-----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, NvmwmpGrriRlofB0xDP1hu3uucWZs2dKed8lbYtE2M81Im9/8/TXimRklwJu8X2g wdsYfgbBpVsBO3uKZPMAiQ== 0000101320-99-000014.txt : 19990818 0000101320-99-000014.hdr.sgml : 19990818 ACCESSION NUMBER: 0000101320-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 DATE AS OF CHANGE: 19990817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT BANCORP/NJ/ CENTRAL INDEX KEY: 0000101320 STANDARD INDUSTRIAL CLASSIFICATION: 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: 99694104 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 STREET 2: 301 CARNEGIE CTR 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 6/30/99 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 June 30, 1999 ---------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ___________________________ Commission File Number: 1-6451 -------------------------- 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 August 1, 1999 there were 177,061,084 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- June 30, 1999, December 31, 1998 and June 30,1998 2 Consolidated Statements of Income- Three and Six Months Ended June 30, 1999 and 1998 3 Consolidated Statements of Cash Flows- Six Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Shareholders' Equity- Six Months Ended June 30, 1999 and 1998 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 24 Part II. Other Information Item 1. Legal Proceedings 25 Item 2. Changes in Securities and Use of Proceeds 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Submissions of Matters to a Vote of Security Holders 26 Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 26 Signature 27 Exhibit Index 28 Summit Bancorp and Subsidiaries Consolidated Balance Sheets Unaudited (In thousands) June 30, December 31, June 30, 1999 1998 1998 ------------ ------------ ------------ Assets Cash and due from banks $ 1,009,863 $ 1,129,859 $ 1,153,023 Federal funds sold and securities purchased under agreements to resell 16,463 28,829 176,000 Interest-bearing deposits with banks 15,297 26,360 34,476 Securities: Trading account securities 18,990 12,553 23,797 Securities available for sale 4,375,966 3,970,941 4,295,945 Securities held to maturity 6,378,484 6,015,810 5,070,615 ------------ ------------ ------------ Total securities 10,773,440 9,999,304 9,390,357 Loans (net of unearned discount): Commercial 7,526,178 7,156,574 6,682,510 Commercial mortgage 2,897,752 2,888,597 2,863,378 Residential mortgage 5,488,340 5,719,305 5,635,144 Consumer 5,626,550 5,362,101 4,523,071 ------------ ------------ ------------ Total loans 21,538,820 21,126,577 19,704,103 Less: Allowance for loan losses 321,700 322,814 308,753 ------------ ------------ ------------ Net loans 21,217,120 20,803,763 19,395,350 ------------ ------------ ------------ Premises and equipment 306,528 270,843 249,156 Goodwill and other intangibles 316,610 295,461 179,206 Accrued interest receivable 202,306 195,708 188,559 Due from customers on acceptances 20,901 18,089 16,608 Other assets 347,232 333,098 359,308 ------------ ------------ ------------ Total Assets $ 34,225,760 $ 33,101,314 $ 31,142,043 ============ ============ ============ Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand deposits $ 4,863,591 $ 4,933,787 $ 4,785,430 Interest-bearing deposits: Savings and time deposits 17,894,879 17,250,295 16,409,298 Commercial certificates of deposit $100,000 and over 684,430 961,046 911,722 ------------ ------------ ------------ Total deposits 23,442,900 23,145,128 22,106,450 ------------ ------------ ------------ Other borrowed funds 3,734,712 3,189,988 4,152,961 Accrued expenses and other liabilities 343,443 358,542 317,030 Accrued interest payable 80,413 94,430 85,123 Bank acceptances outstanding 20,901 18,089 16,608 Long-term debt 4,001,925 3,572,710 1,881,289 ------------ ------------ ------------ Total liabilities 31,624,294 30,378,887 28,559,461 Shareholders' equity: Common stock par value $ .80: Authorized 390,000 shares 142,018 142,106 142,123 Surplus 966,429 1,013,393 1,006,812 Retained earnings 1,859,908 1,728,135 1,596,600 Employee stock ownership plan obligation (2,250) (3,394) (3,663) Accumulated other comprehensive income, net of tax (39,478) 12,087 22,669 Common stock held in treasury, at cost (325,161) (169,900) (181,959) ------------ ------------ ------------ Total shareholders' equity 2,601,466 2,722,427 2,582,582 ------------ ------------ ------------ Total Liabilities and Shareholders' Equity $ 34,225,760 $ 33,101,314 $ 31,142,043 ============ ============ ============ Common shares at period end: Issued 177,523 177,632 177,654 Treasury 7,883 3,873 3,720 Outstanding 169,640 173,759 173,934 See accompanying Notes to Consolidated Financial Statements.
Summit Bancorp and Subsidiaries Consolidated Statements of Income Unaudited (In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Interest Income Loans $ 407,045 $ 392,005 $ 810,712 $ 772,314 Securities: Trading account securities 135 331 217 885 Securities available for sale 60,069 76,324 119,630 161,346 Securities held to maturity 100,850 69,117 197,390 131,723 ----------- ----------- ----------- ----------- Total securities 161,054 145,772 317,237 293,954 Other interest income 612 611 1,207 1,449 ----------- ----------- ----------- ----------- Total interest income 568,711 538,388 1,129,156 1,067,717 ----------- ----------- ----------- ----------- Interest Expense Savings and time deposits 157,347 153,706 308,749 310,574 Commercial certificates of deposit $100,000 and over 9,460 12,302 21,035 24,559 Borrowed funds, including long-term debt 93,313 77,487 185,437 148,533 ----------- ----------- ----------- ----------- Total interest expense 260,120 243,495 515,221 483,666 ----------- ----------- ----------- ----------- Net interest income 308,591 294,893 613,935 584,051 Provision for loan losses 16,500 18,000 33,000 33,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 292,091 276,893 580,935 551,051 Non-Interest Income Service charges on deposit accounts 29,567 31,653 59,643 61,937 Service and loan fee income 16,011 15,199 31,635 28,113 Trust income 12,844 10,851 24,770 21,078 Retail investment and insurance fees 18,982 13,155 37,010 24,819 Securities gains 2,094 3,072 2,311 4,498 Other 16,429 16,213 38,715 29,218 ----------- ----------- ----------- ----------- Total non-interest income 95,927 90,143 194,084 169,663 ----------- ----------- ----------- ----------- Non-Interest Expenses Salaries 82,606 74,422 162,932 150,915 Pension and other employee benefits 29,132 27,202 59,149 53,820 Furniture and equipment 22,517 20,816 44,968 41,183 Occupancy, net 19,263 17,605 39,098 36,105 Communications 9,696 9,044 19,314 18,576 Advertising and public relations 5,927 6,352 11,455 12,275 Amoritization of goodwill and other intangibles 6,468 4,691 12,339 9,414 Other 31,607 31,787 63,398 61,284 ----------- ----------- ----------- ----------- Total non-interest expenses 207,216 191,919 412,653 383,572 ----------- ----------- ----------- ----------- Net Income before taxes 180,802 175,117 362,366 337,142 Federal and state income taxes 60,465 56,640 123,288 106,248 ----------- ----------- ----------- ----------- Net Income $ 120,337 $ 118,477 $ 239,078 $ 230,894 =========== =========== =========== =========== Net Income per Common Share: Basic $ 0.71 $ 0.67 $ 1.39 $ 1.31 =========== =========== =========== =========== Diluted 0.70 0.66 1.38 1.29 =========== =========== =========== =========== Average Common Shares Outstanding: Basic 170,656 176,127 172,216 176,528 =========== =========== =========== =========== Diluted 172,282 178,232 173,861 178,739 =========== =========== =========== =========== See accompanying Notes to Consolidated Financial Statements.
Summit Bancorp and Subsidiaries Consolidated Statements of Cash Flows Unaudited (In thousands) Six Months Ended June 30, -------------------------- Operating activities 1999 1998 ----------- ----------- Net income $239,078 $230,894 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses and other real estate owned 33,000 33,120 Depreciation, amortization and accretion, net 35,108 22,161 Gains on sales of securities (2,311) (4,498) Gains on sales of mortgages held for sale (10,756) (7,273) Gains on the sales of other real estate owned (988) (2,314) Proceeds from the sales of other real estate owned 6,338 9,784 Proceeds from the sales of mortgages held for sale 463,476 395,987 Originations of mortgages held for sale (480,013) (474,198) Net (increase) decrease in trading account securities (6,437) 11,370 Net change in other accrued and deferred income and expense (48,612) (10,751) ----------- ----------- Net cash provided by operating activities 227,883 204,282 ----------- ----------- Investing activities Purchases of securities held to maturity (1,630,736) (2,031,896) Purchases of investment securities available for sale (2,039,333) (1,294,197) Proceeds from maturities of securities held to maturity 1,273,983 1,104,088 Proceeds from maturities of securities available for sale 1,068,731 1,363,435 Proceeds from the sales of securities available for sale 533,850 732,133 Net decrease (increase) in Federal funds sold, securities purchased under agreements to resell and interest bearing deposits with banks 28,629 (191,944) Net increase in loans (330,514) (753,147) Purchases of premises and equipment, net (39,799) (44,506) ----------- ----------- Net cash used in investing activities (1,135,189) (1,116,034) ----------- ----------- Financing activities Net increase (decrease) in deposits 143,882 (222,986) Net increase in short-term borrowings 544,724 755,008 Principal payments on long-term debt (72,737) (170,941) Proceeds from the issuance of long-term debt 501,860 805,895 Dividends paid (104,044) (95,667) Purchase of common stock (239,970) (192,289) Proceeds from issuance of common stock under stock option plans 7,099 12,637 ----------- ----------- Net cash provided by financing activities 780,814 891,657 ----------- ----------- Decrease in cash and due from banks (126,492) (20,095) Beginning cash balance of acquired entities 6,496 - Cash and due from banks at beginning of period 1,129,859 1,173,118 ----------- ----------- Cash and due from banks at end of period $1,009,863 $1,153,023 =========== =========== Supplemental disclosure of cash flow information Cash paid: Interest payments $529,238 $470,145 Income tax payments 84,942 45,358 Noncash investing activities: Net transfer of loans to other real estate owned 5,986 3,831 See accompanying Notes to Consolidated Financial Statements
Summit Bancorp and Subsidiaries Consolidated Statements of Shareholders' Equity Unaudited (In thousands) Accum. Other Total Common Retained ESOP Comprehensive Treasury Shareholders' Stock Surplus Earnings Obligation Income Stock Equity ---------- ---------- --------- ---------- ----------- ---------- ----------- Balance, December 31, 1997 $ 141,272 $ 987,281 $ 1,467,193 $ (4,201) $ 20,875 $ - $ 2,612,420 Comprehensive income: Net income - - 230,894 - - - 230,894 Unrealized holding gain on securities arising during the period, net of tax - - - - 1,794 - 1,794 -------- Total comprehensive income 232,688 Cash dividend declared on common stock - - (101,487) - - - (101,487) Employee stock plans (1,262 shares) 851 19,531 - - - 10,330 30,712 Purchase of common stock (3,926 shares) - - - - - (192,289) (192,289) ESOP debt repayment - - - 538 - - 538 ----------- ---------- --------- -------- ------ ----------- --------- Balance, June 30, 1998 $ 142,123 $1,006,812 $1,596,600 $ (3,663) $ 22,669 $ (181,959) $ 2,582,582 =========== ========== ========= ======== ====== =========== ========= Balance, December 31, 1998 $ 142,106 $1,013,393 $1,728,135 $ (3,394) $ 12,087 $ (169,900) $ 2,722,427 Comprehensive income: Net income - - 239,078 - - - 239,078 Unrealized holding loss on securities arising during the period, net of tax - - - - (51,565) - (51,565) -------- Total comprehensive income 187,513 Cash dividend declared on common stock - - (107,305) - - - (107,305) Employee stock plans (877 shares) (88) (48,531) - - - 37,630 (10,989) Shares issued for acquisitions (1,131 shares) - 1,567 - - - 47,079 48,646 Purchase of common stock (6,018 shares) - - - - - (239,970) (239,970) ESOP debt repayment - - - 1,144 - - 1,144 ----------- --------- -------- ------- ------ ----------- ---------- Balance, June 30, 1999 $ 142,018 $ 966,429 $ 1,859,908 $ (2,250) $ (39,478) $ (325,161) $ 2,601,466 =========== ========= ========= ======= ====== =========== ========== See accompanying Notes to Consolidated Financial Statements.
