life of securities held to maturity, adjusted for historical
prepayment patterns on mortgage-backed securities, was 5 years and 7 months at
December 31, 1999.
Loans:
The loan portfolio, which represents the Company'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. Our
lending strategy stresses quality growth and portfolio diversification by
product, geography and industry. Total loans averaged $21.9 billion during 1999,
an increase of $2.1 billion, or 10.6%, compared to an average of $19.8 billion
in 1998. Growth in the average loan balance was generated by increases of $1.0
billion in consumer loans, $936.3 million in commercial loans and $170.7 million
in commercial mortgage loans, partially offset by a decrease of $42.4 million in
residential mortgage loans. At December 31, 1999, total loans amounted to $23.2
billion compared to $21.1 billion the prior year, an increase of $2.1 billion,
or
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year-End Loans
(In millions) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 6,671 $ 5,965 $ 5,009 $ 4,326 $ 4,659
Lease finance 862 810 875 579 319
Construction and development 601 382 370 316 437
- ------------------------------------------------------------------------------------------------
Commercial 8,134 7,157 6,254 5,221 5,415
Commercial mortgage 3,175 2,889 2,704 2,624 2,427
Residential mortgage 5,748 5,719 5,671 5,905 5,331
Consumer 6,170 5,362 4,259 3,636 3,240
- ------------------------------------------------------------------------------------------------
Total loans $23,227 $21,127 $18,888 $17,386 $16,413
- ------------------------------------------------------------------------------------------------
</TABLE>
9.9%. The average yield earned on the loan portfolio was 7.76% in 1999 compared
to 8.02% in 1998, a decrease of 26 basis points.
[GRAPHIC]
In the printed version there appears a bar chart with the following plot points
depicted.
Average Total Loans
(in billions)
1995 15.569
1996 17.066
1997 18.452
1998 19.771
1999 21.864
The commercial loan portfolio, which consists primarily of commercial and
industrial ("C&I") loans, was $8.1 billion at December 31, 1999, and averaged
$7.6 billion, an increase of $936.3 million, or 14.1%, compared to 1998. All
major areas of commercial lending demonstrated substantial growth in 1999. The
most significant growth was in asset-based lending, aircraft lending, commercial
media and commercial real estate. The C&I portfolio continues to mirror the
business diversification of the expanded region with no industry concentrations
greater than 10% of total C&I loans.
The average yield on the commercial loan portfolio decreased 37 basis points to
7.87% in 1999 from 8.24% the prior year. The lower interest-rate environment,
especially the lower average prime and LIBOR rates, and competitive pricing
resulted in the reduced yield on the commercial loan portfolio.
Commercial mortgage loans averaged $3.0 billion for 1999, an increase of $170.7
million, or 6.0% from 1998. Generally, these loans represent owner-occupied or
investment properties and complement a broader commercial lending relationship
with the borrower. At December 31, 1999, commercial mortgage loans amounted to
$3.2 billion, an increase of $285.8 million, or 9.9%, from 1998. The average
yield on commercial mortgage loans was 8.05% for 1999 compared to 8.43% for
1998, a decrease of 38 basis points.
Residential mortgage loans were $5.7 billion at year end and averaged $5.6
billion for 1999, the same as 1998. Mortgage loans originated in 1999 totaled
$1.4 billion, compared to $1.7 billion in 1998. Almost one half of the 1999
originations were to refinance existing mortgage loans. The sale of certain
residential mortgages, primarily fixed-rate loans, into the secondary market and
the retention of floating adjustable-rate mortgages is an integral part of the
Company's asset/liability management. In 1999, there were $648.8 million of
residential mortgages sold, compared to $859.3 million in 1998. Residential
mortgage loans held for sale totaled $65.5 million at December 31, 1999,
compared to $183.3 million at year-end 1998. The average yield on residential
mortgage loans was 7.12% for 1999 compared to 7.28% for 1998, a decrease of 16
basis points.
Consumer loans averaged $5.7 billion in 1999, an increase of $1.0 billion, or
22.1%, from 1998. Most of the growth was generated in the home equity portfolio,
which rose $1.1 billion, or 34.1%, to average $4.1 billion at December 31, 1999.
The growth in home equity loans primarily resulted from loan purchases of $913.5
million in 1999. Due to the lower interest-rate environment and competitive
market for these products, the average yield earned on the consumer loan
portfolio declined 26 basis points to 8.09% in 1999 compared to 8.35% earned in
1998.
The following table shows the expected life of total loans at December 31, 1999,
and segregates loans with fixed interest rates from those with floating or
adjustable interest rates.
- ------------------------------------------------------------------------
Loan Maturities
Within 1 to 5 After
(In millions) 1 Year Years 5 Years Total
- ------------------------------------------------------------------------
Commercial $2,746 $ 4,646 $ 742 $ 8,134
Commercial mortgages 581 1,963 631 3,175
Residential mortgages 1,362 2,862 1,524 5,748
Consumer loans 1,436 3,321 1,413 6,170
- ------------------------------------------------------------------------
Total $6,125 $12,792 $4,310 $23,227
- ------------------------------------------------------------------------
Amount of loans based upon:
Fixed interest rates $2,773 $ 7,462 $2,655 $12,890
Floating or adjustable
interest rates 3,352 5,330 1,655 10,337
- ------------------------------------------------------------------------
Total $6,125 $12,792 $4,310 $23,227
- ------------------------------------------------------------------------
19
<PAGE>
Deposits:
Deposits, which include non-interest bearing demand deposits 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. Deposits in 1999 averaged $23.7 billion, an increase of $1.7
billion, or 7.5%, compared to the 1998 average. At December 31, 1999, total
deposits were $24.6 billion, an increase of $1.5 billion, or 6.5%, from year-end
1998.
Savings and time deposits totaled $18.5 billion at December 31, 1999, an
increase of $1.3 billion, or 7.5%, from year-end 1998. The growth came from the
Summit Navigator Account, a relationship sweep account that combines banking,
investment and brokerage services into one account. The Summit Navigator Account
(FDIC insured portion) grew $2.6 billion to $3.0 billion at December 31, 1999.
Also contributing to deposit growth were demand deposits, which increased $136.8
million, or 2.8%, from year-end 1998 to $5.1 billion at December 31, 1999.
Average non-interest bearing demand deposits were $4.9 billion for 1999, an
increase of $391.4 million, or 8.7%, from the prior year. Growth in personal
checking accounts generated most of the increase, primarily due to lower minimum
balance requirements.
Savings deposits, which include the Summit Navigator Accounts, as well as
interest-bearing checking, money market and savings accounts, increased $1.5
billion, or 15.5%, to an average of $10.9 billion in 1999. The average cost of
savings deposits increased 10 basis points to 2.68% in 1999 compared to 2.58% in
1998, primarily as a result of the change in deposit mix and the higher interest
rate paid on the Summit Navigator Account. Time deposits, which consist
primarily of retail certificates of deposit, decreased $75.0 million, or 1.1%,
in 1999 to average $7.0 billion. The average cost of time deposits decreased 30
basis points to 4.99% in 1999 from 5.29% in 1998.
The following chart illustrates the growth in average total deposits for the
past five years.
[GRAPHIC]
In the printed version there appears a bar chart with the following plot points
depicted.
Average Total Deposits
(in billions)
1995 20.2
1996 21.3
1997 21.9
1998 22.1
1999 23.7
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. These deposits averaged $879.2 million
during 1999, a decrease of $133.4 million, or 13.2%, from 1998. The average cost
of these deposits decreased 35 basis points during the year to 4.98% compared
with 5.33% in 1998.
Other Borrowed Funds:
Other borrowed funds are mainly comprised of repurchase agreements, Federal
funds purchased, FHLB borrowings and other short-term borrowings, including
commercial paper. These borrowings are primarily used to fund asset growth not
supported by deposit generation. During 1999, the average balance of other
borrowed funds was $3.7 billion, the same as the prior year average. The balance
of other borrowed funds was $4.6 billion at December 31, 1999, an increase of
$1.4 billion, or 44.0%, from the prior year. The average cost of other borrowed
funds decreased 35 basis points
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Selected Other Borrowed Funds
1999 1998 1997
------------------ ------------------- -------------------
(In millions) Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase:
<S> <C> <C> <C> <C> <C> <C>
At December 31 $1,301 4.15% $1,063 4.78% $2,490 5.42%
Average during year 1,187 4.54 1,599 5.16 2,427 5.44
Maximum month-end balance during year 1,363 -- 1,825 -- 2,780 --
Federal funds purchased:
At December 31 $1,326 5.52% $1,003 4.94% $ 655 5.84%
Average during year 1,126 5.35 1,068 5.65 473 6.02
Maximum month-end balance during year 1,471 -- 1,352 -- 699 --
FHLB Borrowings:
At December 31 $1,805 5.84% $ 910 5.53% $ -- --%
Average during year 1,127 5.28 701 6.34 -- --
Maximum month-end balance during year 1,805 -- 1,335 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
during the year to 5.03% compared with 5.38% in 1998. Commercial paper, a
funding source for the Parent Company, averaged $47.0 million during 1999, a
decrease of $1.1 million, or 2.3%, from 1998. The average cost of commercial
paper decreased 37 basis points to 4.95% in 1999 from 5.32% in 1998.
Long-Term Debt:
During 1999, long-term debt was a primary source of funding for asset growth.
The average balance of long-term debt was $3.9 billion in 1999, an increase of
$1.8 billion, over 1998. The average cost of long-term debt decreased to 5.53%
in 1999, from 6.11% in 1998, a decline of 58 basis points due to the lower
interest-rate environment.
At December 31, 1999, long-term debt totaled $3.9 billion, an increase of $292.1
million, or 8.2%, compared to the prior year. FHLB borrowings increased $216.8
million with the remaining increase of $79.0 million from long-term repurchase
agreements. Principal amounts due on long-term debt for the years 2000 through
2004 and thereafter are $888.9 million, $454.6 million, $409.1 million, $1.4
billion and $687.6 million, respectively.
Certain long-term debt agreements contain limitations on the amount of
additional funded debt that can be assumed. At December 31, 1999, under the most
restrictive covenants, the amount of additional funded debt that could have been
created was $673.1 million. At December 31, 1999, long-term debt totaling $99.8
million qualified as Tier II capital for risk-based capital purposes.
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 ("SEC"). Terms of the securities will be set
at the time of issuance. As of December 31, 1999, none of this debt or preferred
stock had been issued.
In November 1998, Summit Bank, NJ, and Summit Bank, PA, executed a distribution
agreement providing for the possible issuance, from time to time, of senior and
subordinated bank notes to a maximum of $3.75 billion on an underwritten or
agency basis. Terms of the notes will be set at the time of issue, and may range
in maturity from seven days to thirty years from date of issue. As of December
31, 1999, none of this debt had been issued.
Shareholders' Equity and Dividends:
Shareholders' equity at December 31, 1999, was $2.8 billion, an increase of
$79.8 million, or 2.9%, compared to the prior year. Book value per common share
rose to $16.23 compared to $15.67 at December 31, 1998. The increase in
shareholders' equity and book value per share resulted from net income of $442.6
million, less $221.8 million of common stock dividends. Also impacting
shareholders' equity and related ratios was the effect of the stock buyback and
net unrealized holding losses on securities.
In April 1998, the Board of Directors authorized a stock buyback program,
providing for the repurchase of up to five percent or 8.9 million shares of the
Company's common stock. During 1999, 3.2 million shares of common stock were
purchased under this program. In addition, 7.4 million shares were repurchased
in 1999 for completed or announced acquisitions. In 1999, treasury stock
averaged $178.6 million for the year and amounted to $161.6 million at December
31, 1999, representing 4.8 million shares of common stock.
The following chart illustrates the growth in average total equity for the past
five years.
[GRAPHIC]
In the printed version there appears a bar chart with the following plot points
depicted.
Average Total Equity
(in billions)
1995 1.966
1996 2.212
1997 2.487
1998 2.661
1999 2.737
In the second quarter of 1999, the Board of Directors increased the regular
quarterly dividend on common stock. The dividend rate was increased from $0.30
per share to $0.33 per share. Dividends declared on common stock totaled $1.29
per share for 1999 compared to $1.17 for 1998, an increase of 10.3%. The
dividend payout ratio was 50.8% in 1999 and 44.5% in 1998. The dividend yield
was 4.3% at December 31, 1999, compared to 2.8% at year-end 1998. As of December
31, 1999, there were 27,994 shareholders of record.
The common stock of Summit Bancorp is traded on the New York Stock Exchange
under the symbol SUB. The quarterly market price ranges and dividends declared
per common share for the last two years are shown below.
- ----------------------------------------------------------------------------
Trade Price Cash
------------------------- Dividends
High Low Close Declared
- ----------------------------------------------------------------------------
1999 Quarter Ended
December 31 $35.50 $28.50 $30.63 $0.33
September 30 42.56 30.63 32.44 0.33
June 30 44.00 37.38 41.81 0.33
March 31 44.50 37.06 39.00 0.30
- ----------------------------------------------------------------------------
1998 Quarter Ended
December 31 $45.00 $30.75 $43.69 $0.30
September 30 49.44 32.75 37.50 0.30
June 30 53.50 44.75 47.50 0.30
March 31 53.88 45.88 50.13 0.27
- ----------------------------------------------------------------------------
Summit Bancorp and its bank subsidiaries are subject to various regulatory
capital requirements administered by the Federal Reserve Board and Federal
Deposit Insurance Corporation. For information on regulatory capital, see Note
20 of the Notes to Consolidated Financial Statements.
21
<PAGE>
Average Balance Sheets with Resultant Interest and Rates
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Tax-equivalent basis, dollars in millions) 1999 1998
------------------------------ ----------------------------
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 $ 22.1 $ 1.3 5.61% $ 14.4 $ 0.9 6.07%
Interest-bearing deposits with banks 32.4 1.7 5.30 22.9 1.4 6.19
Trading account securities 13.5 0.8 5.27 21.2 1.3 6.21
Securities available for sale:
U.S. Government and Federal agencies 3,239.4 199.7 6.17 3,865.8 244.0 6.31
States and political subdivisions 14.4 0.9 6.02 6.9 0.4 6.41
Other securities 1,233.0 78.2 6.34 779.9 50.8 6.51
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 4,486.8 278.8 6.21 4,652.6 295.2 6.35
- ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government and Federal agencies 4,037.1 250.7 6.21 3,286.0 208.2 6.34
States and political subdivisions 131.7 12.0 9.14 165.5 14.9 9.01
Other securities 2,011.0 124.7 6.20 1,309.8 79.8 6.09
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 6,179.8 387.4 6.27 4,761.3 302.9 6.36
- ------------------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial 7,588.6 597.2 7.87 6,652.3 548.0 8.24
Commercial mortgage 2,999.4 241.5 8.05 2,828.7 238.5 8.43
Residential mortgage 5,598.8 398.7 7.12 5,641.2 410.7 7.28
Consumer 5,677.0 459.0 8.09 4,648.8 388.3 8.35
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 21,863.8 1,696.4 7.76 19,771.0 1,585.5 8.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 32,598.4 2,366.4 7.26 29,243.4 2,187.2 7.48
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 996.8 1,021.8
Allowance for loan losses (330.0) (311.1)
Other assets 1,296.0 980.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $34,561.2 $30,935.0
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings deposits $10,928.5 293.3 2.68 $ 9,458.3 243.7 2.58
Time deposits 7,012.3 350.1 4.99 7,087.3 375.2 5.29
Commercial certificates of deposit $100,000 and over 879.2 43.8 4.98 1,012.6 54.0 5.33
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 18,820.0 687.2 3.65 17,558.2 672.9 3.83
- ------------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds 3,706.5 186.6 5.03 3,721.2 200.2 5.38
Long-term debt 3,908.1 216.0 5.53 2,100.8 128.3 6.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 26,434.6 1,089.8 4.12 23,380.2 1,001.4 4.28
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 4,896.2 4,504.8
Other liabilities 493.7 388.7
Shareholders' equity 2,736.7 2,661.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $34,561.2 $30,935.0
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (tax-equivalent basis) 1,276.6 3.14% 1,185.8 3.20%
Tax-equivalent basis adjustment (10.4) (12.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $1,266.2 $1,173.8
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income as a percent of interest-earning assets
(tax-equivalent basis) 3.92% 4.05%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Average loan balances and rates include non-accruing loans.
22
<PAGE>
<TABLE>
<CAPTION>
Summit Bancorp and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
--------------------------- --------------------------- --------------------------- ----------------------------
Average Average Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 73.2 $ 4.1 5.58% $ 78.2 $ 5.4 6.95% $ 191.9 $ 11.5 5.97% $ 206.9 $ 8.0 3.88%
13.5 0.7 5.45 14.4 0.8 5.72 11.1 0.6 5.81 16.9 0.6 3.72
34.0 2.5 7.39 27.4 1.5 5.44 34.8 2.1 5.89 28.9 0.9 2.94
3,219.5 208.9 6.49 2,050.8 130.4 6.36 868.3 52.8 6.08 533.9 31.6 5.92
18.1 0.8 4.28 6.4 0.3 3.77 9.3 0.6 6.89 536.2 30.6 5.70
558.1 35.4 6.34 567.7 35.7 6.29 282.3 16.2 5.74 532.3 27.6 5.19
- -----------------------------------------------------------------------------------------------------------------------------------
3,795.7 245.1 6.46 2,624.9 166.4 6.34 1,159.9 69.6 6.00 1,602.4 89.8 5.60
- -----------------------------------------------------------------------------------------------------------------------------------
3,514.8 228.3 6.49 3,850.8 248.7 6.46 4,712.1 314.1 6.67 4,192.9 262.2 6.25
206.9 18.9 9.15 266.3 24.0 9.01 333.8 31.8 9.55 392.9 38.9 9.91
1,131.7 68.2 6.02 1,448.1 86.7 5.98 1,955.7 117.2 5.99 1,896.4 106.1 5.60
- -----------------------------------------------------------------------------------------------------------------------------------
4,853.4 315.4 6.50 5,565.2 359.4 6.46 7,001.6 463.1 6.61 6,482.2 407.2 6.28
- -----------------------------------------------------------------------------------------------------------------------------------
5,685.1 484.3 8.52 5,298.9 442.8 8.36 5,490.4 474.8 8.65 5,318.6 405.5 7.62
2,788.7 244.3 8.76 2,652.2 230.9 8.71 2,232.3 200.2 8.97 2,299.3 189.8 8.25
5,925.0 439.9 7.42 5,651.0 421.6 7.46 4,805.2 363.4 7.56 3,773.8 269.2 7.13
4,053.1 342.8 8.46 3,463.7 293.2 8.47 3,040.6 263.9 8.68 2,728.7 220.7 8.09
- -----------------------------------------------------------------------------------------------------------------------------------
18,451.9 1,511.3 8.19 17,065.8 1,388.5 8.14 15,568.5 1,302.3 8.36 14,120.4 1,085.2 7.69
- -----------------------------------------------------------------------------------------------------------------------------------
27,221.7 2,079.1 7.64 25,375.9 1,922.0 7.57 23,967.8 1,849.2 7.72 22,457.7 1,591.7 7.09
- -----------------------------------------------------------------------------------------------------------------------------------
1,035.8 1,284.4 1,146.1 1,190.1
(299.2) (298.3) (316.0) (362.6)
924.3 867.5 964.8 989.2
- -----------------------------------------------------------------------------------------------------------------------------------
$28,882.6 $27,229.5 $ 25,762.7 $24,274.4
- -----------------------------------------------------------------------------------------------------------------------------------
$ 9,633.0 253.0 2.63 $ 9,245.6 236.6 2.56 $ 9,092.4 240.8 2.65 $ 9,578.1 213.9 2.23
7,323.0 380.8 5.20 7,294.3 374.5 5.13 6,967.6 350.9 5.04 5,736.6 231.2 4.03
891.9 48.2 5.41 892.0 47.9 5.37 635.0 38.6 6.08 460.1 18.9 4.10
- -----------------------------------------------------------------------------------------------------------------------------------
17,847.9 682.0 3.82 17,431.9 659.0 3.78 16,695.0 630.3 3.78 15,774.8 464.0 2.94
- -----------------------------------------------------------------------------------------------------------------------------------
3,186.0 175.2 5.50 2,947.0 155.5 5.28 2,730.9 153.7 5.63 2,436.7 99.9 4.10
887.2 62.4 7.03 430.3 39.2 9.10 507.0 38.2 7.53 501.8 35.8 7.14
- -----------------------------------------------------------------------------------------------------------------------------------
21,921.1 919.6 4.20 20,809.2 853.7 4.10 19,932.9 822.2 4.12 18,713.3 599.7 3.20
- -----------------------------------------------------------------------------------------------------------------------------------
4,131.4 3,856.7 3,482.2 3,374.7
343.2 351.4 381.9 418.8
2,486.9 2,212.2 1,965.7 1,767.6
- -----------------------------------------------------------------------------------------------------------------------------------
$28,882.6 $27,229.5 $ 25,762.7 $24,274.4
- -----------------------------------------------------------------------------------------------------------------------------------
1,159.5 3.44% 1,068.3 3.47% 1,027.0 3.60% 992.0 3.89%
(14.4) (15.0) (17.3) (19.4)
- -----------------------------------------------------------------------------------------------------------------------------------
$1,145.1 $1,053.3 $1,009.7 $ 972.6
- -----------------------------------------------------------------------------------------------------------------------------------
4.26% 4.21% 4.28% 4.42%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Results of Operations
Net Interest Income:
Interest income on a tax-equivalent basis was $2.4 billion in 1999, an increase
of $179.2 million, or 8.2%, compared to 1998. This increase was due to the
growth in interest-earning assets, partially offset by a reduction in the yield
earned on these portfolios. On average, interest-earning assets increased $3.4
billion, or 11.5%, to $32.6 billion. Growth in the loan and investment
portfolios contributed $247.5 million in net interest income, offset by a $68.5
million reduction in rates. The average yield on interest-earning assets was
7.26% for 1999, compared to 7.48% for 1998, a decrease of 22 basis points. The
decrease was generally the result of the repricing of floating-rate instruments
and the reinvestment of cash flows from maturities of loans and investment
securities in a lower interest-rate environment.
