-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L7C2fIq3hVlICZ1TSgTEbdUhBeIlpAjUzVguttpsdyxjZOTOHMxNfmE7XAYkxVKB wgPxFAR84r4G7dEOB71Tjg== 0000101320-98-000011.txt : 19981118 0000101320-98-000011.hdr.sgml : 19981118 ACCESSION NUMBER: 0000101320-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT BANCORP/NJ/ CENTRAL INDEX KEY: 0000101320 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 221903313 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06451 FILM NUMBER: 98749629 BUSINESS ADDRESS: STREET 1: 301 CARNEGIE CENTER STREET 2: P O BOX 2066 CITY: PRINCETON STATE: NJ ZIP: 08543-2066 BUSINESS PHONE: 6099873200 MAIL ADDRESS: STREET 1: PO BOX 2066 CITY: PRINCETON STATE: NJ ZIP: 08543-2066 FORMER COMPANY: FORMER CONFORMED NAME: UJB FINANCIAL CORP /NJ/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: UNITED JERSEY BANKS DATE OF NAME CHANGE: 19890815 10-Q 1 FORM 10-Q 09/30/98 - ----------------------------------------------------------------- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ----------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________to _________________ Commission File Number: 1-6451 -------------------------------------- SUMMIT BANCORP. ------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-1903313 --------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 Carnegie Center, P.O.Box 2066, Princeton, New Jersey 08543-2066 - --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (609) 987-3200 --------------------------------------------------------------- (Registrant's telephone number, including area code) - --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of October 31, 1998 there were 173,356,542 shares of common stock, $.80 par value, outstanding. - ------------------------------------------------------------------ SUMMIT BANCORP FORM 10-Q INDEX Page No. Part I Financial Information Item 1. Financial Statements-unaudited Consolidated Balance Sheets - September 30, 1998, December 31, 1997 and September 30, 1997................................................. 2 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1998 and 1997............ 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997...................... 4 Consolidated Statements of Shareholders' Equity - Nine Months Ended September 30, 1998 and 1997...................... 5 Notes to Consolidated Financial Statements............................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 21 Part II. Other Information. Item 1. Legal Proceedings.............................................. 22 Item 2. Changes in Securities and Use of Proceeds...................... 22 Item 3. Defaults Upon Senior Securities................................ 22 Item 4. Submission of Matters to a Vote of Security Holders............ 22 Item 5. Other Information.............................................. 22 Item 6. Exhibits and Reports on Form 8-K............................... 22 Signature............................................................. 23 Exhibit Index......................................................... 24 1 Summit Bancorp and Subsidiaries Consolidated Balance Sheets Unaudited (In thousands)
September 30, December 31, September 30, 1998 1997 1997 ------------ ------------ ------------ Assets Cash and due from banks $ 1,088,352 $ 1,173,118 $ 1,117,347 Federal funds sold and securities purchased under agreements to resell 1,000 4,460 14,359 Interest-bearing deposits with banks 19,763 14,072 4,309 Securities: Trading account securities 15,962 35,216 29,808 Securities available for sale 4,432,791 5,074,896 4,596,923 Securities held to maturity 5,358,215 4,157,543 4,078,729 ------------ ------------ ------------ Total securities 9,806,968 9,267,655 8,705,460 ------------ ------------ ------------ Loans (net of unearned discount): Commercial 6,979,170 6,253,740 5,846,194 Commercial mortgage 2,868,823 2,703,793 2,808,423 Residential mortgage 5,417,412 5,671,200 5,803,498 Consumer 5,035,258 4,259,633 4,172,548 ------------ ------------ ------------ Total loans 20,300,663 18,888,366 18,630,663 Less: Allowance for loan losses 314,271 296,494 294,114 ------------ ------------ ------------ Net loans 19,986,392 18,591,872 18,336,549 Premises and equipment 259,033 244,913 239,209 Goodwill and other intangibles 187,367 188,620 174,336 Accrued interest receivable 195,107 175,170 170,857 Due from customers on acceptances 17,419 15,814 15,814 Other assets 290,813 288,478 312,866 ------------ ------------ ------------ Total Assets $ 31,852,214 $ 29,964,172 $ 29,091,106 ============ ============ ============ Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand deposits $ 4,694,605 $ 4,530,690 $ 4,256,398 Interest-bearing deposits: Savings and time deposits 16,249,801 16,914,485 16,780,101 Commercial certificates of deposit $100,000 and over 1,202,447 884,261 901,529 ------------ ------------ ------------ Total deposits 22,146,853 22,329,436 21,938,028 Other borrowed funds 4,269,565 3,397,953 3,256,136 Accrued expenses and other liabilities 288,329 290,197 294,432 Accrued interest payable 100,248 71,602 67,640 Bank acceptances outstanding 17,419 15,814 15,814 Long-term debt 2,401,826 1,246,750 1,001,617 ------------ ------------ ------------ Total liabilities 29,224,240 27,351,752 26,573,667 ------------ ------------ ------------ Shareholders' equity: Common stock par value $ .80: authorized 390,000 shares; -issued: 177,648, 176,590 and 175,735 -outstanding: 172,968, 176,590 and 175,735 142,118 141,272 140,588 Surplus 1,004,332 987,281 968,881 Retained earnings 1,663,363 1,467,193 1,402,581 Employee stock ownership plan obligation (3,394) (4,201) (4,470) Accumulated other comprehensive income, net of tax 37,012 20,875 9,859 Treasury stock; 4,680 shares (215,457) - - ------------ ------------ ------------ Total shareholders' equity 2,627,974 2,612,420 2,517,439 ------------ ------------ ------------ Total Liabilities and Shareholders' Equity $ 31,852,214 $ 29,964,172 $ 29,091,106 ============ ============ ============ See accompanying Notes to Consolidated Financial Statements.
2 Summit Bancorp and Subsidiaries Consolidated Statements of Income Unaudited (In thousands, except per share data)
Three Months Ended Nine Months September 30, September 30, -------------------- ------------------- 1998 1997 1998 1997 --------- --------- Interest Income Loans $ 401,176 $ 380,000 $1,173,490 $1,121,321 Securities: Trading account securities 260 772 1,145 1,876 Securities available for sale 67,764 60,313 229,110 164,594 Securities held to maturity 82,405 75,305 214,128 243,756 --------- -------- ---------- -------- Total securities 150,429 136,390 444,383 410,226 Federal funds sold and securities purchased under agreements to resell 82 982 725 3,579 Deposits with banks 358 129 1,164 520 --------- -------- ---------- -------- Total interest income 552,045 517,501 1,619,762 1,535,646 --------- -------- ---------- -------- Interest Expense Savings and time deposits 154,363 158,122 464,937 473,169 Commercial certificates of deposit $100,000 and over 14,359 12,271 38,918 35,445 Borrowed funds, including long-term debt 91,343 59,326 239,876 172,420 --------- -------- ---------- -------- Total interest expense 260,065 229,719 743,731 681,034 --------- -------- ---------- -------- Net interest income 291,980 287,782 876,031 854,612 Provision for loan losses 18,000 14,500 51,000 45,100 --------- -------- ---------- -------- Net interest income after provision for loan losses 273,980 273,282 825,031 809,512 --------- -------- ---------- --------- Non-Interest Income Service charges on deposit accounts 31,236 28,926 93,173 85,506 Service and loan fee income 15,619 12,490 43,732 36,753 Trust and investment services income 14,062 12,644 42,492 35,342 Securities gains (losses) (58) 1,265 4,440 3,471 Other 29,590 18,847 76,275 54,028 -------- -------- --------- --------- Total non-interest income 90,449 74,172 260,112 215,100 -------- -------- --------- --------- Non-Interest Expenses Salaries 77,384 73,254 228,299 216,109 Pension and other employee benefits 27,872 22,233 81,692 69,887 Furniture and equipment 21,021 19,415 62,204 57,569 Occupancy, net 18,481 18,027 54,586 54,313 Communications 8,875 8,416 27,451 25,747 Merger-related charges - 56,500 - 83,000 Other 40,533 39,441 123,506 118,936 -------- --------- --------- --------- Total non-interest expenses 194,166 237,286 577,738 625,561 -------- --------- --------- --------- Income before income taxes 170,263 110,168 507,405 399,051 Federal and state income taxes 52,402 38,956 158,650 140,299 -------- -------- --------- --------- Net Income $ 117,861 $ 71,212 $ 348,755 $ 258,752 ======== ======= ========= ========= Net Income per Common Share: Basic $ 0.68 $ 0.41 $ 1.99 $ 1.48 ===== ===== ===== ====== Diluted 0.67 0.40 1.96 1.46 ===== ===== ===== ====== Average Common Shares Outstanding: Basic 173,379 175,396 175,466 174,896 ======== ======= ======== ======== Diluted 175,080 177,864 177,505 177,235 ======== ======= ======== ======== See accompanying Notes to Consolidated Financial Statements.
3 Summit Bancorp and Subsidiaries Consolidated Statements of Cash Flows Unaudited (In thousands)
Nine Months Ended September 30, ----------------------- Operating activities 1998 1997 ----------------------- Net income $ 348,755 $ 258,752 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses and other real estate owned 51,120 46,308 Depreciation, amortization and accretion, net 35,051 58,794 Merger-related charges - 83,000 Gains on sales of securities (4,440) (3,471) Gains on sales of mortgages held for sale (11,442) (4,791) Gains on sales of other real estate owned (3,963) (2,691) Proceeds from sales of other real estate owned 18,456 23,865 Proceeds from sales of mortgages held for sale 634,781 318,552 Originations of mortgages held for sale (731,263) (336,854) Net decrease (increase) in trading account securities 19,254 (3,432) Net (increase) decrease in accrued interest receivable and other assets (47,664) 18,475 Net increase (decrease) in accrued interest payable, accrued expenses and other liabilities 35,948 (107,240) ----------- ---------- Net cash provided by operating activities 344,593 349,267 ----------- ---------- Investing activities Purchases of securities held to maturity (2,889,338) (191,636) Purchases of securities available for sale (2,009,148) (2,050,670) Proceeds from maturities of securities held to maturity 1,673,354 738,691 Proceeds from maturities of securities available for sale 1,853,500 645,547 Proceeds from sales of securities available for sale 845,309 636,597 Net (increase) decrease in Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks (2,231) 169,494 Net increase in loans (1,342,886) (520,458) Purchases of premises and equipment, net (44,940) (22,363) ----------- ---------- Net cash used in investing activities (1,916,380) (594,798) ----------- ---------- Financing activities Net decrease in deposits (182,583) (541,583) Net increase in short-term borrowings 871,612 325,394 Principal payments on long-term debt (235,703) (33,452) Proceeds from issuance of long-term debt 1,391,405 327,211 Dividends paid (147,873) (120,199) Purchases of Common Stock (242,084) - Proceeds from issuance of common stock under dividend reinvestment and other stock plans 32,247 21,704 ----------- ---------- Net cash provided by financing activities 1,487,021 (20,925) ----------- ---------- Decrease in cash and due from banks (84,766) (266,456) Beginning cash balance of acquired entities - 56,296 Cash and due from banks at beginning of period 1,173,118 1,327,507 ----------- ---------- Cash and due from banks at end of period $ 1,088,352 $ 1,117,347 ========== ========== Supplemental disclosure of cash flow information Cash paid: Interest payments $ 715,085 $ 671,312 Income tax payments 146,896 145,500 Noncash investing activities: Net transfer of securities from held to maturity to available for sale resulting from acquisitions - 805,854 Net transfer of loans to other real estate owned 5,239 13,518 Issuance of treasury shares for acquisitions 12,277 - See accompanying Notes to Consolidated Financial Statements.