Summit Bancorp and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1.) Basis of Presentation The accompanying financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the consolidated financial position of Summit Bancorp and subsidiaries (Summit Bancorp), the consolidated results of operations, changes in 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 1999. For additional information and disclosures required under generally accepted accounting principles, reference is made to Summit Bancorp's 1998 Annual Report on Form 10-K. 2.) Acquisitions On March 31, 1999, Summit Bancorp completed the acquisition of New Canaan Bank and Trust Company. New Canaan Bank and Trust Company was headquartered in New Canaan, Connecticut and operated four branches with $182 million in assets. This acquisition was accounted for as a purchase, with the issuance of 1.1 million shares of treasury stock. The cost in excess of the fair value of net assets acquired resulted in goodwill of $35.1 million. On August 1, 1999, Summit Bancorp competed the acquistion of Prime Bancorp. Prime Bancorp was headquartered in Fort Washington, Pennsylvania and operated 27 branches with $1.0 billion in assets. This acquisition was accounted for as a purchase, with the issuance of approximately 7.4 million shares of 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 June 30, Six months ended June 30, - - ------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - - ------------------------------------------------------------------------------------------- Net Income $120,337 $118,477 $239,078 $230,894 =========================================================================================== Basic weighted-average common shares outstanding 170,656 176,127 172,216 176,528 Plus:Common stock equivalents 1,626 2,105 1,645 2,211 - - ------------------------------------------------------------------------------------------- Diluted weighted-average common shares outstanding 172,282 178,232 173,861 178,739 =========================================================================================== Net income per common share: Basic $ 0.71 $ 0.67 $ 1.39 $ 1.31 Diluted 0.70 0.66 1.38 1.29 - - -------------------------------------------------------------------------------------------
4.) Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The adoption of SFAS No. 133 is not expected to have a material impact on the financial position or results of operations of Summit Bancorp. With the issuance of SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral of the effective date of FASB Statement No.133" the effective date of SFAS No. 133 has been deferred to all fiscal years beginning after June 15, 2000. In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage- Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by an Mortgage Banking Enterprise." This statement is an amendment of SFAS No. 65. "Accounting for Certain Mortgage Banking Activities," and requires that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or retained interests based on its ability and intent to sell or hold those investments. This statement is effective for the first fiscal quarter beginning after December 15, 1998. The adoption of the provisions of SFAS No. 134 did not have a material impact on the financial position or results of operations of Summit Bancorp. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Summit Bancorp is a bank holding company headquartered in Princeton, New Jersey. Summit Bancorp owns bank subsidiaries in New Jersey, Pennsylvania and Connecticut and several active non-bank subsidiaries. Summit Bancorp's bank subsidiaries provide a broad range of retail, insurance, commercial and private banking services as well as trust and investment services to individuals, businesses, not-for-profit organizations, government entities and other financial institutions. These services are provided through an extensive branch network, including supermarket branches and private banking facilities, as well as through automated teller machines, personal computers and the internet. FINANCIAL CONDITION Total assets at June 30, 1999, were $34.2 billion, an increase of $1.1 billion, or 3.4 percent, from year-end 1998. The growth came most notably from the loan and securities portfolios, and was generally funded with savings and time deposits, and borrowed funds. The purchase of New Canaan Bank and Trust Company added $208.5 million to total assets. Total securities at June 30, 1999 were $10.8 billion, an increase of $774.1 million, or 7.7% from year-end 1998. Securities held to maturity at June 30, 1999, were $6.4 billion and mainly comprised of $4.2 billion of U.S. Government and Federal agency securities, $2.1 billion of other securities, predominately corporate collateralized mortgage obligations ("CMOs"), and $132.2 million of state and political subdivision securities. These securities increased $362.7 million or 6.0 percent from year-end 1998, primarily as cash flows from increased borrowings were invested in securities held to maturity. For the six months of 1999, $1.6 billion of held to maturity securities were purchased, offset by principal repayments and maturities of $1.3 billion. At June 30, 1999, and December 31, 1998, net unrealized (losses) gains on securities held to maturity amounted to ($140.2) million and $15.0 million, respectively. At June 30, 1999, securities available for sale amounted to $4.4 billion and were predominately comprised of U.S. Government and Federal agency securities. These securities increased $405.0 million, or 10.2 percent, from year-end 1998. The increase resulted from $2.0 billion in purchases partially offset by sales and maturities of $1.6 billion. At June 30, 1999, total loans amounted to $21.5 billion, an increase of $412.2 million, or 2.0 percent, from year-end 1998. Increases in commercial loans of $369.6 million, commercial mortgages of $9.2 million and consumer loans of $264.4 million were offset by the $231.0 million decrease in residential mortgages. The increase in commercial loans was primarily related to growth in asset based lending and commercial media. The decline in residential mortgages of $231.0 million or 4.0 percent from December 31, 1998 was due to mortgage sales and prepayments exceeding the demand for new loans. Mortgage loans held for sale amounted to $91.7 million, $183.3 million and $115.7 million for the periods ended June 30, 1999, December 31, 1998, and June 30, 1998, respectively. The increase in the consumer loan portfolio can generally be attributed to purchases of home equity loans. Total deposits were $23.4 billion at June 30, 1999, an increase of $297.8 million, or 1.3 percent, from December 31, 1998. Savings and time deposits at $17.9 billion, increased $644.6 million, or 3.7 percent, from December 31, 1998. The growth came most notably from Summit's new cash management product, the Summit Navigator account, which increased $1.9 billion from year-end 1998. Partially offsetting this increase was a decrease in commercial certificates of deposit $100,000 and over, which were down $276.6 million, or 28.8 percent, compared to December 31, 1998. Also decreasing were demand deposits, which declined $70.2 million, or 1.4 percent, from year-end 1998 to $4.9 billion. The decrease in demand deposits came mainly from business accounts. Other borrowed funds at June 30, 1999, increased $544.7 million, or 14.6 percent, from December 31, 1998, to $3.7 billion. The increase in other borrowed funds can be attributed to increases in short-term repurchase agreements, partially offset by a decrease in federal funds purchased. Long-term debt at June 30, 1999, increased $429.2 million, or 12.0 percent, from December 31, 1998, to $4.0 billion. The increase in long-term debt was principally the result of the increase in repurchase agreements and Federal Home Loan Bank notes. Included in long-term debt at each of the periods presented are $150.0 million of 8.4 percent pass-through securities qualifying as Tier I Capital. Total shareholders' equity at June 30, 1999 was $2.6 billion, a decrease of $121.0 million or 4.4 percent from December 31, 1998. The decrease was primarily attributed to the purchase of Treasury stock. Treasury stock at June 30, 1999 amounted to $325.2 million and was comprised of 7.9 million shares. On August 1, 1999, approximately 7.4 million shares were used with the acquisition of Prime Bancorp. Included in shareholders' equity at June 30, 1999, was accumulated other comprehensive income (loss), net of tax, amounting to ($39.5) million, compared to $12.1 million at year-end 1998. Accumulated other comprehensive income is comprised principally of unrealized gains and losses on securities available for sale. The decline in accumulated other comprehensive income was due to the increase in interest rates, having a negative effect on fixed income securities. Summit Bancorp's capital ratios for June 30, 1999, compared to select prior periods and regulatory requirements, are shown in the following table. Summit Bancorp's bank subsidiaries met the well-capitalized requirements for each of the periods presented. The decreases in the ratios at June 30, 1999, were principally attributable to treasury stock purchases and asset growth. - - ----------------------------------------------------------------------------------------------- Minimum June 30, Dec. 31, June 30, Required Well Selected Capital Ratios 1999 1998 1999 Capital Capitalized - - ----------------------------------------------------------------------------------------------- Equity to assets 7.60% 8.22% 8.29% -% -% Leverage ratio 7.47 8.00 8.39 3.00 5.00 Tier I capital 9.97 10.86 11.68 4.00 6.00 Total risk-based capital 11.76 12.72 13.76 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 June 30, Dec. 31, June 30, (in thousands) 1999 1998 1998 - - ------------------------------------------------------------------------------ Non-performing loans: Commercial and industrial $76,737 $55,245 $46,405 Commercial mortgage 11,764 26,446 22,484 Construction and development 6,324 5,046 2,566 - - ------------------------------------------------------------------------------ Non-performing loans 94,825 86,737 71,455 OREO, net 6,342 2,829 8,913 - - ------------------------------------------------------------------------------ Non-performing assets $101,167 $89,566 $80,368 - - ------------------------------------------------------------------------------ Non-performing loans to total loans 0.44% 0.41% 0.36% Non-performing assets to total loans and OREO 0.47 0.42 0.41 - - ------------------------------------------------------------------------------ The average balances of non-performing loans amounted to $83.9 million, $87.5 million and $75.5 million, for the six months ended June 30, 1999, December 31, 1998 and June 30, 1998, respectively. Interest income received on non-performing loans amounted to $1.2 million for the six months ended June 30, 1999, compared to $1.0 million for the six months ended June 30, 1998. Loans, not included in the table above, which are past due 90 days or more amounted to $37.7 million, $45.3 million and $57.0 million at June 30, 1999, December 31, 1998, and June 30, 1998, respectively. These loans are primarily residential mortgage and consumer loans which are well secured and in the process of collection. Potential problem loans, which are also excluded from the table above, are loans where information about possible credit problems of borrowers causes management to have doubts as to the ability of such borrowers to comply with loan repayment terms. These loans amounted to $64.5 million, $8.0 million and $11.3 million at June 30, 1999, December 31, 1998, and June 30, 1998, respectively. The increase in potential problem loans at June 30,1999 was attributed to one borrower, with a total relationship of approximately $60.0 million. Subsequent to June 30, 1999 there was a deterioration in this borrower's credit quality. As a result, management expects to transfer this credit from potential problem loans to nonaccrual loans in the third quarter. As of the date of this filing, the loss exposure on this credit and its potential impact on the provision for loan losses cannot be reasonably estimated. Allowance for Loan Losses The allowance for loan losses is maintained at a level to absorb estimated credit losses in the loan portfolio as of the date of the financial statements. A standardized process has been established to assess the appropriateness of the allowance for loan losses and to identify the risks inherent in the loan portfolio. This process consists of (1) the identification of specific reserves for identified problem loans, (2) the calculation of general reserves, which includes a combination of formula-driven allocations and minimum reserve levels by loan type and grade, and (3) the determination of the unallocated reserves. Specific reserves, if any, are determined through a loan-by-loan analysis of non-performing loans, with assessments made on the borrower's ability to repay and the fair value of the underlying collateral for collateral-dependent loans. If a loan's carrying value is in excess of the discounted expected cash flows or the value of the underlying collateral, the excess is specifically reserved or charged off. The level of specific reserves is generally the smallest component of the allowance for loan losses. There are three steps in the calculation of the general reserves. Reserves are first determined by applying historical loss factors to each loan and unused commitment by business segment and loan grade. The historical loss factors are calculated using a trailing six quarter loss migration analysis. Adjustments are then made to the historical loss factor based on six quantitative objective elements ("Delinquency", "Non-performing Assets", "Watch Lists", "Charge-offs", "Concentrations of Credit", and "Recoveries", and three subjective elements ("Economic Conditions", "Credit Audit's Rating", and "Other Factors"), which have been developed to provide greater accuracy to the process. This methodology is applied to both the commercial and retail portfolios. The reserves calculated for the retail portfolios (residential mortgages and consumer loans) are generally sufficient to absorb one year of expected losses. For the commercial portfolios, the historical loss factor, inclusive of the adjustment, is then compared to minimum reserve levels for each loan grade. The larger of the two factors are used in the determination of the reserves. The minimum level of reserves by loan classification is .25% for pass loans, .75% for close follow loans, 1% for special mention loans, 10% for substandard loans, 50% for doubtful loans, and 100% for loss loans. These minimum reserve levels have been consistently applied for all reported periods. The last component of the loan loss reserve is the unallocated reserve. The unallocated reserve is based upon management's evaluation of the underlying inherent risk in the loan portfolio. The appropriate level of reserves in the aggregate is based on several factors: industry concentrations, delinquency trends, economic trends, loan growth relative to the overall allowance, the level of substandard assets and allocated reserves and the level of unallocated reserves, to the total loan portfolio. The unallocated portion of the allowance for loan losses, in excess of specific and general reserves, was $154.2 million at June 30, 1999, compared to $164.5 million at December 31, 1998. The 1999 provision for loan losses for the second quarter was $16.5 million, a $1.5 million decrease from the prior year, and $33.0 million, for the six months ended, unchanged from the same period a year ago. Provision for loan losses are charged to expense to bring the allowance for loan losses at a level deemed appropriate by management to cover the credit risk inherent in the loan portfolio. The provision for loan losses may vary from quarter to quarter due to loan growth or if there is a significant increase in the inherent risk in the loan portfolios. Transactions in the allowance for loan losses, by loan category, for the six month periods ended June 30, 1999, and 1998 and selected loan quality ratios for the dates indicated are shown in the following tables: Allowance for Loan Losses Three months ended Six months ended June 30, June 30, (in thousands) 1999 1998 1999 1998 - - ------------------------------------------------------------------------------------------------ Balance, Beginning of period $328,302 $301,264 $322,814 $296,494 Allowance of acquired institutions - - 2,140 - Provision for loan losses 16,500 18,000 33,000 33,000 - - ------------------------------------------------------------------------------------------------ 344,802 319,264 357,954 329,494 - - ------------------------------------------------------------------------------------------------ Loans charged off: Commercial and industrial 20,268 2,824 28,399 11,490 Construction and development - 939 13 1,295 Commercial mortgage 1,070 1,847 2,272 2,107 Residential mortgage 322 3,330 2,948 3,649 Consumer 7,178 8,524 15,165 17,856 - - ------------------------------------------------------------------------------------------------ Total loans charged off 28,838 17,464 48,797 36,397 - - ------------------------------------------------------------------------------------------------ Recoveries: Commercial and industrial 2,348 1,755 5,865 6,404 Construction and development 452 1,019 847 2,817 Commercial mortgage 193 1,431 741 1,718 Residential mortgage 116 555 435 829 Consumer 2,627 2,193 4,655 3,888 - - ------------------------------------------------------------------------------------------------ Total recoveries 5,736 6,953 12,543 15,656 - - ------------------------------------------------------------------------------------------------ Net charge offs 23,102 10,511 36,254 20,741 - - ------------------------------------------------------------------------------------------------ Balance, end of period $321,700 $308,753 $321,700 $308,753 ================================================================================================
- - ------------------------------------------------------------------------------ Jun. 30, Dec. 31, Jun.30 1999 1998 1998 - - ------------------------------------------------------------------------------ Net charge offs to average loans: Quarter to date 0.44% 0.23% 0.22% Year-to-date 0.34 0.23 0.22 Allowance for loan losses to: Total loans 1.49 1.53 1.57 Non-performing loans 339.26 372.18 432.09 Non-performing assets 317.99 360.42 384.17 - - -----------------------------------------------------------------------------
As a result of charge offs of several large credits, net charge offs for the quarter amounted to $23.1 million, and increase of $12.6 million over the prior year. Summit Bancorp and Subsidiaries Consolidated Average Balance Sheets with Resultant Interest and Rates Unaudited (Tax-equivalent basis, dollars in thousands) Three Months Ended ---------------------------------------------------------------------------------------- June 30, 1999 June 30, 1998 ---------------------------------------- ---------------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate --------- ----------- ----------- ----------- ----------- --------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell $ 29,167 $ 350 4.81 % $ 15,035 $ 236 6.30 % Interest-bearing deposits with banks 23,716 262 4.43 24,770 375 6.07 Securities: Trading account securities 11,222 183 6.54 22,661 360 6.37 Securities available for sale 3,988,952 60,357 6.05 4,816,731 76,938 6.39 Securities held to maturity 6,551,577 101,871 6.22 4,402,545 70,391 6.40 ----------- --------- ----------- ----------- ----------- ----------- Total securities 10,551,751 162,411 6.16 9,241,937 147,689 6.39 ----------- --------- ----------- ----------- ----------- ----------- Loans, net of unearned discount: Commercial 7,377,701 141,791 7.71 6,528,314 137,113 8.42 Commercial mortgage 2,895,640 58,054 8.02 2,833,291 59,696 8.43 Residential mortgage 5,536,378 98,631 7.13 5,721,791 104,842 7.33 Consumer 5,458,995 109,760 8.06 4,359,659 91,587 8.43 ----------- --------- ----------- ----------- ----------- ----------- Total loans 21,268,714 408,236 7.70 19,443,055 393,238 8.11 ----------- --------- ----------- ----------- ----------- ----------- Total interest-earning assets 31,873,348 571,259 7.19 28,724,797 541,538 7.56 ----------- --------- ----------- ----------- ----------- ----------- Non-interest earning assets: Cash and due from banks 958,692 1,005,805 Allowance for loan losses (330,913) (305,566) Other assets 1,175,609 965,884 ----------- ----------- Total non-interest earning assets 1,803,388 1,666,123 ----------- ----------- Total Assets $ 33,676,736 $ 30,390,920 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits $ 10,760,700 71,216 2.65 % $ 9,419,197 60,329 2.57 % Time deposits 6,948,494 86,131 4.97 7,071,065 93,377 5.30 Commercial certificates of deposit $100,000 and over 797,238 9,460 4.76 906,884 12,302 5.44 ----------- --------- ----------- ----------- ----------- ----------- Total interest-bearing deposits 18,506,432 166,807 3.62 17,397,146 166,008 3.83 ----------- --------- ----------- ----------- ----------- ----------- Other borrowed funds 3,259,556 38,642 4.76 3,690,155 50,105 5.45 Long-term debt 3,975,757 54,671 5.50 1,742,456 27,382 6.29 ----------- --------- ----------- ----------- ----------- ----------- Total interest-bearing liabilities 25,741,745 260,120 4.05 22,829,757 243,495 4.28 ----------- --------- ----------- ----------- ----------- ----------- Non-interest bearing liabilities: Demand deposits 4,781,326 4,510,854 Other liabilities 518,481 389,433 ----------- ----------- Total non-interest bearing liabilities 5,299,807 4,900,287 Shareholders' equity 2,635,184 2,660,876 ----------- ----------- Total Liabilities and Shareholders' Equity $ 33,676,736 $ 30,390,920 ============ ============ Net interest spread 311,139 3.14 % 298,043 3.28 % ======== ======= Tax-equivalent basis adjustment (2,548) (3,150) ----------- ----------- Net interest income $ 308,591 $ 294,893 ============ ============ Net interest margin 3.92 % 4.16 % ======== =======