Interest expense was $1.1 billion for 1999, an increase of $88.4 million, or
8.8%, from a year ago. On average, interest- bearing liabilities increased $3.1
billion, or 13.1%, resulting from increases in interest-bearing deposits and
long-term debt. The increase in long-term debt and other borrowed funds
accounted for a $197.8 million increase in interest expense, offset by a $123.7
million benefit of lower rates. In addition, savings deposits accounted for an
increase of $49.6 million due to higher balances and rates. The average cost of
interest-bearing liabilities was 4.12% in 1999, a decrease of 16 basis points
from 4.28% in 1998. The decreased cost resulted from the lower interest-rate
environment.
Net interest income on a tax-equivalent basis amounted to $1.3 billion in 1999,
up $90.8 million, or 7.7%, compared to 1998. Net interest spread on a
tax-equivalent basis declined 6 basis points to 3.14% for the year compared to
3.20% in 1998. Net interest margin decreased to 3.92% for 1999 compared to 4.05%
in 1998. Also impacting net interest spread for the year was the stock
repurchase program. This program, although accretive to earnings per share,
resulted in approximately a 3 basis point decline in net interest margin.
The accompanying Rate/Volume Table presents an analysis of the impact on
interest income and interest expense resulting from changes in average volumes
and rates over the past two years. Changes that are not due to volume or rate
have been allocated proportionally to both, based on their relative absolute
values.
Non-Interest Income:
Non-interest income, including securities gains, amounted to $397.3 million in
1999 compared to $350.2 million in the prior year, an increase of $47.1 million,
or 13.4%. Increases were realized in all categories except service charges on
deposits, with insurance fee income contributing approximately $15.3 million of
the growth.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Rate/Volume Table Amount of Increase (Decrease)
----------------------------------------------------------------
1999 versus 1998 1998 versus 1997
---------------------------- ------------------------------
Due to Change in: Due to Change in:
------------------- -------------------
(Tax-equivalent basis, in millions) Volume Rate Total Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans:
Commercial $ 74.7 $ (25.5) $ 49.2 $ 80.1 $(16.4) $ 63.7
Commercial mortgage 14.0 (11.0) 3.0 3.5 (9.3) (5.8)
Residential mortgage (3.1) (8.9) (12.0) (20.9) (8.3) (29.2)
Consumer 83.2 (12.5) 70.7 49.9 (4.4) 45.5
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 168.8 (57.9) 110.9 112.6 (38.4) 74.2
Securities held to maturity 88.8 (4.3) 84.5 (5.8) (6.7) (12.5)
Securities available for sale (10.1) (6.3) (16.4) 54.4 (4.3) 50.1
Other interest-earning assets 0.6 (0.4) 0.2 (3.8) 0.1 (3.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 248.1 (68.9) 179.2 157.4 (49.3) 108.1
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits:
Savings deposits 39.7 9.9 49.6 (4.5) (4.8) (9.3)
Time deposits (3.9) (21.2) (25.1) (12.3) 6.7 (5.6)
Commercial certificates of deposit $100,000 and over (6.9) (3.3) (10.2) 6.5 (0.7) 5.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits 28.9 (14.6) 14.3 (10.3) 1.2 (9.1)
Other borrowed funds and long-term debt 197.8 (123.7) 74.1 98.9 (8.0) 90.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 226.7 (138.3) 88.4 88.6 (6.8) 81.8
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 21.4 $ 69.4 $ 90.8 $ 68.8 $(42.5) $ 26.3
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Non-interest income categories compared to the prior year are presented in the
following table.
- -----------------------------------------------------------------------------
Increase (Decrease)
- -----------------------------------------------------------------------------
(In thousands) 1999 1998 Amount Percent
- -----------------------------------------------------------------------------
Service charges on deposit
accounts $123,545 $125,145 $ (1,600) (1.3)%
Service and loan fee income 60,864 57,586 3,278 5.7
Trust income 51,247 42,854 8,393 19.6
Investment fees 41,793 35,686 6,107 17.1
Insurance fees 32,316 16,973 15,343 90.4
Other 77,748 65,337 12,411 19.0
- -----------------------------------------------------------------------------
387,513 343,581 43,932 12.8
Securities gains 9,805 6,646 3,159 47.5
- -----------------------------------------------------------------------------
$397,318 $350,227 $ 47,091 13.4%
- -----------------------------------------------------------------------------
Service charges on deposit accounts amounted to $123.5 million in 1999, a
decrease of $1.6 million, or 1.3%. In order to more aggressively attract retail
deposits, Summit changed its strategy and lowered its minimum balance
requirements on regular checking accounts, savings accounts and certificates of
deposit. Due to this change, fewer monthly maintenance fees were earned,
resulting in the decrease in service charges on deposits.
Service and loan fee income increased $3.3 million, or 5.7%, to $60.9 million in
1999. Credit card revenues increased $3.7 million as a result of credit card
merchant fees and increased usage of debit cards. Also contributing to the
growth was mortgage servicing income which increased $1.1 million. Partially
offsetting the growth in service and loan fees was a decline of $4.5 million in
origination and application fees on residential mortgages.
Trust income totaled $51.2 million in 1999, an increase of $8.4 million, or
19.6%, over the prior year. The increase was primarily the result of increased
investment advisory fees, including advisory fees from the Pillar Funds(R).
Assets under trust administration, including corporate debt issue trusteeships,
totaled $32.6 billion at December 31, 1999, compared to $29.7 billion at the end
of 1998. At December 31, 1999, and 1998, assets under discretionary management
were $10.8 billion and $9.5 billion, respectively. Trust assets include the
Pillar Funds(R), which totaled $3.8 billion at December 31, 1999, an increase of
$745.0 million, or 24.6%, from the prior year end.
Investment fees were $41.8 million for the year ended December 31, 1999, an
increase of $6.1 million or 17.1%, from 1998. Fees from annuities reached $15.7
million in 1999, an increase of $5.7 million, or 57.1%, from 1998. The large
increase was primarily the result of expanding sales of annuities in 1999.
Brokerage fee income reached $11.6 million, an increase of $1.0 million, or
9.8%, from 1998, primarily related to higher volume from new business. Fees from
the sales of mutual funds were $14.5 million in 1999, a slight decrease from the
$15.1 million in 1998.
Insurance fees were $32.3 million for the year ended December 31, 1999, an
increase of $15.3 million, or 90.4%, from 1998. Insurance fees benefited from a
full year of revenues from W. M. Ross and Company, acquired in August 1998, and
Madison Consulting Group, acquired in October 1998.
Other income in 1999 amounted to $77.7 million, an increase of $12.4 million, or
19.0%, compared to the prior year. Included in other income for 1999 were
realized gains of: $5.9 million from the sale of the credit card portfolios,
$4.1 million on the sale of mortgage servicing rights and $2.1 million on the
sale of residential mortgages. These gains compare to the $8.1 million gain from
limited partnership investments in 1998.
For the year ended December 31, 1999, securities gains were $9.8 million, an
increase of $3.2 million, or 47.5%, from 1998. These gains were principally
generated by sales of equity securities.
Non-Interest Expenses:
Non-interest expenses, excluding restructuring charges, totaled $850.2 million
in 1999, an increase of $67.4 million, or 8.6%, compared to $782.8 million in
1998. The restructuring charges in 1999 were recorded in conjunction with the
realignment of key lines of business and support. Approximately $44.0 million of
the 1999 increase was attributable to operating expenses of acquired companies
not included in 1998 results. Excluding these items, the growth in non-interest
expense in 1999 would have been approximately 3.0%.
Non-interest expense categories compared to the prior year are presented in the
following table.
- ----------------------------------------------------------------------------
Increase (Decrease)
- ----------------------------------------------------------------------------
(In thousands) 1999 1998 Amount Percent
- ----------------------------------------------------------------------------
Salaries $338,678 $308,974 $29,704 9.6%
Pension and other employee
benefits 117,389 107,659 9,730 9.0
Furniture and equipment 94,833 84,479 10,354 12.3
Occupancy, net 80,406 74,754 5,652 7.6
Communications 37,697 36,799 898 2.4
Amortization of goodwill and
other intangibles 29,628 19,630 9,998 50.9
Other 151,607 150,512 1,095 0.7
- ----------------------------------------------------------------------------
850,238 782,807 67,431 8.6
Restructuring charges 27,900 -- 27,900 N/A
- ----------------------------------------------------------------------------
$878,138 $782,807 $95,331 12.2%
- ----------------------------------------------------------------------------
Salaries expense totaled $338.7 million in 1999, an increase of $29.7 million,
or 9.6%, compared to 1998. In addition to annual merit increases, salaries rose
approximately $14.5 million from acquisitions.
Pension and other employee benefits expense totaled $117.4 million for the year
ended December 31, 1999, an increase of $9.7 million, or 9.0%, from 1998. In
addition to increases related to higher salary expenses, $9.3 million of the
increase was associated with
25
<PAGE>
incentive compensation programs, including programs linked to sales efforts.
Furniture and equipment expense in 1999 totaled $94.8 million, an increase of
$10.4 million, or 12.3%, from 1998. The increase was primarily due to increases
in equipment maintenance, mainframe application software and leasing expenses
associated with personal computers, as well as costs associated with recent
acquisitions.
During 1999, net occupancy expense totaled $80.4 million, an increase of $5.7
million, or 7.6%, from the prior year. The increase was mainly attributable to
additional rent and depreciation expense resulting from recent acquisitions.
Communications expense totaled $37.7 million in 1999, an increase of 2.4%
compared to 1998. The increase was generally related to higher postage expense.
Amortization of goodwill and intangibles increased $10.0 million, or 50.9%, for
the year ended 1999. The increase was due to the impact of the purchase
acquisitions of Prime Bancorp and New Canaan Bank and Trust Company in 1999, and
the full-year impact of the 1998 acquisitions of NSS Bancorp, Inc., W. M. Ross
and Company, and Madison Consulting Group.
Other expenses were $151.6 million in 1999, a slight increase from 1998. Other
expenses consist primarily of legal and professional fees and advertising and
public relations expenses.
Income Taxes:
Federal and state income tax expenses for 1999 were $214.7 million, an increase
of $5.3 million compared to $209.4 million in 1998. The combined Federal and
state effective income tax rate was 32.7% for 1999 compared to 31.0% for 1998.
The lower effective tax rate for 1998 was the result of benefits received from
the implementation of business strategies, including one-time non-taxable
distributions from corporate reorganizations, that were not realized in 1999.
Lines of Business
Summit Bancorp, for management purposes, is segmented into the following lines
of business: Retail Banking, Corporate Banking and The Private Bank. Summary
financial information for each of the lines of business for the years 1999, 1998
and 1997 are presented in Note 17 of the Notes to the Consolidated Financial
Statements.
Line of business information is based on accounting practices that conform to
and support the current management structure, and is not necessarily comparable
with similar information for any other financial institution.
Net income includes revenues and expenses directly associated with each line,
plus allocations of certain indirect revenues and expenses. Centrally provided
corporate services and general overhead are allocated on a per-unit cost basis
in proportion to the balances of assets, liabilities and operating expenses
associated with the particular business line. A matched maturity funds transfer
method is employed to assign a cost of funds to the earning assets of each
business line, as well as to assign a value of funds to the liabilities of each
business line. The provision for loan losses is allocated based on the
historical net charge off ratio for each line of business. The consolidated
effective income tax rate is applied to each line of business, after
consideration of certain permanent differences that can be allocated to a
specific line of business.
Equity is allocated based on management's evaluation of the level of risk,
including credit, operational and business risks, associated with each line of
business. Equity reflected in corporate and other is generally unallocated and
available to fund future growth of the lines of business.
Retail Banking:
The Retail Banking line of business addresses the banking needs of individuals
and small businesses. Mortgage loans, including home equity credit lines, direct
and indirect consumer loans and small commercial loans are offered through the
Company's broad network of branches. Demand and interest-bearing deposit
accounts and related services are provided through branches and automatic teller
machines.
The average balance of loans increased $708.5 million, or 6.4%, from $11.1
billion in 1998, to $11.8 billion in 1999. Home equity loan purchases of $913.5
million and residential mortgage loan purchases of $459.8 million were primarily
responsible for the increase. These increases were partially offset by borrowers
electing to refinance and choosing fixed-rate mortgage products, which are
generally sold into the secondary market and not retained in the loan portfolio.
Net interest income increased $64.6 million, or 8.5%, to $819.9 million in 1999
from $755.3 million in 1998. The growth in net interest income resulted
primarily from a 9.3% increase in average deposits and a 22.0% rise in average
consumer loans.
The provision for loan losses increased $2.6 million, from $31.6 million in
1998, to $34.2 million in 1999, as a result of growth in the loan portfolios.
Non-interest income increased $14.1 million, or 7.2%, in 1999 compared with
1998. The increase was primarily related to gains from the sales of the credit
card portfolios, mortgage servicing rights and loans aggregating $12.1 million.
Non-interest expenses excluding restructuring charges increased $19.6 million,
or 3.7%, from $531.1 million in 1998 to $550.7 million in 1999. The increase was
mainly attributable to acquisitions.
The increased revenues more than offset the impact of rising costs, resulting in
higher net income for Retail Banking of $292.0 million in 1999 compared with
$264.9 million in 1998.
26
<PAGE>
Corporate Banking:
The Corporate Banking line of business is focused on meeting the banking
requirements of large and middle-market businesses. Commercial loans and
mortgages, asset-based lending, direct and indirect leasing and leveraged
financing are actively solicited through a network of relationship managers.
Demand and interest-bearing deposit accounts and related services are provided
through the branch network.
Net interest income increased $17.7 million, from $265.7 million in 1998 to
$283.4 million in 1999, driven by the increase in average loans. Average loans
increased $1.2 billion, or 15.3%, from 1998 primarily due to growth in
asset-based lending, aircraft lending, media lending and commercial real estate.
Partially offsetting the favorable effect that average loan growth had on net
interest income was a 14 basis point narrowing in overall loan spreads.
The provision for loan losses increased $59.4 million, from $32.4 million in
1998 to $91.8 million in 1999, as a result of an additional provision of $60.0
million prompted by the adverse outlook for a borrower following a bankruptcy
filing.
Non-interest income increased $1.1 million, from $47.0 million in 1998 to $48.1
million in 1999. Non-interest expense increased $22.1 million, or 20.3%, from
$109.0 million in 1998 to $131.1 million in 1999, primarily due to staff
additions related to business expansion efforts and the Prime Bancorp
acquisition.
As a result of the additional provision of $60.0 million, net income decreased
$44.9 million, or 37.7%, from $118.9 million in 1998 to $74.0 million in 1999.
The Private Bank:
The Private Bank delivers products and services to high net worth individuals.
This reporting 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. The
line also markets a wide variety of insurance products for the personal and
corporate marketplace. Revenues are mostly in the form of fees for services
provided. The major sources of fee income are generated from trust services,
sales of mutual funds and annuities, insurance and brokerage services and
discount brokerage transactions.
Net interest income increased to $57.4 million in 1999 from $53.9 million in
1998. The increase was the result of the $222.1 million, or 20.4%, increase in
average loans and $53.3 million increase in average deposits, or 7.4%, from
1998. Partially offsetting the impact of the loan and deposit growth was a
decrease in loan and deposit spreads in 1999 from a year earlier.
Non-interest income is primarily comprised of fees from trust services and
investment and insurance fees. Non-interest income increased $29.8 million, or
30.5%, in 1999 from 1998. Trust services is the largest component with total
revenues of $51.2 million in 1999, an increase of $8.4 million, or 19.6%. This
was primarily the result of increased revenue on personal trust products and
investment advisory fees, including advisory fees from the Pillar Funds(R).
Insurance revenue totaled $32.3 million in 1999 compared to $17.0 million the
prior year. Insurance fees were enhanced with a full year of revenues from the
acquisitions of W.M. Ross and Company and Madison Consulting Group, two
insurance subsidiaries acquired in the second half of 1998. Investment fees
totaled $41.8 million, an increase of $6.1 million, or 17.1%, from 1998. This
was primarily the result of expanding sales of annuities in 1999.
Non-interest expenses increased $26.1 million, or 24.5%, from 1998. Expenses of
the acquired insurance companies amounted to $15.4 million, or 59.1%, of the
increase. Salaries and commissions, excluding the new insurance entities,
increased $8.7 million from 1998 to 1999. The remaining increase was generally
the result of additional corporate overhead expenses allocated to The Private
Bank based on the expansion of the business.
Net income for 1999 was $33.2 million, an increase of $4.1 million from 1998 net
income of $29.1 million.
Other:
Other is primarily comprised of 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 $6.6 million, from $98.9 million in 1998 to $105.4
million in 1999. The increase was generally related to growth of $1.2 billion in
the securities portfolios.
Non-interest income increased $2.1 million in 1999, primarily related to
increased gains from securities transactions. Non-interest expenses excluding
restructuring charges decreased slightly to $35.4 million in 1999 from $35.9
million in 1998. Net income for 1999 amounted to $43.4 million compared to $52.9
million in 1998.
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing Assets
<S> <C> <C> <C> <C> <C>
(In thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing loans:
Commercial and industrial $ 78,303 $55,245 $42,644 $ 54,308 $ 52,086
Construction and development 3,538 5,046 4,453 31,901 52,975
Commercial mortgage 18,480 26,446 37,993 52,922 88,500
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing loans 100,321 86,737 85,090 139,131 193,561
Other real estate owned, net 6,881 2,829 14,249 26,406 30,771
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing assets $107,202 $89,566 $99,339 $165,537 $224,332
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, not included above, past due 90 days or more (1) $ 41,378 $45,322 $48,609 $ 79,013 $ 60,463
- ------------------------------------------------------------------------------------------------------------------------------------
Impact on interest income:
Interest income that would have been recorded on non-performing loans
in accordance with their original terms $ 7,460 $ 5,681 $ 5,340 $ 14,154 $ 20,192
Interest income received and recorded on non-performing loans 1,328 1,532 1,040 1,817 2,833
- ------------------------------------------------------------------------------------------------------------------------------------
Lost income on non-performing loans $ 6,132 $ 4,149 $ 4,300 $ 12,337 $ 17,359
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing assets as a percentage of:
Total assets 0.29% 0.27% 0.33% 0.60% 0.84%
Total loans and other real estate owned 0.46 0.42 0.53 0.95 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Primarily residential mortgage and consumer loans, well secured and in the
process of collection.
Asset Quality
At December 31, 1999, non-performing assets, which include non-performing loans
and other real estate owned ("OREO"), net, amounted to $107.2 million, an
increase of $17.6 million, or 19.7%, from the prior year. The ratio of
non-performing assets to total loans and OREO increased 4 basis points from
0.42% at the end of 1998 to 0.46% at the end of 1999.
As the table above demonstrates, loan quality and ratios remain strong. This was
accomplished through quality loan underwriting, a proactive approach to loan
monitoring and aggressive workout strategies.
Charge offs of non-performing loans increased $82.4 million to $156.5 million
compared to $74.0 million in 1998. This increase was primarily attributable to a
$60.0 million charge off of a large media credit. OREO is carried at the lower
of cost or fair value, less estimated costs to sell, with any deficiency charged
against the valuation allowance. OREO, net of the valuation allowance, amounted
to $6.9 million at December 31, 1999, an increase of $4.1 million, or 143.2%,
compared to $2.8 million at the end of the prior year.
Loans 90 days or more past due and not included in the non-performing loan
category totaled $41.4 million at December 31, 1999, compared to $45.3 million
at the end of the prior year. These loans consist of residential mortgage and
consumer loans that are well secured and in the process of collection.