4 Summit Bancorp and Subsidiaries Consolidated Statements of Shareholders' Equity Unaudited (In thousands)
Accum. Other Total Common Retained ESOP Treasury Comprehensive Shareholders' Stock Surplus Earnings Obligation Stock Income Equity -------- ---------- ---------- ------- -------- ---------- ------------- Balance, December 31, 1996 $134,637 $ 918,411 $1,237,892 $(5,816) $ - $ 5,714 $ 2,290,838 Adjustment for the pooling of a company with a different fiscal year end (197 shares) (158) (4,771) 9,288 539 - 1,832 6,730 -------- ---------- ---------- ------- -------- ---------- ------------- Adjusted beginning balance 134,479 913,640 1,247,180 (5,277) - 7,546 2,297,568 Balances at beginning of period of immaterial pooled acquisition (6,047 shares) 4,837 34,705 25,562 - - (278) 64,826 Comprehensive income: Net income - - 258,752 - - - 258,752 Unrealized holding gains on securities arising during the period - - - - - 2,591 2,591 ------------- Total comprehensive income 261,343 Cash dividend declared on common stock - - (128,913) - - - (128,913) Common stock issued: Dividend reinvestment and other stock plans (185 shares) 148 5,427 - - - - 5,575 Exercise of stock options, net (1,404 shares) 1,124 15,005 - - - - 16,129 ESOP debt repayment - 104 - 807 - - 911 -------- ---------- ---------- ------- -------- ---------- ------------- Balance, September 30, 1997 $140,588 $ 968,881 $1,402,581 $(4,470) $ - $ 9,859 $ 2,517,439 ======== ========== ========== ======= ========= ========== ============= Balance, December 31, 1997 $141,272 $ 987,281 $1,467,193 $(4,201) $ - $ 20,875 $ 2,612,420 Comprehensive income: Net income - - 348,755 - - - 348,755 Unrealized holding gains on securities arising during the period - - - - - 16,137 16,137 ------------- Total comprehensive income 364,892 Cash dividends declared on common stock - - (152,585) - - - (152,585) Common stock issued: Dividend reinvestment and other stock plans (346 shares) 276 17,799 - - - 18,075 Exercise of stock options, net (976 shares) 570 470 - - 13,132 - 14,172 Treasury shares issued for acquisition (280 shares) (1,218) 13,495 12,277 Purchase of treasury stock (5,224 shares) (242,084) (242,084) ESOP debt repayment - - - 807 - - 807 -------- ---------- ---------- ------- -------- ---------- ------------- Balance, September 30, 1998 $142,118 $1,004,332 $1,663,363 $(3,394) $(215,457) $ 37,012 $ 2,627,974 ======== ========== ========== ======= ========= ========== ============= See accompanying Notes to Consolidated Financial Statements.
5 Summit Bancorp and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1.) Basis of Presentation The accompanying financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the consolidated financial position of Summit Bancorp and subsidiaries (the "Company"), the consolidated results of operations, changes in cash flows and changes in shareholders' equity. All significant intercompany accounts and transactions have been eliminated in consolidation. In all material respects, the financial statements presented comply with the current reporting requirements of supervisory authorities. Certain prior period amounts have been reclassified to conform to the financial statement presentation of 1998. For additional information and disclosures required under generally accepted accounting principles, reference is made to the Company's 1997 Annual Report on Form 10-K. On January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The Statement defines total comprehensive income as all changes in equity during a period from transactions and other events and circumstances from nonowner sources. The Company's other comprehensive income is generally comprised of unrealized holding gains and losses on securities available for sale. Disclosure of comprehensive income for the 1998 and 1997 periods is presented in the accompanying Consolidated Statements of Shareholders' Equity. Effective January 1, 1998, the Company adopted Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" issued by the American Institute of Certified Public Accountants. This Statement establishes standards for the capitalization of computer software developed or obtained for internal use. The impact of adopting this statement was not material to the financial condition or results of operations of the Company. 2.) Acquisitions On March 1, 1997, the Company completed the acquisition of B.M.J. Financial Corp. ("BMJ"). This acquisition was accounted for as a pooling of interests, and was recorded as an adjustment to shareholders' equity as of January 1, 1997, without restating the consolidated financial statements for 1996 and prior years. Merger-related charges of $26.5 million ($16.7 million, after tax) were recorded at the time of the acquisition. On August 1, 1997, the Company completed the acquisition of Collective Bancorp, Inc. ("Collective"). This acquisition was accounted for as a pooling of interests and all financial information, prior to the acquisition date, has been restated. Merger-related charges of $56.5 million ($37.1 million, after tax) were recorded at the time of the acquisition. On December 12, 1997, the Company acquired Corporate Dynamics, an employee benefits consulting firm, and Philadelphia Benefits Corp., a group health insurance agency, with the issuance of 495,000 shares of common stock. These acquisitions were accounted for as purchases. On June 18, 1998, the Company entered into a definitive agreement to acquire NSS Bancorp. Inc., a bank holding company headquartered in Norwalk, Connecticut. Under the terms of the agreement, each share of NSS Bancorp, Inc. common stock will be exchanged for 1.232 shares of the Company's common stock. The transaction, which will be accounted for as a purchase, is expected to be completed in November 1998. Approximately 2.8 million shares of the Company's treasury stock will be reissued to effect the acquisition. On August 25, 1998, the Company announced that it had entered into a definitive merger agreement to acquire New Canaan Bank and Trust Company ("New Canaan"). New Canaan is a commercial bank head quartered in New Canaan, Connecticut. The acquisition, which will be accounted for as a purchase, is expected to be completed in the first quarter of 1999, subject to normal regulatory and New Canaan shareholder approvals. Approximately 1.1 million shares of the Company's treasury stock will be reissued to effect the acquisition. 6 On August 31, 1998, the Company acquired W.M. Ross and Company, Inc., one of the largest privately held property and casualty insurance brokerage firms in New Jersey. The acquisition was accounted for as a purchase, with the issuance of 279,570 shares of the Company's treasury stock. 3.) Net Income per Common Share Basic net income per common share is calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period. - ----------------------------------------------------------------------------
(In thousands, except per share data) Three months ended Sept. 30, Nine months ended Sept. 30, - ---------------------------------------------------------------------------------- 1998 1997 1998 1997 - ---------------------------------------------------------------------------------- Net Income $117,861 $71,212 $348,755 $258,752 =================================================================================== Basic weighted-average common shares outstanding 173,379 175,396 175,466 174,896 Plus: Common stock equivalents 1,701 2,468 2,039 2,339 - ------------------------------------------------------------------------------------ Diluted weighted-average common shares outstanding 175,080 177,864 177,505 177,235 ==================================================================================== Net income per common share: Basic $0.68 $0.41 $1.99 $1.48 Diluted 0.67 0.40 1.96 1.46 - ------------------------------------------------------------------------------------
4.) Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards "SFAS" No. 131, "Disclosures about Segments of an Enterprise and Related information." SFAS No. 131 establishes standards and disclosure requirements for the way companies report information about operating segments, including related product information. Operating segments are defined based upon the way management organizes segments for making operational decisions and evaluating performance. Information such as segment net earnings, revenues, expense items and certain balance sheet amounts are required to be presented. These amounts are to be reconciled to the Company's combined financial information. SFAS No. 131 is effective for financial statements issued for annual periods ending after December 15, 1998, and interim periods beginning in 1999. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." This Statement standardizes the disclosure requirements for pension and other postretirement benefits by requiring additional information that will facilitate financial analysis, and eliminating certain disclosures that are considered no longer useful. This Statement is effective for fiscal years beginning after December 15, 1997, and will be adopted December 31, 1998. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments, and for hedging activities. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The adoption of SFAS No. 133 is not expected to have a material impact on the financial position or results of operations of the Company. 5.) Subsequent Events On October 30, 1998, the Company acquired Spectrum Financial Group, Inc., an employee benefits brokerage operation located in Morristown, New Jersey. Its operations are conducted through its wholly owned subsidiary known by its registered alternative name, Madison Consulting Group. The acquisition, accounted for as a purchase, was transacted using 383,333 shares of the Company's treasury stock. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ----------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ---------------------------------------------- Summit Bancorp is a bank holding company located in Princeton, New Jersey. The Company owns two bank subsidiaries and several active non-bank subsidiaries. The Company's bank subsidiaries provide a broad range of retail, insurance, commercial and private banking services as well as trust and investment services to individuals, businesses, not-for-profit organizations, government entities and other financial institutions. These services are provided through an extensive branch network, including supermarket branches and private banking facilities, as well as through automated teller machines and personal computers. FINANCIAL CONDITION Total assets at September 30, 1998, were $31.9 billion, an increase of $1.9 billion, or 6.3 percent, from year-end 1997. The growth came most notably from the loan portfolios and was generally funded with long-term debt and other borrowed funds. Securities held to maturity at September 30, 1998, were $5.4 billion and were mainly comprised of $3.6 billion of U.S. Government and Federal agency securities, $1.6 billion of other securities, predominately corporate collateralized mortgage obligations ("CMOs"), and $158.3 million of state and political subdivision securities. These securities increased $1.2 billion or 28.9 percent from year-end 1997, primarily as cash flows from securities available for sale were reinvested in securities held to maturity. For the nine months of 1998, $2.9 billion of held to maturity securities were purchased, partially offset by principal repayments and maturities of $1.7 billion. At September 30, 1998, and December 31, 1997, net unrealized gains(losses) on securities held to maturity amounted to $53.8 million and $(6.0) million, respectively. At September 30, 1998, securities available for sale amounted to $4.4 billion and were predominately comprised of U.S. Government and Federal agency securities. These securities decreased $642.1 million, or 12.7 percent, from year-end 1997, primarily as cash flows from securities available for sale were reinvested in securities held to maturity. The decrease resulted from $1.9 billion in maturities and principal repayments and $845.3 million in sales, partially offset by $2.0 billion in purchases. At September 30, 1998, total loans amounted to $20.3 billion, an increase of $1.4 billion, or 7.5 percent, from year-end 1997. The increase in loans was most significantly reflected in the consumer and commercial portfolios. Consumer loans increased $775.6 million, or 18.2 percent, from year end December 1997. The increase in the consumer loan portfolio can generally be attributed to $629.4 million of purchased home equity loans. Commercial loans increased $725.4 million, or 11.6 percent, as compared to December 31, 1997. The increase in commercial loans was primarily related to growth in asset-based lending and leveraged finance. Commercial mortgage loans increased $165.0 million, or 6.1 percent, as compared to December 31, 1997. As a result of loan sales, residential mortgage loans decreased $253.8 million or 4.5 percent from December 31, 1997. Total deposits were $22.1 billion at September 30, 1998, a decrease of $182.6 million, or 0.8 percent, from December 31, 1997. Savings and time deposits continued to be impacted by investors' desire for investment alternatives such as mutual funds, annuities and the stock market. Savings and time deposits at $16.2 billion, decreased $664.7 million, or 3.9 percent, from December 31, 1997. Partially offsetting this decrease was an increase in commercial certificates of deposit $100,000 and over, which were up $318.2 million, or 36.0 percent, compared to December 31, 1997. Also increasing were demand deposits, which increased $163.9 million, or 3.6 percent, from year-end 1997 to $4.7 billion. The increase in demand deposits came mainly from public funds, business and personal accounts. Other borrowed funds at September 30, 1998, increased $871.6 million, or 25.7 percent, from December 31, 1997, to $4.3 billion. The increase in other borrowed funds can be attributed to increases in short-term Federal Home Loan Bank advances and Federal funds purchased, partially offset by a decrease in short-term repurchase agreements. Long-term debt at September 30, 1998, increased $1.2 billion, or 92.6 percent, from December 31, 1997, to $2.4 billion. The increase in long-term debt was principally the result of the increase in long-term repurchase agreements of $975.0 8 million. Included in long-term debt at each of the periods presented is $150.0 million of 8.40 percent pass-through securities qualifying as Tier I Capital. The increases in other borrowed funds and long-term debt were generally used to fund the growth in the loan and investment portfolios and to replace the reduction in core deposits. Total shareholders' equity at September 30, 1998, was $2.6 billion, generally unchanged from December 31, 1997. Net income for the period was offset by the purchase of treasury stock and common stock dividends. Treasury stock at September 30, 1998, amounted to $215.5 million and was comprised of 4,680,000 shares. These shares will be used in conjunction with announced acquisitions, employee benefit plans, and general corporate purposes. Included in shareholders' equity at September 30, 1998, was accumulated other comprehensive income, net of tax, amounting to $37.0 million, compared to $20.9 million at year-end 1997. Accumulated other comprehensive income is comprised principally of unrealized gains on securities available for sale. The Company's capital ratios for September 30, 1998, compared to select prior periods and regulatory requirements, are shown in the following table. The Company's bank subsidiaries met the well-capitalized requirements for each of the periods presented. The decreases in the ratios at September 30, 1998, were principally attributable to treasury stock purchases and asset growth.