Summit Bancorp and Subsidiaries Consolidated Average Balance Sheets with Resultant Interest and Rates Unaudited (Tax-equivalent basis, dollars in thousands) Year to Date ------------------------------------------------------------------------------------ June 30, 1999 June 30, 1998 ----------------------------------------- -------------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ---------- ----------- ----------- ----------- ----------- ----------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell $ 19,959 $ 495 5.00 % $ 22,072 $ 643 5.87% Interest-bearing deposits with banks 28,699 712 5.00 25,911 806 6.27 Securities: Trading account securities 10,599 286 5.44 27,863 942 6.82 Securities available for sale 3,973,019 120,308 6.06 5,089,824 162,581 6.39 Securities held to maturity 6,389,949 199,458 6.24 4,187,363 134,302 6.41 ----------- ---------- ----------- ----------- ----------- ----------- Total securities 10,373,567 320,052 6.17 9,305,050 297,825 6.40 ----------- ---------- ----------- ----------- ----------- ----------- Loans, net of unearned discount: Commercial 7,268,132 277,402 7.70 6,363,227 265,659 8.42 Commercial mortgage 2,885,058 115,852 8.03 2,801,791 118,832 8.48 Residential mortgage 5,626,686 201,645 7.17 5,722,116 209,628 7.33 Consumer 5,438,268 218,432 8.10 4,314,428 180,654 8.44 ----------- -------- ----------- ----------- ----------- ----------- Total loans 21,218,144 813,331 7.73 19,201,562 774,773 8.14 ----------- -------- ----------- ----------- ----------- ----------- Total interest-earning assets 31,640,369 1,134,590 7.23 28,554,595 1,074,047 7.59 ----------- --------- ----------- ----------- ----------- ----------- Non-interest earning assets: Cash and due from banks 956,857 1,017,587 Allowance for loan losses (328,133) (303,828) Other assets 1,149,459 956,368 ----------- ----------- Total non-interest earning assets 1,778,183 1,670,127 ----------- ----------- Total Assets $ 33,418,552 $ 30,224,722 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits $ 10,416,033 $ 133,105 2.58 % $ 9,478,456 $ 121,881 2.59% Time deposits 7,035,370 175,644 5.03 7,163,649 188,693 5.31 Commercial certificates of deposit $100,000 and over 885,793 21,035 4.79 912,386 24,559 5.43 ----------- --------- ----------- ----------- ----------- ----------- Total interest-bearing deposits 18,337,196 329,784 3.63 17,554,491 335,133 3.85 ----------- --------- ----------- ----------- ----------- ----------- Other borrowed funds 3,335,296 80,129 4.84 3,588,557 96,893 5.44 Long-term debt 3,831,036 105,308 5.50 1,630,478 51,640 6.33 ----------- --------- ----------- ----------- ----------- ----------- Total interest-bearing liabilities 25,503,528 515,221 4.07 22,773,526 483,666 4.28 ----------- --------- ----------- ----------- ----------- ----------- Non-interest bearing liabilities: Demand deposits 4,733,528 4,402,440 Other liabilities 498,354 381,470 ----------- ----------- Total non-interest bearing liabilities 5,231,882 4,783,910 Shareholders' equity 2,683,142 2,667,286 ----------- ----------- Total Liabilities and Shareholders' Equity $ 33,418,552 $ 30,224,722 ============ ============ Net interest spread 619,369 3.16 % 590,381 3.31% ===== ====== Tax-equivalent basis adjustment (5,434) (6,330) ----------- ----------- Net interest income $ 613,935 $ 584,051 ============ ============ Net interest margin 3.95 % 4.17% ====== =====
RESULTS OF OPERATIONS Net income for the quarter ended June 30, 1999, was $120.3 million, or $.71 per basic share, compared to $118.5 million, or $.67 per basic share, for the second quarter of 1998. On a diluted per share basis, net income for the three months ended June 30, 1999, was $.70 per diluted share compared to $.66 for the same period in 1998. For the six months ended June 30, 1999, net income was $239.1 million or $1.39 per basic share compared to $230.9 million or $1.31 per basic share. On a diluted basis, net income for the six months ended, was $1.38 per diluted share, compared to $1.29 for the six months ended June 30, 1998. The following are key performance indicators for the three and six month periods ended June 30, 1999 and 1998. The cash-based financial data excludes the after tax impact of amortization of goodwill and other intangibles. - - ----------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 1999 1998 1999 1998 - - ----------------------------------------------------------------------------- FINANCIAL DATA: Net income $120,337 $118,477 $239,078 $230,894 Per share diluted 0.70 0.66 1.38 1.29 Return on average assets 1.43% 1.56% 1.44% 1.54% Return on average equity 18.32 17.86 17.97 17.46 Efficiency ratio 51.20 49.81 50.88 50.83 - - ----------------------------------------------------------------------------- CASH BASED FINANCIAL DATA*: Net income $126,597 $122,709 $251,000 $239,390 Per share-diluted 0.73 0.69 1.44 1.34 Return on average tangible assets 1.52 1.63 1.53 1.61 Return on average tangible equity 21.87 19.78 21.24 19.37 Efficiency Ratio 49.61 48.59 49.36 49.59 - - ----------------------------------------------------------------------------- * Cash-based financial data excludes the after tax impact of amortization of goodwill and other intangibles. Net Interest Income Interest income on a tax-equivalent basis was $1.1 billion for the six months ended June 30, 1999, an increase of $60.5 million, or 5.6 percent, compared to a year ago. Interest-earning assets averaged $31.6 billion, an increase of $3.1 billion, or 10.8 percent, compared to the prior year period. The increase in interest-earning assets contributed $116.1 million to the increase in tax-equivalent interest income, partially offset by a decline of $55.6 million due to the reduction in the yield. The rate earned on interest-earning assets decreased 36 basis points to 7.23 percent in the 1999 period. The decrease was generally the result of a lower interest rate environment as compared to last year. Interest expense increased $31.6 million, or 6.5 percent, for the six months ended June 30, 1999, compared to the same period in 1998. The $2.7 billion growth in the average balance of interest-bearing liabilities to $25.5 billion in the 1999 period contributed $62.5 million to the increase in interest expense. This increase was partially offset by a decrease of $31.0 million in interest expense resulting from a decline in rates paid on interest-bearing liabilities. The rate paid on interest-bearing liabilities decreased 21 basis points to 4.07 percent in the 1999 period. Net interest income on a tax-equivalent basis was $619.4 million for the six months ended June 30, 1999, an increase of $29.0 million, or 4.9 percent, compared to the same period in 1998. The net interest spread percentage on a tax-equivalent basis (the difference between the rate earned on average interest-earning assets and the rate paid on average interest-bearing liabilities) was 3.16 percent for the six months ended June 30, 1999, compared to 3.31 percent for the prior year period. Net interest income on a tax-equivalent basis as a percentage of average interest-earning assets was 3.95 percent for the six months ended June 1999, compared to 4.17 percent during the same period in 1998. The decline in net interest margin can be attributed primarily to narrower spreads in a lower interest rate environment, the change in deposit mix, and the purchase of treasury stock. 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/VolumeTable Three Months ended June 30, Six months ended June 30, 1999 versus 1998 1999 versus 1998 --------------------------- ------------------------- Due to change in: Due to change in: (In millions) ----------------- ----------------- (Tax-equivilent basis) Volume Rate Total Volume Rate Total - - ------------------------------------------------------------------------------------ Interest Income Loans Commercial $ 16.9 $(12.2) $ 4.7 $ 35.7 $(24.0) $11.7 Commercial mortgage 1.3 (2.9) (1.6) 3.5 (6.5) (3.0) Residential mortgage (3.4) (2.8) (6.2) (2.3) (5.6) (7.9) Consumer 22.2 (4.1) 18.1 45.1 (7.3) 37.8 - - ------------------------------------------------------------------------------------ Total Loans 37.0 (22.0) 15.0 82.0 (43.4) 38.6 Securities HTM 33.5 (2.0) 31.5 68.8 (3.7) 65.1 Securities AFS (12.7) (3.9) (16.6) (34.2) (8.1) (42.3) Other interest-earning assets - (0.2) (0.2) (0.5) (0.4) (0.9) - - ------------------------------------------------------------------------------------ Total Interest Earning Assets 57.8 (28.1) 29.7 116.1 (55.6) 60.5 - - ------------------------------------------------------------------------------------ Interest Expense Deposits Savings Deposits 8.9 2.0 10.9 11.7 (0.5) 11.2 Time deposits (1.6) (5.7) (7.3) (3.3) (9.7) (13.0) Commercial CD's>$100M (1.4) (1.4) (2.8) (0.7) (2.8) (3.5) - - ---------------------------------------------------------------------------------- Total Time Deposits 5.9 (5.1) 0.8 7.7 (13.0) (5.3) Other borrowed funds (5.5) (6.0) (11.5) (6.5) (10.4) (16.9) Long-term debt 31.1 (3.8) 27.3 61.3 (7.6) 53.7 - - ---------------------------------------------------------------------------------- Total Interest Expense 31.5 (14.9) 16.6 62.5 (31.0) 31.5 - - ---------------------------------------------------------------------------------- Net interest income-FTE $ 26.3 $(13.2) $13.1 $53.6 $(24.6) $29.0 - - ---------------------------------------------------------------------------------- Decrease in tax-equivalent adjustment 0.6 0.9 ------ ----- Increase in Net Interest Income $ 13.7 $29.9 ====== =====
Non-Interest Income Non-interest income categories for the three and six month periods ended June 30, 1999 and 1998 are shown in the following table: - - ----------------------------------------------------------------------------- (in millions) Three months ended June 30, Six months ended June 30, Percent Percent 1999 1998 Change 1999 1998 Change - - ----------------------------------------------------------------------------- Service charges on deposit accounts $29.6 $31.7 (6.6)% $59.6 $61.9 (3.7)% Service and loan fee income 16.0 15.2 5.3 31.6 28.1 12.5 Trust income 12.8 10.9 18.4 24.8 21.1 17.5 Retail investment and insurance fees 19.0 13.2 44.3 37.0 24.8 49.1 Other 16.4 16.1 1.3 38.8 29.3 32.5 - - ----------------------------------------------------------------------------- Total non-interest operating income 93.8 87.1 7.8 191.8 165.2 16.1 Securities gains 2.1 3.0 (31.8) 2.3 4.5 (48.6) - - ----------------------------------------------------------------------------- Total non-interest income $95.9 $90.1 6.4% $194.1 $169.7 14.4% =============================================================================
Service charges on deposit accounts decreased $2.1 million, or 6.6 percent for the quarter ended June 30, 1999, compared with 1998, and decreased $2.3 million, or 3.7 percent, for the six months ended, compared with the same period a year ago. The decrease was primarily the result of lower minimum balance requirements on retail deposits resulting in lower monthly maintenance fees. Service and loan fee income increased $0.8 million, or 5.3 percent, for the quarter ended June 30, 1999, compared with 1998, and $3.5 million, or 12.5 percent for the six months ended June 30, 1999, compared to the same period a year ago. The increase in service and loan fee income for the three months ended June 30, 1999, was primarily due to increased merchant credit card activity and mortgage servicing income. Trust income increased $1.9 million, or 18.4 percent, for the quarter ended June 30, 1999, compared with 1998, and $3.7 million, or 17.5 percent for the six months ended June 30, 1999, compared to the same period a year ago. The increase in trust income for the three months ended June 30, 1999, was generally due to increases in asset management advisory fees, personal trust fees, and fees from sales of proprietary and third party mutual funds. Retail investment and insurance fees increased $5.8 million, or 44.3 percent, for the quarter ended June 30, 1999, compared with 1998, and increased $12.2 million or 49.1 percent, for the six months ended, compared with the same period a year ago. The increase in retail investment and insurance fees for the three and six months ended June 30, 1999, was primarily due to increased annuity fee and insurance service fees, resulting from the acquired insurance companies, W.M. Ross and Company, August 31, 1998, and Madison Consulting Group, October 30, 1998. Other income increased $0.3 million, or 1.3 percent, for the quarter ended June 30, 1999, compared with 1998, and $9.5 million, or 32.5 percent, for the six month period ended June 30, 1999, compared to the same period a year ago. The increase in other non-interest income for the six months ended June 30, 1999, was generally attributable to a net gain of $5.9 million on the sale of the $33.0 million credit card portfolio, which occurred in the first quarter. Non-Interest Expense Non-interest expense categories for the three and six month periods ended June 30, 1999, and 1998, are shown in the following table: - - ----------------------------------------------------------------------------- (in millions) Three months ended June 30, Six months ended June 30, - - ------------------------------------------------------------------------------ Percent Percent 1999 1998 Change 1999 1998 Change - - -------------------------------------------------------------------------------- Salaries $82.6 $74.4 11.0% $162.9 $150.9 8.0% Pension and other employee benefits 29.1 27.2 7.1 59.1 53.8 9.9 Furniture and equipment 22.5 20.8 8.2 45.0 41.2 9.2 Occupancy, net 19.3 17.6 9.4 39.1 36.1 8.3 Communications 9.7 9.0 7.2 19.3 18.6 4.0 Advertising and public relations 5.9 6.4 (6.7) 11.5 12.3 (6.7) Amortization of goodwill and other intangibles 6.5 4.7 37.9 12.4 9.4 31.1 Other 31.6 31.8 (0.6) 63.4 61.3 3.4 - - ------------------------------------------------------------------------------ Total non-interest expense $207.2 $191.9 8.0% $412.7 $383.6 7.6% ==============================================================================
Salaries increased $8.2 million, or 11.0 percent, for the quarter ended June 30, 1999, compared to the same quarter in 1998, and $12.0 million, or 8.0 percent, for the six months ended June 30, 1999, compared to the same period a year ago. In addition to annual merit increases, salaries rose approximately $3.2 million and $5.7 million from acquisitions, for the three and six month periods ended, respectively. There were 8,658 full-time equivalent employees at June 30, 1999, compared to 8,350 the same period a year ago. Pension and employee benefits increased $1.9 million, or 7.1 percent, for the three months ended June 30, 1999 compared with the same quarter in 1998, and $5.3 million, or 9.9 percent for the six months ended,June 30, 1999, compared to the same period a year ago. The increases were attributable to increased taxes and pension and incentive compensation expense related to higher levels of core salaries. Furniture and equipment expenses increased $1.7 million, or 8.2 percent, for the quarter ended June 30, 1999, compared with the same quarter in 1998, and $3.8 million or 9.2 percent, for the six months ended June 30, 1999, compared to the same period a year ago. This increase was due to the recent bank acquisitions, equipment maintenance, bankcard service fees and increases in leasing expenses associated with computer equipment installed at branches to support teller and on-line operations. Amortization of goodwill and other intangibles increased $1.8 million or 37.9 percent, for the three months ended June 30, 1999, and $2.9 million, or 31.1 percent, for the six months ended June 30, 1999, compared to the same period a year ago. The increase was due to the purchase acquisitions of NSS Bancorp, New Canaan Bank and Trust Company, W.M. Ross and Company and Madison Consulting Group. Included in other expenses, which did not vary significantly from period to period, were legal and professional fees of $7.0 million and $14.9 million, for the three and six month periods, respectively. The effective income tax rate was 33.4 percent for the three months ended June 30, 1999, compared with 32.3 percent for the comparable 1998 period. The lower effective income tax rate for 1998 was the result of benefits received from the implementation of business strategies in the 1998 period that will not be realized in 1999. LINES OF BUSINESS For management purposes, Summit Bancorp is segmented into the following lines of business: Retail Banking, Commercial Banking, and Investment Services and Private Banking. The investment portfolio and activities not included in these lines are reflected in Corporate and Other. Summit Bancorp's profitability measurement system uses internal management accounting policies that ensure business line results reflect the underlying economics of each business unit, and the results are not necessarily comparable with similar information for any other financial institution. Net income includes revenues and expenses directly associated with each line in addition to allocations of revenue earned and expenses incurred by support units such as operations and technology. Centrally provided corporate services and general overhead are allocated on a per-unit cost basis or in proportion to the balances of assets, liabilities and operating expenses associated with the particular business line. A matched maturity funds transfer pricing methodology is employed to assign a cost of funds to the assets of each business line, as well as to assign a value of funds to the liabilities and equity of each business line. The provision for loan losses is based on the historical credit losses for each line of business. The anticipated consolidated effective income tax rate is applied to each line of business, after consideration of earnings of tax-advantaged assets within the lines of business. In 1999, Summit Bancorp implemented a new business unit profitability system, which prospectively provides enhanced management reporting, including an enhanced methodology with respect to the allocation of the provisions for loan losses. Certain prior period information has been restated to conform to the 1999 presentation with respect to the allocation of funds transfer charges or credits for assigned assets, liabilities and equity. Result of operations Investment Servs/ Quarter Ended June 30, Retail Banking Commercial Banking Private Banking Corporate and Other Consolidated - - ----------------------------------------------------------------------------------------------------------------------------- (in millions) 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 - - ----------------------------------------------------------------------------------------------------------------------------- Net interest income 202.9 189.6 68.2 66.2 14.3 13.5 23.2 25.6 308.6 294.9 Provision for loan loss 9.3 8.9 6.7 8.6 0.5 0.5 - - 16.5 18.0 Net interest income after provision for loan losses 193.6 180.7 61.5 57.6 13.8 13.0 23.2 25.6 292.1 276.9 Non-interest income 49.5 50.3 11.6 10.3 32.3 26.2 2.5 3.3 95.9 90.1 Non-interest expense 135.0 130.7 31.1 27.2 33.2 27.4 7.9 6.6 207.2 191.9 - - ----------------------------------------------------------------------------------------------------------------------------- Income before taxes 108.1 100.3 42.0 40.7 12.9 11.8 17.8 22.3 180.8 175.1 Federal and state income tax 36.1 33.1 13.0 13.0 4.3 3.9 7.1 6.6 60.5 56.6 - - ----------------------------------------------------------------------------------------------------------------------------- Net income 72.0 67.2 29.0 27.7 8.6 7.9 10.7 15.7 120.3 118.5 =============================================================================================================================
Selectd Average Balances - - ------------------------ Securities 55.0 41.0 - - 11.4 22.6 10,485.4 9,178.3 10,551.8 9,241.9 Loans 11,595.9 10,960.7 8,383.9 7,432.4 1,272.4 1,046.4 16.5 3.6 21,268.7 19,443.1 Assets 11,962.6 11,362.3 8,361.9 7,508.5 1,364.1 1,111.8 11,988.1 10,408.3 33,676.7 30,390.9 Deposits 20,667.9 19,075.4 1,006.6 961.1 770.4 733.5 842.9 1,138.0 23,287.8 21,908.0
Result of operations Investment Servs/ Six months Ended June 30 Retail Banking Commercial Banking Private Banking Corporate and Other Consolidated (in millions) 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 - - -------------------------------------------------------------------------------------------------------------------------- Net interest income 402.0 377.9 135.1 129.1 28.0 26.3 48.8 50.8 613.9 584.1 Provision for loan loss 19.1 16.0 13.1 16.0 0.8 1.0 - - 33.0 33.0 - - -------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 382.9 361.9 122.0 113.1 27.2 25.3 48.8 50.8 580.9 551.1 Non-interest income 104.5 95.9 24.0 20.3 62.4 47.0 3.2 6.5 194.1 169.7 Non-interest expense 267.1 262.9 62.1 54.8 64.6 50.0 18.9 16.0 412.7 383.7 - - -------------------------------------------------------------------------------------------------------------------------- Income before taxes 220.3 194.9 83.9 78.6 25.0 22.3 33.1 41.3 362.3 337.1 Federal and state income tax 75.2 62.7 26.6 24.4 8.5 7.2 12.9 11.9 123.2 106.2 - - -------------------------------------------------------------------------------------------------------------------------- Net income 145.1 132.2 57.3 54.2 16.5 15.1 20.2 29.4 239.1 230.9 ========================================================================================================================== Selectd Average Balances - - ------------------------ Securities 55.0 40.9 - - 10.6 27.8 10,308.0 9,236.4 10,373.6 9,305.1 Loans 11,708.0 10,907.8 8,245.5 7,275.2 1,253.2 1,016.3 11.4 2.3 21,218.1 19,201.6 Assets 12,075.5 11,379.7 8,227.0 7,350.8 1,343.4 1,088.7 11,772.7 10,405.5 33,418.6 30,224.7 Deposits 20,330.9 19,152.6 1,005.1 936.1 753.1 700.2 981.6 1,168.0 23,070.7 21,956.9