Potential problem loans are those 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 are not included with
non-performing loans as
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Allocation of the Allowance for Loan Losses
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of loans to of loans to of loans to
(In thousands) Amount total loans Amount total loans Amount total loans
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $142,754 28.7% $ 71,726 28.2% $ 52,459 26.5%
Construction and development 6,291 2.6 6,728 1.8 7,718 2.0
Commercial mortgage 17,279 13.7 21,569 13.7 26,480 14.3
Residential mortgage 6,754 24.7 19,600 27.1 12,846 30.1
Consumer 30,696 26.6 36,500 25.4 28,423 22.5
Loan commitments and other loans 5,240 3.7 2,187 3.8 1,742 4.6
Unallocated 119,814 N/A 164,504 N/A 166,826 N/A
- ----------------------------------------------------------------------------------------------------
$328,828 100.0% $322,814 100.0% $296,494 100.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------
Allocation of the Allowance for Loan Losses
1996 1995
- -----------------------------------------------------------------------------
Percentage Percentage
of loans to of loans to
(In thousands) Amount total loans Amount total loans
- -----------------------------------------------------------------------------
Commercial and industrial $ 45,922 24.9% $ 59,357 28.4%
Construction and development 36,617 1.8 44,390 2.7
Commercial mortgage 20,690 15.1 31,754 14.8
Residential mortgage 13,650 34.0 23,229 32.5
Consumer 22,746 20.9 21,677 19.7
Loan commitments and other loans 7,762 3.3 26,895 1.9
Unallocated 133,224 N/A 85,858 N/A
- -----------------------------------------------------------------------------
$280,611 100.0% $293,160 100.0%
- -----------------------------------------------------------------------------
28
<PAGE>
they continue to perform. Potential problem loans, primarily commercial and
industrial loans, were $11.9 million and $8.0 million, at December 31, 1999, and
1998, respectively.
Allowance for Loan Losses and Related Provision:
The allowance for loan losses is maintained at a level sufficient to absorb
estimated credit losses in the loan portfolio as of the date of the financial
statements. The allowance for loan losses is a valuation reserve available for
losses incurred or inherent in the loan portfolio and other extensions of
credit. The appropriateness of the allowance for loan losses is determined
through a standardized quarterly review process. Refer to Note 1 of the Notes to
Consolidated Financial Statements for a detailed description of this process.
At December 31, 1999, the allowance for loan losses was $328.8 million compared
to $322.8 million at the end of the prior year, an increase of $6.0 million, or
1.9%. The ratio of the allowance for loan losses to total loans at December 31,
1999, and 1998 was 1.42% and 1.53%, respectively. The allowance for loan losses
as a percentage of non-performing loans was 327.78% at December 31, 1999,
compared to 372.18% at the end of 1998.
At December 31, 1999, $209.0 million of the allowance for loan losses was
allocated to general and specific reserves compared to $158.3 million at
year-end 1998. Unallocated reserves amounted to $119.8 million at December 31,
1999 compared to $164.5 million in 1998. The increase in the general reserve is
a result of the charge off of a large media credit that was factored into our
six quarter migration analysis, resulting in a lower unallocated reserve.
The provision for loan losses was $128.0 million for the year ended December 31,
1999, an increase of $62.0 million, or 93.9%, from $66.0 million recorded in
1998. While the quality of the loan portfolio remains sound, the increase in the
provision for loan losses was due to an increase in the level of charge offs,
loan growth and the inherent risk in the loan portfolio. Net charge offs in 1999
amounted to $133.7 million, an increase of $88.6 million, or 196.5%, compared to
$45.1 million recorded in 1998. Net charge offs represented 0.61% of average
loans in 1999 compared to 0.23% in 1998. Net charge offs to average loans
excluding the charge off of the $60.0 million media credit would have been
0.34%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses
(In thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 322,814 $ 296,494 $ 280,611 $ 293,160 $323,336
Acquired allowance 11,724 5,416 9,994 8,492 6,131
Provision charged to operating expenses 128,000 66,000 59,100 64,034 72,090
Loans charged off:
Commercial and industrial 120,721 25,228 22,355 37,047 46,819
Construction and development 283 2,912 3,319 17,036 35,451
Commercial mortgage 2,273 2,755 12,993 25,695 25,741
Residential mortgage 5,310 8,327 19,117 7,558 8,608
Consumer 27,878 34,820 28,891 20,970 13,873
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans charged off 156,465 74,042 86,675 108,306 130,492
- ---------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial and industrial 10,736 11,100 16,167 12,602 14,684
Construction and development 1,160 3,661 3,686 2,427 2,072
Commercial mortgage 1,313 4,546 5,089 2,466 1,920
Residential mortgage 525 1,525 957 838 667
Consumer 9,021 8,114 7,565 4,898 2,752
- ---------------------------------------------------------------------------------------------------------------------------------
Total recoveries 22,755 28,946 33,464 23,231 22,095
- ---------------------------------------------------------------------------------------------------------------------------------
Net charge offs 133,710 45,096 53,211 85,075 108,397
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 328,828 $ 322,814 $ 296,494 $ 280,611 $293,160
- ---------------------------------------------------------------------------------------------------------------------------------
Loans:
At year end $23,226,956 $21,126,577 $18,888,366 $17,386,059 $16,413,222
Average during year 21,863,830 19,770,964 18,451,893 17,065,753 15,568,502
Net charge offs to average loans outstanding 0.61% 0.23% 0.29% 0.50% 0.70%
Allowance for loan losses to:
Total loans at year end 1.42% 1.53% 1.57% 1.61% 1.79%
Non-performing loans 327.78 372.18 348.45 201.69 151.46
Non-performing assets 306.74 360.42 298.47 169.52 130.68
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Asset/Liability Management
Market Risk:
Based on the Company's business, market risk is primarily limited to interest
rate risk which is the impact that changes in interest rates would have on
future earnings. Interest rate risk, including interest rate sensitivity and the
repricing characteristics of assets and liabilities, is managed by the
Asset/Liability Management Committee ("ALCO"). The principal objective of ALCO
is to maximize net interest income within acceptable levels of risk established
by policy. Interest rate risk is measured using financial modeling techniques,
including stress tests, to measure the impact of changes in interest rates on
future earnings. Net interest income, the primary source of earnings, is
affected by interest rate movements. To mitigate the impact of changes in
interest rates, the balance sheet must be structured so that repricing
opportunities exist for both assets and liabilities in approximately equivalent
amounts at basically the same time intervals. Imbalances in these repricing
opportunities at any point in time constitute interest-sensitivity gaps, which
is the difference between interest-sensitive assets and interest-sensitive
liabilities. These static measurements do not reflect the results of any
projected activity and are best used as early indicators of potential interest
rate exposures.
As illustrated by the interest rate sensitivity analysis in the accompanying
table, sensitivity to interest rate fluctuations is measured in a number of time
frames. The gap position is presented on an adjusted basis, allowing for the
impact of off-balance-sheet transactions.
An asset-sensitive gap means an excess of interest-sensitive assets over
interest-sensitive liabilities, whereas a liability-sensitive gap means an
excess of interest-sensitive liabilities over interest-sensitive assets. At
December 31, 1999, there was a thirty-day liability-sensitive gap of $3.0
billion and a one-year cumulative liability-sensitive gap of $3.1 billion. This
is primarily attributable to the growth in the Summit Navigator Account during
1999. In a changing rate environment, a mismatched gap position generally
indicates that changes in the income from interest-earning assets will not be
completely proportionate to changes in the cost of interest-bearing liabilities,
resulting in net interest income volatility. 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 to
insulate net interest income from the effects of changes in interest rates.
Interest rate sensitivities are also monitored through the use of simulation
modeling techniques which apply alternative interest rate scenarios to periodic
forecasts of future business activity and estimate the related impact on net
interest income. The use of simulation modeling assists management in its
continuing efforts to achieve earnings growth in varying interest environments.
Key assumptions in the model include anticipated prepayments on mortgage-related
instruments, contractual cash flow and maturities of all financial instruments,
including derivatives, anticipated future business activity, deposit sensitivity
and changes in market conditions. Selected core deposit rates have not been
changed based on the results of analyses 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
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Table at December 31, 1999
Interest Sensitivity Period Total One Year
------------------------------------------------------ Within to
(In thousands) 30 Day 90 Day 180 Day 365 Day One Year Two Years
- ------------------------------------------------------------------------------------------------------------------------------------
Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Total securities $ 968,754 $ 489,329 $ 643,028 $ 1,093,619 $ 3,194,730 $ 1,702,133
Loans 5,797,718 2,270,511 1,435,387 2,228,869 11,732,485 2,977,821
Other interest-earning assets 37,870 -- -- -- 37,870 --
- ------------------------------------------------------------------------------------------------------------------------------------
6,804,342 2,759,840 2,078,415 3,322,488 14,965,085 4,679,954
- ------------------------------------------------------------------------------------------------------------------------------------
Sources of Funds:
Savings and time deposits (1) 5,940,254 1,121,464 1,347,258 1,416,526 9,825,502 1,892,905
Commercial CDs 711,172 227,194 39,131 41,351 1,018,848 --
Other interest-bearing liabilities 3,117,179 1,647,396 1,154,060 1,271,329 7,189,964 550,409
Non-interest-bearing sources -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
9,768,605 2,996,054 2,540,449 2,729,206 18,034,314 2,443,314
- ------------------------------------------------------------------------------------------------------------------------------------
Asset (Liability) Interval Gap (2,964,263) (236,214) (462,034) 593,282 (3,069,229) 2,236,640
Net effect of off-balance-sheet instruments (10,000) 200,000 5,000 (195,000) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Asset (Liability) Sensitivity Gap:
Period gap (2,974,263) (36,214) (457,034) 398,282 (3,069,229) 2,236,640
Cumulative gap $(2,974,263) $ (3,010,477) $(3,467,511) $(3,069,229) $(3,069,229) $ (832,589)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Non-Interest
Sensitive and
(In thousands) Over Two Years Total
- -----------------------------------------------------------------------------
Earning Assets:
<S> <C> <C>
Total securities $ 5,919,759 $10,816,622
Loans 8,516,650 23,226,956
Other interest-earning assets -- 37,870
- -----------------------------------------------------------------------------
14,436,409 34,081,448
- -----------------------------------------------------------------------------
Sources of Funds:
Savings and time deposits (1) 6,830,792 18,549,199
Commercial CDs -- 1,018,848
Other interest-bearing liabilities 717,468 8,457,841
Non-interest-bearing sources 6,055,560 6,055,560
- -----------------------------------------------------------------------------
13,603,820 $34,081,448
- -----------------------------------------------------------------------------
Asset (Liability) Interval Gap 832,589
Net effect of off-balance-sheet instruments --
- -----------------------------------------------------------------------------
Asset (Liability) Sensitivity Gap:
Period gap 832,589
Cumulative gap $ --
- -----------------------------------------------------------------------------
</TABLE>
(1) Included in these balances are $956.3 million of ret ail certificates of
deposit $100,000 and over maturing as follows: $242.8 million - less than
three months; $165.6 million - three to six months; $219.5 million - six to
twelve months; and $328.4 million - more than twelve months.
30
<PAGE>
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 December 31, 1999,
the Company would expect an increase of approximately $66.5 million in net
interest income and a decrease of approximately $74.2 million in net interest
income if interest rates decrease or increase by 100 basis points, respectively,
from current rates in an immediate and parallel shock over a twelve-month
period.
Asset and liability management efforts also involve the use of derivatives,
primarily interest rate swaps, to modify the interest rate characteristics of
designated assets and liabilities. These derivatives are accounted for as hedges
and are not recorded on the balance sheet. Income or expense related to these
instruments is accrued monthly and recognized as an adjustment to interest
income or interest expense for those balance sheet instruments being hedged. For
the year ended December 31, 1999, derivative financial instruments reduced net
interest income by $1.3 million compared to a $1.9 million reduction during
1998.
The following table illustrates the aggregate notional amounts and expected
maturities of interest rate swaps, interest rate caps, foreign currency and
foward contracts at December 31, 1999.
- -----------------------------------------------------------------------------
Derivative Financial Instruments
Weighted
Notional Avg. Est.
(In millions) Amount Maturity
- -----------------------------------------------------------------------------
Interest rate swaps:
Receive fixed/pay floating $ 10.0 12/03
Receive floating/pay fixed 200.0 8/00
Interest rate caps 63.7 9/00
Foreign currency contracts 115.8 3/00
Forward contracts 17.0 2/00
- -----------------------------------------------------------------------------
$406.5 8/00
- -----------------------------------------------------------------------------
The notional values of these instruments represent the contractual balances on
which calculations of the amount of interest to be exchanged are based. The caps
were purchased to accommodate customers who desire rate protection on variable
rate loans.
The following table illustrates the interest rate swap activity for the past two
years.
- ----------------------------------------------------------------------
Interest Rate Swap Activity
(In millions) 1999 1998
- ----------------------------------------------------------------------
Balance, beginning of year $ 316.2 $ 433.2
Additions 10.0 250.0
Maturities/amortization (116.2) (367.0)
- ----------------------------------------------------------------------
Balance, end of year $ 210.0 $ 316.2
- ----------------------------------------------------------------------
The Company has limited or no market risk associated with foreign currencies,
commodities or other marketable instruments.
Liquidity:
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.
Bank liquidity is the ability to support asset growth while satisfying the
borrowing needs and deposit withdrawal requirements of customers. Traditional
sources of liquidity include asset maturities, asset repayments and deposit
growth. 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 December
31, 1999, 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 from bank subsidiaries is subject to certain regulatory restrictions
which are discussed more fully in Note 20 of the Notes to Consolidated Financial
Statements. 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
SEC. Terms of the securities will be set at the time of issuance. As of December
31, 1999, none of this debt or preferred stock had been issued.
The Consolidated Statements of Cash Flows on page 37 present the changes in cash
from operating, investing and financing activities. At December 31, 1999, the
balance of cash was $1.2 billion, an increase of $30.7 million from the end of
the prior year.
Net cash provided by operating activities totaled $625.0 million in 1999
compared to $498.0 million in 1998. The primary source of funds is net income
from operations adjusted for: provision for loan losses, depreciation expenses,
amortization of intangibles and restructuring charges.
Net cash used in investing activities totaled $2.1 billion in 1999 compared to
$2.4 billion in 1998. The decline in usage resulted from a lower net increase in
loans.
Net cash provided by financing activities amounted to $1.5 billion in 1999
compared to $1.8 billion in 1998. The decrease in 1999 resulted primarily from a
decline in proceeds from long-term debt issuance, increases in dividend payments
and purchases of common stock, partially offset by an increase in other borrowed
funds and deposits.
31
<PAGE>
The securities portfolios are also a source of liquidity, providing cash flows
from maturities and periodic repayments of principal. During 1999, maturities of
investment securities totaled $3.7 billion. Contractual and anticipated
principal payments from the securities portfolios are expected to be
approximately $1.7 billion in 2000. In addition, all or part of the $5.2 billion
securities available for sale portfolio could be sold. Cash flows are also
derived from loan maturities, which in 2000 are projected to approximate $6.1
billion, adjusted for anticipated prepayments.
1998 Compared with 1997
For the year ended December 31, 1998, the Company reported net income of $465.8
million, or $2.63 per diluted share, compared to $371.0 million, or $2.09 per
diluted share, in 1997. Results for 1997 included merger-related restructuring
charges of $83.0 million ($53.7 million after tax) associated with the
acquisitions of Collective Bancorp, Inc. and BMJ Financial Corp. Excluding the
effects of these non-recurring charges, net income for 1997 was $424.7 million,
or $2.39 per diluted share. Excluding the effect of non-recurring items, return
on average assets improved to 1.51% in 1998 compared to 1.47% in the prior year,
and return on average common equity rose to 17.50% versus 17.08% in 1997. The
efficiency ratio increased to 51.41% from 50.28% in 1997.
The Company's performance for 1998 was highlighted by loan growth, improvement
in non-interest income as a result of the insurance acquisitions, the inclusion
of the Company in the S&P 500 Index and the expansion of the franchise into
Connecticut.
Interest income on a tax-equivalent basis was $2.2 billion in 1998, an increase
of $108.1 million, or 5.2%, compared to 1997. This increase was primarily a
result of the growth in average interest-earning assets, which increased $2.0
billion, or 7.4%, to $29.2 billion. Growth in the average loan and investment
portfolios of $1.3 billion and $752.0 million, respectively, contributed $161.2
million to interest income. Partially offsetting the contribution from earning
asset growth was a decline in the average yield. The average yield on
interest-earning assets was 7.48% for 1998 compared to 7.64% for 1997, a
decrease of 16 basis points, which reduced interest income by $49.4 million.
This decrease was a result of reinvestment of cash flows from maturities and
repricing of floating-rate assets in a lower interest-rate environment.
Interest expense for 1998 was $1.0 billion, an increase of $81.8 million, or
8.9%, from 1997. The increase in average interest-bearing liabilities of $1.5
billion, or 6.7%, in 1998, generated $88.6 million of the increase in interest
expense. The average cost of interest-bearing liabilities increased from 4.20%
in 1997 to 4.28% in 1998. The increased rate resulted from a shift into
higher-yielding deposit instruments, as well as greater reliance on borrowed
funds and long-term debt as sources of funding.
Net interest income on a tax-equivalent basis amounted to $1.2 billion in 1998,
an increase of $26.3 million, or 2.3%, from 1997. Net interest spread on a
tax-equivalent basis declined 24 basis points to 3.20% in 1998 compared to 3.44%
in 1997. Net interest margin decreased to 4.05% in 1998 from 4.26% in 1997. The
stock repurchase program, although accretive to earnings per share, had a slight
negative impact to interest margin.
Non-interest income, including securities gains, amounted to $350.2 million in
1998 compared to $301.9 million the prior year, an increase of $48.3 million, or
16.0%. Increases were realized in all categories; service charges on deposit
accounts increased $10.6 million, or 9.2%, service and loan fee income increased
$5.4 million, or 10.3%, and investment and insurance fees increased $23.5
million, or 80.3%. The acquisitions of insurance businesses contributed
approximately $15.0 million of the total growth in insurance fees and the growth
in sales of mutual funds contributed $8.0 million to investment fees. Trust
income increased $2.7 million, or 6.7% due to increased investment advisory fees
including advisory fees from the Pillar Funds(R). Included in other income for
1998 were realized gains of $8.1 million from limited partnership investments.
These gains were largely offset by a $6.8 million decrease in gains from the
sale of branches and deposits compared to 1997. Securities gains amounted to
$6.6 million, an increase of $1.0 million, or 17.9%, over 1997.
Non-interest expenses for 1998 totaled $782.8, an increase of $49.1 million, or
6.7%, compared to $733.7 million, excluding $83.0 million of restructuring
charges in 1997. The restructuring charges in 1997 were recorded in conjunction
with acquisitions. Approximately $19.0 million of the 1998 increase was
attributable to operating expenses of the acquired companies not included in
1997 results. Excluding these items, the growth in expense in 1998 was 4.1%.
Salaries expense totaled $309.0 million in 1998, an increase of $18.5 million,
or 6.4%, compared to 1997. The increase resulted from annual merit increases and
increased staff due to acquisitions. Additionally, as a result of increased
revenue growth and the linking of compensation with revenue production,
commissions paid increased $9.8 million in 1998. Pension and other employee
benefits totaled $107.7 million for 1998, up $13.9 million, or 14.9%, from 1997.
In addition to increases related to higher salary expenses, $7.6 million of the
increase was associated with incentive programs and long-term stock performance
awards.
Furniture and equipment expense totaled $84.5 million, an increase of $6.2
million, or 7.9%, from 1997. The increase was primarily due to additional
leasing expenses associated with computer equipment installed at branches to
support teller and on-line operations and expanded ATM locations. Net occupancy
expense increased $2.7 million, or 3.7%, from the prior year due primarily to
additional rent expense related to expanding the network of supermarket
branches. Communications expense totaled $36.8 million, an increase of $1.6
million, or 4.5%, compared to the prior year. The increase was generally related
to expanded voice and data transmission systems and increased usage to support
on-line operations.
32
<PAGE>
Other expenses which consist primarily of legal and professional fees, and
advertising and public relations expenses were $150.5 million in 1998, an
increase of $5.9 million, or 4.1%, compared to 1997. Companies acquired since
December 1997 generated $8.2 million of these increased expenses. Partially
offsetting these expenses was a decrease in OREO expenses of $5.2 million.
Included in other expenses are $6.0 million and $4.0 million of external costs
related to the Year 2000 remediation for 1998 and 1997, respectively.
Federal and state tax expenses for 1998 were $209.4 million, an increase of $9.2
million from 1997. The combined effective Federal and state tax rate was 31.0%
in 1998 versus 35.1% in 1997. The decrease in effective tax rate was the result
of the implementation of business strategies, including the reorganization of
corporate entities.
Year 2000 Readiness Disclosure
Issues surrounding the Year 2000 arose out of the fact that many computer
programs use only two digits to identify a year in the date field. Computer
hardware and software that had not been made Year 2000 ready would likely
interpret "00" as year 1900 rather than year 2000.
Summit began work in 1995 to remediate its information technology ("IT") and
non-IT systems for the Year 2000. Programming changes and testing for internal
mission-critical computer systems were substantially completed in 1998, and the
330 software systems being tracked by the Company were remediated, tested and
confirmed as Year 2000 ready as of March 31, 1999. Summit's testing covered
mission-critical, as well as non-mission-critical computer systems.
Summit's operations continued to function through and after the date change,
from December 31, 1999, to January 1, 2000, and through the "event" period
ending January 4, 2000. The Company has experienced no significant Year
2000-related customer service disruptions during that period or since that date.
Through the date change, Summit customers were able to continue to access their
accounts and conduct business with Summit Bank, and Summit's ATM network
continued to be operational. There was no negative impact due to problems with
telecommunications, or electric or water utilities. Although extensive
contingency plans had been prepared for dealing with a broad range of potential
internal and external issues, such as loss of electrical power or other problems
presented by external vendors or service providers, none were required to be
executed.