- ------------------------------------------------------------------------------------------- Minimum Sept. 30, Dec. 31, Sept. 30, Required Well Selected Capital Ratios: 1998 1997 1997 Capital Capitalized - ------------------------------------------------------------------------------------------- Equity to assets 8.25% 8.72% 8.65 % - - Leverage ratio 8.25 8.76 8.72 3.00% 5.00% Tier I capital 11.29 12.64 12.73 4.00 6.00 Total risk-based capital 13.33 14.83 15.13 8.00 10.00 - --------------------------------------------------------------------------------------------
Non-Performing Assets Non-performing assets include non-performing loans and other real estate owned ("OREO") and are shown in the following table as of the dates indicated.
- --------------------------------------------------------------------------------------------- Non-Performing Assets Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997 (In thousands) - ---------------------------------------------------------------------------------------------- Non-performing loans (1): Commercial and industrial $57,194 $42,644 $31,368 Commercial mortgage 19,500 37,993 46,829 Construction and development 3,118 4,453 10,760 - ---------------------------------------------------------------------------------------------- Non-performing loans 79,812 85,090 88,957 OREO, net 3,233 14,249 19,121 - ---------------------------------------------------------------------------------------------- Non-performing assets $83,045 $99,339 $108,078 - ---------------------------------------------------------------------------------------------- Non-performing loans to total loans .39% .45% .48% Non-performing assets to total loans and OREO .41 .53 .58 - ----------------------------------------------------------------------------------------------
(1) Loans, not included above, past due 90 days or more amounted to $36.1 million, $48.6 million and $67.5 million at September 30, 1998, December 31, 1997, and September 30, 1997, respectively. These loans are primarily residential mortgage and consumer loans which are well secured and in the process of collection. The average balances of non-performing loans for the nine months ended September 30, 1998, and 1997, were $75.2 million and $113.1 million, respectively. Interest income received on non-performing loans amounted to $1.7 million for the nine months ended September 30, 1998, compared to $2.0 million in the same period in 1997. 9 Allowance for Loan Losses A standardized process has been established to assess the adequacy of the allowance for loan losses and to identify the risks inherent in the loan portfolio. This process incorporates credit reviews and gives consideration to areas of exposure such as concentrations of credit, economic and industry conditions, trends in delinquencies and collections, collateral coverage, and the composition of the performing and non-performing loan portfolios. The allowance for loan losses is maintained at a level that management believes to be adequate to absorb anticipated loan losses. The unallocated portion of the allowance for loan losses, in excess of specific and general reserves, was $182.0 million at September 30, 1998, compared to $166.8 million at December 31, 1997. The 1998 provision for loan losses has increased over the prior year as a result of the growth of the loan portfolios. Transactions in the allowance for loan losses, by loan category, for the three and nine month periods ended September 30, 1998, and 1997 and selected loan quality ratios for the dates indicated are shown in the following tables:
- --------------------------------------------------------------------------------------- Allowance for Loan Losses Three months ended Nine months ended September 30, September 30, (In thousands) 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------- Balance, beginning of period $308,753 $294,066 $296,494 $280,611 Acquisition adjustments, net - - - 9,994 Provision for loan losses 18,000 14,500 51,000 45,100 - --------------------------------------------------------------------------------------- 326,753 308,566 347,494 335,705 - --------------------------------------------------------------------------------------- Loans charged off: Commercial and industrial 4,197 4,714 15,687 19,143 Construction and development 920 - 2,215 2,872 Commercial mortgage 632 3,759 2,739 9,687 Residential mortgage 4,044 6,054 7,693 11,622 Consumer 8,248 7,537 26,104 21,522 - --------------------------------------------------------------------------------------- Total loans charged off 18,041 22,064 54,438 64,846 - --------------------------------------------------------------------------------------- Recoveries: Commercial and industrial 2,728 3,029 9,132 10,562 Construction and development 151 49 2,968 3,274 Commercial mortgage 82 3,009 1,800 3,841 Residential mortgage 316 176 1,145 769 Consumer 2,282 1,349 6,170 4,809 - --------------------------------------------------------------------------------------- Total recoveries 5,559 7,612 21,215 23,255 - --------------------------------------------------------------------------------------- Net charge offs 12,482 14,452 33,223 41,591 - --------------------------------------------------------------------------------------- Balance, end of period $314,271 $294,114 $314,271 $294,114 =======================================================================================
- ------------------------------------------------------------------------------ Sept. 30, Dec. 31, Sept. 30, 1998 1997 1997 - ------------------------------------------------------------------------------- Net charge offs to average loans: Quarter-to date .25% .25% .31% Year-to-date .23 .29 .30 Allowance for loan losses to: Total loans 1.55 1.57 1.58 Non-performing loans 393.76 348.45 330.62 Non-performing assets 378.43 298.47 272.13 - ------------------------------------------------------------------------------
10 RESULTS OF OPERATIONS Net income for the quarter ended September 30, 1998, was $117.9 million, or $.68 per basic share, compared to $71.2 million, or $.41 per basic share, for the third quarter of 1997. On a diluted per share basis, net income for the three months ended September 30, 1998, was $.67 per diluted share compared to $.40 for the same period in 1997. The results for the third quarter of 1997 include $56.5 million ($37.1 million after tax), of merger-related charges resulting from the acquisition of Collective which amounted to $.21 per share for both basic and diluted earnings per share. For the nine months ended September 30, 1998, net income was $348.8 million, or $1.99 per basic share, compared to $258.8 million or $1.48 per basic share for the same period a year ago. On a diluted basis, net income for the nine months ended September 30, 1998, was $1.96 per diluted share, compared to $1.46 for the 1997 period. The results for the nine months ended September 30, 1997, included merger-related charges resulting from the acquisition of Collective and $26.5 million ($16.7 million, after tax) recorded in the first quarter of 1997 associated with the acquisition of BMJ. For the nine months ended September 30, 1997, total merger-related charges on a per share basis amounted to $.31 basic and $.30 diluted. The following are key performance indicators for the three and nine month periods ended September 30, 1998, and 1997.
- ----------------------------------------------------------------------------------------- (In thousands, except per share) Three months ended Sept. 30, Nine months ended Sept. 30, - ----------------------------------------------------------------------------------------- Before merger- related charges 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------- Net income $117,861 $108,312 $348,755 $312,532 Net income per share: Basic $0.68 $0.62 $1.99 $1.79 Diluted 0.67 0.61 1.96 1.76 Dividends per share 0.30 0.27 0.87 0.75 Return on: Average assets 1.50% 1.50% 1.53% 1.46% Average common equity 17.95 17.02 17.62 16.99 Efficiency ratio 50.71 49.64 50.79 50.12 - ------------------------------------------------------------------------------------------ After merger-related charges - ------------------------------------------------------------------------------------------ Net income $117,861 $71,212 $348,755 $258,752 Net income per share: : Basic $0.68 $0.41 $1.99 $1.48 Diluted 0.67 0.40 1.96 1.46 Return on: Average assets 1.50% .98% 1.53% 1.20% Average common equity 17.95 11.19 17.62 14.06 Efficiency ratio 50.71 65.15 50.79 57.82 - ------------------------------------------------------------------------------------------
Net Interest Income Interest income on a tax-equivalent basis was $1.6 billion for the nine months ended September 30, 1998, an increase of $82.5 million, or 5.3 percent, compared to a year ago. Interest-earning assets averaged $28.9 billion, an increase of $1.8 billion, or 6.8 percent, compared to the prior year period. The increase in interest-earning assets contributed $106.5 million to the increase in tax-equivalent interest income, partially offset by a decline of $24.0 million due to the reduction in the yield. The rate earned on interest-earning assets decreased 10 basis points to 7.54 percent in 1998. The decrease was generally the result of maturing assets with higher rates being reinvested at lower yields. Interest expense increased $62.7 million, or 9.2 percent, for the nine months ended September 30, 1998, compared to the same period in 1997. The $1.3 billion growth in the average balance of interest-bearing liabilities to $23.1 billion 11 in the 1998 period contributed $59.9 million to the increase in interest expense. The remaining $2.8 million increase was attributed to higher rates paid on interest-bearing liabilities. The rate/volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volumes and rates over the periods. Changes that are not due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values.