Retail Banking Retail Banking meets the banking needs of individuals and small businesses through traditional and supermarket branches in New Jersey, eastern Pennsylvania, and southern Connecticut. Summit also offers its customers an expanding array of 24-hour banking services through automated teller machines, telephone banking centers, its Personal Computer Banking network, and the internet. Mortgage loans, home equity loans and lines of credit, direct and indirect consumer loans and small business commercial loans are offered through Summit Bancorp's broad network of branches. Average loans for the quarter ended June 30, 1999, increased $635.2 million or 5.8 percent to $11.6 billion from the same period in 1998, primarily in the consumer lending area. Total average deposits for the second quarter of 1999 increased to $20.7 billion, up $1.6 billion from a year ago. This increase was attributable to the growth in the Summit Navigator product introduced in the fourth quarter of 1998. Net interest income for the quarter increased $13.3 million or 7.0 percent over last year. Interest income increased $5.4 million or 2.5 percent over the second quarter of 1998, resulting from the increase in loan balances. Interest expense increased $4.7 million or 3.2 percent resulting from the increased deposit balances. The increase in non-interest expense of $4.3 million is due to increases in salary and communication expenses. Commercial Banking Commercial Banking is focused on meeting the banking requirements of large and middle-market businesses. Asset based lending, international trade services, equipment leasing, real estate financing, private placement, mezzanine financing, aircraft lending, correspondent banking, treasury services, limited partnership investments, and structured finance services are actively solicited through a network of relationship managers. Demand and interest-bearing deposit accounts and services are provided through the branch network. Total average loans for the quarter ended June 30, 1999, were $8.4 billion, an increase of $951.5 million or 12.8 percent over the same period in 1998 primarily in asset-based lending and commercial media lending. Net interest income for the second quarter of 1999 increased $2.0 million or 3.0 percent from 1998, driven by the increase in average loans. Higher loan fees, account analysis service charges, advisory fees and limited partnership gains provided for the increase over prior year in non-interest income of $1.3 million. Non-interest expense increased $3.9 million over the prior year to $31.1 million due to higher salaries and indirect expenses. Investment Services and Private Banking Investment Services provides a full range of trust, administrative, and custodial services to individuals and institutions, in addition to investment products and discount brokerage. The line also markets a wide variety of insurance products for the personal and corporate marketplace. This segment also includes Private Banking, which provides personal credit services for lawyers, accountants and their firms, and business loans and lines of credit. The increase in net interest income of $0.8 million or 5.9 percent is due to higher loan volumes in 1999. The major portion of the increases in non-interest income and expense over the prior period reflects the acquisitions of W.M. Ross & Company and Madison Consulting Group, two insurance subsidiaries, in the second half of 1998. Also contributing to the increase in non-interest income is higher fee income in trust, mutual funds and annuities. Corporate and Other Corporate and Other is primarily comprised of the treasury function, which is responsible for managing interest-rate risk and the investment portfolios. In addition, certain revenues and expenses not considered allocable to a line of business are reflected in this area. Net interest income declined $2.4 million or 9.4 percent from 1998, primarily due to higher equity allocations made to business lines in 1999, offset partially by growth in the securities portfolio. Asset growth was primarily due to an increase in the securities portfolios, which averaged $10.5 billion for the second quarter of 1999, up $1.3 billion or 14.2 percent from the prior year. The decrease in non-interest income in 1999 is primarily attributed to gains on security transactions in the prior period. Year 2000 Readiness Disclosure 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 Summit Bancorp's assessment of building equipment, environmental systems, customers, suppliers and third parties. Risks of Year 2000 Issues: Management believes that the Year 2000 project is on schedule and that its efforts are adequate to address Year 2000 issues. However, failure to successfully resolve critical issues could have a material impact on Summit Bancorp's operations. The primary risks associated with the Year 2000 are as follows: The first is the risk that Summit Bancorp's systems are not ready for operation by January 1, 2000. These systems must be remediated, tested, and made ready for the Year 2000 in a timely manner. The second is the risk of operational disruption due to operational failures of third parties. Failure of one or more third parties to modify their systems in a timely manner may have a material and adverse effect on Summit Bancorp's operations. This risk is viewed as the one that is most reasonably likely to occur, therefore appropriate contingency plans are being prepared. The third is the risk of business interruption among customers such that funding and repayment do not take place in a timely manner. As a result, there may be increases in problem loans and credit losses in future years. State of Readiness: Summit Bancorp has been working since 1995 to remediate its information technology ("IT") and non-IT systems for the Year 2000. All of the 330 software systems being tracked by Summit Bancorp, and the computer equipment they run on, have completed Summit Bancorp's seven-phase Year 2000 project program, which is as follows: Developing a Strategic Approach, Creating Organizational Awareness, Assessing Actions and Developing Detailed Plans, Renovating (remediating), Validating (testing), Implementing (remediated code into production), and Implementing (totally future-date certified). Additionally, Summit Bancorp has completed the above project program for certain noncritical, stand-alone personal computer (PC)-based software applications. Testing of automated interfaces with third parties including principal settlement methods associated with major payment systems involving systems of other financial institutions and governmental agencies has been completed. In addition, Summit Bancorp has set up a test capability for its customers to test their automated interfaces with Summit Bancorp at the customer's convenience between May and September of 1999. Non-IT systems with embedded chip technology for all building, environmental, and security systems have been remediated, tested, and confirmed as Year 2000 ready. Telecommunications software and equipment, both voice and data, have been fully remediated, tested, and confirmed as Year 2000 ready. The banking and telecommunications industries completed multiple joint end to end tests of major carriers and bank networks in the second quarter of 1999 with no Y2K related problems. Although Summit Bancorp was not one of the banks participating in these tests, review of the methodology and results support Summit Bancorp's own assessment of the Y2K readiness of the telecommunications services on which it relies. Communication with third parties that may have a material relationship with Summit Bancorp has been initiated to determine whether they have appropriate plans to be Year 2000 ready. An inventory of important vendors has been completed and Summit Bancorp's vendor risk assessment and preparedness evaluation activities are ongoing. Summit Bancorp's plans to minimize third-party risk include contingency planning for important vendors. All of Summit Bancorp's significant vendors have responded to the Year 2000 inquiries made by Summit Bancorp, with approximately 87 percent claiming to be currently Year 2000 compliant. Vendor responses were reviewed for completeness and incomplete responses were followed up with additional correspondence, telephone calls or both. In some cases, Year 2000 readiness information was obtained from publicly available sources, including vendor or third party websites. Confidence levels were developed based on the quality of the vendor's responses to Summit Bancorp's written inquiries, use of publicly available information, and the vendor's prior track record in meeting its commitments to Summit Bancorp. With limited exception Summit Bancorp's suppliers have been found to be making satisfactory progress toward achieving Y2K readiness. Summit Bancorp will have appropriate contingency plans in place for those whose progress was not rated satisfactory as of June 30, 1999. Summit Bancorp has not assessed the enforceability of any representations by these vendors as to their Year 2000 compliance status, preferring to focus its Year 2000 resources on developing appropriate contingency plans where it does not have sufficient confidence in a vendor's Year 2000 status. These representations may or may not be enforceable, depending on the facts and circumstances of particular vendor relationships, but Summit Bancorp has not relied on the enforceability of such representations in its Year 2000 readiness efforts. To minimize the impact from those customers who may experience a disruption in their operations because they have not adequately considered Year 2000 issues, a program has been implemented for monitoring and measuring customer Year 2000 readiness. Customers with borrowing commitments of $1 million or more, and customers monitored by the internal risk rating system with outstanding loan balances of $500 thousand or more, have been reviewed for Year 2000 readiness, and will continue to be reviewed on a quarterly basis during 1999. Certain customers have been identified as having additional credit risk as a direct result of the Year 2000. Those risks have been considered and incorporated in the analysis of the adequacy of the loan loss allowance. All new loan customers and renewals of existing loans are assessed as part of the underwriting process. Costs to Address Year 2000 Issues: The estimated cost of the Year 2000 project is $23 million. 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, incremental internal costs totaling $6.1 million have been incurred. These costs include compensation and benefits for internal personnel assigned full-time to the project, the retention program, and other ancillary costs. In addition, $12.0 million of external costs, including external contract personnel and payments to third parties, have been incurred to date. The total cost incurred to date is $18.1 million. Contingency Plans: Summit Bancorp has created certain remediation and business resumption contingency plans specific to the Year 2000 project. Remediation contingency plans address the actions to be taken if remediation of a mission-critical system falls behind schedule. Remediation for all mission critical systems has been completed. None of the three remediation contingency plans that were prepared for mission-critical systems had to be triggered. 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. These plans supplement existing disaster recovery plans and are being updated to include potential Year 2000 related failures. Business resumption plans will be maintained current and will be tested during the remainder of 1999. 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 six months of 1999, net cash provided by operating activities totaled $227.9 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 $1.1 billion. For the six months ended June 30, 1999, net cash used in transactions involving the investment portfolios totaled $793.5 million, while the loan portfolio used $330.5 million. Scheduled maturities and anticipated principal repayments of the held to maturity portfolio will approximate $1.3 billion throughout the balance of 1999. 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 $780.8 million. During the first six months of 1999, other borrowed funds and long-term debt increased $973.8 million. This increase was partially offset by the purchase of common stock of $239.8 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, in November 1998 two of Summit Bancorp's banking subsidiaries, Summit Bank (New Jersey) and Summit Bank (Pennsylvania), executed a distribution agreement providing for the possible issuance, from time to time, of senior and subordinated notes to a maximum of $3.75 billion on an underwritten or agency basis. 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, including realizable collateral valuations, charge offs and recoveries, 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Due to the nature of Summit Bancorp's business, 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. Summit Bancorp 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 flows 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 condition, as well as changes in management's strategies. Based on the results of the interest simulation model as of June 30, 1999, if interest rates increase or decrease 100 basis points from current rates in an immediate and parallel shock over a twelve month period, Summit Bancorp would expect a decrease of $23.0 million in net interest income and an increase of $21.0 million in net interest income, respectively. The results of the interest simulation model as of June 30, 1999, do not represent a material change from the amounts previously reported as of December 31, 1998. The interest simulation model does not include asset and liability strategies that could be deployed to mitigate the impact of changes in the interest rate environment. Interest rate risk management efforts also involve the use of certain derivative financial instruments 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. At June 30, 1999, the notional values of these instruments were $272.0 million. These derivatives resulted in a reduction in net interest income of $1.0 million for the first six months of 1999. The cost to terminate these contracts at June 30, 1999, would have been $103.5 thousand. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Based upon advice of Summit Bancorp's legal department, management does not believe that the ultimate disposition of the litigation discussed below will have a material adverse effect on the financial position and results of operation of Summit Bancorp and its subsidiaries, taken as a whole. 1. Annette Loatman on behalf of herself and all others similarly situated v. United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 95-5258 (JBS), filed on October 4, 1995, Robert M. Gundle, III, on behalf of himself and all others similarly situated v. Summit Bank, successor in interest to United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 96- 4477 (JBS), filed on October 14, 1996, and Annette Loatman, on behalf of herself and all others similarly situated v. United Jersey Bank, Superior Court of New Jersey, Camden County, Docket No. L-3527-96 ("the State Action"), filed April 24, 1996, dismissed without prejudice pending the outcome of the federal actions on December 9, 1996, and reinstated October 15, 1997 with Robert M. Gundle, III as an additional named plaintiff. Reported on Form 10-K for the period ended December 31, 1998 and on Form 10-Q for the period ended March 31, 1999. On March 30, 1999, plaintiffs filed a motion for partial summary judgment as to liability on their New Jersey Consumer Fraud Act claim. The Bank opposed this motion and filed a cross-motion for dismissal of plaintiffs' Consumer Fraud Act claim. On July 23, 1999, the Court entered an order denying the plaintiffs' motion for partial summary judgment and granting the Bank's cross-motion for partial summary judgment dismissing the plaintiffs' New Jersey Consumer Fraud Act claim. 2. In re Payroll Express Corporation et al - John S. Pereira as Chapter 11 Trustee of the Estate of Payroll Express Corporation et al v. United Jersey Bank, United States District Court for the Southern District of New York, Civil Action No. 94-1565 (LAP) ("the Preference Action"), filed December 29, 1993; In re Payroll Express Corporation of New York and Payroll Express Corporation, United States Bankruptcy Court for the Southern District of New York. Case Nos. 92-B-43 149 (CB) and 92-B-43 150 (CB), Adversary Proceeding No. 94-8297A, filed April 22, 1994 ("the Fraudulent Conveyance Action"); Beth Israel Medical Center, et al V. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No. 94-8256 (LAP), filed September 28, 1993; Frederick Goldman, Inc. V. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No, 94-8256 (LAP), filed March 21, 1994; Towers Financial Corporation v. United Jersey Bank, United States District Court for the District of New Jersey, Civil Action No.92-3175 (WGB), filed June 2, 1992, removed to federal court September 2, 1992; New York City Transit Authority V. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No.95-3685 (LAP), filed May 19, 1995; and Copytone, Inc. on behalf of itself and others similarly situated v. United Jersey Bank, National Westminster Bank New Jersey and John Does I through 20, United States District Court for the Southern District of New York, Civil Action No. 95-8217 (LAP), filed November 1995. Reported on Form 10-K for the period ended December 31, 1998 and on Form 10-Q for the period ended March 31, 1999. In the Preference Action, all fact and expert discovery has been concluded. Summit Bank and NatWest Bank have filed motions for summary judgment and the court has scheduled oral argument on the motions for August 20, 1999. The court has also set September 13, 1999 as the trial date for the Preference Action if the summary judgment motions are denied. All other pending cases are inactive. 3. Daniel Iverson, Lawrence Cohen and Terri Cohen, on behalf of themselves and all others similarly situated v. Collective Bank, a federally chartered savings bank organized under the laws of the United States of America (improperly named as Collective Bancorp, Inc., a Delaware corporation), on behalf of itself and all others similarly situated. Superior Court of New Jersey, Atlantic County, Docket No. ATL- L-2578-95, filed on July 26, 1995. Reported on Form 10-K for the period ended December 31, 1998 and on Form 10-Q for the period ended March 31, 1999. On January 27, 1999, the New Jersey Supreme Court entered an order granting Collective's motion for leave to cross appeal the Appellate Division's ruling concerning federal preemption. The Supreme Court has not yet scheduled a date to hear the parties' appeals. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 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., as restated August 16, 1999. (4) A. #Rights Agreement, dated as of June 16, 1999, by and between Summit Bancorp and First Chicago Trust Company of New York, as Rights agent (incorporated by reference to Exhibit 4.1 on Form 8-K dated June 16, 1999). (10) HH. (i) Summit Bancorp. Executive Severance Plan Participation Letter, for James J. Lynch and (ii) Termination Agreement between Summit Bancorp. and James J. Lynch (27) Summit Bancorp. Financial Data Schedule - June 30, 1999. (b) Reports on Form 8-K In a current report on Form 8-K dated June 16, 1999, the Registrant under Item 5, Other Events, reported the declaration of a dividend distribution of one Preferred Stock Purchase Right for each outstanding Common Share of the Corporation, payable as of August 16, 1999 to shareholders of record on that date. Each Right entitles the registered holder to purchase from the Corporation one one-hundredth (1/100) of a preferred share of the Corporation, designated as Series S Preferred Shares, upon the occurrence of certain events set forth in the Rights Agreement dated as of June 16, 1999 between Summit Bancorp and First Chicago Trust Company of New York, as Rights Agent. 