Throughout 1999, Summit communicated its Year 2000 readiness progress to
customers. To further reassure its customers, more than 400 Summit branches were
open for business on New Year's Day, and supermarket branches were open as usual
on Sunday, January 2, 2000.
The estimated cost of the Year 2000 project is $23.4 million. The project was
staffed with both external contract and internal personnel. This estimate
includes the cost of retention programs for key systems personnel, a portion of
which will be paid in 2000. To date, internal costs totaling $8.6 million have
been incurred. These costs include compensation and benefits for internal
personnel assigned full-time to the project, the retention program and other
ancillary costs. In addition, $12.7 million of external costs, including
external contract personnel and payments to third parties, have been incurred to
date. Total costs incurred to date are $21.3 million.
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 the Company.
Reaching Higher -- Looking Ahead
This report contains certain forward-looking statements, either expressed or
implied, which are provided to assist the reader in understanding 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 overall economy and the interest
rate environment; the ability of customers to repay their obligations; the
adequacy of the allowance for loan losses; the progress of integrating acquired
financial institutions; competition; significant changes in accounting, tax or
regulatory practices and requirements; and technological changes. Although
management has taken certain steps to mitigate any negative effect of the
aforementioned items, significant unfavorable changes could severely impact the
assumptions used and have an adverse effect on profitability.
33
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
At December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 1,160,577 $ 1,129,859
Federal funds sold and securities purchased under agreements to resell 5,000 28,829
Interest-bearing deposits with banks 32,870 26,360
Securities:
Trading account securities 20,118 12,553
Securities available for sale 5,199,121 3,970,941
Securities held to maturity (fair value approximates $5,388,071 and $6,030,840) 5,597,383 6,015,810
- ------------------------------------------------------------------------------------------------------------------------------
Total securities 10,816,622 9,999,304
- ------------------------------------------------------------------------------------------------------------------------------
Loans 23,226,956 21,126,577
Less: Allowance for loan losses 328,828 322,814
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 22,898,128 20,803,763
- ------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 315,632 286,050
Goodwill and other intangibles 519,362 295,461
Accrued interest receivable 214,797 195,708
Due from customers on acceptances 22,311 18,089
Other assets 393,676 317,891
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $36,378,975 $33,101,314
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 5,070,599 $ 4,933,787
Interest-bearing deposits:
Savings and time deposits 18,549,199 17,250,295
Commercial certificates of deposit $100,000 and over 1,018,848 961,046
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 24,638,646 23,145,128
- ------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds 4,593,064 3,189,988
Accrued expenses and other liabilities 357,152 358,542
Accrued interest payable 100,845 94,430
Bank acceptances outstanding 22,311 18,089
Long-term debt 3,864,777 3,572,710
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 33,576,795 30,378,887
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies -- --
Shareholders' equity:
Common stock par value $.80:
Authorized 390,000 shares; issued 177,471 and 177,632 141,977 142,106
Surplus 959,934 1,013,393
Retained earnings 1,948,985 1,728,135
Employee stock ownership plan obligation (1,250) (3,394)
Accumulated other comprehensive (loss) income, net of tax (85,841) 12,087
Treasury stock (4,825 and 3,873 shares at cost) (161,625) (169,900)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,802,180 2,722,427
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $36,378,975 $33,101,314
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans $1,691,359 $1,580,658 $1,505,840
Securities:
Trading account securities 606 1,224 2,438
Securities available for sale 277,651 292,953 243,103
Securities held to maturity 383,361 298,085 308,508
- --------------------------------------------------------------------------------------------------------------------------------
Total securities 661,618 592,262 554,049
Federal funds sold and securities purchased under agreements to resell 1,243 876 4,084
Deposits with banks 1,716 1,416 733
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,355,936 2,175,212 2,064,706
- --------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Savings and time deposits 643,418 618,873 633,774
Commercial certificates of deposit $100,000 and over 43,758 54,020 48,245
Other borrowed funds and long-term debt 402,606 328,513 237,598
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,089,782 1,001,406 919,617
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,266,154 1,173,806 1,145,089
Provision for loan losses 128,000 66,000 59,100
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,138,154 1,107,806 1,085,989
- --------------------------------------------------------------------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 123,545 125,145 114,569
Service and loan fee income 60,864 57,586 52,205
Trust income 51,247 42,854 40,155
Investment fees 41,793 35,686 27,650
Insurance fees 32,316 16,973 1,558
Securities gains 9,805 6,646 5,637
Other 77,748 65,337 60,111
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 397,318 350,227 301,885
- --------------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense
Salaries 338,678 308,974 290,515
Pension and other employee benefits 117,389 107,659 93,711
Furniture and equipment 94,833 84,479 78,259
Occupancy, net 80,406 74,754 72,074
Communications 37,697 36,799 35,214
Amortization of goodwill and other intangibles 29,628 19,630 19,273
Restructuring charges 27,900 -- 83,000
Other 151,607 150,512 144,645
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 878,138 782,807 816,691
- --------------------------------------------------------------------------------------------------------------------------------
Income before taxes 657,334 675,226 571,183
Federal and state income taxes 214,711 209,407 200,218
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $ 442,623 $ 465,819 $ 370,965
- --------------------------------------------------------------------------------------------------------------------------------
Net Income per Common Share:
Basic $ 2.56 $ 2.66 $ 2.12
Diluted 2.54 2.63 2.09
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Common Retained ESOP Comprehensive
(In thousands) Stock Surplus Earnings Obligation (Loss) Income
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $134,637 $ 918,411 $1,237,892 $ (5,816) $ 5,714
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance of immaterial pooled
acquisitions (6,047 shares) 4,837 34,705 25,562 -- (278)
Adjustment for the pooling of a company with
different fiscal year end (197 shares) (158) (4,771) 9,288 539 1,832
Comprehensive income:
Net income -- -- 370,965 -- --
Unrealized holding gains on securities arising
during the period (net of tax of $9,300) -- -- -- -- 17,271
Less: Reclassification adjustment for gains
included in net income (net of tax of $1,973) -- -- -- -- 3,664
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains on securities
arising during the period (net of tax
of $7,327) -- -- -- -- 13,607
- --------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
Cash dividends declared on common stock -- -- (176,514) -- --
Employee stock plans (2,444 shares) 1,956 42,084 -- -- --
Shares acquired and issued for acquisitions
(495 shares) -- (3,148) -- -- --
ESOP debt repayment -- -- -- 1,076 --
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 141,272 987,281 1,467,193 (4,201) 20,875
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 465,819 -- --
Unrealized holding losses on securities arising
during the period (net of tax of $2,406) -- -- -- -- (4,468)
Less: Reclassification adjustment for gains
included in net income (net of tax of $2,326) -- -- -- -- 4,320
Net unrealized holding losses on securities
arising during the period (net of tax
of $4,732) -- -- -- -- (8,788)
- --------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
Cash dividends declared on common stock -- -- (204,877) -- --
Employee stock plans (1,552 shares) 834 22,557 -- -- --
Treasury shares issued for acquisitions
(3,637 shares) -- 3,555 -- -- --
Purchase of common stock (8,020 shares) -- -- -- -- --
ESOP debt repayment -- -- -- 807 --
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 142,106 1,013,393 1,728,135 (3,394) 12,087
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 442,623 -- --
Unrealized holding losses on securities arising
during the period (net of tax of $54,499) -- -- -- -- (91,555)
Less: Reclassification adjustment for gains
included in net income (net of tax of $3,432) -- -- -- -- 6,373
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized holding losses on securities
arising during the period (net of tax
of $57,931) -- -- -- -- (97,928)
- --------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
Cash dividends declared on common stock -- -- (221,773) -- --
Employee stock plans (973 shares) (129) (43,451) -- -- --
Treasury shares issued for acquisitions
(8,541 shares) -- (10,008) -- -- --
Purchase of common stock (10,627 shares) -- -- -- -- --
ESOP debt repayment -- -- -- 2,144 --
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $141,977 $ 959,934 $1,948,985 $(1,250) $(85,841)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------
Total
Treasury Shareholders'
(In thousands) Stock Equity
- ---------------------------------------------------------------------------------
Balance, December 31, 1996 $ -- $2,290,838
- ---------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance of immaterial pooled
acquisitions (6,047 shares) -- 64,826
Adjustment for the pooling of a company with
different fiscal year end (197 shares) -- 6,730
Comprehensive income:
Net income -- 370,965
Unrealized holding gains on securities arising
during the period (net of tax of $9,300)
Less: Reclassification adjustment for gains
included in net income (net of tax of $1,973)
- ---------------------------------------------------------------------------------
Net unrealized holding gains on securities
arising during the period (net of tax
of $7,327) -- 13,607
- ---------------------------------------------------------------------------------
Total comprehensive income 384,572
Cash dividends declared on common stock -- (176,514)
Employee stock plans (2,444 shares) -- 44,040
Shares acquired and issued for acquisitions
(495 shares) -- (3,148)
ESOP debt repayment -- 1,076
- ---------------------------------------------------------------------------------
Balance, December 31, 1997 -- 2,612,420
- ---------------------------------------------------------------------------------
Comprehensive income:
Net income -- 465,819
Unrealized holding losses on securities arising
during the period (net of tax of $2,406)
Less: Reclassification adjustment for gains
included in net income (net of tax of $2,326)
Net unrealized holding losses on securities
arising during the period (net of tax
of $4,732) -- (8,788)
- ---------------------------------------------------------------------------------
Total comprehensive income 457,031
Cash dividends declared on common stock -- (204,877)
Employee stock plans (1,552 shares) 24,298 47,689
Treasury shares issued for acquisitions
(3,637 shares) 168,091 171,646
Purchase of common stock (8,020 shares) (362,289) (362,289)
ESOP debt repayment -- 807
- ---------------------------------------------------------------------------------
Balance, December 31, 1998 (169,900) 2,722,427
- ---------------------------------------------------------------------------------
Comprehensive income:
Net income -- 442,623
Unrealized holding losses on securities arising
during the period (net of tax of $54,499)
Less: Reclassification adjustment for gains
included in net income (net of tax of $3,432)
- ---------------------------------------------------------------------------------
Net unrealized holding losses on securities
arising during the period (net of tax
of $57,931) -- (97,928)
- ---------------------------------------------------------------------------------
Total comprehensive income 344,695
Cash dividends declared on common stock -- (221,773)
Employee stock plans (973 shares) 46,742 3,162
Treasury shares issued for acquisitions
(8,541 shares) 352,677 342,669
Purchase of common stock (10,627 shares) (391,144) (391,144)
ESOP debt repayment -- 2,144
- ---------------------------------------------------------------------------------
Balance, December 31, 1999 $(161,625) $2,802,180
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
Summit Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Years ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 442,623 $ 465,819 $ 370,965
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 128,000 66,000 59,100
Depreciation, amortization, and accretion, net 76,937 50,883 60,433
Restructuring charges 27,900 -- 83,000
Deferred income tax 15,717 11,682 (23,318)
Gains on sales of securities (9,805) (6,646) (5,637)
Gains on sales of mortgages held for sale (14,561) (17,086) (7,516)
Gains on the sales of other real estate owned (2,105) (6,068) (4,663)
Proceeds from sales of other real estate owned 11,163 21,576 34,258
Proceeds from sales of mortgages held for sale 663,397 876,397 451,656
Originations of mortgages held for sale (707,598) (1,035,090) (485,452)
Net (increase) decrease in trading account securities (7,565) 21,248 (10,423)
Net change in other accrued and deferred income and expense 924 49,256 (36,416)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 625,027 497,971 485,987
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of securities held to maturity (1,657,884) (4,192,516) (714,874)
Purchases of securities available for sale (3,400,702) (2,467,055) (3,070,103)
Proceeds from maturities of securities held to maturity 2,102,701 2,318,432 1,197,368
Proceeds from maturities of securities available for sale 1,608,597 2,519,623 1,005,560
Proceeds from sales of securities available for sale 706,862 1,257,363 825,870
Net decrease (increase) in Federal funds sold, securities purchased under
agreements to resell, and interest-bearing deposits with banks 36,065 (31,705) 169,630
Net increase in loans (1,403,093) (1,702,668) (775,555)
Purchases of premises and equipment, net (71,466) (61,466) (39,566)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,078,920) (2,359,992) (1,401,670)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in deposits 492,781 367,858 (150,175)
Net increase (decrease) in short-term borrowings 1,395,128 (344,491) 666,336
Principal payments on long-term debt, net (385,309) (268,505) (101,436)
Proceeds from issuance of long-term debt, net of related expenses 560,185 2,594,231 441,300
Dividends paid (217,687) (199,759) (167,663)
Proceeds from issuance of common stock under stock option plans 9,730 16,939 38,495
Purchase of common stock (391,144) (362,289) (21,859)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,463,684 1,803,984 704,998
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks 9,791 (58,037) (210,685)
Beginning cash balance of acquired entities 20,927 14,778 56,296
Cash and due from banks, beginning of year 1,129,859 1,173,118 1,327,507
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year $ 1,160,577 $ 1,129,859 $ 1,173,118
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure
Cash paid:
Interest payments $ 1,084,827 $ 978,844 $ 905,933
Income tax payments 169,460 150,581 211,163
Noncash investing activities:
Net transfer of securities held to maturity to securities available for sale -- -- 805,854
Net transfer of loans to other real estate owned 7,741 5,486 20,485
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
Notes to Consolidated Financial Statements
Note 1 Summary of Significant
Accounting Policies
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles and prevailing industry standards. The
following is a description of the signiifcant accounting policies used in the
preparation of the Consolidated Financial Statements.
Business:
Summit Bancorp (the "Company") is a bank holding company registered under the
Bank Holding Company Act of 1956. Through its bank and non-bank subsidiaries, a
full range of financial services are provided to its customers in a competitive
environment. Summit Bancorp is regulated by various Federal and state agencies
and is subject to periodic examinations by those regulatory authorities.
Principles of Consolidation:
The accompanying Consolidated Financial Statements include the accounts of the
Company after elimination of all significant intercompany accounts and
transactions. Certain prior period amounts have been reclassified to conform to
the financial statement presentation of 1999. The reclassifications have no
effect on shareholders' equity or net income as previously reported.
Prior period financial statements have been restated to include the accounts and
results of operations for all material acquisitions accounted for as
pooling-of-interests combinations. For acquisitions using the purchase method of
accounting, results of operations are included from the date of acquisition. The
assets and liabilities of companies acquired under the purchase method of
accounting have been adjusted to estimated fair values at the date of
acquisition; the resulting net premium is being amortized into income over the
estimated remaining lives of the related assets and liabilities.
In the preparation of financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from these estimates.
Securities:
Securities are classified into one of three categories: trading account, held to
maturity and available for sale.
Securities that are purchased specifically for short-term appreciation with the
intent of selling in the near future are classified as trading account
securities. Trading account securities are carried at fair value with realized
and unrealized gains and losses reported in non-interest income.
Debt securities purchased with the intent and ability to hold until maturity are
classified as securities held to maturity and are carried at cost, adjusted for
amortization of premiums and accretion of discounts using the level yield
method.
All other securities, including equity securities, are classified as securities
available for sale. Securities available for sale may be sold prior to maturity
in response to changes in interest rates, prepayment risk, asset/liability
management or other factors. These securities are carried at fair value with
unrealized gains and losses reported, net of tax, in other comprehensive income
(loss), a separate component of shareholders' equity. Realized gains and losses,
which are generally computed using the specific identification method, are
reported in non-interest income.
Loans:
Loans are generally carried at the principal amount outstanding, net of unearned
discounts and deferred loan origination fees and costs. Interest income on loans
is accrued and credited to interest income as earned. Loan origination fees and
certain direct loan origination costs are deferred and amortized over the
estimated life of the loan. This amortization is recorded in interest income as
an adjustment to the yield using the level yield method. Other loan fees are
recognized as earned and are included in non-interest income.
Residential mortgage loans that are serviced for others are not included in the
Consolidated Balance Sheets. Fees earned for servicing loans are reported as
non-interest income primarily when the related loan payments are collected. Loan
servicing costs are charged to non-interest expense as incurred.
Loans held for sale consist of residential mortgages and are carried at the
lower of cost or market using the aggregate method. Gains and losses on loans
sold are included in non-interest income.
Non-performing loans consist of commercial and industrial, lease finance,
construction and development, and commercial mortgage loans for which the
accrual of interest has been discontinued. These loans are classified as
non-performing and are considered impaired when they are 90 days or more past
due as to principal or interest, or where reasonable doubt exists as to timely
collectibility.
At the time a loan is placed on non-accrual status, previously accrued and
uncollected interest is reversed against interest income. Interest income on
non-accrual loans may be credited to income on a cash basis; however, if
ultimate collectibility of principal is in doubt, interest collections are
applied as principal reductions. A loan is transferred to accrual status when it
is contractually current or when its future collectibility is expected.
38
<PAGE>
Summit Bancorp and Subsidiaries
Consumer loans and residential mortgages, which are collectively evaluated, are
excluded from the population of impaired loans. Interest accruals on consumer
and residential mortgages cease at 90 days, at which time previously accrued
interest is reversed. Generally, consumer loans which are not secured by real
estate are charged off when they are 120 days past due. All other loans, or
portions thereof, are charged off when deemed uncollectible.
The impairment of non-performing loans is measured based on the present value of
the expected future cash fiows, discounted at the loan's effective interest
rate, a readily determinable market value or the underlying value of collateral
for collateral dependent loans. The impaired loan's carrying value in excess of
the expected cash fiows or collateral value is specifically reserved or is
charged to the allowance for loan losses.
Allowance for Loan Losses:
The allowance for loan losses is a valuation reserve available for losses
incurred or 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 non-performing 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,
non-performing 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 both the commercial and retail portfolios. 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 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 loan losses may vary from
quarter to quarter due to loan growth or if there is a change in the inherent
risk in the loan portfolios.
Premises and Equipment:
Premises, furniture, equipment and leasehold improvements are stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization
are computed using the straight-line method. Premises, furniture and equipment
are depreciated over the estimated useful life of the assets, or terms of the
leases, as applicable. Estimated useful lives are ten to forty years for
premises, and three to ten years for furniture and equipment. Leasehold
improvements are generally amortized over the terms of the leases. Included in
premises and equipment are capitalized software costs, including salaries and
benefits for internally developed software. These costs are amortized over the
estimated useful life of the software. Estimated useful lives of software are
three to five years. Maintenance and repairs are charged to non-interest
expenses as incurred, while renewals and major improvements are capitalized.
Upon disposition, premises, furniture and equipment are removed from the
property accounts at their carrying amount with the resulting gain or loss
credited or charged to non-interest income.
Other Real Estate Owned ("OREO"):
Included in "Other Assets," OREO is carried at the lower of cost or fair value,
less estimated cost to sell. When a property is acquired, the excess of the
carrying amount over fair value, if any, is charged to the allowance for loan
losses. An allowance for OREO has been established, through charges to OREO
expense, to maintain
39
<PAGE>
properties at the lower of cost or fair value less estimated cost to sell.
Operating results, including rental income, operating expenses and gains and
losses realized from the sale of these properties, are included in non-interest
expenses.
Goodwill and Other Intangible Assets:
Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets acquired through purchase acquisitions. The
amortization of goodwill is on a straight-line basis over the estimated periods
to be benefited, ranging from ten to twenty-five years, and is included in
non-interest expense.
Other intangible assets primarily consist of core deposit intangibles which
represent the intangible value of depositor relationships assumed in purchase
acquisitions. The amortization of these intangibles over their estimated periods
of benefit, ranging from five to ten years, is included in non-interest expense.
Mortgage Servicing Rights:
When mortgage loans (originated or purchased) are sold with servicing rights
retained, mortgage servicing rights are recorded. The cost of each mortgage loan
is allocated between the mortgage servicing right and the loan (without the
servicing right) based on their relative fair values. Mortgage servicing rights,
which are classified in "Other Assets," are amortized over the estimated net
servicing life and, on a quarterly basis, are evaluated for impairment based on
their fair value. The fair value is estimated using the present value of
expected future cash fiows along with numerous assumptions including servicing
income, cost of servicing, discount rates, prepayment anticipations and default
rates. The portfolio is stratified by loan type and interest rate, and
impairment adjustments, if any, are recognized through the use of a valuation
allowance.
Derivative Financial Instruments:
Off-balance-sheet financial derivatives are used as part of the overall
asset/liability management process. These instruments are used to manage risk
related to changes in interest rates. The portfolio of derivative financial
instruments generally consist of interest rate swaps, caps and floors.
Interest rate swaps are agreements with counterparties to exchange periodic
interest payments calculated on a notional principal amount and are accounted
for under the accrual method. To qualify for accounting under the accrual
method, the swaps must be designated to interest-bearing assets or liabilities
and must modify the interest rate characteristics of the designated asset or
liability over the term of the agreement or the designated instrument, whichever
is shorter. The net periodic interest payments or receipts arising from these
instruments are recognized in interest income or interest expense as yield
adjustments to the designated asset or liability.