- ------------------------------------------------------------------------------------------ Rate/Volume Table Amount of Increase(Decrease) -------------------------------------------------------------------- Three months ended Sept. 30, Nine months ended Sept. 30, 1998 versus 1997 1998 versus 1997 ----------------------------------- --------------------------- Due to change in: Due to change in: ----------------------------------- --------------------------- (Tax-equivalent basis, in millions) Volume Rate Total Volume Rate Total - ------------------------------------------------------------------------------------------- Interest Income Loans: Commercial $23.1 $(3.4) $19.7 $58.5 $(6.8) $51.7 Commercial mortgage 1.0 (2.6) (1.6) 1.1 (5.4) (4.3) Residential mortgage (6.5) (2.7) (9.2) (18.1) (5.8) (23.9) Consumer 13.1 (1.0) 12.1 29.0 (0.9) 28.1 - -------------------------------------------------------------------------------------------- Total loans 30.7 (9.7) 21.0 70.5 (18.9) 51.6 Securities held to maturity 8.2 (1.8) 6.4 (27.0) (4.2) (31.2) Securities available for sale 9.2 (1.5) 7.7 66.2 (1.3) 64.9 Other interest- earning assets (1.0) (0.2) (1.2) (3.2) 0.4 (2.8) - --------------------------------------------------------------------------------------------- Total interest income $47.1 $(13.2) $33.9 $106.5 $(24.0) $82.5 - --------------------------------------------------------------------------------------------- Interest Expense Deposits: Savings deposits $(1.6) $(0.5) $(2.1) $(4.0) $(1.4) $(5.4) Time deposits (3.4) 1.8 (1.6) (10.4) 7.5 (2.9) Commercial CD's > $100 M 2.1 0.0 2.1 3.2 0.2 3.4 - ---------------------------------------------------------------------------------------------- Total deposits (2.9) 1.3 (1.6) (11.2) 6.3 (4.9) Other interest- bearing liabilities 33.9 (1.9) 32.0 71.1 (3.5) 67.6 - ---------------------------------------------------------------------------------------------- Total interest expense 31.0 (0.6) 30.4 59.9 2.8 62.7 - ---------------------------------------------------------------------------------------------- Net interest income $16.1 $(12.6) $3.5 $46.6 $(26.8) $19.8 ==============================================================================================
Net interest income on a tax-equivalent basis was $885.2 million for the nine months ended September 30, 1998, an increase of $19.8 million, or 2.3 percent, compared to the same period in 1997. The net interest spread percentage on a tax-equivalent basis (the difference between the rate earned on average interest-earning assets and the rate paid on average interest- bearing liabilities) was 3.23 percent for the nine months ended September 30, 1998, compared to 3.47 percent for the prior year period. Net interest income on a tax-equivalent basis as a percentage of average interest- earning assets) was 4.10 percent for the nine months ended September 1998, compared to 4.28 percent during the same period in 1997. The decline in net interest spread and net interest margin can be attributed primarily to maturing assets being invested in a lower interest rate environment, the purchase of treasury stock, and the change in the mix of funding as long-term debt and other borrowed funds were used to fund asset growth. 12 Summit Bancorp and Subsidiaries Consolidated Average Balance Sheets with Resultant Interest and Rates Unaudited (Tax-equivalent basis, dollars in thousands)
Three Months Ended September 30, -------------------------------------------------------------------- 1998 1997 -------------------------------------------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate -------------------------------- -------------------------------- Assets Interest-earning assets: Federal funds sold and securities purchased under agreements to resell $ 5,226 $ 82 6.23 % $ 65,642 $ 982 5.94 % Interest-bearing deposits with banks 20,816 358 6.82 9,178 129 5.58 Securities: Trading account securities 21,246 275 5.14 36,712 791 8.55 Securities available for sale 4,309,938 68,195 6.33 3,727,818 60,502 6.49 Securities held to maturity 5,258,401 83,584 6.36 4,743,169 77,250 6.51 ------------ ---------- ------ ------------ ---------- ------ Total securities 9,589,585 152,054 6.34 8,507,699 138,543 6.51 ------------ ---------- ------ ------------ ---------- ------ Loans: Commercial 6,818,345 141,484 8.23 5,710,453 121,759 8.46 Commercial mortgage 2,843,079 60,312 8.49 2,799,108 61,984 8.86 Residential mortgage 5,534,399 100,453 7.26 5,893,393 109,697 7.45 Consumer 4,748,341 100,129 8.37 4,124,299 87,941 8.46 ------------ ---------- ------ ------------ ---------- ------ Total loans 19,944,164 402,378 8.00 18,527,253 381,381 8.17 ------------ ---------- ------ ------------ ---------- ------ Total interest-earning assets 29,559,791 554,872 7.45 27,109,772 521,035 7.63 ------------ ---------- ------ ------------ ---------- ------ Non-interest earning assets: Cash and due from banks 1,009,560 984,750 Allowance for loan losses (314,481) (300,731) Other assets 962,213 924,116 ------------ ------------ Total non-interest earning assets 1,657,292 1,608,135 ------------ ------------ Total Assets $ 31,217,083 $ 28,717,907 ============ ============ Liabilities and Shareholders' Equity Interest-bearing liabilities: Savings deposits $ 9,354,200 61,597 2.61 $ 9,599,076 63,698 2.63 Time deposits 6,944,902 92,766 5.30 7,199,575 94,424 5.20 Commercial certificates of deposit $100,000 and over 1,051,402 14,359 5.42 896,287 12,271 5.43 ------------ ---------- ------ ------------ ---------- ------ Total interest-bearing deposits 17,350,504 168,722 3.86 17,694,938 170,393 3.82 ------------ ---------- ------ ------------ ---------- ------ Other borrowed funds 4,241,502 58,330 5.46 3,059,421 42,418 5.50 Long-term debt 2,125,216 33,013 6.21 951,840 16,908 7.11 ------------ ---------- ------ ------------ ---------- ------ Total interest-bearing liabilities 23,717,222 260,065 4.35 21,706,199 229,719 4.20 ------------ ---------- ------ ------------ ---------- ------ Non-interest bearing liabilities: Demand deposits 4,514,032 4,147,423 Other liabilities 380,879 339,233 ------------ ------------ Total non-interest bearing liabilities 4,894,911 4,486,656 Shareholders' Equity 2,604,950 2,525,052 ------------ ------------ Total Liabilities and Shareholders' Equity $ 31,217,083 $ 28,717,907 ============ ---------- ============ ---------- Net interest income (tax-equivalent basis) 294,807 3.10 % 291,316 3.43 % ---------- ====== ---------- ====== Tax-equivalent basis adjustment (based on a Federal income tax rate of 35%) (2,827) (3,534) ---------- ---------- Net interest income $ 291,980 $ 287,782 ========== ========== Net interest income as a percent of interest earning assets (tax-equivalent basis) 3.96 % 4.26 % ====== ======
13 Summit Bancorp and Subsidiaries Consolidated Average Balance Sheets with Resultant Interest and Rates Unaudited (Tax-equivalent basis, dollars in thousands)
Nine Months Ended September 30, --------------------------------------------------------------------- 1998 1997 -------------------------------- -------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------------ ---------- ------ ------------ ---------- ------ Assets Interest-earning assets: Federal funds sold and securities purchased under agreements to resell $ 16,395 $ 725 5.91 % $ 87,395 $ 3,579 5.48 % Interest-bearing deposits with banks 24,194 1,164 6.43 12,483 520 5.57 Securities: Trading account securities 25,633 1,217 6.35 35,327 1,929 7.30 Securities available for sale 4,827,005 230,776 6.37 3,446,290 165,933 6.42 Securities held to maturity 4,548,299 217,886 6.39 5,104,860 249,036 6.50 ------------ ---------- ------ ------------ ---------- ------ Total securities 9,400,937 449,879 6.38 8,586,477 416,898 6.47 ------------ ---------- ------ ------------ ---------- ------ Loans: Commercial 6,516,600 407,143 8.35 5,586,702 355,418 8.51 Commercial mortgage 2,815,705 179,144 8.48 2,798,431 183,432 8.74 Residential mortgage 5,658,856 310,081 7.31 5,985,504 333,928 7.44 Consumer 4,460,655 280,783 8.42 3,997,691 252,690 8.45 ------------ ---------- ------ ------------ ---------- ------ Total loans 19,451,816 1,177,151 8.09 18,368,328 1,125,468 8.19 ------------ ---------- ------ ------------ ---------- ------ Total interest-earning assets 28,893,342 1,628,919 7.54 27,054,683 1,546,465 7.64 ------------ ---------- ------ ------------ ---------- ------ Non-interest earning assets: Cash and due from banks 1,014,882 1,033,494 Allowance for loan losses (307,418) (298,651) Other assets 958,338 921,838 ------------ ------------ Total non-interest earning assets 1,665,802 1,656,681 ------------ ------------ Total Assets $ 30,559,144 $ 28,711,364 ============ ============ Liabilities and Shareholders' Equity Interest-bearing liabilities: Savings deposits $ 9,436,582 183,478 2.60 $ 9,641,202 188,871 2.62 Time deposits 7,089,932 281,459 5.31 7,351,386 284,298 5.17 Commercial certificates of deposit $100,000 and over 959,234 38,918 5.42 880,414 35,445 5.38 ------------ ---------- ------ ------------ ---------- ------ Total interest-bearing deposits 17,485,748 503,855 3.85 17,873,002 508,614 3.80 ------------ ---------- ------ ------------ ---------- ------ Other borrowed funds 3,808,597 155,223 5.45 3,110,042 127,568 5.48 Long-term debt 1,797,203 84,653 6.28 850,173 44,852 7.03 ------------ ---------- ------ ------------ ---------- ------ Total interest-bearing liabilities 23,091,548 743,731 4.31 21,833,217 681,034 4.17 ------------ ---------- ------ ------------ ---------- ------ Non-interest bearing liabilities: Demand deposits 4,440,046 4,083,140 Other liabilities 381,271 335,259 ------------ ------------ Total non-interest bearing liabilities 4,821,317 4,418,399 Shareholders' Equity 2,646,279 2,459,748 ------------ ------------ Total Liabilities and Shareholders' Equity $ 30,559,144 $ 28,711,364 ============ --------- ============ ---------- Net interest income (tax-equivalent basis) 885,188 3.23 % 865,431 3.47 % ---------- ====== ---------- ====== Tax-equivalent basis adjustment (based on a Federal income tax rate of 35%) (9,157) (10,819) ---------- ---------- Net interest income $ 876,031 $ 854,612 ========== ========== Net interest income as a percent of interest earning assets (tax-equivalent basis) 4.10 % 4.28 % ====== ======
14 Non-Interest Income Non-interest income categories for the three and nine month periods ended September 30, 1998, and 1997 are shown in the following table:
- ----------------------------------------------------------------------------------------- (In millions) Three months ended Sept. 30, Nine months ended Sept. 30, Percent Percent 1998 1997 Change 1998 1997 Change - ------------------------------------------------------------------------------------------ Service charges on deposit accounts $31.2 $28.9 8.0% $93.2 $85.5 9.0% Service and loan fee income 15.6 12.5 25.1 43.7 36.8 19.0 Trust and investment services income 14.1 12.6 11.2 42.5 35.3 20.2 Other 29.6 18.9 57.0 76.3 54.0 41.2 - ------------------------------------------------------------------------------------------ Total non-interest operating income 90.5 72.9 24.1 255.7 211.6 20.8 Securities gains(losses) (0.1) 1.3 (104.6) 4.4 3.5 27.9 - ------------------------------------------------------------------------------------------ Total non-interest income $90.4 $74.2 21.9% $260.1 $215.1 20.9% - ------------------------------------------------------------------------------------------
Service charges on deposits increased $2.3 million or 8.0 percent for the quarter ended September 30, 1998, compared with 1997, and increased $7.7 million, or 9.0 percent, for the nine months ended, compared with the same period a year ago. The increases were primarily the result of the increase in fees charged for nonsufficient funds and a change in the method used to calculate the assessment. Service and loan fee income increased $3.1 million, or 25.1 percent, for the quarter ended September 30, 1998, compared with 1997, and increased $6.9 million or 19.0 percent for the nine months ended September 30, 1998, compared with the nine months ended 1997. The increase in service and loan fee income for the three and nine months ended, was primarily due to increased originations and gains on sales of those loans into the secondary markets. Trust and investment services income increased $1.5 million, or 11.2 percent, for the quarter ended September 30, 1998, compared with 1997, and increased $7.2 million, or 20.2 percent, for the nine months ended September 30, 1998, compared with the nine months ended 1997. The increase was generally due to increases in asset management advisory fees, and fees from sales of proprietary and third party mutual funds. Other income increased $10.7 million, or 57.0 percent, for the quarter ended September 30, 1998, compared with 1997, and increased $22.3 million, or 41.2 percent, for the nine months ended September 30, 1998, compared with the nine months ended 1997. The increase in other non-interest income for the 1998 periods was generally attributable to increases in insurance fees from the acquisitions of Corporate Dynamics and Philadelphia Benefits and ATM access fees. Included in the results for the quarter and the nine months ended September 30, 1998, are realized gains of $7.0 million generated by investments in limited partnerships. 15 Non-Interest Expenses Non-interest expense categories for the three and nine month periods ended September 30, 1998, and 1997, are shown in the following table:
- --------------------------------------------------------------------------------- (In millions) Three months ended Sept. 30, Nine months ended Sept. 30, Percent Percent 1998 1997 Change 1998 1997 Change - -------------------------------------------------------------------------------- Salaries $77.4 $73.3 5.6% $228.3 $216.1 5.6% Pension and other employee benefits 27.9 22.2 25.4 81.7 69.9 16.9 Furniture and equipment 21.0 19.4 8.3 62.2 57.6 8.1 Occupancy, net 18.5 18.0 2.5 54.6 54.3 0.5 Communications 8.9 8.4 5.5 27.5 25.7 6.6 Other 40.5 39.5 2.8 123.4 119.0 3.8 - ------------------------------------------------------------------------------------ Total non- interest operating expenses 194.2 180.8 7.4 577.7 542.6 6.5 - ------------------------------------------------------------------------------------ Merger-related charges - 56.5 (100.0) - 83.0 (100.0) - ------------------------------------------------------------------------------------ Total non- interest expenses $194.2 $237.3 (18.2) $577.7 $625.6 (7.6)% ====================================================================================