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: August 16, 1999 BY: /s/Paul V. Stahlin -------------------------- Paul V. Stahlin Senior Vice President, Comptroller and Principal Accounting Officer (Duly Authorized Officer) EXHIBIT INDEX Exhibit No. Description (3) A. #Restated Certificate of Incorporation of Summit Bancorp., as restated August 16, 1999. (4) A. #Rights Agreement, dated as of June 16, 1999, by and between Summit Bancorp and First Chicago Trust Company of New York, as Rights agent (incorporated by reference to Exhibit 4.1 on Form 8-K dated June 16, 1999). (10) HH. (i) Summit Bancorp. Executive Severance Plan Participation Letter for James J. Lynch and (ii) Termination Agreement between Summit Bancorp. and James J. Lynch (27) Summit Bancorp. Financial Data Schedule - June 30, 1999. EX-3 2 Exhibit (3)A. Restated 8/16/99 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 Shares (the "Common Stock"), and of which Six Million (6,000,000) shares without par value shall be designed as Preferred Shares (the "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 Series S Preferred Shares. A series of Preferred Stock of the Corporation, consisting of 2,000,000 shares, be, and hereby is, created and designated as "Series S Preferred Shares" (the "Series S Preferred Stock"), which shall have a stated value of $16,400 per share and shall have the powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as follows: (1) Dividends and Distributions. (a) Subject to the provisions for adjustment hereinafter set forth, and subject to the rights of the holders of any shares of any series of Preferred Shares ranking prior and superior to the Series S Preferred Stock with respect to dividends, the holders of shares of Series S 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 100 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of Common Stock, 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 S Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Series S Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated portion of such amount) equal to $25.00 per share of Series S Preferred Stock less the per share amount of all cash dividends declared on the Series S 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 S Preferred Stock. In the event the Corporation shall, at any time after the issuance of any share or fraction of a share of Series S Preferred Stock, make any distribution on the shares of Common Stock 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 shares of Common Stock or other capital stock of the Corporation or a distribution of options, 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 of Common Stock), then, and in each such event, the Corporation shall simultaneously pay on each then outstanding share of Series S Preferred Stock of the Corporation a distribution, in like kind, of 100 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series S 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 "Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Corporation shall at any time after August 16, 1999 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Series S 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 shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series S Preferred Stock. (c) Preferential Dividends shall begin to accrue on outstanding shares of Series S Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series S Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series S 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. (2) Voting Rights. The holders of shares of Series S Preferred Stock shall have the following voting rights: (a) Subject to the provisions for adjustment hereinafter set forth, each share of Series S Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the holders of the Common Stock. The number of votes which a holder of Series S Preferred Stock is entitled to cast, as the same may 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 16, 1999 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, 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 S 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 shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided in this Restated Certificate of Incorporation or by law, the holders of shares of Series S Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) In the event that the Preferential Dividends accrued on the Series S Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or irrevocably set aside for payment, the holders of record of Preferred Stock of the Corporation of all series (including the Series S Preferred Stock), other than any series in respect of which such right is expressly withheld by this Restated Certificate of Incorporation, shall have the right, at the next meeting of shareholders called for the election of directors, to elect two members to the Board of Directors, which directors shall be in addition to the number required prior to such event, to serve until the next Annual Meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series S Preferred Stock shall have been paid (or irrevocably set aside for payment) in full. The holders of shares of Series S Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series S Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such shareholders, and vacancies in such directorships may be filled only by such shareholders (or by the remaining director elected by such shareholders, if there be one) in the manner permitted by law; provided, however, that any such action by shareholders shall be taken at a meeting of shareholders and shall not be taken by written consent thereto. (d) Except as otherwise required by this Restated Certificate of Incorporation or by law or set forth herein, holders of Series S Preferred Stock shall have no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. (3) Certain Restrictions. (a) Whenever Preferential Dividends or Dividends are in arrears or the Corporation shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Series S Preferred Stock outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Series S Preferred Stock may have in such circumstances, the Corporation shall not: (i) declare or pay 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 S Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series S Preferred Stock, unless dividends are paid ratably on the Series S Preferred 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 3(a), 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 S 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 S Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series S Preferred Stock, or any shares of stock ranking on a parity with the Series S 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. (b) 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 (a) of this Section 3, 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 of such corporation or other entity 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. (c) The Corporation shall not issue any shares of Series S Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of June 16, 1999 between the Corporation and First Chicago Trust Company of New York, as Rights Agent, as it may be amended from time to time, 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 therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions of this Subarticle A 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 S Preferred Stock. (4) Reacquired Shares. Any shares of Series S Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled 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. (5) Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution 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 S Preferred Stock unless the holders of shares of Series S Preferred Stock shall have received for each share of Series S Preferred Stock, subject to adjustment as hereinafter provided, (A) $16,400 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, 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 S Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series S Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series S Preferred Stock are entitled under clause (i)(A) 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 S Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Corporation pursuant to clause (i)(B) 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 shares of Common Stock 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 16, 1999 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series S 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 shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (6) Certain Reclassifications and Other Events. (a) In the event that holders of shares of Common Stock of the Corporation receive after August 16, 1999, in respect of their shares of Common Stock any share of capital stock of the Corporation (other than any share of Common Stock of the Corporation), 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 S Preferred Stock shall be adjusted so that after such event the holders of Series S Preferred Stock shall be entitled, in respect of each share of Series S 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 share of Common Stock 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 share of Common Stock 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 share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (b) In the event that holders of shares of Common Stock of the Corporation receive after August 16, 1999, in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common 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 the liquidation, dissolution or winding up of the Corporation of the shares of Series S 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 shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (c) In the event that holders of shares of Common Stock of the Corporation receive after August 16, 1999, in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Corporation (other than shares of Common Stock), 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 Stock), 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 S Preferred Stock shall each be adjusted so that after such event each holder of a share of Series S Preferred Stock shall be entitled, in respect of each share of Series S 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 share of Common Stock 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) and (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 share of Common Stock 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 share of Common Stock 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 shares of Common Stock 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. (d) For purposes of this Subarticle A, the "Fair Market Value" of a share of capital stock of the Corporation (including a share of Common Stock) 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. (7) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock 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 S 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 share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. (8) Effective Time of Adjustments. (a) Adjustments to the Series S Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (b) The Corporation shall give prompt written notice to each holder of a share of Series S Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Corporation of such shares required by the provisions of this Subarticle A. 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. (9) No Redemption. The shares of Series S 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 S Preferred Stock in any other manner permitted by law and the provisions of the Restated Certificate of Incorporation of the Corporation. (10) Ranking. Unless otherwise provided in this Restated Certificate of Incorporation of the Corporation, as amended from time to time, the Series S 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 Stock. (11) Amendment. The provisions by this Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series S Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series S Preferred Stock, voting together as a single class. 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: ROBERT L. BOYLE Publisher Emeritus of the Dispatch 7 Orchard Lane Rumson, NJ 07760 JAMES C. BRADY 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 WILLIAM M. FREEMAN President and Chief Executive Officer Bell Atlantic - New Jersey 540 Broad Street Newark, NJ 07102 THOMAS H. HAMILTON 218 Philadelphia Avenue Egg Harbor, NJ 08215 FRED G. HARVEY Vice President E. & E. Corp. 204 Second Street Catasauqua, PA 18032 FRANCIS J. MERTZ 167 Stanie Brae Drive Watchung, NJ 07060 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 Chairman and CEO JPC Enterprises, Inc. 30 South Adelaide Avenue Penthouse F Highland Park, NJ 08904 DOUGLAS G. WATSON 52 Liberty Corner Road Far Hills, NJ 07931 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) resulting in 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-10 3 Exhibit 10HH. (i) James J. Lynch Re: Executive Severance Plan and Termination Agreement Dear Mr. Lynch: On October 15, 1997, the Board of Directors of Summit Bancorp. (the "Company") amended and restated the Summit Bancorp. Executive Severance Plan (as amended, the "Plan"). A copy of the Plan, reflecting all amendments, is attached hereto and made a part hereof as if fully set forth in this letter. Unless the context otherwise requires or unless otherwise defined in this letter, capitalized terms used in this letter have the meanings assigned to them in the Plan. The Committee, as a matter of separate inducement and not in lieu of any salary or other compensation for services, has selected you to participate in the Plan, subject to the terms and conditions of the Plan and this letter. This letter constitutes your Participation Letter under the Plan. Your participation in the Plan commences as of the effective date and time of the merger of Prime Bancorp, Inc. into First Valley Corporation ("Effective Time"). You cease to be a Participant in the Plan upon the earliest to occur of (i) October 15, 2002 (the "Expiration Date"), (ii) the Date of Termination, and (iii) your Retirement. The Expiration Date will be automatically extended for an additional year (each such anniversary being the new Expiration Date) unless at least 90 calendar days prior to the then Expiration Date, the Company notifies you that the then Expiration Date will not be extended (it being understood that the automatic extension operates in successive years so long as no notice is given). The payments and benefits to which you as a Participant in the Plan may become entitled will be determined under the Plan. It is an express condition to your entitlement to the payments of amounts and the provision of benefits provided for by paragraph 5(a) of the Plan that the Company receive on the Date of Termination a Release, Covenant Not to Sue, Non-Disclosure and Non-Solicitation Agreement executed by you, or your legal representative (in the event of your death or Disability) in the form set forth in Exhibit A to the Plan, and that such Agreement be effective. The following special provisions ("Letter Amendments") supplement, amend and supersede the provisions of the Plan, as applied to you: A. At the Effective Time, your title shall be Senior Executive Vice President of Summit Bancorp. Effective at the first meeting of the Board of Directors of Summit Bank (PA) following the merger of Prime Bank with and into Summit Bank (PA), you shall also have the titles of Chairman of the Board, Chief Executive Officer and President of Summit Bank (PA). Your duties shall be those as assigned to you from time to time by the Boards of Directors of the Company and Summit Bank (PA) and the Chairman of the Board and President of the Company and as are appropriate to the position of Chairman of the Board and Chief Executive Officer of a bank subsidiary of a publicly held bank holding company. Your base salary shall be not less than $345,000, and your annual cash bonus shall be not less than $120,750. Your Welfare Plans and perquisites shall be the welfare plans and perquisites provided to you by Prime Bancorp, Inc. as of the Effective Time until the sooner of the integration of the welfare plans and benefits of Prime Bancorp, Inc. with those of the Company or one year from the Effective Time, after which they shall be the Welfare Plans and perquisites provided to a Senior Executive Vice President of the Company. B. During the period from the Effective Time until the end of the Window Month, as defined below, Section 6(d) of the Plan is amended to delete the word "or" at the end of subparagraph 6(d)(vi), to delete the period at the end of subparagraph 6(d)(vii) and insert "; or" in its place, and to add the following subparagraph 6(d)(viii): (viii) A termination of employment by the Participant for any reason other than Disability or Retirement on or after Participant's Normal Retirement Date during the calendar month which is the nineteenth full calendar month following the Effective Date (such calendar month being referred to herein as the "Window Month"). This Paragraph B of this Participation Letter shall be null and void and of no effect commencing at the end of the Window Month. C. During the period from the Effective Time until the end of the Window Month, subparagraph 5(a)(v) of the Plan shall be null and void and subparagraph 5(a)(i) shall be revised to read as follows: (i) receive, promptly following the effective date of the Release Agreement, a lump sum cash amount equal to 2.99 times Participant's Base Salary and Bonus Amount, provided, however, that in the event that any of the lump sum cash amount and all other payments and benefits received or to be received by the Participant from the Company or any affiliate or under any plan, arrangement or agreement of or maintained by the Company or any affiliate, in the opinion of independent tax counsel to the Company, would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Code (as hereafter defined), then the lump sum cash amount shall be reduced to the largest amount as will result in none of such payments and benefits being subject to the Excise Tax. The determination of any reduction in the lump sum cash amount shall be made by independent tax counsel to the Company in consultation with the independent certified public accountants of the Company. This Paragraph C of this Participation Letter shall be null and void and of no effect commencing at the end of the Window Month, and the original subparagraphs 5(a)(i) and 5(a)(v) shall be reinstated. D. Subparagraph 6(d)(iii) is amended by replacing the words "301 Carnegie Center, West Windsor Township, New Jersey" with "7411 Valley Green Road, Fort Washington, Pennsylvania." E. Paragraph 3a of the Release, Covenant Not to Sue, Non- Disclosure and Non-Solicitation Agreement, which is Exhibit A to the Plan and Exhibit A to the Termination Agreement between the Company and you which is also effective as of the Effective Time, shall be null and void and paragraph 3a of Exhibit A to both documents shall read as follows: a. Non-Competition with SUB. The parties recognize that Executive is an important officer of SUB, that his reputation and business and personal relationships are of significant benefit to SUB, and a consideration in the price paid to acquire the bank holding company of which Executive was Chief Executive Officer, and that he has access to information about SUB's plans and projections as well as other confidential information. The parties further agree that SUB is in direct competition with certain banks and bank holding companies and thrift institutions and their affiliates and the Executive agrees that, for a period of two (2) years from the date hereof, he will not accept employment or serve in any capacity with any bank, savings bank or savings and loan association the deposits or accounts or shares of which are insured by the Federal Deposit Insurance Corporation or credit union the deposits or accounts or shares of which are insured by the National Credit Union Administration or any holding company for such bank, savings bank, savings and loan association or credit union or other entity controlling, controlled by or under common control with such financial institution at a principal place of employment within 25 miles of any office of SUB or any entity controlling, controlled by or under common control with SUB open to the public at the time of this Agreement. For purposes of this letter and the Plan, notices and all communications provided for in this letter or the Plan shall be in writing and shall be treated as having been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: (i) if to you, your address indicated on the first page of this letter; (ii) if to the Company or the Subsidiary, Summit Bancorp., 301 Carnegie Center, P.O. Box 2066, Princeton, New Jersey 08543- 2066, Attention: Corporate Secretary; or (iii) to such other address as either party may have furnished to the other in writing in accordance with this paragraph, except that notices of change of address shall be effective only upon receipt. All questions pertaining to the construction, regulation, validity and effect of the provisions hereof will be determined in accordance with the law of the State of New Jersey regardless of the law that might otherwise govern under applicable New Jersey principles of conflict of laws. Your participation in the Plan is conditioned on your acknowledgment of the terms of this letter. You also agree that this letter and your participation in the Plan supersedes all prior participation letters and understandings relating to severance benefits payable by the Company or the Subsidiary under severance plans of the Company and its Subsidiaries, and all such prior letters and understandings shall be null and void except for your Termination Agreement, dated as of the date of merger of Prime Bancorp, Inc. into Summit Bancorp. You agree that this letter and your participation in the Plan supersedes your Employment Agreement with Prime Bancorp, Inc. dated December 18, 1995, as amended June 17, 1999, other than the terms of such agreement relating to your stock options, and any other agreements and understandings relating to employment contracts with or severance benefits payable by Prime Bancorp, Inc. or Prime Bank and that such Employment Agreement, except as aforesaid, and any other such agreements and understandings shall be null and void. Please sign the enclosed copy of this letter and deliver it to the Company in order to evidence such acknowledgment and agreement. Sincerely, SUMMIT BANCORP. By: /s/ Richard F. Ober, Jr. ----------------------------- Richard F. Ober, Jr.,Secretary Acknowledged and Agreed: /s/ James J. Lynch - - ---------------------- James J. Lynch Dated: July 30, 1999 Summit Bancorp. Executive Severance Plan (Incorporated by reference to Exhibit (10)FF(ii) on Form 10-Q for the quarter ended June 30, 1998) EXHIBIT A RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT This RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON- SOLICITATION AGREEMENT (the "AGREEMENT") dated as of_________ among (1) ______________("Executive"), and (2) Summit Bancorp. and all parent and subsidiary corporations, partnerships and other entities and affiliates controlled by, controlling or under common control with Summit Bancorp. (together with any predecessor and successor entities hereinafter being collectively referred to as "SUB") sets forth the agreements of the parties hereto with regard to the matters set forth herein: 1. Background. Executive is an Executive of SUB and participates in SUB's Executive Severance Plan pursuant to a Participation Letter dated ______________ and a party to a Termination Agreement dated ________________ [as last amended _____________](the Plan and the Letter and Agreement, as amended from time to time, together being collectively referred to as the "Contracts"). Any capitalized terms used but not defined herein shall have the meaning set forth in the applicable Contract. 