Interest rate caps and floors are agreements in which, for an upfront premium
and on a predetermined future date, the counterparty agrees to pay an interest
amount based on the movement of specified market interest rates either above or
below a predetermined level. The payments, if applicable, are derived from the
measured rate variance multiplied by the contractual notional volume. To qualify
for accrual accounting, interest rate caps and floors must be designated to
interest-bearing assets or liabilities and must modify the interest rate
characteristics of the designated asset or liability over the term of the
agreement or the designated instrument, whichever is shorter. Costs of interest
rate caps and floors are deferred and amortized in interest income or interest
expense as adjustments to the yield of the designated instrument. Unamortized
costs are included in "Other Assets." Payments received on these caps and floors
are recognized, using the accrual method, as adjustments to interest income or
interest expense of the designated instruments.
Derivatives that are not used to manage interest rate risk are carried at market
value, with the changes in market value recognized in earnings. Additionally,
changes in the fair value of derivatives are also reported in the financial
statements, if they are hedging on-balancesheet financial instruments accounted
for at fair value, with the changes in market value recorded net of tax, in
shareholders' equity.
If derivatives are terminated, realized gains and losses on these instruments
are deferred and amortized in interest income or interest expense as yield
adjustments to the designated asset or liability over the shorter of the
remaining life of the agreement or the designated instrument. If the designated
asset or liability related to a derivative matures, is sold, extinguished or
terminated, the amount of the previously unrecognized gain or loss is recognized
at that time in earnings.
Stock-Based Compensation:
Stock-based compensation is accounted for using the intrinsic value based method
as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." Included in Note 13 of the Notes to Consolidated
Financial Statements are the proforma disclosures required by Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which assumes the fair value based method of accounting has been
adopted.
40
<PAGE>
Retirement Plans:
Several formal non-contributory retirement plans exist which cover substantially
all full-time employees. Annual contributions are made to the plans in amounts
at least equal to the minimum regulatory requirements and no greater than the
maximum amount that can be deducted for Federal income tax purposes. The costs
associated with these benefits are accrued based on actuarial assumptions and
included in non-interest expense.
Restructuring Charges:
Restructuring charges are recorded in conjunction with acquisitions that are
accounted for as poolings of interests and the subsequent merger of the acquired
entity's operations. These charges include only identified direct and
incremental costs associated with said acquisitions such as personnel expenses,
real estate costs, professional fees, data processing and other merger-related
costs. Personnel expenses include severance pay and benefits for terminated
employees, including external placement costs. Terminated employees include
employees of both acquired entities and the Company whose jobs have been
eliminated due to redundant operations. Real estate costs result from the
disposal of branches and other operational facilities that are considered
duplicate operations. These include lease termination costs, leasehold
improvements and other facility-related costs. Professional fees include costs
for investment banking, accounting and legal fees. Data processing costs include
the termination of contracts and the disposal or write-off of duplicate or
non-usable software or hardware systems. Additional charges include costs
incurred for account conversions, regulatory communications and other merger
costs.
Restructuring charges are also recorded in conjunction with certain business
realignments. Only those costs where the nature, timing and amount can be
reasonably estimated; that are not associated with or do not benefit activities
that will continue; and that are direct and incremental costs associated with
the realignment are included. Personnel expenses include severance pay and
benefits for terminated employees including external placement costs. Real
estate costs are incurred when facilities are consolidated or relocated and
include lease termination costs in the immediate future, leasehold improvements
and other facility-related costs.
Restructuring charges are re-evaluated for events or changes in circumstances
that may indicate an accrued cost is no longer needed for its originally
intended purpose.
Income Taxes:
The amount provided for Federal income taxes is based on income reported for
Consolidated Financial Statement purposes, after elimination of Federal
tax-exempt income. The amount provided for state income taxes is based on income
reported by each subsidiary on a stand-alone basis.
Deferred Federal and state tax assets and liabilities are recognized for the
expected future tax consequences of existing differences between financial
statement and tax bases of existing assets and liabilities, as well as for
operating losses. The effect of a change in the tax rate on deferred taxes is
recognized in the period of the enactment date.
A consolidated Federal income tax return is filed with the amount of income tax
expense or benefit computed and allocated to each subsidiary on a separate
return basis.
Net Income per Common Share:
Basic net income per common share is calculated by dividing net income, less the
dividends on preferred stocks, if any, by the average common shares outstanding
during the period.
Diluted net income per share is computed in a manner similar to that of basic
net income per 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 were issued during the reporting period.
41
<PAGE>
Note 2 Business Combinations and Restructuring Charges
Acquisitions:
On January 3, 2000, a definitive merger agreement was announced to acquire
Meeker Sharkey Financial Group. Meeker Sharkey is an insurance broker offering
an array of property and casualty products, group health insurance benefits and
retirement plan services. This transaction is expected to be consummated in the
first quarter of 2000 with the issuance of 1.3 million treasury shares and will
be accounted for as a purchase, generating approximately $22.0 million in
goodwill.
On October 4, 1999, a definitive merger agreement was announced to acquire NMBT
Corp., which operates 10 branches in Connecticut. At December 31, 1999, NMBT
Corp. had total assets of $403.1 million, loans of $261.1 million and deposits
of $305.3 million. The transaction is expected to be consummated in the first
quarter of 2000 and will be accounted for as a purchase with the issuance of
approximately 2.5 million treasury shares. The cost in excess of net assets
acquired will result in goodwill of approximately $50.0 million.
The acquisition of Prime Bancorp, which operated 27 branches in Pennsylvania,
was completed on August 1, 1999. This acquisition was accounted for as a
purchase transaction and Prime Bancorp's results of operations have been
included since the acquisition date.
The acquisition of New Canaan Bank and Trust Company, which operated four
branches in Connecticut, was completed on March 31, 1999. This acquisition was
accounted for as a purchase transaction and New Canaan Bank and Trust Company's
results of operations have been included since the acquisition date.
The acquisition of NSS Bancorp, Inc., which operated eight branches in
Connecticut, was completed on November 21, 1998. This acquisition was accounted
for as a purchase transaction and NSS Bancorp's results of operations have been
included since the acquisition date. On April 23, 1999, NSS Bancorp, Inc. and
New Canaan Bank and Trust Company were combined and now operate as Summit Bank,
CT.
W.M. Ross and Company, Inc., a property and casualty insurance brokerage firm,
was acquired on August 31, 1998, with the issuance of 280 thousand shares of
treasury stock. The acquisition was accounted for as a purchase transaction and
W.M. Ross and Company's results of operations have been included since the
acquisition date. The cost in excess of the fair value of net assets acquired
resulted in goodwill of $12.4 million which is being amortized over a 15-year
period.
Spectrum Financial Group, Inc., an employee benefits brokerage operation, was
acquired on October 30, 1998, using 383 thousand shares of treasury stock. Its
operations are conducted through its wholly-owned subsidiary known by its
registered alternative name, Madison Consulting Group. The acquisition was
accounted for as a purchase transaction and Madison Consulting Group's results
of operations have been included since the acquisition date. The cost in excess
of the fair value of net assets acquired resulted in goodwill of $14.1 million
which is being amortized over a 15-year period.
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. Substantially all
employees affected by the realignment have been notified. The realignment is
expected to be completed in 2000. Liquidity is not anticipated to be
significantly impacted by this charge. The table below displays a rollforward of
the liabilities for business restructuring charges for the year ended December
31, 1999.
- ----------------------------------------------------------------------
Restructuring Charges
(In millions)
Estimated Accrual
Type of cost Liability Deductions Reserves
- ----------------------------------------------------------------------
Severance and benefits $26.1 $1.1 $25.0
Real estate and other 1.8 -- 1.8
- ----------------------------------------------------------------------
Total $27.9 $1.1 $26.8
- ----------------------------------------------------------------------
During 1997, the Company recorded restructuring charges of $83.0 million for
merger-related expenses associated with the Collective Bancorp, Inc. and BMJ
Financial Corp. acquisitions. The charges for these transactions have been fully
paid and utilized to integrate these acquisitions into the Company's operations
as of December 31, 1999.
A summary of completed bank acquisitions for the past three years is provided
below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Completed Bank Acquisitions
Goodwill &
Intangibles Amortization Shares Method of
(In millions) Date Assets Loans Deposits Recorded Period Issued Accounting
- ------------------------------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Bancorp Aug. 1 $1,065.0 $ 690.8 $ 846.8 $220.5 20 years 7.4 Purchase
New Canaan Bank and Trust Company Mar. 31 182.0 106.4 153.9 35.1 20 years 1.1 Purchase
1998
NSSBancorp, Inc. Nov. 21 654.9 410.0 448.0 100.1 20 years 3.0 Purchase
1997
Collective Bancorp, Inc. Aug. 1 5,478.6 2,910.6 3,472.5 -- N/A 27.3 Pooling
BMJ Financial Corp. Mar. 1 676.0 449.0 552.0 -- N/A 6.0 Pooling
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
Note 3 Securities
This table provides the major components of securities available for sale and
held to maturity at amortized cost and fair value at December 31,
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1999
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------
Securities Available for Sale:
<S> <C> <C> <C> <C>
U.S. Government and Federal agencies $3,878,712 $ 2,368 $ 111,508 $3,769,572
States and political subdivisions 12,283 -- 1,493 10,790
Other securities:
Mortgage-backed 949,005 165 25,957 923,213
Other debt 121,110 9 2,358 118,761
Equities, net 374,021 3,034 270 376,785
- ----------------------------------------------------------------------------------------
Total other 1,444,136 3,208 28,585 1,418,759
- ----------------------------------------------------------------------------------------
$5,335,131 $ 5,576 $ 141,586 $5,199,121
- ----------------------------------------------------------------------------------------
Securities Held to Maturity:
U.S. Government and Federal agencies $3,640,042 $ 2,335 $ 150,014 $3,492,363
States and political subdivisions 117,904 2,734 122 120,516
Other securities:
Mortgage-backed 1,792,416 435 63,135 1,729,716
Other debt 47,021 -- 1,545 45,476
- ----------------------------------------------------------------------------------------
Total other 1,839,437 435 64,680 1,775,192
- ----------------------------------------------------------------------------------------
$5,597,383 $ 5,504 $ 214,816 $5,388,071
- ----------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------- ----------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
(In thousands) Cost Gains Losses Value Value
- -----------------------------------------------------------------------------------------------------
Securities Available for Sale:
<S> <C> <C> <C> <C> <C>
U.S. Government and Federal agencies $2,900,023 $ 18,928 $ 14,659 $2,904,292 $4,431,069
States and political subdivisions 15,209 1 -- 15,210
11,121
Other securities:
Mortgage-backed 621,538 796 2,187 620,147 295,820
Other debt 67,912 778 68 68,622 39,903
Equities, net 346,250 17,068 648 362,670 296,983
- -----------------------------------------------------------------------------------------------------
Total other 1,035,700 18,642 2,903 1,051,439 632,706
- -----------------------------------------------------------------------------------------------------
$3,950,932 $ 37,571 $ 17,562 $3,970,941 $5,074,896
- -----------------------------------------------------------------------------------------------------
Securities Held to Maturity:
U.S. Government and Federal agencies $3,830,785 $ 18,248 $ 6,672 $3,842,361 $3,022,413
States and political subdivisions 144,563 7,156 4 151,715 180,715
Other securities:
Mortgage-backed 1,980,713 7,581 10,360 1,977,934 895,177
Other debt 59,749 433 1,352 58,830 59,238
- -----------------------------------------------------------------------------------------------------
Total other 2,040,462 8,014 11,712 2,036,764 954,415
- -----------------------------------------------------------------------------------------------------
$6,015,810 $ 33,418 $ 18,388 $6,030,840 $4,157,543
- -----------------------------------------------------------------------------------------------------
</TABLE>
Included in interest on securities held to maturity and securities available for
sale is tax-exempt income on certain state and municipal securities which
amounted to $8.8 million, $10.4 million and $13.3 million for 1999, 1998 and
1997, respectively.
Gross realized gains on securities available for sale amounted to $11.0 million,
$12.3 million and $8.3 million, while gross realized losses amounted to $1.2
million, $5.7 million and $2.4 million for the years 1999, 1998 and 1997,
respectively. These net amounts are included in non-interest income as
securities gains in the Consolidated Statements of Income. Also included in net
securities gains are gains and losses realized from the early redemption of
securities.
The carrying value of investment securities pledged to secure public funds and
securities sold under agreements to repurchase, as well as for other purposes
required by law, was $6.9 billion at December 31, 1999.
The table below provides the remaining contractual maturities and yields of
securities within the investment portfolios. The carrying value of securities at
December 31, 1999, is primarily distributed by contractual maturity.
Mortgage-backed securities and other securities, which may have principal
prepayment provisions, are distributed based on contractual maturity adjusted
for historical prepayments. Expected maturities will differ materially from
contractual maturities as a result of early prepayments and calls.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Within After one year After five years
one year through five years through ten years
----------------- ------------------- -------------------
(In thousands) Amount Yield Amount Yield Amount Yield
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale at Fair Value:
U.S. Government and Federal agencies $ 46,781 4.90% $650,679 5.68% $211,272 6.82%
States and political subdivisions 305 4.08 -- -- -- --
Other securities:
Mortgage-backed -- -- 33,230 6.89 51,357 6.15
Other debt 1,924 6.98 20,760 5.91
Equities, net 376,785 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total other 376,785 -- 35,154 6.89 72,117 6.08
- ----------------------------------------------------------------------------------------------------------------------
$423,871 4.89% $685,833 5.75% $283,389 6.63%
- ----------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity at Cost:
U.S. Government and Federal agencies $ 2,603 5.16% $ 33,667 6.51% $235,810 6.24%
States and political subdivisions 29,673 5.90 61,532 5.94 15,284 5.65
Other securities:
Mortgage-backed 129,995 6.34 147,292 6.17 174,821 6.52
Other debt 1,245 7.33 14,447 7.64 22,130 5.96
- ----------------------------------------------------------------------------------------------------------------------
Total other 131,240 6.35 161,739 6.30 196,951 6.46
- ----------------------------------------------------------------------------------------------------------------------
$163,516 6.25% $256,938 6.24% $448,045 6.32%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
After
ten years Total
--------------------- Carrying
(In thousands) Amount Yield Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities Available for Sale at Fair Value:
U.S. Government and Federal agencies $2,860,840 6.45% $3,769,572
States and political subdivisions 10,485 6.58 10,790
Other securities:
Mortgage-backed 838,626 6.26 923,213
Other debt 96,077 6.91 118,761
Equities, net -- -- 376,785
- -------------------------------------------------------------------------------------
Total other 934,703 6.33 1,418,759
- -------------------------------------------------------------------------------------
$3,806,028 6.42% $5,199,121
- -------------------------------------------------------------------------------------
Securities Held to Maturity at Cost:
U.S. Government and Federal agencies $3,367,962 6.26% $3,640,042
States and political subdivisions 11,415 6.03 117,904
Other securities:
Mortgage-backed 1,340,308 6.41 1,792,416
Other debt 9,199 6.45 47,021
- -------------------------------------------------------------------------------------
Total other 1,349,507 6.41 1,839,437
- -------------------------------------------------------------------------------------
$4,728,884 6.30% $5,597,383
- -------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
Note 4 Loans
The composition of the loan portfolio, net of unearned discount and deferred
loan origination fees and costs, at December 31 was as follows:
- ----------------------------------------------------------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------
Commercial and industrial $ 6,671,165 $ 5,964,667
Lease finance 862,490 809,935
Construction and development 600,842 381,972
- ----------------------------------------------------------------------
Total commercial loans 8,134,497 7,156,574
Commercial mortgage 3,174,370 2,888,597
Residential mortgage 5,747,927 5,719,305
- ----------------------------------------------------------------------
Total mortgage loans 8,922,297 8,607,902
Home equity 4,687,454 3,783,985
Automobile 1,040,286 1,110,919
Other consumer 442,422 467,197
- ----------------------------------------------------------------------
Total consumer loans 6,170,162 5,362,101
- ----------------------------------------------------------------------
$23,226,956 $21,126,577
- ----------------------------------------------------------------------
The Company's credit policy emphasizes diversification of risk among industries
and borrowers. Concentrations of credit risk, whether on or off the balance
sheet, exist in relation to certain groups of customers or counterparties. A
group concentration arises when a number of customers or counterparties have
similar economic characteristics that would compromise their ability to meet
contractual obligations or be similarly affected by changes in economic or other
conditions. Summit Bancorp does not have a significant exposure to any
individual customer, counterparty or group concentration.
The Company's business is concentrated in New Jersey, eastern Pennsylvania and
Connecticut. A significant portion of the total loan portfolio is secured by
real estate or other collateral located in these states. This concentration is
mitigated by the diversification of the loan portfolio among commercial,
construction, mortgage and consumer loans. The commercial and industrial loan
portfolio represents approximately 29% of the entire loan portfolio and has no
concentration greater than 10% to any specific industry.
At December 31, 1999, the ten largest commercial and commercial mortgage loans
have outstanding balances of $321.2 million and unexercised commitments of
$517.3 million.
Included in the commercial and commercial mortgage loan portfolios are loans
where the accrual of interest has been discontinued. These non-performing loans
were $100.3 million and $86.7 million at December 31, 1999, and 1998,
respectively. These loans will return to accrual status only if they become
contractually current and future collectibility of amounts due is reasonably
assured.
The average balance of non-performing loans for 1999 and 1998 was $91.2 million
and $76.9 million, respectively. The amount of cash basis interest income that
was received on these loans was $2.7 million in 1999 and $2.6 million in 1998.
Transactions in the allowance for loan losses were as follows:
- ------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------
Balance, January 1 $322,814 $296,494 $280,611
Acquired allowance 11,724 5,416 9,994
Provision charged to expense 128,000 66,000 59,100
- ------------------------------------------------------------------
462,538 367,910 349,705
- ------------------------------------------------------------------
Charge offs 156,465 74,042 86,675
Recoveries 22,755 28,946 33,464
- ------------------------------------------------------------------
Net charge offs 133,710 45,096 53,211
Balance, December 31 $328,828 $322,814 $296,494
- ------------------------------------------------------------------
The allocation of the allowance for loan losses at December 31, was as follows:
- -------------------------------------------------------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------
Allowance allocated to non-performing loans $ 15,558 $ 16,377
Allowance allocated to performing loans 193,456 141,933
Unallocated allowance 119,814 164,504
- -------------------------------------------------------------------
$328,828 $322,814
- -------------------------------------------------------------------
Included in residential mortgage loans are mortgage loans held for sale, which
approximated $65.5 million at December 31, 1999, and $183.3 million at December
31, 1998. These loans are accounted for at the lower of aggregate cost or market
value.
Unearned discounts on loans and leases at December 31, 1999, and 1998 were $76.1
million and $90.5 million, respectively.
Note 5 Premises and Equipment
The major components of premises and equipment at December 31 were as follows:
- ----------------------------------------------------------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------
Land $ 29,683 $ 30,353
Premises and leasehold improvements 358,202 342,322
Furniture, equipment and software 315,874 255,971
- ----------------------------------------------------------------------
703,759 628,646
Less accumulated depreciation and amortization 388,127 342,596
- ----------------------------------------------------------------------
$315,632 $286,050
- ----------------------------------------------------------------------
Amounts charged to non-interest expense for depreciation and amortization
amounted to $40.8 million in 1999, $34.8 million in 1998 and $36.2 million in
1997.
44
<PAGE>
Note 6 Other Assets
The major components of other assets at December 31 were as follows:
- ------------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------
Deferred tax assets, net $159,557 $117,343
Prepaid expenses 50,723 46,301
Limited partnership investments 22,486 11,617
Mortgage servicing rights, net 22,101 18,205
Other real estate owned, net 6,881 2,829
Other 131,928 121,596
- ------------------------------------------------------------------
$393,676 $317,891
- ------------------------------------------------------------------
Note 7 Deposits
The following is an expected maturity distribution of savings and time deposits
at December 31:
- ------------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------
Due in one year or less $16,321,798 $15,722,588
Due between one and two years 1,905,722 1,157,263
Due between two and three years 201,661 185,595
Due between three and four years 71,865 104,738
Due between four and five years 39,426 66,042
Due over five years 8,727 14,069
- ------------------------------------------------------------------
$18,549,199 $17,250,295
- ------------------------------------------------------------------
As of December 31, 1999, and 1998, there were $2.0 billion and $1.8 billion of
time deposits greater than $100,000 of which $1.0 billion and $961.0 million,
respectively, were classified as commercial certificates of deposit. The amount
of overdraft deposit relationships classified as loans was $26.9 million at
December 31, 1999, and $20.5 million at December 31, 1998.
The total amount of public funds held on deposit as of December 31, 1999, and
1998 was $1.5 billion and $1.3 billion, for which $152.4 million and $180.5
million of securities were pledged as collateral, respectively.
Note 8 Other Borrowed Funds
Other borrowed funds at December 31 consisted of the following:
- ---------------------------------------------------------------------------
(In thousands) 1999 1998
- ---------------------------------------------------------------------------
Federal Home Loan Bank advances $1,805,000 $ 910,000
Federal funds purchased 1,325,850 1,003,100
Securities sold under agreements to repurchase 1,300,554 1,062,591
Commercial paper 48,859 41,899
Treasury tax and loan 25,000 87,792
Other 87,801 84,606
- ---------------------------------------------------------------------------
$4,593,064 $3,189,988
- ---------------------------------------------------------------------------
Lines of credit at the Parent Corporation are available to support commercial
paper borrowings and for general corporate purposes. Interest on these lines of
credit approximates the prime lending rate at the time of borrowing. Unused
lines amounted to $33.0 million at December 31, 1999.