Salaries increased $4.1 million, or 5.6 percent, for the quarter ended September 30, 1998, compared to 1997. For the nine months ended September 30, 1998, compared to 1997, these costs increased $12.2 million, or 5.6 percent. Salaries reflect merit increases and increased commission compensation linked to sales efforts. Partially offsetting the increases in salaries was the impact of adopting Statement of Position No. 98-1 providing for the capitalization of certain salary and benefit costs associated with internally developed software, which for the nine months ended September 30, 1998, amounted to $2.2 million. Pension and employee benefits increased $5.7 million, or 25.4 percent, for the three months ended September 1998 compared with 1997. For the nine month periods then ended, benefits increased $11.8 million, or 16.9 percent. The increases were generally related to pension and incentive compensation plans. Furniture and equipment expenses increased $1.6 million, or 8.3 percent, for the quarter ended September 30, 1998, compared with 1997, and increased $4.6 million, or 8.1 percent, for the nine months ended September 30, 1998, compared with the same period a year ago. This increase was primarily due to increases in leasing expenses associated with computer equipment installed at branches to support teller and on-line operations. Communications expense increased $.5 million, or 5.5 percent, for the three months ended September 30, 1998, compared with 1997, and increased $1.8 million, or 6.6 percent, for the nine months ended 1998 when compared with the nine months ended 1997. The increase was primarily due to expanded telephone system usage and equipment costs to support on-line operations. Other expenses, which did not vary significantly from period to period, were largely comprised of legal and professional fees of $23.9 million, advertising and public relations expenses of $18.9 million and amortization of goodwill and intangibles of $14.3 million for the nine months ended September 30, 1998. The effective income tax rate was 30.8 percent for the three months ended September 30, 1998, and 31.3 percent for the nine months then ended, compared with 35.4 percent and 35.2 percent, respectively, for each of the comparable 1997 periods. The decrease in the effective income tax rate was the result of the implementation of business strategies, including the realignment of corporate entities. The lower effective income tax rate is expected to continue throughout the remainder of 1998. 16 Year 2000 Initiative Issues surrounding the Year 2000 arise out of the fact that many existing computer programs use only two digits to identify a year in the date field. With the approach of the Year 2000, computer hardware and software that are not made Year 2000 ready might interpret "00" as Year 1900 rather than Year 2000. The Year 2000 problem is not just a technology issue; it also involves the Company's building equipment, environmental systems, customers, suppliers and other third parties. The Company began taking a proactive stance regarding this issue in 1995 and has been working since then to remediate its information technology ("IT") and non-IT systems for the Year 2000. The following discussion of the implications of the Year 2000 problem for the Company contains numerous forward-looking statements based on inherently uncertain information. The cost of the project and the date on which the Company plans to complete the internal Year 2000 modifications are based on management's best estimates, which were derived utilizing a number of assumptions of future events including the continued availability of internal and external resources, third party modifications and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ. The Company's State of Readiness The Company remains on schedule to have programming changes and testing for internal mission critical computer systems substantially completed by year end 1998, and to have all of its systems remediated, tested and Year 2000 ready by first quarter 1999. The Company's Year 2000 project includes seven phases. The first three phases, which include: Developing a Strategic Approach; Creating Organizational Awareness; Assessing Actions and Developing Detailed Plans, have been completed. The remaining four phases of the project and progress toward completion of those phases are as follows: Renovating (remediating) - approximately 95%; Validating (testing) - approximately 85%; Implementing (remediated code into production) - approximately 85%; and Implementing (totally future date certified) - approximately 75%. Of the mission critical software systems approximately 95% have been remediated and are in the testing phase with approximately 50% of the testing completed. Testing of automated interfaces with customers and other third parties is scheduled for completion by the second quarter 1999. Many of the Company's day-to-day operations involve systems of other financial institutions and governmental agencies to settle transactions. Principal settlement methods associated with major payment systems will be tested by the end of the second quarter 1999 as part of their associated systems projects. Non-IT systems, such as building facilities, security and telecommunications have been evaluated. The Company is currently involved in testing and expects to have systems with embedded chip technology for all building, environmental, and security systems remediated, tested and confirmed as Year 2000 ready by first quarter 1999. Telecommunications, both voice and data, are expected to be remediated, tested and confirmed as Year 2000 ready by July 1999. In addition, the Company has initiated communications with third parties, such as vendors, customers, governmental entities and others, to determine whether they have appropriate plans to be Year 2000 ready. During the first nine months of 1998, the Company has been identifying and assessing the Year 2000 readiness of suppliers and other third parties that have a material relationship with the Company. Confidence levels were developed based on the quality of vendors' response to the Company's written inquiries and by determining the vendors' previous track record in meeting their commitments to the Company. An initial inventory and risk assessment of vendors was completed in March, 1998, and a preliminary evaluation of vendor responses was completed in May, 1998. The quality of responses from vendors has been uneven and additional inquiries are being made to supplement the information obtained during the initial evaluation. Those third-party providers found to pose a significant risk are being asked to demonstrate how that risk will be addressed and appropriate measures to minimize risk, including vendor specific contingency planning, will be taken by the Company on an ongoing basis over the next five quarters. The Year 2000 issue has the potential to materially affect the business operations of the customers of the Company. Business customers who have not adequately considered Year 2000 issues may experience a disruption in their operations, including their ability to transact business with their own customers and with the Company, resulting in potential financial difficulties that are business critical. To minimize the Company's risk from the impact of Year 2000 on customers, the 17 Company has implemented a program for monitoring and measuring customer Year 2000 readiness. All existing customers with borrowing commitments of $1 million or more or customers on the Company's potential problem or non-performing loan lists with outstanding loan balances of $500 thousand or more, have been reviewed for Year 2000 readiness as of September 30, 1998, and will continue to be reviewed on a quarterly basis over the next five quarters. All new loan customers and renewals of existing loans at or above those loan amounts will be assessed as part of the underwriting process. Risks of Year 2000 Issues Management believes that the Company is on schedule with its Year 2000 project and that its efforts are adequate to address its Year 2000 issues. However, if the Company fails to successfully resolve critical Year 2000 issues, there could be a material impact on the Company's operations. The primary risks associated with the Year 2000 issue can be classified into three groups. The first is the risk that the Company's systems are not ready for operation by January 1, 2000. The second is the risk of disruption of Company operations due to operational failures of third parties. The third is the risk of business interruption among fund providers and borrowers such that funding and repayment do not take place in a timely manner. The first risk relates to the failure of the Company to successfully resolve its internal Year 2000 issues. Due to the fact that computer systems are such an integral part of the Company's internal operations, these systems must be remediated, tested and made ready for the Year 2000 in a timely manner. Failure to achieve that goal could have a material impact on the Company's operations. The second risk is operational disruptions due to suppliers and other third parties not being Year 2000 ready. Although the Company is assessing the readiness of third parties and is preparing contingency plans, there is no assurance that a failure of one or more third parties to modify their systems in a timely manner would not have a material and adverse effect on the Company. The final risk is that major customers may experience Year 2000 problems which may adversely affect repayment and funding to the Company. Although the Company is assessing the Year 2000 readiness of certain borrowers and formulating detailed contingency plans to address the potential impact on the Company, it cannot currently predict whether all of its borrowers will be successful in becoming Year 2000 compliant. As a result, there may be increases in the Company's problem loans and credit losses in future years. However, it is not possible to quantify the potential impact of such losses at this time. Costs to Address Year 2000 Issues The cost of the Company's Year 2000 project is estimated to be $23 million and will be funded by normal operating cash. The project is staffed with both external contract and internal personnel. This estimate includes the cost of retention programs for key systems personnel, a portion of which, will be paid beyond January 1, 2000. To date, the Company has incurred $ 7.8 million in total costs. Contingency Plans The Company is developing remediation contingency plans and business resumption contingency plans specific to the Year 2000 readiness project. Remediation contingency plans address the actions to be taken if the current approach to remediating a mission critical system is falling behind schedule or otherwise appears in jeopardy of failing to deliver a Year 2000 ready system when needed. Business resumption contingency plans address the actions that will be taken if critical business functions cannot be carried out in the normal manner due to system or third-party failures. Remediation contingency plans with trigger dates for review and implementation have been developed for those mission critical IT systems that have not completed testing by September 30, 1998. Monitoring the progress of the repair and testing activities will continue until these systems are Year 2000 ready. If failure to meet critical milestones for one of these mission critical IT systems continues beyond the preset trigger date, the remediation contingency alternative would be activated. 18 The Company, as part of its normal business practice, has comprehensive business resumption and disaster recovery plans to facilitate timely restoration of services and processes in the event of a business disruption. The effort to update these business resumption contingency plans to reflect the potential of Year 2000 related failures is underway, using the current plans as a foundation. The first phase of this effort, Organizational Planning and Business Impact Analysis, is scheduled to be completed by the end of the fourth quarter 1998. Creation, updating and testing of Year 2000 related business resumption and disaster recovery contingency plans will continue throughout 1999. 19 LIQUIDITY Liquidity is the ability to meet the borrowing needs and deposit withdrawal requirements of customers and support asset growth. Principal sources of liquidity are deposit generation, access to purchased funds, maturities and repayments of loans and investment securities and interest and fee income. The consolidated statements of cash flows present the change in cash and due from banks from operating, investing and financing activities. During the first nine months of 1998, net cash provided by operating activities totaled $344.6 million. Contributing to net cash provided by operating activities were the results of operations, plus noncash expenses, and proceeds from the sales of mortgages held for sale. Partially offsetting the contributions to operating cash were funds used to originate mortgage loans held for sale and noncash revenues. Net cash used in investing activities totaled $1.9 billion. For the nine months ended September 30, 1998, net cash used in transactions involving the investment portfolios totaled $526.3 million, while the growth in the loan portfolio used $1.3 billion. Scheduled maturities and anticipated principal repayments of the held to maturity portfolio will approximate $597.3 million throughout the balance of 1998. In addition, the securities available for sale portfolio provides another source of liquidity. These sources can also be used to meet the funding needs during periods of loan growth. Net cash provided by financing activities totaled $1.5 billion. During the first nine months of 1998, other borrowed funds and long-term debt increased $2.3 billion. This increase was partially offset by the decrease in total deposits of $182.6 million, the purchase of the Company's common stock of $242.1 million, and the payment of common stock dividends. Liquidity is also available through additional lines of credit and the ability to incur additional debt. The banking subsidiaries have established lines of credit with the Federal Reserve Bank and the Federal Home Loan Bank of New York and other correspondent banks which further support and enhance liquidity. In addition, the banking subsidiaries of the Company, Summit Bank (New Jersey) and Summit Bank (Pennsylvania), are currently in the process of issuing an underwritten offering circular providing for the issuance of senior and subordinated notes. Liquidity is also important at the Parent Company in order to provide funds for operations and to pay dividends to shareholders. Parent Company cash requirements are met primarily through management fees and dividends from its subsidiaries, the issuance of short and long-term debt and the exercise of stock options. The amount of dividends that can be assessed to the bank subsidiaries is subject to certain regulatory restrictions. LOOKING AHEAD This report contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader to understand anticipated future financial performance. These forward-looking statements involve certain risks, uncertainties, estimates and assumptions made by management. Factors that may cause actual results to differ from those results expressed or implied include, but are not limited to, the interest rate environment and the overall economy, the ability of customers to repay their obligations, the adequacy of the allowance for loan losses, the progress of integrating acquired financial institutions, competition and technological changes, including the Year 2000 issue. Although management has taken certain steps to mitigate the negative effect of the above mentioned items, significant unfavorable changes could severely impact the assumptions used and have an adverse affect on profitability. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. - ------------------------------------------------------------------- Due to the nature of the Company's business, the Company's market risk is primarily its exposure to interest rate risk. Interest rate risk is the impact that changes in interest rates have on future earnings. The principal objective in managing interest rate risk is to maximize net interest income within the acceptable levels of risk that have been previously established by policy. This risk can be reduced by various strategies, including the administration of liability costs, the reinvestment of asset maturities and the use of off-balance sheet financial instruments. The Company has limited risks associated with foreign currencies. Interest rate risk is monitored through the use of simulation modeling techniques which apply alternative interest rate scenarios to periodic forecasts of future business activity, projecting the related impact to net interest income. The use of simulation modeling assists management in its continuing efforts to achieve earnings growth in varying interest rate environments. Key assumptions in the model include anticipated prepayments on mortgage- related instruments, contractual cash flow and maturities of all financial instruments including derivatives, anticipated future business activity, deposit sensitivity and changes in market conditions. Selected core deposit rates are held constant based on the results of analysis of historical rate movements. These assumptions are inherently uncertain, and as a result, these models cannot precisely estimate the impact that higher or lower rate environments will have on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in market conditions, as well as changes in management's strategies. Based on the results of the interest simulation model as of September 30, 1998, if interest rates increase or decrease 100 basis points from current rates in an immediate and parallel shock over a twelve month period, the Company would expect a decrease of $21.0 million in net interest income and an increase of $13.0 million in net interest income, respectively. The results of the interest simulation model as of September 30, 1998, do not represent a material change from the amounts previously reported as of December 31, 1997. Interest rate risk management efforts also involve the use of certain derivative financial instruments for the purpose of stabilizing net interest income in a changing interest rate environment. The derivative financial instruments portfolio consists principally of interest rate swaps, floors and caps. At September 30, 1998, the notional values of the swaps, floors and caps were $495.0 million, $430.0 million and $106.0 million, respectively. These derivatives resulted in a net interest income reduction of $1.3 million for the first nine months of 1998. The cost to terminate these contracts at September 30, 1998, would have been $3.2 million. 21 PART II. OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS. - -------------------------- 1. Annette Loatman on behalf of herself and all others similarly situated v. ------------------------------------------------------------------------- United Jersey Bank, U.S. District Court for the District of New Jersey, Civil - ------------------- Action No. 95-5258 (JBS), filed on October 4, 1995. Robert M. Gundle, III, on -------------------------- behalf of himself and all others similarly situated v. Summit Bank, successor - ------------------------------------------------------------------------------ in interest to United Jersey Bank, U.S. District Court for the District of New - ---------------------------------- Jersey, Civil Action No. 96-4477 (JBS), filed on October 14, 1996, and Annette -------- Loatman, on behalf of herself and all others similarly situated v. United - --------------------------------------------------------------------------- Jersey Bank, Superior Court of New Jersey, Camden County, Docket No. - ------------- L-3527-96 ("the State Action"), filed April 24, 1996, dismissed without prejudice pending the outcome of the federal actions on December 9, 1996, and reinstated October 15, 1997 with Robert M. Gundle, III as an additional named plaintiff. Reported on Form 10-K for the period ended December 31, 1997 and on Forms 10-Q for the periods ended March 31, 1998 and June 30, 1998. On September 9, 1998, the trial court entered an order denying the Bank's cross-motion for partial class decertification and granting plaintiffs' motion to extend dissemination of the notice of class action to the entire class. On September 24, 1998, the Bank filed a motion seeking leave to appeal the September 9, 1998 order. No decision has been rendered on the motion. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. - -------------------------------------------------- (c) On August 31, 1998, the Registrant, through its wholly owned subsidiary Summit Bank, issued 279,570 shares of the Registrant's common stock to the shareholders of W.M. Ross & Co. ("Ross & Co."), a New Jersey corporation, in exchange for all of the outstanding shares of Ross & Co. The Registrant's common stock was issued without registration under Securities Act of 1933 (the "Securities Act") in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act. In making the sale, the Registrant relied on representations from the shareholders of Ross & Co. that they had such knowledge and experience as to make an informed investment decision. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. - ---------------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------ Not applicable ITEM 5. OTHER INFORMATION. - -------------------------- Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ----------------------------------------- (a) Exhibits -------- 3(A) Restated Certificate of Incorporation of Summit Bancorp. 27 Summit Bancorp. Financial Data Schedule - September 30, 1998. (b) Reports on Form 8-K ------------------- In a current report on Form 8-K dated November 6, 1998, the Registrant under Item 5, Other Events and Item 7, Financial Statements and Exhibits, filed a portion of the consolidated financial statements and notes thereto to be included in the Registrant's Form 10-Q for the quarterly period ended September 30, 1998, being filed herewith. 22 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUMMIT BANCORP. ----------------- Registrant DATE: November 13, 1998 BY: /s/ WILLIAM J. HEALY --------------------- William J. Healy Executive Vice President, Comptroller and Chief Accounting Officer (Duly Authorized Officer) 23 EXHIBIT INDEX ------------- Exhibit No. Description ------------ ------------------------------------------------------------ 3(A) Restated Certificate of Incorporation of Summit Bancorp. 27 Summit Bancorp. Financial Data Schedule - September 30, 1998. 24 EX-3 2 EXHIBIT (3)A Restated 8/19/98 Exhibit 3(a) RESTATED CERTIFICATE OF INCORPORATION OF SUMMIT BANCORP. SUMMIT BANCORP., a corporation formed pursuant to the provisions of the New Jersey Business Corporation Act (N.J.S.A. 14A: 1-1 et. seq.), hereby restates its Certificate of Incorporation pursuant to the provisions of the New Jersey Business Corporation Act (N.J.S.A. 14A:9-5). 1.The name of the Corporation is SUMMIT BANCORP. 2.The purposes for which the corporation is formed are: A. To engage in and carry on the business of a registered bank holding company. B. To acquire, by purchase, subscription or otherwise, own, hold for investment or otherwise, use, sell, exchange, mortgage, pledge, hypothecate, create a security interest in, or otherwise deal with and dispose of, any and all securities, as hereinafter defined, and to possess and exercise any and all rights, powers and privileges of ownership of any and all such securities, including the right to vote thereon and to consent, assent or dissent with respect thereto for any and all purposes, and to issue or deliver its own securities in payment or exchange, in whole or in part, for any securities or to make payment therefor by any other lawful means; to aid by loan, subsidy or in any other lawful manner any corporation, firm, organization, association or other entity in which the Corporation may be or become interested through the direct or indirect holding of securities or in any other manner; to do any and all acts and things for the enhancement, protection or preservation of any securities which are in any manner, directly or indirectly, held or guaranteed by the Corporation, and to do any and all acts and things designed to accomplish any such purpose. The term "securities", as used in this article, shall mean any and all shares, stocks, bonds, debentures, notes, acceptances, voting trust certificates, certificates of deposit, evidences of indebtedness, other obligations, certificates of any interest in or of the deposit of any of the foregoing, scrip, interim or other receipts, warrants or rights to subscribe for or purchase, or guarantees of, any of the foregoing, or any other interests or instruments commonly known as securities. C. To the extent permitted by law, to cause to be formed, organized, reorganized, consolidated, merged or liquidated and to take charge of, any corporation, firm, organization, association or other entity, foreign or domestic. D. To the extent permitted by law, to furnish services to and perform services for, and to act in any representative capacity for, any corporation, firm, organization, association, or other entity in which the Corporation may be or become interested through the direct or indirect holding of securities or in any other manner, whether in the development, exploitation, promotion, operation, management, liquidation, or otherwise, of any of the business or property thereof or of any lawful enterprise related thereto. E. To make loans and give other forms of credit with or without security. F. To borrow money for its corporate purposes; to draw, make, accept, endorse, execute, issue, deliver and negotiate bonds, debentures, promissory notes, drafts, bills of exchange and other negotiable or transferable instruments and to secure the payment thereof and the interest thereon by a deed or deeds of trust or by mortgage or pledge of or upon, or by the creation of a security interest in, all or any part of the property of the Corporation, real or personal, or any interest therein, wherever situated, whether at the time owned or thereafter acquired, and to sell, pledge, create a security interest in or otherwise dispose of such bonds, debentures, notes or other obligations. G. To purchase, lease or otherwise acquire, take, hold, own, use, improve, maintain, develop, complete, extend, manage, operate, mortgage or otherwise impose a lien upon or create a security interest in, sell, exchange, lease or otherwise dispose of or convey or transfer in any manner, buildings, storage and other facilities, real and personal property of all kinds, and any and all rights, interests or easements therein, without limit as to amount and wherever situated. H. To engage in any such activity directly or through a subsidiary or subsidiaries, and to take all acts deemed appropriate to promote the interest of such subsidiary or subsidiaries, including without limiting the foregoing, making contracts and incurring liabilities for the benefit of such subsidiary or subsidiaries; and transferring or causing to be transferred to any such subsidiary or subsidiaries assets of the Corporation. I. To guarantee the bonds, debentures, notes or other evidences of indebtedness issued, or obligations incurred by subsidiary companies in which the Corporation holds, directly or indirectly, at least a majority of the voting stock, or by any corporation, partnership, limited partnership, joint venture or other association where the Corporation has or may acquire a substantial interest in such corporation, partnership, limited partnership, joint venture or other association or where such guarantee is otherwise in furtherance of the interest of the Corporation. J. To provide that the obligations of such subsidiary companies may be convertible into, or exchangeable for, or carry rights or options to purchase or subscribe to, or both, shares of the Corporation of any class. K. In general, to do any and all of the acts and things herein set forth to the same extent as natural persons could do, and in any part of the world, as principal, factor, agent, contractor or otherwise, either alone or in company with any person, entity, syndicate, partnership, association, corporation or others; to establish and maintain offices and agencies within and anywhere outside of the State of New Jersey; and to exercise all or any of its corporate powers and rights in the State of New Jersey and in any and all other states, territories, districts, possessions or dependencies of the United States of America and in any other countries or places. L. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the purposes herein set forth and to do every other act and thing incidental thereto or connected therewith, provided the same be not forbidden by law. 3. The total number of shares of capital stock authorized and which may be issued by this Corporation is Three Hundred Ninety-Six Million (396,000,000) shares, of which Three Hundred Ninety Million (390,000,000) shares of Eighty Cents ($0.80) par value each shall be designated as Common Stock, and of which Six Million (6,000,000) shares without par value shall be designed as Preferred Stock. All or any part of such authorized Common Stock and Preferred Stock may be issued by the Corporation from time to time and for such consideration as may be determined upon and fixed by the Board of Directors as provided by law. No holders of shares of Common Stock or Preferred Stock of the Corporation shall be entitled, as such, as a matter of preemptive or preferential right, to subscribe for or purchase any part of any new or additional issue of shares of Common Stock or Preferred Stock, or any treasury shares of Common Stock or Preferred Stock, or of securities of the Corporation or of any subsidiary of the Corporation convertible into or exchangeable for, or carrying rights or options to purchase or subscribe to, or both, shares of any class whatsoever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise. The Board of Directors of the Corporation is, pursuant to the New Jersey Business Corporation Law (N.J.S.A. 14A:7-2), authorized to amend this Restated Certificate of Incorporation of the Corporation so as (a) to divide the authorized shares of Preferred Stock of the Corporation into series within such class, (b) to determine the designation and the number of shares of any such series, and (c) to determine the relative voting, dividend, conversion, redemption, liquidation and other rights, preferences and limitations of the authorized shares of Preferred Stock of the Corporation. A. Creation of Preferred Stock, Series R. A series of Preferred Stock of the Corporation, consisting of 1,500,000 Shares, is hereby created and designated as "Series R Preferred Stock" (the "Series R Preferred Stock") which series of Preferred Stock shall have a stated value of $100 per share and the following rights and preferences: (a) Dividends and Distributions. (1) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series R Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to one hundred (100) times the aggregate per share amount of all cash dividends declared or paid on the Common Shares, $1.20 par value per share, of the Corporation (the "Common Shares"), and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, on the first business day of February, May, August and November of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series R Preferred Stock in an amount equal to $1.00 per share of Series R Preferred Stock reduced (but not to an amount less than zero) by the per share amount of all cash dividends declared on the Series R Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series R Preferred Stock. In the event the Corporation shall, at any time after the issuance of any share or fraction of a share of Series R Preferred Stock, make any distribution on the Common Shares of the Corporation, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Corporation or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence, a distribution of Common Shares or other capital stock of the Corporation or a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Fair Market Value (as hereinafter defined) of such share), then and in each such event the Corporation shall simultaneously pay on each then outstanding share of Series R Preferred Stock of the Corporation a distribution, in like kind, of one hundred (100) times such distribution paid on a Common Share (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series R Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Participating Dividends" and the multiple of such cash and non-cash dividends on the Common Shares applicable to the determination of the Participating Dividends, which shall be one hundred (100) initially but shall be adjusted from time to time ashereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Corporation shall at any time after August 28, 1989 declare or pay any dividend or make any distribution on Common Shares payable in Common Shares or any class or series thereof, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding Common Shares into a greater or lesser number of Common Shares, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Participating Dividends which holders of shares of Series R Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (2) The Corporation shall declare each Participating Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Shares in respect of which a Participating Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Shares in respect of which a Participating Dividend is required to be paid shall be paid or set aside for payment on the Common Shares unless a Participating Dividend in respect of such dividend or distribution on the Common Shares shall be simultaneously paid, or set aside for payment, on the Series R Preferred Stock. (3) Preferential Dividends shall begin to accrue on outstanding shares of Series R Preferred Stock commencing with the Quarterly Dividend Payment Date next following the date of issuance of any shares of Series R Preferred Stock and shall accrue on and as of such date and each successive Quarterly Dividend Payment Date thereafter. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series R Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. b) Voting Rights. The holders of shares of Series R Preferred Stock shall have the following voting rights: (1) Subject to the provisions for adjustment hereinafter set forth, each share of Series R Preferred Stock shall entitle the holder thereof to one hundred (100) votes on all matters submitted to a vote of the shareholders of the Corporation. The number of votes which a holder of Series R Preferred Stock is entitled to cast, as the samemay be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Corporation shall at any time after August 28, 1989 declare or pay any dividend on Common Stock payable in Common Shares, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding Common Shares into a greater or lesser number of Common Shares, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series R Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (2) Except as otherwise provided herein, or by law, the Certificate of Incorporation or the By-laws, the holders of shares of Series R Preferred Stock and the holders of Common Shares shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (3) If at the time of any annual meeting of shareholders of the Corporation for the election of directors, the Corporation shall have failed to pay the Preferential Dividends on the shares of the Series R Preferred Stock for six dividend payment periods, whether or not consecutive, or shall fail to pay in full such dividends, if any, as may accumulate on any other series of Preferred Stock for a period of 18 months (referred to herein as a "Dividend Payment Default"), the number of directors of the Corporation shall be increased by two and the holders of the all outstanding series of Preferred Stock in respect of which such a default in payment of dividends as described hereinabove exists, voting as a single class without regard to series, will be entitled to elect such additional two directors until full cumulative dividends for all past dividend periods upon all series of Preferred Stock have been paid or declared and set apart for payment. If and when the full cumulative dividends on all series of Preferred Stock for all past dividend payment periods shall have been paid or declared and set apart for payment, the holders of Preferred Stock shall be divested of the foregoing special voting right, subject to revesting in the event of each and every subsequent Dividend Payment Default. Upon the termination of each such special voting right, the term of office of each director elected by the holders of shares of Preferred Stock in respect of which a default exists in the payment of dividends as described hereinabove (herein referred to as a "Preferred Director") pursuant to such special voting right shall forthwith terminate and the number of directors constituting the Board of Directors shall be reduced by two. Any Preferred Director may beremoved by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock in respect of which such a default exists, voting together as a single class without regard to series, at a meeting of the shareholders, or of the holders of shares of such Preferred Stock, called for the purpose. As long as a Dividend Payment Default shall continue (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock in respect of which such a default exists, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted or a subsequent meeting. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. (4) Except as otherwise set forth herein or required by law, the Certificate of Incorporation or the By-laws, holders of Series R Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Shares as set forth herein) for the taking of any corporate action. (c) Certain Restrictions. (1) Whenever Preferential Dividends or Participating Dividends are in arrears or the Corporation shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Participating Dividends, whether or not declared, on shares of Series R Preferred Stock outstanding shall have been paid or declared and a sum sufficient for the payment thereof set apart for payment, and in addition to any and all other rights which any holder of shares of Series R Preferred Stock may have in such circumstances, the Corporation shall not: (i) declare or pay or set apart for payment dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series R Preferred Stock; (ii) declare or pay or set apart for payment dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series R Preferred Stock, unless dividends are paid ratably on the Series RPreferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph (c)(1), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series R Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series R Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series R Preferred Stock, or any shares of stock ranking on a parity with the Series R Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (2) The Corporation shall not permit any Subsidiary (as hereinafter defined) of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (1) of this Section (c), purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Corporation shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by the Corporation or by any corporation or other entity that is otherwise controlled by the Corporation. (3) The Corporation shall not issue any shares of Series R Preferred Stock except upon exercise of rights issued pursuant to that certain Rights Agreement dated as of August 16, 1989 between the Corporation and First Chicago Trust Company of New York, as Rights Agent, a copy of which is on file with the Secretary of the Corporation at its principal executive office and shall be made available to shareholders of record without charge upon written request thereforaddressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Corporation from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series R Preferred Stock. (d) Reacquired Shares. Any shares of Series R Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. (e) Liquidation, Dissolution or Winding Up. Upon the dissolution, liquidation or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series R Preferred Stock unless the holders of shares of Series R Preferred Stock shall have received, subject to adjustment as hereinafter provided, (1) $1.00 per one-hundredth share ($100 per share) plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (2) if greater than the amount specified in clause (i)(1) of this sentence, an amount equal to one hundred (100) times the aggregate amount to be distributed per share to holders of Common Shares, as the same may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series R Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series R Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series R Preferred Stock are entitled under clause (i)(1) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series R Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Corporation pursuant to clause (i)(2) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of Common Shares upon the liquidation, dissolution or winding up of the Corporation applicable, pursuant to said clause, to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Corporation shall at any time after August 28, 1989 declare or pay any dividend on Common Shares payable in Common Shares or any class or series thereof, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding Common Shares into a greater or lesser number of Common Shares, then in eachsuch case the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series R Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. The sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property and assets of the Corporation shall not be deemed a dissolution, liquidation or winding up of the Corporation for the purposes of this Section (e), nor shall the merger or consolidation of the Corporation into or with any other corporation or association or the merger or consolidation of any other corporation or association into or with the Corporation, be deemed to be a dissolution, liquidation or winding up of the Corporation for the purposes of this Section (e). (f) Certain Reclassifications and Other Events. (1) In the event that holders of Common Shares of the Corporation receive after August 28, 1989 in respect of their Common Shares any share of capital stock of the Corporation (other than any Common Shares of the Corporation of the same class and series as such outstanding Common Shares), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Series R Preferred Stock shall be adjusted so that after such event the holders of Series R Preferred Stock shall be entitled, in respect of each share of Series R Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a Common Share shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock; (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a Common Share shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock; and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a Common Share shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation by virtue ofthe receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (2) In the event that all holders of Common Shares of the Corporation receive after August 28, 1989 in respect of their Common Shares any right or warrant to purchase Common Shares (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Shares) at a purchase price per share less than the Fair Market Value of a Common Share on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Series R Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of Common Shares outstanding immediately before such issuance of rights or warrants plus the maximum number of Common Shares which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of Common Shares outstanding immediately before such issuance of rights or warrants plus the number of Common Shares which could be purchased, at the Fair Market Value of the Common Shares at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (3) In the event that holders of Common Shares of the Corporation receive after August 28, 1989 in respect of their Common Shares any right or warrant to purchase capital stock of the Corporation (other than Common Shares of any class or series), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Corporation (other than Common Shares of any class or series), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Corporation of the shares of Series R Preferred Stock shall each be adjusted so that after such event each holder of a share of Series R Preferred Stock shall be entitled, in respect of each share of Series R Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a Common Share shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined); (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a Common Share shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction; and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a Common Share shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of Common Shares of the Corporation as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (4) For purposes hereof, the "Fair Market Value" of a share of capital stock of the Corporation (including a Common Share) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board of Directors of the Corporation to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Corporation. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Corporation is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Corporation. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Corporation. (g) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series R Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each Common Share is changed or exchanged multiplied by the highest of the Dividend Multiple, the Vote Multiple or the Liquidation Multiple in effect immediately prior to such event. (h) Effective Time of Adjustments. (1) Adjustments to the Series R Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (2) The Corporation shall give prompt written notice to each holder of a share of Series R Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights uponliquidation, dissolution or winding up of the Corporation of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Corporation to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. (i) No Redemption. The shares of Series R Preferred Stock shall not be redeemable at the option of the Corporation or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Corporation may acquire shares of Series R Preferred Stock in any other manner permitted by law, the provisions hereof and the Certificate of Incorporation of the Corporation. (j) Ranking. Unless otherwise provided in the Certificate of Incorporation of the Corporation or a Certificate of Amendment relating to a subsequent series of preferred stock of the Corporation, the Series R Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and senior to the Common Shares. (k) Conversion or Exchange. The holders of shares of Series R Preferred Stock shall not have any rights to convert such shares into or exchange such shares for Common Shares of the Corporation or any other stock of the Corporation. (l) Preemptive Rights. Shares of the Series R Preferred Stock are not entitled to any preemptive rights. (m) Amendment. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series R Preferred Stock at the time outstanding given in person or by proxy, either in writing or by a vote at a meeting called for the purpose, on which matter the holders of shares of this Series R Preferred Stock shall vote together as a separate class, shall be necessary to authorize, effect or validate any amendment, alteration or repeal of any of the provisions of the Restated Certificate of Incorporation of the Corporation or of any certificate amendatory or supplemental thereto which amendment, alteration or repeal would, if effected, adversely affect the preferences, rights, powers or privileges of this Series R Preferred Stock. 4. The location of the current registered office of the Corporation in this State is 301 Carnegie Center, P. O. Box 2066, Princeton, New Jersey 08543-2066, and the name of the current agent therein and in charge thereof upon whom process against this Corporation may be served is Richard F. Ober, Jr. 5. The current Board of Directors consists of eighteen persons whose names and addresses are as follows: S. RODGERS BENJAMIN Chairman Flemington Fur Company 8 Spring Street Flemington, NJ 08822 ROBERT L. BOYLE Publisher Emeritus of the Dispatch 7 Orchard Lane Rumson, NJ 07760 JAMES C. BRADY, JR. Partner Mill House Associates, Inc. Box 351 Gladstone, NJ 07934 JOHN G. COLLINS Vice Chairman Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, NJ 08543-2066 ROBERT G. COX President Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, NJ 08543-2066 T. J. DERMOT DUNPHY Chairman & CEO Sealed Air Corporation Park 80 Plaza East Saddle Brook, NJ 07662 ANNE EVANS ESTABROOK Owner Elberon Development Co. P.O. Box 677 Kenilworth, NJ 07033-0677 ELINOR J. FERDON National President Girls Scouts of the USA Litchfield Way Alpine, NJ 07620 THOMAS H. HAMILTON 218 Philadelphia Avenue Egg Harbor, NJ 08215 FRED G. HARVEY Vice President E. & E. Corp. 225 West 2nd Street Bethlehem, PA 18015 FRANCIS J. MERTZ President Fairleigh Dickinson University 1000 River Road Teaneck, NJ 07666 GEORGE L. MILES, JR. President & CEO WQED Pittsburgh 4802 Fifth Avenue Pittsburgh, PA 15213 WILLIAM R. MILLER 1812 Franklin Boulevard Linwood, NJ 08221 T. JOSEPH SEMROD Chairman and CEO Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, NJ 08543-2066 RAYMOND SILVERSTEIN Consultant Alloy, Silverstein, Shapiro, Adams Mulford & Co. 900 North Kings Highway Cherry Hill, NJ 08034 ORIN R. SMITH Chairman and CEO Engelhard Corporation 101 Wood Avenue Iselin, NJ 08830 JOSEPH M. TABAK President and CEO JPC Enterprises, Inc. 30 South Adelaide Avenue Penthouse F Highland Park, NJ 08904 DOUGLAS G. WATSON President & CEO Novartis Corporation 564 Morris Avenue Summit, NJ 07901 The Board of Directors shall consist of not less than five (5) persons and not more than forty (40) persons, as may be determined from time to time in the discretion of the Board of Directors. Except as otherwise provided by statute, by this Restated Certificate of Incorporation as the same may be amended from time to time, or by By-Laws as the same may be amended from time to time, all corporate powers may be exercised by the Board of Directors. Without limiting the foregoing, the Board of Directors shall have power, without shareholders' action: A. To authorize and cause to be executed and/or issued mortgages, liens, bonds, debentures or other obligations including bonds, debentures or other obligations convertible into, or exchangeable for stock of any class, or bearing, warrants or other evidences of optional rights to purchase or subscribe to, or both, stock of any class, upon the terms, in the manner and under the condition fixed by resolution of the Board of Directors prior to the issue thereof, secured or not secured, upon the real and personal or other property of the Corporation, or any part thereof, provided that a majority of the whole Board of Directors concur therein by resolution or in writing. B. With the sanction of a resolution passed by the holders of two-thirds of the shares issued and outstanding at any annual or special meeting of shareholders duly called for that purpose, to sell, assign, transfer or otherwise dispose of all the rights, franchises and property of the Corporation as an entirety; and any such sale may be wholly or partly in consideration of the bonds, mortgages, debenture obligations, securities or evidences of indebtedness, or shares of the capital stock, of any corporation or corporations of any state, territory or foreign country, formed or to be formed for the purpose of purchasing the same. C. To loan money to, or guarantee an obligation of, or otherwise assist any officer or other employee of the Corporation or of any subsidiary, including an officer or employee who is also a director of the Corporation, whenever, in the judgment of the Board of Directors, such loan, guarantee, or assistance may reasonably be expected to benefit the Corporation. D. To designate three (3) or more of their number to constitute an executive committee, which committee shall for the time being and subject to the control and direction of the Board of Directors have and exercise all the powers of the Board of Directors which may be lawfully delegated for the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. 6. Except to the extent prohibited by law, no Director or officer of the Corporation shall be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, provided that a Director or officer shall not be relieved from liability for any breach of duty based upon an act or omission (a) in breach of such person's duty of loyalty to the Corporation or its shareholders, (b) not in good faith or involving a knowing violation of law or (c) resultingin receipt by such person of an improper personal benefit. Neither the amendment or repeal of this Article 6 nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article 6 shall eliminate or reduce the effect of this Article 6 in respect of any matter which occurred, or any cause of action, suit or claim which but for this Article 6 would have accrued or arisen, prior to such amendment, repeal or adoption. 7. Except as may be otherwise provided in respect of directors to be elected by the holders of Preferred Stock, or any series thereof, by the terms of any resolution or resolutions of the Board of Directors providing for any series of Preferred Stock adopted pursuant to the provisions of Article 3 hereof, the Board of Directors shall be classified, with respect to the time for which directors shall hold office, into three classes, as determined by the Board of Directors, each as nearly equal in number as possible. At the annual meeting of the shareholders of the Corporation at which this Article 7 is adopted, the first such class of directors shall be elected for a term expiring upon the next following annual meeting of shareholders and upon the election and qualification of their respective successors, the second such class of directors shall be elected for a term expiring upon the second following annual meeting of shareholders and upon the election and qualification of their respective successors, and the third such class of directors shall be elected for a term expiring upon the third following annual meeting of shareholders and upon the election and qualification of their respective successors. At each annual meeting of shareholders following the annual meeting at which this Article 7 is adopted, directors of the class of directors whose term expires at such annual meeting shall be elected for a term expiring upon the third following annual meeting of shareholders and upon the election and qualification of their respective successors. Whenever the number of directors constituting the whole Board of Directors is changed, except as may be otherwise provided in respect of directors to be elected by the holders of Preferred Stock, or any series thereof, by the terms of any resolution or resolutions of the Board of Directors providing for any series of Preferred Stock adopted pursuant to the provisions of Article 3 hereof, any increase or decrease in the number of directors shall be apportioned by the Board of Directors among the three classes so as to maintain all the classes as equal in number as possible, and each such director shall hold office until the next annual meeting of shareholders and until such director's successor shall have been elected and qualified; provided, however, that no decrease in the number of directors shall effect the then-current term of any director then in office. A director may be disqualified from office as required by law or under any applicable rules, regulations or orders of any federal or state regulatory authority or by provisions of general applicability in the Restated Certificate of Incorporation or By-Laws adopted prior to such director's election. Any action by the Board of Directors or shareholders creating one or more vacancies on the Board of Directors by increasing the authorized number of directors shall be effective only if such action has received the affirmative vote, in the case of the Board of Directors, of eighty percent (80%) or more of the directors then holding office or, in the case of the shareholders, of eighty percent (80%) or more of the combined voting power of the then outstanding shares of all classes and series of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 8. Subject to the rights of the holders of shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as to dividends or upon liquidation, any action required or permitted to be taken by the shareholders of the Corporation must be effected exclusively either at a duly called annual or special meeting of shareholders of the Corporation or by the unanimous (but no less than unanimous) written consent of the shareholders. 9. In addition to any requirements of law and any other provision of the Restated Certificate of Incorporation of the Corporation or any resolution or resolutions of the Board of Directors providing for any series of Preferred Stock adopted pursuant to Article 3 hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law, any other Article, or other provisions hereof or any such resolution or resolutions), the affirmative vote of the holders of eighty percent (80%) or more of the combined voting power of the then outstanding shares of all classes and series of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter or repeal, or adopted any provision or take action inconsistent with, this Article 9 or Articles 7 or 8 hereof. EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1998 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1998 SEP-30-1998 1,088,352 19,763 1,000 15,962 4,432,791 5,358,215 5,412,020 20,300,663 314,271 31,852,214 22,146,853 4,269,565 405,996 2,401,826 0 0 142,118 2,485,856 31,852,214 1,173,490 444,383 1,889 1,619,762 503,855 743,731 876,031 51,000 4,440 577,738 507,405 348,755 0 0 348,755 1.99 1.96 4.10 79,812 36,144 0 58,989 296,494 54,438 21,215 314,271 132,253 0 182,018
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