1. A Change of Control [has/has NOT] occurred [on (date)]. If a Change of Control has NOT occurred, Executive is not entitled to any benefits under the Termination Agreement. 2. Executive's employment with SUB will or has terminated on ______________, which shall be the Date of Termination for purposes of the Contracts, notwithstanding any failure to adhere to the provisions for giving a Notice of Termination and the method of determining the Date of Termination set forth in the Contracts, any such failures being hereby waived by the parties. 3. This termination shall constitute a termination "[for cause/ disability /retirement /other than for cause /by mutual agreement]" for purposes of any stock options and restricted stock which Executive holds, and the Termination Date shall be the termination date for the purposes of such options. Attached hereto as Appendix A is a list of all outstanding SUB options held by Executive on the date hereof. 2. Payment. Executive shall receive within two business days following the EFFECTIVE DATE (as defined in paragraph 7 hereof) $_____________, the gross amount due to Executive under the Contracts, which shall be paid to Executive as $_________________ by check or deposit in Executive's bank account, with the balance withheld in respect of federal, state and local taxes and benefits contributions, which Executive acknowledges represents all amounts currently due Executive under the Contracts. Executive acknowledges and agrees that Executive is not entitled to any severance payments under any other severance program of SUB, the Contracts being intended to substitute for any such other severance program. SUB continues to be obligated to provide certain welfare and pension benefits and perquisites, as more fully set forth in the Contracts. 3. Restrictive Covenants. In consideration of the payments to Executive as specified in paragraph 2 above, Executive agrees as follows: a. Non-Competition with SUB. The parties recognize that Executive is an important officer of SUB, that his reputation and business and personal relationships are of significant benefit to SUB, and a consideration in the price paid to acquire the bank holding company of which Executive was Chief Executive Officer, and that he has access to information about SUB's plans and projections as well as other confidential information. The parties further agree that SUB is in direct competition with certain banks and bank holding companies and thrift institutions and their affiliates and the Executive agrees that, for a period of two (2) years from the date hereof, he will not accept employment or serve in any capacity with any bank, savings bank or savings and loan association the deposits or accounts or shares of which are insured by the Federal Deposit Insurance Corporation or credit union the deposits or accounts or shares of which are insured by the National Credit Union Administration or any holding company for such bank, savings bank, savings and loan association or credit union or other entity controlling, controlled by or under common control with such financial institution at a principal place of employment within 25 miles of any office of SUB or any entity controlling, controlled by or under common control with SUB open to the public at the time of this Agreement. b. Non-Solicitation of SUB Employees. For a period of five (5) years from the date hereof, Executive will not solicit or induce any person who is an employee of SUB or was such at any time within three months prior to the date hereof to become employed by any other person, firm or corporation or approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by other persons, without the prior written consent of SUB. c. Non-Disclosure of Proprietary Information. Executive acknowledges that during the course of Executive's employment with SUB Executive received, obtained or became aware of or had access to proprietary information, lists and records of customers and trade secrets which are the property of SUB and which are not known by competitors or generally by the public ("Proprietary Information") and recognizes such Proprietary Information to be valuable and unique assets of SUB. For purposes of this subparagraph: (i) Proprietary Information is deemed to include, without limitation, (A) marketing materials, marketing manuals, policy manuals, procedure manuals, policy and procedure manuals, operating manuals and procedures and product documentation, (B) all information about pricing, products, procedures, practices, business methods, systems, plans, strategies or personnel of SUB, (C) circumstances surrounding the relationships with, knowledge of, or information about the customers, clients, and accounts of SUB, including but not limited to the identity of current active customers or prospects who have been contacted by SUB, the expiration dates and other terms of loans or deposit or other banking relationships, details or special product provisions or special combinations of products, or special prices, and (D) all other information about SUB which has not been disclosed in documents filed with the U.S. Securities and Exchange Commission or otherwise publicly disseminated by SUB, whether or not that information is recorded and notwithstanding the method of recordation, if any; and (ii) Proprietary Information is deemed to exclude all information legally in the public domain. Executive agrees to hold the Proprietary Information in the strictest confidence and agrees not to use or disclose any Proprietary Information, directly or indirectly, at any time for any purpose, without the prior written consent of SUB or to use for Executive's benefit or the benefit of any person, firm, corporation or other entity (other than SUB), any Proprietary Information, and to use Executive's best efforts to prevent such prohibited use or disclosure by any other persons. Executive has returned all Proprietary Information in Executive's possession or control to SUB. d. Cooperation, No Detrimental Actions. Executive will cooperate with SUB in enforcing its claims against customers and former customers of SUB, including appearing as a witness for SUB in court or administrative proceedings, subject to reasonable reimbursement for Executive's time and expenses. Executive will not take actions or make disparaging statements which are detrimental to SUB or the RELEASEES, as defined in paragraph 5 below. e. Remedies. Executive hereby acknowledges that Executive's duties and responsibilities under this paragraph 3 are unique and extraordinary and that irreparable injury may result to SUB in the event of a breach of the terms and conditions of this paragraph 3, which may be difficult to ascertain, and that the award of damages would not be adequate relief to SUB and the RELEASEES. Executive therefore agrees that in the event of Executive's breach of any of the terms or conditions of this paragraph 3, SUB shall have the right, without posting any bond or other security, to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which SUB may be entitled against Executive. The covenants of Executive in paragraphs 3a, 3b, 3c and 3d of this Agreement shall each be construed as an agreement independent of any other provision in this AGREEMENT, and the existence of any claim or cause of action of Executive against SUB, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by SUB of paragraphs 3a, 3b, 3c and 3d. f. Enforcement. If at the time of the enforcement of subparagraphs 3a, 3b, 3c, 3d or 3e above a court shall hold that the period or scope of the provisions thereof are unreasonable under the circumstances then existing, the parties hereby agree that the maximum period or scope under the circumstances shall be substituted for the period or scope stated in those subparagraphs. 4. Short-Swing Securities Profits. Executive acknowledges that Executive will remain subject to the short-swing liability provisions of Section 16 of the federal Securities Exchange Act of 1934 for six months following termination of employment. 5. Release. In consideration of the payments to Executive as specified in paragraph 2 above, Executive grants SUB a RELEASE of only all claims, both known and unknown, that Executive may have that relate to the termination of Executive's employment (hereafter a "WRONGFUL TERMINATION CLAIM"). The Executive and SUB agree that a WRONGFUL TERMINATION CLAIM, specifically and without limitation, does not include claims: 1. for indemnification as a corporate agent of SUB against claims by third parties; 2. under employee benefit plans, including supplemental employee retirement plans, maintained by SUB or any of the predecessor organizations thereof, including but not limited to rights under any workers compensation program, Section 502(a) of the Employee Retirement Income Security Act, as amended, 29 U.S.C. 1001 et seq., and under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); 3. arising out of enforcement of the Contracts or this Agreement by Executive; or 4. constituting cross-claims against SUB as a result of claims brought by unaffiliated third parties against Executive based on Executive's service as an executive of SUB. The statutes which could form the basis for a WRONGFUL TERMINATION CLAIM include, but are not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 1971 et seq.; the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. 621 et seq.; Section 510 of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001 et seq.; the Americans With Disabilities Act, as amended, 42 U.S.C. 12101 et seq.; the Older Workers Benefit Protection Act, as amended, 29 U.S.C. 621 et seq.; the Civil Rights Act of 1866, as amended, 42 U.S.C. 1981 et seq.; the New Jersey Law Against Discrimination, as amended, N.J.S.A. 10:5-1 et seq.; the New Jersey Conscientious Employee Protection Act, as amended, N.J.S.A. 34:19-1 et seq.; the New York Human Rights Law, Executive Law 290 et seq.; the Pennsylvania Human Relations Act, as amended, 43 P.S. 951 et seq.; and the Pennsylvania Whistleblower Law, as amended, 43 P.S. 1421 et seq. The common law (non-statutory) theories under which a WRONGFUL TERMINATION CLAIM could be made include, but are not limited to, breach of an express employment contract, breach of a contract implied from a personnel handbook or manual, or commission of a civil wrong (known as a "tort") resulting in Executive's termination, or for alleged violation of the public policy of the United States or any state. Granting a RELEASE of any WRONGFUL TERMINATION CLAIM pursuant to this AGREEMENT means that on behalf of Executive and all who succeed to Executive's rights and responsibilities, Executive releases and gives up only any and all WRONGFUL TERMINATION CLAIMS that Executive may have against SUB, and any of its subsidiaries, affiliates or divisions, and all of their directors, officers, representatives, shareholders, agents, employees, and all who succeed to their rights and responsibilities (collectively referred to as "RELEASEES". With respect to any charges filed concerning events or actions relating to a WRONGFUL TERMINATION CLAIM that occurred on or before the date of this AGREEMENT or Executive's Termination Date (whichever is later), Executive waives and releases any right that Executive may have to recover in any lawsuit or proceeding brought by Executive or by an administrative agency on Executive's behalf against the RELEASEES. 6. Covenant Not to Sue. Executive covenants not to sue the RELEASEES over any WRONGFUL TERMINATION CLAIM. Such a covenant not to sue the RELEASEES means that Executive represents that Executive has not through the date of execution of this Agreement filed a WRONGFUL TERMINATION CLAIM, charge or lawsuit with any court or government agency against the RELEASEES, and that Executive will not file such a lawsuit subsequent to execution of this Agreement. Executive also waives any right to become, and promises not to become, a member of any class in a case in which WRONGFUL TERMINATION CLAIMS are asserted against any of the RELEASEES. 7. Review Period. Executive acknowledges that Executive has up to 21 days to review this AGREEMENT, and was advised to review it with an attorney of Executive's choice. Executive also acknowledges that Executive was further advised that Executive has seven days after Executive signs this AGREEMENT to revoke it by notifying SUB in writing, of such revocation as set forth under Notices below. This AGREEMENT shall become effective on the tenth (10th) day following its execution by Executive (the "EFFECTIVE DATE"), unless revoked in accordance with the preceding sentence. 8. Revocation of Authority. Executive agrees and acknowledges that as of the Termination Date Executive shall no longer be empowered to bind SUB in any agreement, whether verbal or written, and that Executive shall have no authority to execute any documents, deeds, leases, or other contracts on behalf of SUB. To the extent not effected by termination of Executive under the Contracts, Executive resigns from all offices and positions with SUB. 9. Successors and Assigns. All rights and duties of SUB under this Agreement shall be binding on and inure to the benefit of SUB, its successors and assigns. All rights of Executive hereunder shall be binding upon and inure to the benefit of Executive's personal or legal representatives. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally with receipt acknowledged or sent by registered or certified mail, postage prepaid or by reputable national overnight delivery service, to the addresses shown below, unless changed by notices given as herein provided, except that notice of change of address only shall be effective upon actual receipt: If to SUB, to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: Executive Vice President of Human Resources With a copy to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: General Counsel If to the Executive, to: With a copy to: 11. Covenant Not to Challenge Enforceability. Both Executive and SUB understand that this AGREEMENT is final and binding when executed by both parties, subject to paragraph 7 above, and both agree not to thereafter challenge its enforceability. 12. Applicable Law. This AGREEMENT shall be deemed to have been made within the State of New Jersey, and it shall be interpreted, construed, and enforced in accordance with the law of the State of New Jersey, and before the Courts of the State of New Jersey. 13. Amendments, Modifications, Waivers. This AGREEMENT cannot be amended or modified except by a written document signed by both SUB and Executive and no provision can be waived except by a written document signed by the waiving party. 14. By signing this AGREEMENT, Executive acknowledges: 1. EXECUTIVE HAS READ THIS AGREEMENT COMPLETELY. 2. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSIDER THE TERMS OF THIS AGREEMENT. 3. EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY OF EXECUTIVE'S CHOOSING PRIOR TO EXECUTING THIS AGREEMENT. 4. EXECUTIVE KNOWS THAT EXECUTIVE MAY BE GIVING UP IMPORTANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT. 5. EXECUTIVE UNDERSTANDS AND MEANS EVERYTHING THAT EXECUTIVE HAS SAID IN THIS AGREEMENT, AND EXECUTIVE AGREES TO ALL ITS TERMS. 6. EXECUTIVE IS NOT RELYING ON SUB OR ANY REPRESENTATIVE OF SUB TO EXPLAIN THIS AGREEMENT AND RELEASE TO EXECUTIVE. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSULT AN ATTORNEY OR OTHER ADVISOR TO EXPLAIN THIS AGREEMENT AND ITS CONSEQUENCES TO EXECUTIVE BEFORE EXECUTIVE SIGNED IT, AND EXECUTIVE HAS AVAILED HIMSELF OR HERSELF OF THIS OPPORTUNITY TO WHATEVER EXTENT EXECUTIVE DESIRED. 7. EXECUTIVE HAS SIGNED THIS AGREEMENT VOLUNTARILY AND ENTIRELY OF EXECUTIVE'S OWN FREE WILL, WITHOUT ANY PRESSURE FROM SUB OR ANY REPRESENTATIVE OF SUB, OR ANYONE ELSE. IN WITNESS WHEREOF, and intending to be legally bound hereby, this Agreement has been executed as of the day and year first above written. ATTEST: SUMMIT BANCORP. ______________________________By:______________________________ Secretary Executive Vice President ------------------------------ EXECUTIVE -------------------------------- (Social Security Number) STATE OF NEW JERSEY: COUNTY OF _______________________: I certify that on this _______ day of ____________, _______ personally came before me _______________(Executive), who, being duly sworn, acknowledged under oath to my satisfaction that such person is named in and personally executed the foregoing Receipt and Release as such person's voluntary act and deed, for the purposes set forth therein. IN WITNESS WHEREOF, I have set my hand this ____ day of - - -------------, ------. By: ___________________________________ Notary Public of the State of New Jersey My Commission expires __________________ EX-10 4 Exhibit 10 HH.(ii) TERMINATION AGREEMENT THIS AGREEMENT dated and entered into effective as of the merger of Prime Bancorp, Inc. into First Valley Corporation, a wholly owned subsidiary of Summit Bancorp., ("First Valley"), by and between Summit Bancorp., a New Jersey corporation (the "Company"), and James J. Lynch, (the "Executive"). W I T N E S S E T H: WHEREAS, should the Company receive a proposal from a third person, whether solicited by the Company or unsolicited, concerning a possible business combination with or the acquisition of a substantial share of the equity or voting securities of, the Company, the Board of Directors of the Company (the "Board") has deemed it imperative that it and the Company be able to rely on the Executive to continue to serve in the Executive's position, and that the Board and the Company be able to receive and rely upon the Executive's advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks that such a proposal might otherwise create; and WHEREAS, the Company desires to enhance executive morale and its ability to retain existing management; and WHEREAS, the Company desires to reward the Executive for the Executive's valuable, dedicated service to the Company or one or more of its subsidiary corporations (each, a "Subsidiary") should the Executive's service be terminated under circumstances hereinafter described; and WHEREAS, the Board therefore considers it in the best interests of the Company and its shareholders for the Company to enter into Termination Agreements, in form similar to this Agreement, with certain key executive officers of the Company and one or more of its Subsidiaries; and WHEREAS, the Executive is presently the duly elected and acting Senior Executive Vice President of the Company and is a key executive with whom the Company has been authorized by the Board to enter into this Agreement; NOW, THEREFORE, to assure the Company of the Executive's continued dedication and the availability of the Executive's advice and counsel in the event of any such proposal, to induce the Executive to remain in the employ of the Company or a Subsidiary, and to reward the Executive for the Executive's valuable, dedicated service to the Company or a Subsidiary should the Executive's service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy whereof each party acknowledges, the Company and the Executive agree as follows: 1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT. (a) This Agreement is effective and binding on both parties as of the date hereof. Notwithstanding its present effectiveness, the provisions of paragraphs 3 and 4 of this Agreement shall become operative only when, as and if there has been a "Change in Control" of the Company. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to occur (i) upon a Change in Control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A or Item 1a of Form 8-K promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); or (ii) if any "person" (including as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company and its Subsidiaries or an employee benefit plan of the Company (or any fiduciary thereof) or a corporation controlled by the Company's shareholders in substantially the same character and proportions as their ownership of stock of the Company, or an underwriter temporarily holding securities pursuant to an offering of such securities) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's outstanding securities then entitled to vote for the election of directors; or (iii) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof (excluding, for purposes of this calculation, any director who dies during such period); or (iv) if the Company shall meet the delisting criteria of the New York Stock Exchange or any successor exchange in respect of the number of publicly-held shares or the number of shareholders holding one hundred (100) shares or more; or (v) if the Board shall approve the sale of all or substantially all of the assets of the Company; or (vi) if the Board shall approve any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (i), (ii), (iii) or (iv) above or that the shareholders of the Company receive or retain stock having less than 65% combined voting power of the company resulting from such transaction in substantially the same proportions as their prior ownership of the Company. (b) The Company shall be obligated to make the payments referred to in paragraphs 3 and 4 hereof following, and the provisions of paragraph 2 hereof shall apply to, a Change in Control of the Company only if such Change in Control shall have occurred prior to, or as a result of efforts designed to attain such and known to the parties hereto to have commenced prior to, the earliest to occur of the Executive's death, Disability (as hereinafter defined), Normal Retirement Date (as hereinafter defined) or the 15th day of October, 2002; provided, however, that commencing on the 15th day of October, 2002 and each annual anniversary of such day thereafter (such day and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), the term of this Agreement shall automatically be extended for one additional year unless at the Renewal Date the Executive is no longer employed by the Company or a Subsidiary or has reached the Executive's Normal Retirement Date or at least twelve (12) months prior to the next Renewal Date (and prior to a Change in Control of the Company), the Company shall have given notice to the Executive that it does not wish to extend the term of this Agreement; provided, further, however, if a Change in Control of the Company shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of not less than thirty-six (36) months beyond the month in which each such Change in Control of the Company occurred, and thereafter solely to the extent necessary for the Executive to enforce the obligations of the Company or Subsidiary employing Executive incurred prior thereto. 