Note 9 Lease Commitments
Non-interest expenses include rentals for premises and equipment of $73.8
million in 1999, $72.0 million in 1998 and $62.6 million in 1997, after a
reduction for sublease rentals of $5.2 million, $3.7 million and $3.6 million in
each of the respective years. The Company was obligated under a number of
non-cancelable leases for premises and equipment, many of which provide for
increased rentals based upon increases in real estate taxes and the cost of
living index. These leases, most of which have renewal provisions, are
principally non-financing leases. Minimum rentals under the terms of these
leases for the years 2000 through 2004 are $67.9 million, $60.8 million, $51.2
million, $40.3 million and $29.7 million, respectively. Minimum rentals due
after 2004 are $142.0 million.
Note 10 Long-Term Debt
Long-term debt at December 31 consisted of the following:
- -----------------------------------------------------------------------------
(In thousands) 1999 1998
- -----------------------------------------------------------------------------
Long-term repurchase agreements,
4.31% to 5.88%, due 2000 through 2003 $1,804,125 $1,725,125
FHLB borrowings, 4.00% to 8.45%, due 2000
through 2016 1,660,577 1,443,790
8.625% Subordinated notes due December 10, 2002* 175,000 175,000
8.40% Capital Trust Pass-through Securities
due March 15, 2027 150,000 150,000
6.75% Subordinated notes due June 15, 2003 49,722 49,643
7.95% Senior notes due August 25, 2003* 20,000 20,000
Collateralized mortgage obligations 4,103 5,758
ESOP debt* 1,250 3,394
- -----------------------------------------------------------------------------
$3,864,777 $3,572,710
- -----------------------------------------------------------------------------
*Indicates Parent Corporation obligation.
The long-term repurchase agreements, which had original maturities of one year,
are secured by U.S. Government and Federal agency securities having a book value
of $3.9 billion. These agreements generally have callable features, which would
likely be exercised in a rising-rate environment.
The banking subsidiaries of Summit Bancorp are members of the Federal Home Loan
Bank ("FHLB") and have access to term financing from the FHLB having a maturity
of up to 30 years. The FHLB borrowings had original maturities greater than one
year and are secured by securities and residential mortgages under a blanket
collateral agreement.
45
<PAGE>
The 8.625% subordinated notes were issued in 1992 and are unsecured. Interest is
payable semi-annually on June 10 and December 10 of each year. The subordinated
notes are not subject to redemption prior to maturity. As of December 31, 1999,
$70.0 million of this debt qualified as Tier II capital.
On March 20, 1997, Summit Capital Trust I ("Trust"), a statutory business trust
and a wholly-owned subsidiary of Summit Bancorp, issued $150.0 million of 8.40%
Capital Trust Pass-through Securities ("Capital Securities") to investors and
$4.6 million of 8.40% Common Securities ("Common Securities") to Summit Bancorp,
both due March 15, 2027, (collectively, "Trust Securities"). The Capital
Securities have a preference over the Common Securities with respect to
liquidation and other distributions and qualify as Tier I capital. Proceeds from
the issuance of the Trust Securities were immediately used by the Trust to
purchase $154.6 million of 8.40% Junior Subordinated Deferrable Interest
Debentures of Summit Bancorp ("Subordinated Debentures"), due March 15, 2027,
with said debentures constituting the sole assets of the Trust. The Subordinated
Debentures are redeemable in whole or in part, prior to maturity but after March
15, 2007, at premiums which decline annually through the date of maturity. The
Trust is obligated to distribute all proceeds of a redemption, whether voluntary
or upon maturity, to holders of the Trust Securities. The Company's obligations
with respect to the Capital Securities and the Subordinated Debentures, when
taken together, provide a full and unconditional guarantee, on a subordinated
basis, by Summit Bancorp of the Trust's obligations to pay amounts when due on
the Capital Securities.
Summit Bank, NJ issued $50.0 million in 6.75% subordinated notes in 1993.
Unamortized discount on the subordinated notes was $278 thousand and $357
thousand at December 31, 1999, and 1998, respectively, resulting in an effective
interest rate of approximately 6.79%. Interest is payable semi-annually on June
15 and December 15 of each year. The 6.75% subordinated notes are not subject to
redemption prior to maturity. As of December 31, 1999, $29.8 million of this
debt qualified as Tier II Capital.
The 7.95% ten-year maturity private placement senior notes were issued in 1993
with interest payable quarterly. Summit Bancorp has the option to prepay the
notes, subject to certain prepayment provisions.
The collateralized mortgage obligations are secured by investments in
mortgage-backed securities. These mortgage-backed securities have interest rates
ranging from 7.25% to 9.50%.
Principal amounts due on the long-term debt for the years 2000 through 2004 and
thereafter are $888.9 million, $454.6 million, $409.1 million, $1.4 billion and
$687.6 million, respectively. On January 4, 2000, the ESOP debt was paid in
full.
Note 11 Shareholders' Equity
In April 1998, the Board of Directors authorized a stock repurchase of up to
five percent, or 8.9 million shares, of the Company's outstanding common stock.
During 1999, 3.2 million shares were acquired under the program and an
additional 7.4 million shares were purchased in connection with acquisitions.
The total cost of the purchases was $391.1 million. During 1998, 3.3 million
shares were acquired under the program and an additional 4.7 million shares were
purchased in connection with corporate acquisitions. The total cost of the
repurchases in 1998 was $362.3 million.
The following table summarizes shares of common stock reserved, available, in
treasury, issued and outstanding, and authorized as of December 31:
- ------------------------------------------------------------------
Number of shares (In thousands) 1999 1998
- ------------------------------------------------------------------
Unissued and reserved 11,279 5,250
Unissued and available 201,250 207,118
Treasury 4,825 3,873
Issued and outstanding 172,646 173,759
- ------------------------------------------------------------------
Total shares authorized 390,000 390,000
- ------------------------------------------------------------------
The total shares unissued and reserved represent the amount of shares registered
with the Securities and Exchange Commission under current registration
statements.
There were 6.0 million shares of preferred stock authorized as of December 31,
1999, and 1998, with no shares issued.
A Shareholder Rights plan exists which is designed to ensure fair and equal
treatment for all shareholders in the event of any proposal to acquire Summit
Bancorp. The terms of the plan provide that each share of common stock also
represents one "right." Each right will entitle the holder to buy 1/100 of a
share of a new series of preferred stock, Series S, upon the occurrence of
certain events. In addition, upon the occurrence of certain other events,
holders of the rights will be entitled to purchase either shares of this new
preferred stock or shares in an "acquiring person" at one-half of their fair
market value as determined under the plan.
46
<PAGE>
Note 12 Benefit Plans
The Company has a trusteed non-contributory defined benefit retirement plan
covering substantially all of its employees. The benefits are based on years of
service and the employees' final average compensation. The funding policy is to
contribute annually an amount that can be deducted for Federal income tax
purposes. Contributions are intended to provide not only for benefits attributed
for service to date, but also for those expected to be earned in the future. In
addition to pension benefits, certain health care and life insurance benefits
are made available to retired employees. The cost of such benefits are accrued
based on actuarial assumptions from the date of hire to the date the employee is
fully eligible to receive benefits.
Increasing or decreasing the assumed health care cost trend by one percent in
each year would not have a significant impact on the accumulated postretirement
benefit obligation as of January 1, 1999, and the aggregate of the service and
interest components of net benefit expense for the year ended December 31, 1999.
The Company also maintains non-qualified supplemental retirement plans for
certain officers of the company. The plans, which are unfunded, provide benefits
in excess of that permitted to be paid by the pension plan under provisions of
the tax law. The plans' cost was $5.3 million for 1999, $4.3 million for 1998
and $3.2 million in 1997. At December 31, 1999, the projected benefit obligation
amounted to $28.1 million and the accrued liability amounted to $14.1 million.
Various incentive plans have been established with the intention of providing
added incentive to middle and senior management to increase the profits of the
Company. The amounts of the awards are subject to limits as set forth in the
plans. Accruals for the plans amounted to $15.9 million, $13.8 million and $11.7
million in 1999, 1998 and 1997, respectively.
There is a Savings Incentive Plan which covers employees with one or more years
of service. The plan permits eligible employees to make contributions to the
plan of up to 15% of their base compensation. Under the current plan, the
employer matches 100% of the first 3%, and 50% of the next 3% of employee
contributions. Matching contributions to the plan amounted to $8.8 million, $5.4
million, and $7.0 million in 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
-------------------------------- --------------------------------
(In thousands) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation for services rendered to date Jan. 1 $312,738 $268,689 $239,892 $ 25,838 $ 27,104 $ 29,921
Service cost 16,574 13,869 10,876 606 376 303
Interest cost 22,002 20,662 19,293 1,942 1,745 1,997
Actuarial (gain) loss (23,496) 28,679 6,518 2,082 (219) (2,259)
Acquisition -- -- 8,242 -- -- --
Benefits paid (19,562) (19,161) (16,132) (2,926) (3,168) (2,858)
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation for services rendered to date Dec. 31 $308,256 $312,738 $268,689 $ 27,542 $ 25,838 $ 27,104
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets fair value Jan. 1 $327,356 $299,703 $250,289 $ -- $ -- $ --
Actual return on plan assets 60,332 35,208 43,699 -- -- --
Employer contribution 20,663 11,606 14,220 -- -- --
Acquisition -- -- 7,627 -- -- --
Benefits paid (19,562) (19,161) (16,132) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets fair value Dec. 31 $388,789 $ 327,356 $ 299,703 $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets over (under) benefit obligation $ 80,533 $ 14,618 $ 31,014 $ (27,542) $(25,838) $(27,104)
Unrecognized transition asset -- (147) (2,713) 13,071 14,076 15,082
Unrecognized prior service cost (2,216) (2,528) (2,840) (201) (207) (755)
Unrecognized net actuarial (loss) gain (45,953) 10,487 (6,556) (3,652) (5,766) (5,267)
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (Accrued) Cost $ 32,364 $ 22,430 $ 18,905 $ (18,324) $(17,735) $(18,044)
- ------------------------------------------------------------------------------------------------------------------------------------
Net benefit expense components
Service cost $ 16,574 $ 13,869 $ 10,876 $ 606 $ 376 $ 303
Interest cost 22,002 20,662 19,293 1,942 1,745 1,997
Actuarial loss recognized 1,170 935 84 -- -- --
Actual return on plan assets (28,558) (24,506) (21,822) -- -- --
Net deferral and amortization (459) (2,878) (2,887) 967 739 802
- ------------------------------------------------------------------------------------------------------------------------------------
Net benefit expense $ 10,729 $ 8,082 $ 5,544 $ 3,515 $ 2,860 $ 3,102
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-average assumptions as of Dec. 31
Discount rate 7.50% 6.75% 7.50% 7.50% 6.75% 7.50%
Rate of compensation increase 5.25 4.75 5.00 5.25 4.75 5.00
Expected return on plan assets 9.50 9.50 9.00 N/A N/A N/A
Medical benefits cost rate of increase N/A N/A N/A 10.00 10.00 11.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
Note 13 Stock-Based Compensation
At December 31, 1999, the Company had two types of stock award programs, The
Long-Term Performance Stock Program and Stock Option Programs.
Restricted stock awards and performance stock awards are issued under The
Long-Term Performance Stock Program to reward and retain executives by
distributing stock over a period of time. The stock awards granted were 405
thousand shares in 1999, 552 thousand shares in 1998 and 258 thousand shares in
1997. The fair market value per share of these grants was $39.67 in 1999, $46.15
in 1998 and $29.91 in 1997. These shares vest over several years and are
recognized as compensation to the employee. The compensation cost charged to
non-interest expense for vested stock awards was $16.6 million, $8.7 million and
$3.4 million for 1999, 1998 and 1997, respectively. Included in the stock awards
granted in 1998 were 80 thousand shares granted for the retention of key
employees in conjunction with the Year 2000 initiative.
The Stock Option Programs are designed to align the interests of a large number
of employees with shareholder interests. These options are intended to be either
incentive stock options or non-qualified options. Options have been granted to
purchase common stock principally at the fair market value of the stock at the
date of grant. Options are exercisable starting one year after the date of grant
and generally expire ten years from the date of grant. Upon exercise of these
options, proceeds received in excess of par value of the shares are credited to
surplus.
The fair value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted-average assumptions
were used for grants in 1999, 1998 and 1997, respectively: dividend yield of
2.75%, 2.04% and 3.29%; expected volatility rate of 24%, 22% and 23%; risk-free
interest rates of 6.34%, 4.63% and 6.42%; and expected lives of 5 years.
The weighted-average fair value at grant-date for the options awarded during
1999, 1998 and 1997 were $5.91, $6.99 and $3.79, respectively.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock-based
compensation. Under APB Opinion No. 25, compensation cost for the stock options
is not recognized because the exercise price of the stock options equals the
market price of the underlying stock on the date of grant. Had compensation
expense been recorded for stock options granted as determined under SFAS No.
123, net income would have been reduced by $11.4 million in 1999, $8.9 million
in 1998 and $3.7 million in 1997, impacting per share net income by $.07, $.05
and $.02 in 1999, 1998 and 1997, respectively.
The following is a summary of Stock Option Programs and changes during the past
three years:
- ---------------------------------------------------------------------
Weighted-Average
(Shares in thousands) Shares Exercise Price
- ---------------------------------------------------------------------
Outstanding, December 31, 1996 6,673 $14.49
- ---------------------------------------------------------------------
Granted 1,680 29.75
Acquired 303 14.76
Exercised 2,621 13.58
Forfeited and expired 112 25.96
- ---------------------------------------------------------------------
Outstanding, December 31, 1997
(4,311 exercisable shares at a
weighted-average exercise price
of $15.00) 5,923 18.97
- ---------------------------------------------------------------------
Granted 2,150 48.71
Acquired 137 17.79
Exercised 1,205 17.07
Forfeited and expired 148 43.26
- ---------------------------------------------------------------------
Outstanding, December 31, 1998
(4,809 exercisable shares at a
weighted-average exercise price
of $19.33) 6,857 28.08
- ---------------------------------------------------------------------
Granted 3,273 40.39
Acquired 498 14.62
Exercised 789 15.03
Forfeited and expired 364 41.93
- ---------------------------------------------------------------------
Outstanding, December 31, 1999
(6,256 exercisable shares at a
weighted-average exercise price
of $27.95) 9,475 $32.19
- ---------------------------------------------------------------------
The following table summarizes information about stock options at December 31,
1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(Shares in thousands) Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.25 to $11.99 829 1.9 years $ 8.37 829 $ 8.37
12.00 to 23.99 2,169 4.9 17.40 2,139 17.46
24.00 to 35.99 1,507 7.3 28.98 1,486 28.93
36.00 to 54.00 4,970 8.8 43.59 1,802 48.58
- ---------------------------------------------------------------------------------------------------------------------
$ 5.25 to $54.00 9,475 7.1 years $32.19 6,256 $27.95
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
Note 14 Other Income and Other Expenses
Other income consisted of the following:
- ------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------
Automated teller access fees $17,015 $16,867 $14,877
Gain on sale of assets/deposits 15,798 4,310 11,157
International fees 13,752 12,747 11,963
Safe deposit box rental 6,575 6,323 6,839
Trading account gains (losses) 581 95 (1,583)
Limited partnership investments 212 8,141 --
Other 23,815 16,854 16,858
- ------------------------------------------------------------------------
$77,748 $65,337 $60,111
- ------------------------------------------------------------------------
Other expenses consisted of the following:
- ------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------
Legal and professional fees $ 30,472 $ 36,797 $ 34,620
Advertising and public relations 24,091 25,402 22,718
Printing, stationery and supplies 10,988 7,692 8,758
Insurance commissions 9,269 6,944 42
Deposit insurance premiums 5,313 5,314 5,678
Other real estate owned (407) (3,458) 1,764
Other 71,881 71,821 71,065
- ------------------------------------------------------------------------
$151,607 $150,512 $144,645
- ------------------------------------------------------------------------
Note 15 Income Taxes
The following table details the components of the provision for income taxes:
- ----------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Current provision:
Federal $196,511 $180,691 $208,080
State 2,483 17,034 15,456
- ----------------------------------------------------------------------
198,994 197,725 223,536
- ----------------------------------------------------------------------
Deferred provision (benefit):
Federal 14,885 9,521 (19,121)
State 832 2,161 (4,197)
- ----------------------------------------------------------------------
15,717 11,682 (23,318)
- ----------------------------------------------------------------------
$214,711 $209,407 $200,218
- ----------------------------------------------------------------------
A summary of the differences between the actual income tax provision and the
amounts computed by applying the statutory Federal income tax rate to income is
as follows:
- -------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Federal tax at statutory rate $230,067 $236,329 $199,914
Increase (decrease) in taxes resulting from:
Tax-exempt interest income (6,055) (6,285) (7,865)
State taxes, net of Federal tax effect 2,155 12,477 7,318
Non-taxable distributions from
corporate reorganizations -- (39,900) --
Other, net (11,456) 6,786 851
- -------------------------------------------------------------------------------
$214,711 $209,407 $200,218
- -------------------------------------------------------------------------------
The following table details the components of Federal and state temporary
differences at December 31,
- ------------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------
Deferred tax assets:
Provision for loan losses $131,715 $129,987
Provision for other real estate owned 579 1,757
Restructuring charges 10,966 6,175
Net unrealized loss on securities 50,907 --
Other 26,070 34,035
- ------------------------------------------------------------------
220,237 171,954
- ------------------------------------------------------------------
Deferred tax liabilities:
Leasing operations (51,193) (39,879)
Net unrealized gain on securities -- (7,024)
Other (9,487) (7,708)
- ------------------------------------------------------------------
(60,680) (54,611)
- ------------------------------------------------------------------
Net deferred tax asset $159,557 $117,343
- ------------------------------------------------------------------
Included in deferred tax assets, "Other," is a valuation allowance which has
been established against certain Federal and state temporary differences. The
valuation allowance was $2.3 million at December 31, 1999, and $6.6 million at
December 31, 1998. At December 31, 1999, there was a deferred state tax asset of
$3.2 million resulting from operating loss carryforwards, which was partially
reserved by the valuation allowance.
Management believes that, based upon current facts, more likely than not, there
will be sufficient taxable income in future years to realize the deferred tax
assets. However, there can be no assurance about the level of future earnings.
Included in shareholders' equity are income tax benefits attributable to vested
stock awards and the exercise of non-qualified stock options of $2.8 million,
$11.3 million and $14.4 million for the years ended December 31, 1999, 1998 and
1997, respectively.
Note 16 Net Income per Common Share
Net income per common share was computed as
follows:
- -------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
Net income $442,623 $465,819 $370,965
- -------------------------------------------------------------------------------
Weighted-average common shares outstanding 172,934 175,076 175,128
Plus: Common stock equivalents 1,537 1,967 2,331
- -------------------------------------------------------------------------------
Diluted weighted-average common
shares outstanding 174,471 177,043 177,459
- -------------------------------------------------------------------------------
Net income per common share:
Basic $ 2.56 $ 2.66 $ 2.12
Diluted 2.54 2.63 2.09
- -------------------------------------------------------------------------------
At December 31, 1999, and 1998, there were 5.0 million and 2.0 million stock
options, respectively, not included as common stock equivalents because the
exercise prices exceeded the average market value.
49
<PAGE>
Note 17 Lines of Business
The Company, for management purposes, 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 the 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
for any other financial institution. The profitability measurement system uses
internal management accounting policies to ensure that the results for each
business line reasonably refiect the underlying economics of that business line
and are compiled on a consistent basis.
Retail Banking sells and delivers retail banking products and services to
individuals and small businesses through approximately 400 traditional and 80
supermarket branches in New Jersey, eastern Pennsylvania and Connecticut. In
addition to traditional retail banking services, Retail Banking offers its
customers an expanding array of 24-hour banking services through approximately
600 ATMs, 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.
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. The Company is
the largest New Jersey-based commercial and industrial lender servicing over 30
thousand clients within 15 major industry groups.
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. The line also markets a
wide variety of insurance products for the personal and corporate marketplace.
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.
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 line of business as if operated on a
stand-alone basis for 1999, 1998 and 1997. Certain prior period information has
been restated in order to conform with the current period presentation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Results of Operations
Years ended December 31,
(In millions) Retail Banking Corporate Banking The Private Bank
-------------------------- -------------------------- --------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 820 $ 755 $ 812 $ 283 $ 266 $ 226 $ 57 $ 54 $ 53
Provision for loan losses 34 32 19 92 32 38 2 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 786 723 793 191 234 188 55 52 51
Non-interest income 209 195 188 48 47 39 128 98 70
Non-interest expense 551 531 537 131 109 106 133 107 71
Restructuring charges -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 444 387 444 108 172 121 50 43 50
Federal and state income taxes 152 122 162 34 53 41 17 14 19
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 292 $ 265 $ 282 $ 74 $ 119 $ 80 $ 33 $ 29 $ 31
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Average Balances:
- ------------------------------------------------------------------------------------------------------------------------------------
Securities $ 55 $ 42 $ 40 $ -- $ -- $ -- $ 13 $ 21 $ 33
Loans 11,823 11,114 10,782 8,729 7,568 6,738 1,312 1,089 932
Assets 12,217 11,558 11,299 8,698 7,644 6,814 1,403 1,165 993
Deposits 20,916 19,131 19,290 1,050 959 850 775 722 675
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Results of Operations
Years ended December 31,
(In millions) Other Consolidated
--------------------------- --------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 106 $ 99 $ 54 $ 1,266 $ 1,174 $ 1,145
Provision for loan losses -- -- -- 128 66 59
- ---------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 106 99 54 1,138 1,108 1,086
Non-interest income 12 10 5 397 350 302
Non-interest expense 35 36 20 850 783 734
Restructuring charges 28 -- 83 28 -- 83
- ---------------------------------------------------------------------------------------------------
Income (loss) before taxes 55 73 (44) 657 675 571
Federal and state income taxes 11 20 (22) 214 209 200
- ---------------------------------------------------------------------------------------------------
Net income (loss) $ 44 $ 53 $ (22) $ 443 $ 466 $ 371
- ---------------------------------------------------------------------------------------------------
Selected Average Balances:
- ---------------------------------------------------------------------------------------------------
Securities $ 10,612 $ 9,372 $ 8,610 $ 10,680 $ 9,435 $ 8,683
Loans -- -- -- 21,864 19,771 18,452
Assets 12,243 10,568 9,777 34,561 30,935 28,883
Deposits 975 1,251 1,165 23,716 22,063 21,980
- ---------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
Note 18 Off-Balance-Sheet Financial Instruments
In the ordinary course of business, Summit Bancorp and its subsidiaries enter
into a variety of financial instruments that are recorded off the balance sheet.
This reporting is considered appropriate where either the exchange of the
underlying asset or liability has not yet occurred or the notional amounts are
used solely as a means to determine the cash fiows to be exchanged.
These off-balance-sheet financial instruments are primarily divided into two
categories: credit-related financial instruments and derivative financial
instruments. Credit-related financial instruments are principally customer
related, while derivative financial instruments are acquired primarily for
asset/liability management purposes.
The following table summarizes the notional amount of off-balance-sheet
financial instruments at December 31:
- ------------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------
Credit-related instruments:
Commitments to extend credit $8,589,347 $7,872,805
Standby letters of credit 403,534 353,300
Commercial letters of credit 107,377 99,956
Derivative instruments:
Interest rate swaps 210,000 316,187
Interest rate caps 63,665 102,674
Interest rate floors -- 30,000
Foreign exchange contracts 115,844 41,711
Forward contracts 17,000 99,000
- ------------------------------------------------------------------
Credit-Related Financial Instruments:
Commitments to extend credit are legally binding agreements to lend to a
customer, provided all established contractual conditions are met. These
commitments generally have fixed expiration dates and usually require the
payment of a fee.
Standby letters of credit are conditional guarantees issued to ensure the
performance of a customer to a third party and are generally terminated through
the fulfillment of a specific condition or through the lapse of time.
Commercial letters of credit are conditional commitments, generally less than
180 days, issued to guarantee payment by a customer to a third party upon proof
of an international trade shipment. The short-term nature of these instruments
limits their credit risk.
Fees received from credit-related financial instruments are recognized over the
terms of the contracts and are generally included in other non-interest income.
The credit risk associated with these financial instruments is essentially the
same as that involved in extending loans to customers and is incorporated in the
assessment of the adequacy of the allowance for loan losses. Credit risk is
managed by limiting the total amount of arrangements outstanding and by applying
normal credit policies when evaluating potential agreements. Many of the
commitments to extend credit are expected to expire without being drawn upon
and, therefore, the amounts do not necessarily represent future cash fiow
requirements.
Derivative Financial Instruments:
Activities involving interest rate swaps are primarily attributed to
asset/liability risk management efforts aimed at stabilizing net interest income
through periods of changing interest rates. The interest rate swaps were
acquired to hedge interest rate risk on certain interest-earning assets and
interest-bearing liabilities.
Interest rate swaps are contractual agreements between two parties to exchange
interest payments at particular intervals, computed on different terms, on a
specified notional amount. The notional amounts represent the base on which
interest due each counterparty is calculated and do not represent the potential
for gains or losses associated with the market risk or credit risk of such
transactions.
Under the terms of the interest rate swaps at December 31, 1999, there were
$10.0 million of contracts to receive fixed payments of 7.11% with an expected
maturity in December 2003 and an average payout based on the one-month London
Interbank Offering Rate ("LIBOR"). Additionally, there were $200.0 million of
interest rate swaps to receive payments at the effective Federal funds rate and
make fixed payments averaging 5.46% with a weighted-average maturity of 8
months.
Interest rate caps and floors are agreements which, for an up front premium and
on predetermined future dates, the counterparty agrees to pay an interest amount
based on the movement of specified market interest rates either above or below a
strike rate. The caps were purchased to accommodate customers who desire rate
protection on variable rate loans. The payments, if applicable, are derived from
the measured rate differential multiplied by the contractual notional volume.
Derivative transactions involving swaps, caps and floors have resulted in
decreases of $1.3 million, $1.9 million and $1.3 million in net interest income
during 1999, 1998 and 1997, respectively.
Credit-related losses can occur in the event of non-performance by the
counterparties to the derivative financial instruments. The credit risk that
results from interest rate swaps, interest rate floors and interest rate caps is
represented by the fair value of contracts that have a positive value at the
reporting date. At December 31, 1999, the total amount of credit risk was $1.2
million; however, this amount can increase or decrease if interest rates change.
To minimize the risk of credit losses, the Company monitors the credit standing
of the counterparties and only transacts with those parties that have credit
ratings of AA or better.
Summit Bancorp enters into contracts to purchase or sell foreign currency to be
delivered at a future date to facilitate customer transactions. The notional
amount represents the outstanding contracts at year end. In addition, the
Company engages in secondary marketing activities through which it enters into
forward contracts to sell certain fixed rate residential mortgage loans.
51
<PAGE>
Note 19 Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced liquidation. Fair value estimates are made at a specific
point in time based on the type of financial instrument and relevant market
information.
Because no quoted market price exists for a significant portion of these
financial instruments, the fair values of such financial instruments are derived
based on the amount and timing of future cash fiows and estimated discount
rates, as well as management's best judgment with respect to current economic
conditions. Many of these estimates involve uncertainties and matters of
significant judgment and cannot be determined with precision.
The fair value information provided is indicative of the estimated fair values
of those financial instruments and should not be interpreted as an estimate of
the value of the Company taken as a whole. The disclosures do not address the
value of recognized and unrecognized non-financial assets and liabilities or the
value of future anticipated business.
The following methods and assumptions were used to estimate the fair values of
significant financial instruments at December 31, 1999, and 1998.
Financial Assets:
Cash, short-term investments and customer acceptances have relatively short
maturities or no defined maturities, but are payable on demand, with little or
no credit risk. The carrying amounts reported in the Consolidated Balance Sheets
approximate fair value.
Trading account securities and securities available for sale are reported at
their respective fair values in the Consolidated Balance Sheets. These values
are based on quoted market prices. The fair value of securities held to maturity
are also based upon quoted market prices.
The loan portfolio is segmented based upon loan type and repricing
characteristics. The fair value of most fixed-rate loans is estimated using
discounted cash fiow models taking into consideration current offering rates for
loans of similar remaining maturities. The fair value of variable-rate loans is
estimated by adjusting their carrying value to include the value of historical
pricing differentials. Non- performing loans are primarily valued based upon the
net realizable value of the loan's underlying collateral.
Financial Liabilities:
The fair value of core deposit intangibles, which represents the value of a core
deposit base with an expected duration, is estimated in the overall fair value
of demand and savings deposits. This is computed by assigning term assumptions
to non-maturing categories and discounting the estimated future cash fiows using
market rates of deposits with similar remaining maturities.
The fair values for medium- to long-term deposit liabilities are calculated by
discounting estimated future cash fiows using market rates of deposits with
similar remaining maturities.
The fair values for borrowed funds are calculated by discounting estimated
future cash fiows using market rates of borrowed funds with similar remaining
maturities. Due to the short maturities of bank acceptances, their carrying
value approximates fair value.
The fair value of long-term debt is based upon quoted market prices. For
long-term debt issuances where quoted market prices are not available, the fair
values are determined using discounted cash fiow analyses.
The estimated fair values of accrued interest receivable and accrued interest
payable are considered to be equal to the amounts recognized in the Consolidated
Balance Sheets.
Off-Balance-Sheet Instruments:
The estimated fair values of derivative financial instruments are based upon
quoted market prices, without consideration of the market values related to the
hedged on-balance-sheet financial instruments. For commitments to extend credit
and letters of credit, the fair values approximate fees currently charged to
enter into similar agreements.
The following table presents the carrying amounts and estimated fair values of
financial instruments at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments $ 1,198.4 $ 1,198.4 $ 1,185.0 $ 1,185.0
Trading account securities 20.1 20.1 12.6 12.6
Securities available for sale 5,199.1 5,199.1 3,970.9 3,970.9
Securities held to maturity 5,597.4 5,388.1 6,015.8 6,030.8
Loans, net 22,898.1 22,620.7 20,803.8 20,998.1
Accrued interest receivable 214.8 214.8 195.7 195.7
Due from customers on
acceptances 22.3 22.3 18.1 18.1
Financial liabilities:
Deposits $ 24,638.6 $ 22,511.2 $ 23,145.1 $ 21,832.1
Other borrowed funds 4,593.1 4,589.3 3,190.0 3,192.3
Long-term debt 3,864.8 3,852.5 3,572.7 3,662.5
Accrued interest payable 100.8 100.8 94.4 94.4
Bank acceptances outstanding 22.3 22.3 18.1 18.1
Off-balance-sheet instruments:
Interest rate swaps $ -- $ 0.9 $ -- $ (2.4)
Interest rate floors and caps -- -- -- 0.1
Commitment to extend credit -- (47.4) -- (42.0)
Standby letters of credit -- (5.4) -- (2.5)
Commercial letters of credit -- (0.2) -- (0.1)
Foreign currency contracts -- (0.1) -- (1.0)
Forward contracts -- 0.2 -- (0.2)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
Note 20 Regulatory Matters
Cash and Due From Banks:
The subsidiary banks are required to maintain reserve balances based principally
upon transaction-type deposits. These reserves are in the form of vault cash and
non-interest bearing balances with a Federal Reserve Bank. The average amount of
required reserves amounted to $328.4 million and $407.4 million in 1999 and
1998, respectively.
Loans to Affiliates:
The Company's subsidiary banks are restricted by the Federal Reserve Act from
extending credit to affiliated companies, including the Parent Corporation, with
certain limited exceptions. Each subsidiary bank is also subject to collateral
security requirements for any loans or extensions of credit permitted by
exception. Further, a subsidiary bank may only engage in most transactions with
other subsidiaries if terms and conditions are at least as favorable to the bank
as those prevailing for transactions with unaffiliated companies. Such secured
loans and other regulated transactions between a subsidiary bank and any other
company affiliate, including the Parent Corporation, are limited in amount. The
limitation is 10% of each bank's capital stock and defined surplus per
affiliate, and 20% in aggregate to all of the Company's affiliates. At December
31, 1999, Summit Bancorp including the Parent Corporation had available credit
from its subsidiary banks of approximately $191.0 million.
Subsidiary Dividends:
There are certain regulatory limitations on the availability of subsidiary banks
undistributed net assets for the payment of dividends to the Parent Corporation
without prior approval of bank regulatory authorities.
These restrictions limit the banks' payment of dividends in any calendar year to
the net profit of the current year combined with retained net profits of the
preceding two years. In addition to these statutory restrictions, the subsidiary
banks are required to maintain adequate levels of capital. At December 31, 1999,
the total undistributed net assets of the subsidiary banks was $2.9 billion, of
which $144.1 million was available, under the most restrictive limitations, for
the payment of dividends to the Parent Corporation.
Capital Requirements:
The Company is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a material adverse impact on the
Company. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines that
involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weighting and other factors.
Quantitative measures, established by regulation to ensure capital adequacy,
require that the Company and its subsidiary banks maintain amounts and ratios of
Tier I capital to average assets (leverage), Tier I capital to risk-weighted
assets and total risk-based capital to risk-weighted assets, as set forth in the
table below.
At December 31, 1999, the Company and its banking subsidiaries were well
capitalized under the regulatory framework for prompt corrective action. To be
well capitalized, Tier I leverage, Tier I risk-based capital and total
risk-based capital must equal or exceed the well capitalized ratios. There are
no conditions or events that management believes have changed the Company's or
its subsidiary banks' well capitalized ratings.
Capital Ratios for Summit Bancorp and Subsidiary Banks
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands) Minimum Capital at Statutory
At December 31, Required Well December 31, Minimum
1999 1998 Capital Capitalized 1999 Capital
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier I Leverage
Summit Bancorp 7.06% 8.00% ) $2,519,739 $1,426,825
Summit Bank NJ 6.68 6.81 ) 4.00% 5.00% 2,062,126 1,234,265
Summit Bank PA 7.86 8.30 ) 316,285 160,952
Summit BankCT 9.23 8.28 ) 71,428 30,962
Tier I Risk-Based Capital
Summit Bancorp 9.46% 10.86% ) $2,519,739 $1,065,939
Summit Bank NJ 9.13 9.36 ) 4.00% 6.00% 2,062,126 903,233
Summit Bank PA 8.98 10.01 ) 316,285 140,900
Summit BankCT 16.26 13.50 ) 71,428 17,567
Total Risk-Based Capital
Summit Bancorp 11.06% 12.72% ) $2,948,401 $2,131,877
Summit Bank NJ 10.66 11.06 ) 8.00% 10.00% 2,406,935 1,806,466
Summit Bank PA 10.21 11.62 ) 359,595 281,799
Summit Bank CT 17.51 14.75 ) 76,922 35,134
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
Note 21 Parent Corporation Information
Condensed Balance Sheets
- --------------------------------------------------------------------------------
December 31, (In thousands) 1999 1998
- --------------------------------------------------------------------------------
Assets
Cash and due from banks $ 2,067 $ 2,207
Securities purchased under agreements
to resell 114,129 257,798
Securities available for sale 5,250 27,444
Investment in subsidiaries 2,917,254 2,560,630
Due from subsidiaries 231,371 299,197
Premises and equipment, net 738 819
Other assets 68,874 58,862
- --------------------------------------------------------------------------------
Total Assets $3,339,683 $3,206,957
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Accrued expenses and other liabilities $ 137,754 $ 89,597
Commercial paper 48,859 41,899
Long-term debt 350,890 353,034
- --------------------------------------------------------------------------------
Total liabilities 537,503 484,530
Total shareholders' equity 2,802,180 2,722,427
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $3,339,683 $3,206,957
- --------------------------------------------------------------------------------
Condensed Statements of Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Years ended December 31, (In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Income
Dividends from subsidiaries $ 387,669 $ 408,600 $ 333,597
Management fees from subsidiaries 47,198 45,703 34,689
Interest from subsidiaries 22,585 33,969 30,964
Securities gains 9,392 6,193 5,458
Other interest income 635 788 1,009
Other 98 1,198 --
- -----------------------------------------------------------------------------------
Total operating income 467,577 496,451 405,717
- -----------------------------------------------------------------------------------
Operating Expense
Service charges by subsidiaries 43,315 44,006 39,269
Interest expense 32,264 32,473 30,073
Salaries and employee benefits 21,212 13,827 8,783
Other 1,480 2,133 2,837
- -----------------------------------------------------------------------------------
Total operating expense 98,271 92,439 80,962
- -----------------------------------------------------------------------------------
Income before taxes and equity in
undistributed net income of
subsidiaries 369,306 404,012 324,755
Federal and state income tax expense (benefit) 19,022 (33,627) (4,695)
- -----------------------------------------------------------------------------------
350,284 437,639 329,450
Equity in undistributed net income
of subsidiaries 92,339 28,180 41,515
- -----------------------------------------------------------------------------------
Net Income $ 442,623 $465,819 $370,965
- -----------------------------------------------------------------------------------
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Years ended December 31, (In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 442,623 $ 465,819 $ 370,965
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 682 798 1,018
Net change in other assets
and liabilities 20,151 (13,652) (16,989)
Equity in undistributed net income
of subsidiaries (92,339) (28,180) (41,515)
Securities gains (9,392) (6,193) (5,458)
- ----------------------------------------------------------------------------------
Net cash provided by operating
activities 361,725 418,592 308,021
- ----------------------------------------------------------------------------------
Investing Activities
Proceeds from sales of securities
available for sale 20,948 14,419 13,911
Net decrease (increase) in securities
purchased under agreements to resell 143,669 166,350 (282,563)
Purchase of securities available for sale -- (3,244) (8,186)
Payments received on advances to
subsidiaries 383,326 215,059 205,510
Advances to subsidiaries (315,500) (268,070) (214,446)
Purchases of premises and
equipment, net (23) (26) --
Capital contributions to subsidiaries -- (15) (35,455)
- ----------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 232,420 124,473 (321,229)
- ----------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in
commercial paper 6,960 2,100 (677)
Proceeds from issuance of
long-term debt -- -- 154,640
Principal payments on long-term debt (2,144) (807) (8,659)
Dividends paid (217,687) (199,759) (167,663)
Purchase of common stock (391,144) (362,289) (21,859)
Proceeds from issuance of common
stock under stock option plans 9,730 16,939 38,495
- ----------------------------------------------------------------------------------
Net cash used in financing activities (594,285) (543,816) (5,723)
- ----------------------------------------------------------------------------------
Decrease in cash and due from banks (140) (751) (18,931)
Cash and due from banks at beginning
of year 2,207 2,958 19,612
Beginning cash balance of
acquired entities -- -- 2,277
- ----------------------------------------------------------------------------------
Cash and due from banks at end of year $ 2,067 $ 2,207 $ 2,958
- ----------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
Management's Report
Summit Bancorp and its subsidiaries are responsible for the preparation,
integrity and fair presentation of the audited Consolidated Financial Statements
and Notes contained on pages 34 through 54 in this report. The statements were
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances and include amounts that are based on management's
estimates and judgments. Other financial information presented throughout the
annual report is prepared on a basis consistent with these financial statements.
The Consolidated Financial Statements of Summit Bancorp have been audited by
KPMG LLP, independent auditors, whose selection has been ratified by the
shareholders. Their audit was made in accordance with generally accepted
auditing standards and considered the internal control structure to the extent
deemed necessary to support their independent auditors' report appearing herein.
Summit Bancorp is responsible for establishing and maintaining an effective
internal control structure to provide reasonable assurance that the financial
statements are presented in conformity with generally accepted accounting
principles. There are inherent limitations in the effectiveness of any internal
control structure, no matter how well designed, including the possibility of
human error, the circumvention or overriding of controls and the consideration
of cost in relation to the benefit of the control. Accordingly, even an
effective internal control structure can provide only reasonable assurance with
respect to financial statement preparation. Furthermore, because of changes in
conditions, the effectiveness of an internal control structure may vary over
time. To monitor compliance, Summit Bancorp maintains an internal audit program.
This program includes a review for compliance with written policies and
procedures and a review of the adequacy and effectiveness of internal controls.
The Audit Committee of the Board of Directors of Summit Bancorp, composed
entirely of outside directors, meets periodically with the independent auditors,
management and internal auditors to review the work of each and ensure that each
is properly discharging its responsibilities. The independent auditors and
internal auditors have full and free access to the Committee to discuss the
results of their audit work, their evaluation of internal controls and the
quality of financial reporting.
Independent Auditors' Report
The Shareholders and Board of Directors of Summit Bancorp:
We have audited the accompanying consolidated balance sheets of Summit Bancorp
and Subsidiaries as of December 31, 1999, and 1998, and the related consolidated
statements of income, shareholders' equity and cash fiows for each of the years
in the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summit Bancorp and
Subsidiaries as of December 31, 1999, and 1998, and the results of their
operations and their cash fiows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
[LOGO]
Short Hills, New Jersey
January 18, 2000
55
<PAGE>
Summary of Selected Consolidated Financial Data
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(Not covered by independent auditor's report) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Summary of Operations (In thousands, except per share data)
Interest income $ 2,355,936 $ 2,175,212 $ 2,064,706
Interest expense 1,089,782 1,001,406 919,617
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,266,154 1,173,806 1,145,089
Provision for loan losses 128,000 66,000 59,100
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,138,154 1,107,806 1,085,989
Non-interest income 397,318 350,227 301,885
Non-interest expense 850,238 782,807 733,691
Non-recurring charges 27,900 -- 83,000
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 657,334 675,226 571,183
Federal and state income taxes 214,711 209,407 200,218
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of a change in accounting principle 442,623 465,819 370,965
Cumulative effect of a change in accounting principle -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 442,623 $ 465,819 $ 370,965
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) per Common Share:
Before non-recurring items:
Diluted $ 2.64 $ 2.63 $ 2.39
After non-recurring items:
Basic 2.56 2.66 2.12
Diluted 2.54 2.63 2.09
Diluted, cash-basis* 2.70 2.73 2.19
- -----------------------------------------------------------------------------------------------------------------------------------
Common Share Data
Cash dividends declared $ 1.29 $ 1.17 $ 1.02
Book value at year end 16.23 15.67 14.79
Market value at year end 30.63 43.69 52.88
Common stock dividend payout ratio (diluted) 50.79% 44.49% 48.80%
Average common shares outstanding (in thousands):
Basic 172,934 175,076 175,128
Diluted 174,471 177,043 177,459
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Ratios
Before non-recurring items:
Return on average assets 1.33% 1.51% 1.47%
Return on average common equity 16.80 17.50 17.08
After non-recurring items:
Return on average assets 1.28 1.51 1.28
Return on average common equity 16.17 17.50 14.92
Net interest margin 3.92 4.05 4.26
Efficiency ratio 51.12 51.41 50.28
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (at year end, in thousands)
Assets $36,378,975 $33,101,314 $29,964,172
Deposits 24,638,646 23,145,128 22,329,436
Loans 23,226,956 21,126,577 18,888,366
Long-term debt 3,864,777 3,572,710 1,246,750
Shareholders' equity 2,802,180 2,722,427 2,612,420
Allowance for loan losses 328,828 322,814 296,494
- -----------------------------------------------------------------------------------------------------------------------------------
Loan Quality & Capital Ratios
Allowance for loan losses to year-end loans 1.42% 1.53% 1.57%
Net charge offs to average loans 0.61 0.23 0.29
Non-performing loans to year-end loans 0.43 0.41 0.45
Total equity to assets 7.70 8.22 8.72
Tier I capital to average assets (leverage) 7.06 8.00 8.76
Tier I capital to risk-adjusted assets 9.46 10.86 12.64
Total capital to risk-adjusted assets 11.06 12.72 14.83
- -----------------------------------------------------------------------------------------------------------------------------------
Other Data
Number of banking offices 490 447 426
Number of full-time equivalent employees 8,673 8,665 8,566
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in non-interest income are securities gains of $9.8 million, $6.6
million, $5.6 million, $3.9 million and $8.6 million, for 1999 through 1995,
respectively.