2. EMPLOYMENT OF EXECUTIVE. Nothing herein shall affect any right which the Executive or the Company or a Subsidiary may otherwise have to terminate the Executive's employment by the Company or a Subsidiary at any time in any lawful manner, subject always to the Company's providing to the Executive the payments and benefits specified in paragraphs 3 and 4 of this Agreement to the extent hereinbelow provided. In the event any person commences a tender or exchange offer, circulates a proxy statement to the Company's shareholders or takes other steps designed to effect a Change in Control of the Company as defined in paragraph 1 of this Agreement, the Executive agrees that the Executive will not voluntarily leave the employ of the Company or a Subsidiary, and will continue to perform the Executive's regular duties and to render the services specified in the recitals of this Agreement, until such person has abandoned or terminated that person's efforts to effect a Change in Control or until a Change in Control has occurred, provided that the Executive may voluntarily leave the employ of the Company or a Subsidiary on or after his Normal Retirement Date or during the nineteenth full calendar month following the effective date of this agreement. Should the Executive voluntarily terminate the Executive's employment before any such effort to effect a Change in Control of the Company has commenced, or after any such effort has been abandoned or terminated without effecting a Change in Control and no other such effort is then being undertaken by any other person, this Agreement shall lapse and be of no further force or effect. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If any of the events described in paragraph 1 hereof constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in paragraph 4 hereof upon the subsequent termination of the Executive's employment within the applicable period set forth in paragraph 4 hereof following such Change in Control unless such termination is (i) due to the Executive's death after the Window Period referred to below or Retirement (as hereinafter defined)(other than Early Retirement during the Window Period, as hereinafter defined); or (ii) by the Company or a Subsidiary by reason of the Executive's Disability or for Cause (as hereinafter defined); or (iii) by the Executive other than for Good Reason (as hereinafter defined). (b) If following a Change in Control the Executive's employment is terminated by reason of the Executive's death after the Window Period, Retirement (other than Early Retirement during the Window Period) or Disability, the Executive shall be entitled to death, retirement or disability benefits, as the case may be, from the Company no less favorable than those benefits to which the Executive would have been entitled had the death, Retirement or termination for Disability occurred during the six (6) month period prior to the Change in Control. If prior to any such termination for Disability, the Executive fails to perform the Executive's duties as a result of incapacity due to physical or mental illness, the Executive shall continue to receive the Executive's Base Salary (as hereinafter defined), less any benefits as may be available to the Executive under the Company's or Subsidiary's disability plans, until the Executive's employment is terminated for Disability. (c) If following a Change in Control the Executive's employment shall be terminated by the Company or a Subsidiary for Cause or by the Executive other than for Good Reason, the Company shall pay (subject to any applicable payroll or other taxes required to be withheld) to the Executive the Executive's Base Salary through the Date of Termination (as hereinafter defined), and the Company or a Subsidiary shall have no further obligations to the Executive under this Agreement. This paragraph 3(c) shall not apply to a termination of the Executive's employment by the Company or a Subsidiary by reason of Death, Retirement or Disability. (d) For purposes of this Agreement: (i) "Disability" shall mean the Executive's incapacity to perform the Executive's duties with the Company or Subsidiary on a full-time basis for one hundred eighty (180) consecutive days due to physical or mental illness such that the Executive shall have become qualified to receive benefits under the Company's or a Subsidiary's long-term disability plans applicable to the Executive. Any question as to the existence of Disability upon which the Executive and the Company or Subsidiary cannot agree shall be determined by a qualified independent physician selected by the Company or Subsidiary employing the Executive or its insurers and acceptable to the Executive or an adult member of the Executive's immediate family, which acceptance shall not be unreasonably withheld. The Executive shall be obligated to submit to such medical examinations as may be necessary to determine whether Disability exists. (ii) "Retirement" shall mean that the Executive shall have reached the normal retirement date provided in the Company's or Subsidiary's defined benefit retirement plans applicable to such Executive (the "Normal Retirement Date") or that the Executive shall have taken early retirement (as defined in such retirement plans) and shall no longer be employed by the Company or a Subsidiary ("Early Retirement"). (iii) "Cause" shall mean: (A) the willful commission by the Executive of an illegal act or other act of willful misconduct that causes or will probably cause substantial economic damage to the Company or a Subsidiary or substantial injury to the business reputation of the Company or a Subsidiary; (B) the commission by the Executive of an act of fraud in the performance of such Executive's duties on behalf of the Company or a Subsidiary; (C) the continuing willful failure of the Executive to perform the duties of such Executive to the Company or a Subsidiary (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the Executive by the Compensation Committee of the Board; or (D) the final order of a federal or state regulatory agency or a court of competent jurisdiction requiring the termination of the Executive's employment with the Company or a Subsidiary. (iv) "Good Reason" shall mean, excluding for this purpose an isolated, insubstantial and inadvertent action or failure to act, which is not in bad faith and which is remedied by the Company or applicable Subsidiary promptly after receipt of notice thereof given by the Executive: (A) Without the Executive's express written consent, the assignment by the Company or a Subsidiary to the Executive of duties which (i) are materially different or require travel significantly more time consuming or extensive than the Executive's duties or business travel obligations immediately prior to the Change in Control, or (ii) result, without the Executive's express written consent, in either a significant reduction in the Executive's authority and responsibility as a senior executive of the Company or Subsidiary employing the Executive when compared to the highest level of authority and responsibility assigned to the Executive at any time during the six (6) month period prior to the Change in Control, or, (iii) the removal of the Executive from, or any failure to reappoint or reelect the Executive to, the highest title held since the date six (6) months before the Change in Control, except in connection with a termination of the Executive's employment by the Company or a Subsidiary for Cause (including during the pendency of any Dispute), during any period of incapacity due to physical or mental illness, or by reason of the Executive's death, Disability or Retirement; (B) A reduction by the Company or a Subsidiary of the Executive's Base Salary, or the failure to grant increases in the Executive's Base Salary on a basis at least substantially comparable to those granted to other executives of the Company or a Subsidiary of comparable title, salary grade and performance ratings made in good faith; (C) Requiring the Executive to be based anywhere other than an executive office of the Company or a Subsidiary located in New Jersey or Pennsylvania within twenty-five (25) geographic (not road) miles of the location of the Executive's office prior to the Change in Control, except for required travel on the Company's or a Subsidiary's business to an extent substantially consistent with the Executive's present business travel obligations, without the Executive's express written consent, or in the event of any relocation of the Executive with the Executive's express written consent, the failure by the Company or a Subsidiary to pay (or reimburse the Executive for) all reasonable moving expenses by the Executive relating to a change of principal residence in connection with such relocation and to indemnify the Executive against any loss realized in the sale of the Executive's principal residence in connection with any such change of residence, all to the effect that the Executive shall incur no loss on an after tax basis; (D) The failure by the Company or a Subsidiary to continue to provide the Executive with substantially the same welfare benefits and perquisites, including participation on a comparable basis in the Company's or a Subsidiary's retirement plans, Incentive Bonus Plan (cash bonus plan), Savings Incentive Plan, Incentive Stock and Option Plans, Executive Severance Plan and other plans in which executives of the Company or a Subsidiary of comparable title and salary grade participate, as were provided to the Executive in the twelve (12) months immediately prior to such Change in Control of the Company, or with a package of welfare benefits and perquisites, that, though one or more of such benefits or perquisites may vary from those set forth above, is substantially comparable in all material respects to such welfare benefits and perquisites, taken as a whole; (E) The failure of the Company to obtain the express written assumption of and agreement to perform this Agreement by any successor as contemplated in subparagraph 6(c) hereof; (F) A termination of employment by the Executive for any reason other than Disability or Retirement on or after Executive's Normal Retirement Date during the thirty (30) day period immediately following the first anniversary of a Change in Control of the Company defined in subparagraphs 1(a)(i), (ii) (iii) or (iv) or the consummation of a transaction described in subparagraphs 1(a)(v) or (vi) (such thirty (30) day period being referred to herein as the "Window Period"). (G) The giving by the Company or applicable Subsidiary of a notice that participation by the Executive in the Company's Executive Severance Plan or that the Executive's Termination Agreement would not be renewed; (H) The filing by the Company of a petition for bankruptcy or similar insolvency of the Company or the filing by any other party of such a petition which is not dismissed within sixty (60) days; or (I) Any failure by the Company or applicable Subsidiary to comply with any provision of this Agreement with respect to Executive. (v) "Dispute" shall mean (A) in the case of termination of employment of the Executive with the Company or a Subsidiary by the Company or a Subsidiary for Disability or Cause, that the Executive challenges the existence of Disability or Cause and (B) in the case of termination of employment of an Executive with the Company or a Subsidiary by the Executive for Good Reason, that the Company or a Subsidiary challenges the existence of Good Reason. (vi) "Base Salary" shall mean the amount determined by multiplying the Executive's highest semi-monthly or other periodic rate of base pay paid to the Executive at any time during the period commencing twelve (12) months prior to the Change of Control and ending on the date of Notice of Termination by the number of pay periods per year. The following items are not part of base pay, as used herein: reimbursed expenses, any amount paid on account of overtime or holiday work, payments on account of insurance premiums or other contributions made to other welfare or benefit plans, and any year-end or other bonuses, commissions and gifts. (vii) "Bonus Amount" means the highest annual cash incentive bonus earned by the Executive from the Company or a Subsidiary during the last three (3) completed fiscal years of the Company immediately preceding the Executive's Date of Termination (annualized in the event the Executive was not employed by the Company or a Subsidiary for the whole of any such fiscal year). For purposes of this subparagraph (d), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company or a Subsidiary. (e) Any purported termination of employment by the Company or a Subsidiary or by the Executive shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Executive or the Company or a Subsidiary, as the case may be, which shall indicate the specific provision of this Agreement applicable to such termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. The Executive shall not be entitled to give a Notice of Termination that the Executive is terminating the Executive's employment with the Company or a Subsidiary for Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good Reason. (f) For purposes of this Agreement, except as provided below, the "Date of Termination" shall mean the date specified in a Notice of Termination, which shall be not more than ninety (90) days after such Notice of Termination is given. The Date of Termination of a proposed Termination for Disability shall be at least thirty (30) days after the giving of the Notice of Termination. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a Dispute exists, the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company or a Subsidiary shall continue to pay the Executive the same Base Salary and to provide the Executive with the same or substantially comparable employee benefits and perquisites, including participation in the Company's or a Subsidiary's retirement plans, Savings Incentive Plan, Incentive Bonus Plan, Incentive Stock and Option Plans and Executive Severance Plan that the Executive was paid and provided at any time during the period commencing twelve (12) months prior to the Change of Control and ending on the date of Notice of Termination Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Executive's Disability or for Cause was justified, or that a challenged termination by the Executive for Good Reason was not justified, then the Executive shall promptly pay the Company or a Subsidiary (as the case may be) an amount equal to all sums paid by the Company or a Subsidiary to the Executive from the date of termination specified in the Notice of Termination until final resolution of the Dispute pursuant hereto, with interest at the base rate charged from time to time by Summit Bank, New Jersey, all options, rights and restricted stock granted to the Executive during such period shall be canceled or returned to the Company or Subsidiary, and, to the extent permitted by law, no service as an employee shall be credited to the Executive for such period for pension purposes. The Executive shall not be obligated to pay to the Company or a Subsidiary the cost of providing the Executive with employee benefits and perquisites for such period (which cost for purposes of health plans means the applicable premium under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended) unless the final judgment, order or decree of a court resolving the Dispute determines that the Executive acted in bad faith in giving a notice of Dispute. Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Executive's Disability or for Cause was not justified, or that a challenged termination by the Executive for Good Reason was justified, then the Executive shall be entitled to retain all sums paid to the Executive pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in paragraph 4 hereof. 4. PAYMENTS AND BENEFITS UPON TERMINATION. If within three (3) years after a Change in Control of the Company, there occurs a termination of employment of the Executive with the Company or a Subsidiary, other than a termination of employment which is (i) due to the Executive's death after the Window Period or Retirement other than Early Retirement during the Window Period; or (ii) by the Company or a Subsidiary by reason of the Executive's Disability or for Cause; or (iii) by the Executive other than for Good Reason, then, and expressly on the condition that the Company or Subsidiary employing the Executive receive on the Date of Termination a Release, Covenant Not to Sue, Non-Disclosure and Non-Solicitation Agreement executed by the Executive (or the Executive's legal representative, in the event of the death or Disability of the Executive), in the form set forth in Exhibit A to this Agreement (the "Release Agreement"), and that such Release Agreement be effective: (a) The Company or a Subsidiary will pay to the Executive as compensation for services rendered, promptly following the effective date of the Release Agreement, a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld computed at the rate for supplemental payments) equal to (X) the sum of (i) three (3) times the Executive's Base Salary, plus (ii) three (3) times the Executive's Bonus Amount, less (Y) the aggregate lump sum cash severance amount in respect of base salary and bonus pursuant to subparagraphs 5(a)(i) and (v) of the Company's Executive Severance Plan (or any successor provision) payable to the Executive upon termination of employment, delivery by the Executive of the Release, Covenant Not to Sue, Non-Disclosure and Non-Solicitation Agreement referred to therein, and the expiration of all periods during which the Executive may revoke any release of claims in such agreement. (b) The Executive will be entitled to receive "Special Retirement Benefits" as provided herein, so that the total retirement benefits the Executive receives from the Company will approximate the total retirement benefits the Executive would have received under all defined benefit retirement plans (which may include non-qualified, supplemental and excess benefits retirement plans but shall not include severance plans) and other employment contracts of the Company and its Subsidiaries in which the Executive participates were the Executive fully vested under such retirement plans and entitled to all benefits payable under such other employment contracts and had the Executive continued in the employ of the Company or a Subsidiary for one hundred twenty (120) months following the Date of Termination or until the Executive's Normal Retirement Date, if earlier (provided that such additional period shall be inclusive of and shall not be in addition to any period of service credited under any severance plan of the Company or a Subsidiary). The benefits specified in this subparagraph will include all ancillary benefits, such as early retirement and survivor rights. The amount payable to the Executive or the Executive's beneficiaries under this subparagraph shall equal the excess of (1) the retirement benefits that would be paid to the Executive or the Executive's beneficiaries, under all retirement plans and other employment contracts of the Company and its Subsidiaries in which the Executive participates if (A) the Executive were fully vested under such plans and entitled to all benefits payable under such other employment contracts, (B) the one hundred twenty (120) month period (or the period until the Executive's Normal Retirement Date, if less) following the Date of Termination were added to the Executive's credited service under such plans and contracts, (C) the terms of such plans and the policies and procedures by which such plans were administered were those most favorable to the Executive which were in effect at any time during the period commencing twelve (12) months prior to the Change of Control and ending on the date of Notice of Termination, and (D) the Executive's highest average annual base salary as defined under such retirement plans and other employment contracts and any cash bonus which under the terms of such plan or contract is used to calculate benefits thereunder were calculated as if the Executive had been employed by the Company or a Subsidiary for a one hundred and twenty (120) month period (or the period until the Executive's Normal Retirement Date, if earlier) following