*Cash basis net income excludes the after-tax impact of the amortization of
goodwill and intangibles.
56
<PAGE>
Summit Bancorp and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,906,996 $ 1,831,934 $ 1,572,370 $ 1,452,643 $ 1,557,627 $ 1,795,491 $ 1,918,257 $ 1,856,435
853,707 822,232 599,732 558,889 725,422 1,051,193 1,204,203 1,151,157
- -----------------------------------------------------------------------------------------------------------------------------------
1,053,289 1,009,702 972,638 893,754 832,205 744,298 714,054 705,278
64,034 72,090 94,347 115,902 167,006 193,825 337,011 98,446
- -----------------------------------------------------------------------------------------------------------------------------------
989,255 937,612 878,291 777,852 665,199 550,473 377,043 606,832
260,042 235,252 217,726 224,187 222,826 184,930 210,922 203,921
693,832 705,459 709,400 734,756 709,352 647,456 618,572 575,478
121,759 -- 48,955 21,500 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
433,706 467,405 337,662 245,783 178,673 87,947 (30,607) 235,275
150,031 166,993 122,014 74,861 56,002 23,613 (16,101) 70,527
- -----------------------------------------------------------------------------------------------------------------------------------
283,675 300,412 215,648 170,922 122,671 64,334 (14,506) 164,748
-- -- (1,731) 11,761 -- -- -- (10,730)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 283,675 $ 300,412 $ 213,917 $ 182,683 $ 122,671 $ 64,334 $ (14,506) $ 154,018
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2.12 $ 1.87 $ 1.59 $ 1.19 $ 0.83 $ 0.46 $ (0.14) $ 1.27
1.69 1.89 1.37 1.19 0.84 0.46 (0.14) 1.19
1.67 1.87 1.36 1.17 0.83 0.46 (0.14) 1.19
1.77 1.96 N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
$ 0.90 $ 0.79 $ 0.63 $ 0.46 $ 0.40 $ 0.40 $ 0.68 $ 0.74
1 3.61 13.04 11.40 10.80 9.99 9.52 9.38 10.09
2 9.17 23.75 16.09 16.00 16.17 9.75 4.75 12.59
5 3.89% 42.25% 46.32% 39.32% 48.19% 86.96% N/A 62.18%
166,673 157,244 153,698 151,080 141,859 132,059 130,103 124,667
168,788 159,249 155,520 154,167 143,676 132,407 130,103 125,465
- -----------------------------------------------------------------------------------------------------------------------------------
1.32% 1.17% 1.03% 0.85% 0.58% 0.31% (0.07)% 0.86%
16.48 15.49 14.35 11.63 8.68 4.90 (1.35) 12.56
1.04 1.17 0.88 0.83 0.58 0.31 (0.07) 0.81
12.95 15.49 12.28 11.41 8.68 4.90 (1.35) 11.72
4.21 4.28 4.42 4.51 4.36 3.96 3.90 4.19
52.11 55.72 57.07 60.91 62.91 65.29 61.79 61.68
- -----------------------------------------------------------------------------------------------------------------------------------
$27,767,271 $26,647,452 $25,484,073 $22,605,545 $21,703,789 $21,141,670 $20,484,690 $20,186,099
21,629,531 21,232,926 19,981,071 18,956,204 18,576,238 17,766,920 16,599,532 15,441,669
17,386,059 16,413,222 15,048,579 13,552,381 13,325,622 13,620,423 13,787,122 13,956,994
695,793 431,754 552,736 492,052 389,267 271,062 395,432 450,541
2,290,838 2,130,108 1,813,445 1,691,108 1,548,832 1,317,495 1,277,819 1,359,933
280,611 293,160 323,336 361,319 378,793 393,246 361,423 185,441
- -----------------------------------------------------------------------------------------------------------------------------------
1.61% 1.79% 2.15% 2.67% 2.84% 2.89% 2.62% 1.33%
0.50 0.70 0.69 1.12 1.35 1.19 1.14 0.47
0.80 1.18 1.38 2.44 3.45 4.30 4.33 1.93
8.25 7.99 7.12 7.48 7.14 6.23 6.24 6.74
7.73 7.63 7.13 7.50 6.98 6.03 5.89 6.68
11.68 11.32 10.51 10.90 10.13 8.82 8.44 N/A
14.17 13.87 13.10 13.73 12.70 10.31 10.07 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
423 433 439 435 419 417 413 402
8,402 8,593 8,800 9,049 8,986 9,216 9,173 9,173
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Unaudited Quarterly Financial Data Summit Bancorp and Subsidiaries
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
(In thousands, 1999
except per share data) Dec. 31 Sept. 30 June 30 Mar. 31
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of Operations
Interest income $ 625,462 $ 601,318 $ 568,711 $ 560,445
Interest expense 294,551 280,010 260,120 255,101
- -------------------------------------------------------------------------------------
Net interest income 330,911 321,308 308,591 305,344
Provision for loan losses 18,500 76,500 16,500 16,500
- -------------------------------------------------------------------------------------
Net interest income after
provision for loan
losses 312,411 244,808 292,091 288,844
Non-interest income 98,535 104,699 95,927 98,157
Non-interest expense 225,628 211,957 207,216 205,437
Non-recurring charges 27,900 -- -- --
- -------------------------------------------------------------------------------------
Income before income
taxes 157,418 137,550 180,802 181,564
Federal and state
income taxes 47,492 43,931 60,465 62,823
- -------------------------------------------------------------------------------------
Net income $109,926 $93,619 $120,337 $118,741
- -------------------------------------------------------------------------------------
Net Income per Common Share:
Before non-recurring items:
Diluted $ 0.73 $ 0.53 $ 0.70 $ 0.68
After non-recurring items:
Basic 0.63 0.54 0.71 0.68
Diluted 0.63 0.53 0.70 0.68
Diluted, cash-basis* 0.68 0.58 0.73 0.71
- -------------------------------------------------------------------------------------
Common Share Data
Cash dividends declared $ 0.33 $ 0.33 $ 0.33 $ 0.30
Book value at quarter end 16.23 16.31 15.34 15.70
Market value at quarter end 30.63 32.44 41.81 39.00
Common stock dividend payout
ratio 52.38% 62.26% 47.14% 44.12%
Average common shares
outstanding:
Basic 173,303 173,979 170,656 173,794
Diluted 174,613 175,527 172,282 175,458
- -------------------------------------------------------------------------------------
Operating Ratios
Before non-recurring items:
Return on average assets 1.40% 1.05% 1.43% 1.45%
Return on average common
equity 17.97 13.39 18.32 17.63
After non-recurring items:
Return on average assets 1.21 1.05 1.43 1.45
Return on average common
equity 15.55 13.39 18.32 17.63
Efficiency ratio 52.72 49.96 51.20 50.55
- -------------------------------------------------------------------------------------
Balance Sheet Data
(at period end)
Assets $36,378,975 $36,163,388 $34,225,760 $33,477,377
Deposits 24,638,646 24,351,165 23,442,900 23,220,148
Loans 23,226,956 22,736,054 21,538,820 21,153,707
Long-term debt 3,864,777 3,970,698 4,001,925 3,734,392
Shareholders' equity 2,802,180 2,851,148 2,601,466 2,712,041
Allowance for loan losses 328,828 328,815 321,700 328,302
- -------------------------------------------------------------------------------------
Tax-Equivalent Yields and Rates
Interest-earning assets 7.37% 7.20% 7.19% 7.27%
Interest-bearing liabilities 4.22 4.11 4.05 4.10
Net interest spread 3.15 3.09 3.14 3.17
Net interest margin 3.91 3.86 3.92 3.98
- -------------------------------------------------------------------------------------
Loan Quality & Capital Ratios
Allowance for loan losses
to quarter-end loans 1.42% 1.45% 1.49% 1.55%
Net charge offs to average loans 0.32 1.41 0.44 0.25
Non-performing assets to
quarter-end loans and OREO 0.46 0.41 0.47 0.46
Total equity to assets 7.70 7.88 7.60 8.10
Tier I capital to avg.
assets (leverage) 7.06 7.24 7.47 7.67
Tier I capital to
risk-adjusted assets 9.46 9.59 9.97 10.47
Total capital to
risk-adjusted assets 11.06 11.35 11.76 12.33
- -------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------
(In thousands, 1998
except per share data) Dec. 31 Sept. 30 June 30 Mar. 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of Operations
Interest income $ 555,450 $ 552,045 $538,388 $529,329
Interest expense 257,675 260,065 243,495 240,171
- --------------------------------------------------------------------------------------------
Net interest income 297,775 291,980 294,893 289,158
Provision for loan losses 15,000 18,000 18,000 15,000
- --------------------------------------------------------------------------------------------
Net interest income after
provision for loan
losses 282,775 273,980 276,893 274,158
Non-interest income 90,115 90,449 90,143 79,520
Non-interest expense 205,069 194,166 191,919 191,653
Non-recurring charges -- -- -- --
- --------------------------------------------------------------------------------------------
Income before income
taxes 167,821 170,263 175,117 162,025
Federal and state
income taxes 50,757 52,402 56,640 49,608
- --------------------------------------------------------------------------------------------
Net income $ 117,064 $117,861 $118,477 $112,417
- --------------------------------------------------------------------------------------------
Net Income per Common Share:
Before non-recurring items
Diluted $ 0.67 $ 0.67 $ 0.66 $ 0.63
After non-recurring items:
Basic 0.67 0.68 0.67 0.64
Diluted 0.67 0.67 0.66 0.63
Diluted, cash-basis* 0.69 0.70 0.69 0.65
- --------------------------------------------------------------------------------------------
Common Share Data
Cash dividends declared $ 0.30 $ 0.30 $ 0.30 $ 0.27
Book value at quarter end 15.67 15.19 14.85 15.22
Market value at quarter end 43.69 37.50 47.50 50.13
Common stock dividend payout
ratio 44.78% 44.78% 45.45% 42.86%
Average common shares
outstanding:
Basic 173,920 173,379 176,127 176,933
Diluted 175,674 175,080 178,232 179,251
- --------------------------------------------------------------------------------------------
Operating Ratios
Before non-recurring items:
Return on average assets 1.45% 1.50% 1.56% 1.52%
Return on average common
equity 17.16 17.95 17.86 17.05
After non-recurring items:
Return on average assets 1.45 1.50 1.56 1.52
Return on average common
equity 17.16 17.95 17.86 17.05
Efficiency ratio 53.23 50.71 49.81 51.90
- --------------------------------------------------------------------------------------------
Balance Sheet Data
(at period end)
Assets $33,101,314 $31,852,214 $31,142,043 $30,554,690
Deposits 23,145,128 22,146,853 22,106,450 22,215,625
Loans 21,126,577 20,300,663 19,704,103 19,271,927
Long-term debt 3,572,710 2,401,826 1,881,289 1,588,592
Shareholders' equity 2,722,427 2,627,974 2,582,582 2,701,367
Allowance for loan losses 322,814 314,271 308,753 301,264
- ---------------------------------------------------------------------------------------------
Tax-Equivalent Yields and Rates
Interest-earning assets 7.31% 7.45% 7.56% 7.61%
Interest-bearing liabilities 4.22 4.35 4.28 4.29
Net interest spread 3.09 3.10 3.28 3.32
Net interest margin 3.94 3.96 4.16 4.18
- --------------------------------------------------------------------------------------------
Loan Quality & Capital Ratios
Allowance for loan losses
to quarter-end loans 1.53% 1.55% 1.57% 1.56%
Net charge offs to average loans 0.23 0.25 0.22 0.22
Non-performing assets to
quarter- end loans and OREO 0.42 0.41 0.41 0.45
Total equity to assets 8.22 8.25 8.29 8.84
Tier I capital to avg.
assets (leverage) 8.00 8.25 8.39 8.88
Tier I capital to
risk-adjusted assets 10.86 11.29 11.68 12.63
Total capital to
risk-adjusted assets 12.72 13.33 13.76 14.78
- --------------------------------------------------------------------------------------------
</TABLE>
*Cash-basis net income per share excludes the after-tax impact of amortization
of goodwill and intangibles.
58
SUMMIT BANCORP. SUBSIDIARY STRUCTURE
AS OF MARCH 17, 2000
<TABLE>
<CAPTION>
NAME INCORP./(AUTH)
- ---- --------------
<S> <C>
Summit Bancorp. New Jersey(PA)
Asset Management Corp. New Jersey
First Valley Corporation Pennsylvania
FirstVal Properties, Inc. Pennsylvania
Summit Bank# Pennsylvania
723 Service Corporation Pennsylvania
NEFA Corporation Pennsylvania
Enclave Condominium Homeowners Association Pennsylvania
Ninth North-Val, Inc. Pennsylvania
Eighth North-Val, Inc. Pennsylvania
Sixth North-Val, Inc. Pennsylvania
Prime Abstract, Inc. Delaware
Summit Financial Services Group, Inc. Pennsylvania(NJ)(NY)(CT)(FL)
UJB Financial Service Corp. (D.B.A. Summit Service Corp.)(19.4%) New Jersey
India, Inc. Delaware(NJ)
NYCE Corporation (9.20%) Delaware
Card Alert Services, Inc. (10.95%) Delaware
NYCE Midwest, Inc. Delaware
Spectrum Mortgage Company, Inc. New Jersey
Summit Bank Connecticut
Pinnacle Investment Corporation Connecticut
The NSS Realty Corporation Connecticut
Summit Bank# New Jersey(MD)
Corporate Dynamics New Jersey(PA)
Cranford Aircraft Commercial Leasing Corporation New Jersey
Piper Financial Services, Inc. New Jersey
MSFG, Inc. New Jersey
Meeker Sharkey Financial Group, Inc. New Jersey
Meeker Sharkey Devine Company, Inc. Pennsylvania
Meeker Sharkey Benefit Consultants, Inc. New Jersey
Straband, L.L.C. New Jersey
New Jersey Affiliated Financial Services, Inc. New Jersey
Palservco, Inc. New Jersey
Philadelphia Benefits Corporation Pennsylvania(NJ)
Pipco-On-The-Hudson, Inc. New Jersey
Alternative Financial Group, Inc. Pennsylvania
NewPip Properties Co., Ltd. New Jersey
Pipco Delaware, Ltd. Delaware
Pipco Parsippany, Inc. New Jersey
PipHyde Park, Limited New York
PipQuarryCo, Inc.@ New Jersey
Rockof Corp. New York(NJ)
CTC Investment Co. Delaware
STC Investment Holding Company New Jersey
Seagull Beaver Dam, Inc. New Jersey
<PAGE>
<CAPTION>
NAME INCORP./(AUTH)
- ---- --------------
<S> <C>
[Summit Bancorp. (cont.)]
[Summit Bank (cont.)]
S.A.R. Realty Holding Corporation New Jersey
Securitization Subsidiary I, Inc. New Jersey
Sethmark Holding Corp. New York
Sethmark Capital Corporation New York
Shikiar Associates, Inc. (D.B.A. Madison Consulting Group) New Jersey
SJK Asset Corporation New Jersey
Smithcrest Realty, Inc. New Jersey
Somerset Investment Company, Inc. New Jersey
Summit Commercial Leasing Corporation (99%) New Jersey(several)
Summit Customer Services, Inc. New Jersey(MD)(PA)
Summit International Trade Finance Corp. New Jersey
Summit Trade Finance (HK), Limited Hong Kong
Summit Mortgage Banking Services, Inc. New Jersey(NY)(DE)(PA)
Summit Municipal Lien Investment Corp. New Jersey
Summit Participation Corp. New York
UJB Financial Service Corporation (DBA Summit Service Corp.)(80.6%) NJ
Ver Valen, Inc. New Jersey
W.M. Ross & Co., Inc. New Jersey
Millburn Service Plan, Inc. New Jersey
Ross Alternative Risk Managers, Inc. New Jersey
Summit Capital Trust I Delaware
Summit Commercial Corp. New Jersey(CT)(MD)(NY)
Summit Commercial Leasing Corporation (1%) New Jersey(several)
Summit Commercial/Gibraltar Corp. New York
Summit Corporate Secretary, Inc. New Jersey
Summit Credit Life Insurance Company Arizona
Summit Venture Capital, Inc. New Jersey
The Summit Mortgage Company, Inc. New Jersey(NY)
United Jersey Financial Corp. New Jersey
</TABLE>
#: Summit Bank (NJ) and Summit Bank (PA) hold equity interests in numerous
limited partnerships operating low-income housing and receiving tax
credits.
@: PipQuarryCo, Inc. holds equity positions in two unaffiliated corporations
taken in consideration of debts previously contracted.
Independent Auditors' Consent
-----------------------------
The Board of Directors
Summit Bancorp:
We consent to incorporation by reference in Registration Statement No.
33-13930 on Form S-8, Registration Statement No. 33-36209 on Form S-8
Registration No. 33-38172 on Form S-8, Registration Statement No. 33-53870 on
Form S-3, Registration Statement No. 33-58152 on Form S-3, Registration
Statement No. 33-62972 on Form S-8, Registration Statement No. 33-54667 on Form
S-8, Registration Statement No. 33-61353 on Form S-8, Registration Statement No.
333-02625 on Form S-8, Registration Statement No. 333-24159 on Form S-8,
Registration Statement No. 333-35075 on Form S-8, Registration Statement No.
333-69119 on Form S-8, Registration Statement No. 333-71435 on Form S-3,
Registration Statement No. 333-62009 on Form S-8, Registration Statement No.
333-75877 on Form S-3, Registration Statement No. 333-77155 on Form S-8, and
Registration Statement No. 333-71877 on Form S-8 of Summit Bancorp of our report
dated January 18, 2000, relating to the consolidated balance sheets of Summit
Bancorp and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1999 which report is
incorporated by reference in the December 31, 1999 Annual Report on Form 10-K of
Summit Bancorp.
/s/ KPMG LLP
- ------------------------------
Short Hills, New Jersey
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 10-K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,160,577
<INT-BEARING-DEPOSITS> 32,870
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 20,118
<INVESTMENTS-HELD-FOR-SALE> 5,199,121
<INVESTMENTS-CARRYING> 5,597,383
<INVESTMENTS-MARKET> 5,388,071
<LOANS> 23,226,956
<ALLOWANCE> 328,828
<TOTAL-ASSETS> 36,378,975
<DEPOSITS> 24,638,646
<SHORT-TERM> 4,593,064
<LIABILITIES-OTHER> 480,308
<LONG-TERM> 3,864,777
0
0
<COMMON> 141,977
<OTHER-SE> 2,660,203
<TOTAL-LIABILITIES-AND-EQUITY> 36,378,975
<INTEREST-LOAN> 1,691,359
<INTEREST-INVEST> 661,618
<INTEREST-OTHER> 2,959
<INTEREST-TOTAL> 2,355,936
<INTEREST-DEPOSIT> 687,176
<INTEREST-EXPENSE> 1,089,782
<INTEREST-INCOME-NET> 1,266,154
<LOAN-LOSSES> 128,000
<SECURITIES-GAINS> 9,805
<EXPENSE-OTHER> 878,138
<INCOME-PRETAX> 657,334
<INCOME-PRE-EXTRAORDINARY> 657,334
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,623
<EPS-BASIC> 2.56
<EPS-DILUTED> 2.54
<YIELD-ACTUAL> 3.92
<LOANS-NON> 107,202
<LOANS-PAST> 41,378
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,914
<ALLOWANCE-OPEN> 322,814
<CHARGE-OFFS> 156,465
<RECOVERIES> 22,755
<ALLOWANCE-CLOSE> 328,828
<ALLOWANCE-DOMESTIC> 209,014
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 119,814
</TABLE>