the Date of Termination and had the Executive's salary and cash bonus during such period been equal to the Executive's Base Salary and Bonus Amount; over (2) the retirement benefits that are payable to the Executive or the Executive's beneficiaries under all retirement plans and other employment contracts of the Company and its Subsidiary in which the Executive participates. These Special Retirement Benefits are provided on an unfunded basis, are not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be payable solely from the general assets of the Company. These Special Retirement Benefits shall be payable at the times and in the manner provided in the applicable retirement plans and other employment contracts to which they relate, or at the election of the Executive they shall be paid in a lump sum actuarial equivalent utilizing the actuarial assumptions of the defined benefit pension plan applicable to the Executive. (c)(i) As used herein, "Welfare Plans" shall mean the medical, dental, vision, life, dependent life, personal accident, employee banking services, and educational matching gift plans of the Company or a Subsidiary in which the Executive was participating at the Date of Termination, and shall not include disability, tuition reimbursement, medical and dependent care spending plans, and business travel accident plans. The Executive will remain an active participant in all Welfare Plans with the Executive's Base Salary used as the basis for determining the level of benefits, for a period of thirty-six (36) months after the Date of Termination or until the Participant's Normal Retirement Date, if earlier; provided, however, that if employee contributions are generally required by any such plan the Executive pays to the Company or Subsidiary an amount equal to the required contribution, if any, which such plans provide are to be made by employees of status and seniority comparable to the status and seniority of the Executive at the Date of Termination, which amounts shall be paid by the Executive at the time or times required by such plans for employee contributions, and further provided, that the benefits provided shall be reduced by any benefits provided under post-retirement benefit programs (such as retiree life insurance) of the Company or a Subsidiary. In the event applicable law or the terms of any such Welfare Plan do not permit continued participation by the Executive, then the Company or a Subsidiary will arrange to provide the Executive with benefits substantially similar to and no less favorable than the benefits the Executive was entitled to receive under such Welfare Plan at any time during the period commencing twelve (12) months prior to the Change of Control and ending on the date of Notice of Termination for a period terminating thirty-six (36) months after the Date of Termination; provided, however, that if employee contributions are generally required by any such plan the Executive pays to the Company or Subsidiary an amount equal to the required contribution, if any, which such plans provide are to be made by employees of status and seniority comparable to the status and seniority of the Executive at the Date of Termination, which amounts shall be paid by the Executive at the time or times required by such plans for employee contributions. (ii) In lieu of continued participation in the Company or a Subsidiary's disability plans, in the event that the Executive becomes disabled during the period of participation in Welfare Plans provided for herein, as determined by approval for disability benefits under the federal Social Security program, the Company or Subsidiary shall make direct payments to the Executive commencing upon termination of participation in the Welfare Plans hereunder and under any Severance Plan and during the continuation of such disability, as determined under the federal Social Security program of the amounts and for the periods the Executive would have received benefits under the Company or Subsidiary's long-term disability plan (after taking into account any offsets to income under such plan) as if the Executive had qualified for long-term disability payments under the Company or Subsidiary's long-term disability plan immediately prior to the Date of Termination. (iii) The continuation of welfare benefits provided by this subparagraph 4(c) shall be inclusive of any period of welfare benefits continuation provided by any severance plan or other contract of the Company or a Subsidiary, it being the intention of the parties that the Executive shall receive continuation of welfare benefits for the longest period provided by any severance plan or contract and this Agreement, not the sum of the periods provided in various severance plans and contracts and this Agreement. (iv) If any benefits provided hereunder are provided outside of a Welfare Plan and would have been tax-exempt or tax-favored to the Executive if provided under a Welfare Plan, the Company or Subsidiary shall make additional payments to the Executive in reimbursement of taxes in order to put the Executive in the same after tax position as if the benefits had been provided under a Welfare Plan. (v) In the event the Executive becomes employed with another employer and becomes eligible to receive welfare benefits under plans provided by such employer, the welfare benefits provided hereunder shall be secondary to those provided under such other plans. (vi) After the Date of Termination the Executive may also participate in those post-retirement benefit programs under which the Executive meets the qualifications, which qualifications may include contributions by the Executive and appropriate elections at the Date of Termination. 5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement (the "Contract Payments") or of any other plan, arrangement or agreement of the Company (or any affiliate) ("Other Payments" and, together with the Contract Payments, the "Payments") would, in the opinion of independent tax counsel selected by the Company and reasonably acceptable to the Executive ("Tax Counsel"), be subject to the excise tax (the "Excise Tax") imposed by section 4999 of the Code (in whole or in part), as determined as provided below, then, unless subparagraph 5(e) below is applicable, the Company shall pay to the Executive, at the time specified in subparagraph 5(b) hereof, an additional amount (the "Offset Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on the Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this subparagraph 5(a), and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total present value of the Contract Payments and Other Payments at the time such Payments are to be made. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of Tax Counsel, a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Offset Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Offset Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Offset Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (b) The Offset Payments provided for in subparagraph 5(a) hereof shall be made upon the earlier of (i) the payment to the Executive of any Contract Payment or Other Payment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding or the opinion of Tax Counsel that the Excise Tax is less than the amount taken into account under subparagraph 5(a) hereof, the Executive shall repay to the Company within five days of the Executive's receipt of notice of such final determination or opinion the portion of the Offset Payment attributable to such reduction (plus the portion of the Offset Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Offset Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a federal, state and local income tax deduction) plus any interest received by the Executive from the taxing authorities on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding or the opinion of Tax Counsel that the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Offset Payment), the Company shall make an additional Offset Payment in respect of such excess within five days of the Company's receipt of notice of such final determination or opinion. (d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder subsequent to a Change in Control, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Tax Counsel incurred in connection with this Agreement shall be borne by the Company. (e) If in the opinion of Tax Counsel the Company would not be required to make an Offset Payment if the Payments to the Executive that would be treated as "parachute payments" under Section 280G of the Code were reduced by up to $50,000, then the amounts payable to the Executive under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to the Executive without giving rise to the Excise Tax (the "Safe Harbor Cap") and no Offset Payment shall be required to be made to the Executive. The reduction of the amounts payable under this Agreement, if applicable, shall be made by reducing first the payments under paragraph 4(a) above, unless an alternative method of reduction is elected by the Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder by an amount not exceeding $50,000 would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. 6. GENERAL. (a) The Company or a Subsidiary shall pay promptly as incurred the Executive's reasonable attorney's fees and expenses incurred in good faith by the Executive as a result of any dispute (regardless of the outcome thereof) with the Company or a Subsidiary or any other party regarding the validity or enforceability of, or liability under, any provision of this Agreement or the act of any party thereunder or any guarantee of performance thereof and pay prejudgment interest on any delayed payment to the Executive calculated at the Summit Bank, New Jersey base rate of interest in effect from time to time from the date that payment should have been made under this Agreement; provided, however, that the Executive shall not have been found by the court to have acted in bad faith. Any finding of bad faith must be final with the time to appeal therefrom having expired and no appeal having been perfected. (b) The Company's obligation to pay the Executive (or the Executive's dependents, beneficiaries or estate) the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any set off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in paragraphs 3(f) and 5(c) herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from the Executive or any person entitled thereto. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (d) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. The obligations of the Executive hereunder shall not be assignable by the Executive. (e) The Executive's rights under this Agreement shall be non-transferable except by will or by the laws of descent and distribution and except insofar as applicable law may otherwise require. Subject to the foregoing, no right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall, to the full extent permitted by law, be null, void and of no effect. 7. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, or if delivered personally or by courier, receipt requested, or by facsimile transmission, receipt acknowledged, addressed as follows: If to the Executive: James J. Lynch If to the Company: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: Secretary to the Board or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No assurances or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the law of the State of New Jersey. 9. FINANCING. All amounts due and benefits provided under this Agreement shall constitute general obligations of the Company or Subsidiary employing the Executive in accordance with the terms of this Agreement. The Executive shall have only an unsecured right to payment thereof out of the general assets of the Company or such Subsidiary. Notwithstanding the foregoing, the Company or such Subsidiary may, by agreement with one or more trustees to be selected by the Company or such Subsidiary, create a trust on such terms as the Company or such Subsidiary shall determine to make payments to the Executive in accordance with the terms of this Agreement. 10. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11. SUPERSEDEAS. While this Agreement is in addition to and not in lieu of any other plan providing for payments to or benefits for the Executive or any agreement now existing or which hereafter may be entered into between the Company and the Executive, this Agreement supersedes all prior agreements and understandings of the parties hereto with respect to the Company's severance obligations to the Executive and any other similar payments to the Executive due upon termination of employment other than those agreements and understandings contained in the Company's Executive Severance Plan or specifically provided for in any employment contract between the Company and the Executive. This agreement supersedes the Employment Agreement between Prime Bancorp, Inc. and Executive dated December 18, 1995, as amended June 17, 1999, other than the terms of such agreement relating to your stock options, and any other agreements and understandings relating to the employment contracts with or severance benefits payable by Prime Bancorp, Inc. or Prime Bank, which, except as aforesaid, are hereby canceled and null and void as of the effective date of this Agreement. The merger of Prime Bancorp, Inc. with First Valley does not constitute a Change in Control for the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. SUMMIT BANCORP. EXECUTIVE By:/s/ Richard F. Ober, Jr. /s/ James J. Lynch ---------------------- --------------- Richard F. Ober, Jr., Secretary James J. Lynch EXHIBIT A RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT This RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON- SOLICITATION AGREEMENT (the "AGREEMENT") dated as of_________ among (1) ______________("Executive"), and (2) Summit Bancorp. and all parent and subsidiary corporations, partnerships and other entities and affiliates controlled by, controlling or under common control with Summit Bancorp. (together with any predecessor and successor entities hereinafter being collectively referred to as "SUB") sets forth the agreements of the parties hereto with regard to the matters set forth herein: 1. Background. Executive is an Executive of SUB and participates in SUB's Executive Severance Plan pursuant to a Participation Letter dated ______________ and a party to a Termination Agreement dated ________________ [as last amended _____________](the Plan and the Letter and Agreement, as amended from time to time, together being collectively referred to as the "Contracts"). Any capitalized terms used but not defined herein shall have the meaning set forth in the applicable Contract. 1. A Change of Control [has/has NOT] occurred [on (date)]. If a Change of Control has NOT occurred, Executive is not entitled to any benefits under the Termination Agreement. 2. Executive's employment with SUB will or has terminated on ______________, which shall be the Date of Termination for purposes of the Contracts, notwithstanding any failure to adhere to the provisions for giving a Notice of Termination and the method of determining the Date of Termination set forth in the Contracts, any such failures being hereby waived by the parties. 3. This termination shall constitute a termination "[for cause/ disability /retirement /other than for cause /by mutual agreement]" for purposes of any stock options and restricted stock which Executive holds, and the Termination Date shall be the termination date for the purposes of such options. Attached hereto as Appendix A is a list of all outstanding SUB options held by Executive on the date hereof. 2. Payment. Executive shall receive within two business days following the EFFECTIVE DATE (as defined in paragraph 7 hereof) $_____________, the gross amount due to Executive under the Contracts, which shall be paid to Executive as $_________________ by check or deposit in Executive's bank account, with the balance withheld in respect of federal, state and local taxes and benefits contributions, which Executive acknowledges represents all amounts currently due Executive under the Contracts. Executive acknowledges and agrees that Executive is not entitled to any severance payments under any other severance program of SUB, the Contracts being intended to substitute for any such other severance program. SUB continues to be obligated to provide certain welfare and pension benefits and perquisites, as more fully set forth in the Contracts. 3. Restrictive Covenants. In consideration of the payments to Executive as specified in paragraph 2 above, Executive agrees as follows: a. Non-Competition with SUB. The parties recognize that Executive is an important officer of SUB, that his reputation and business and personal relationships are of significant benefit to SUB, and a consideration in the price paid to acquire the bank holding company of which Executive was Chief Executive Officer, and that he has access to information about SUB's plans and projections as well as other confidential information. The parties further agree that SUB is in direct competition with certain banks and bank holding companies and thrift institutions and their affiliates and the Executive agrees that, for a period of two (2) years from the date hereof, he will not accept employment or serve in any capacity with any bank, savings bank or savings and loan association the deposits or accounts or shares of which are insured by the Federal Deposit Insurance Corporation or credit union the deposits or accounts or shares of which are insured by the National Credit Union Administration or any holding company for such bank, savings bank, savings and loan association or credit union or other entity controlling, controlled by or under common control with such financial institution at a principal place of employment within 25 miles of any office of SUB or any entity controlling, controlled by or under common control with SUB open to the public at the time of this Agreement. b. Non-Solicitation of SUB Employees. For a period of five (5) years from the date hereof, Executive will not solicit or induce any person who is an employee of SUB or was such at any time within three months prior to the date hereof to become employed by any other person, firm or corporation or approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by other persons, without the prior written consent of SUB. c. Non-Disclosure of Proprietary Information. Executive acknowledges that during the course of Executive's employment with SUB Executive received, obtained or became aware of or had access to proprietary information, lists and records of customers and trade secrets which are the property of SUB and which are not known by competitors or generally by the public ("Proprietary Information") and recognizes such Proprietary Information to be valuable and unique assets of SUB. For purposes of this subparagraph: (i) Proprietary Information is deemed to include, without limitation, (A) marketing materials, marketing manuals, policy manuals, procedure manuals, policy and procedure manuals, operating manuals and procedures and product documentation, (B) all information about pricing, products, procedures, practices, business methods, systems, plans, strategies or personnel of SUB, (C) circumstances surrounding the relationships with, knowledge of, or information about the customers, clients, and accounts of SUB, including but not limited to the identity of current active customers or prospects who have been contacted by SUB, the expiration dates and other terms of loans or deposit or other banking relationships, details or special product provisions or special combinations of products, or special prices, and (D) all other information about SUB which has not been disclosed in documents filed with the U.S. Securities and Exchange Commission or otherwise publicly disseminated by SUB, whether or not that information is recorded and notwithstanding the method of recordation, if any; and (ii) Proprietary Information is deemed to exclude all information legally in the public domain. Executive agrees to hold the Proprietary Information in the strictest confidence and agrees not to use or disclose any Proprietary Information, directly or indirectly, at any time for any purpose, without the prior written consent of SUB or to use for Executive's benefit or the benefit of any person, firm, corporation or other entity (other than SUB), any Proprietary Information, and to use Executive's best efforts to prevent such prohibited use or disclosure by any other persons. Executive has returned all Proprietary Information in Executive's possession or control to SUB. d. Cooperation, No Detrimental Actions. Executive will cooperate with SUB in enforcing its claims against customers and former customers of SUB, including appearing as a witness for SUB in court or administrative proceedings, subject to reasonable reimbursement for Executive's time and expenses. Executive will not take actions or make disparaging statements which are detrimental to SUB or the RELEASEES, as defined in paragraph 5 below. e. Remedies. Executive hereby acknowledges that Executive's duties and responsibilities under this paragraph 3 are unique and extraordinary and that irreparable injury may result to SUB in the event of a breach of the terms and conditions of this paragraph 3, which may be difficult to ascertain, and that the award of damages would not be adequate relief to SUB and the RELEASEES. Executive therefore agrees that in the event of Executive's breach of any of the terms or conditions of this paragraph 3, SUB shall have the right, without posting any bond or other security, to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which SUB may be entitled against Executive. The covenants of Executive in paragraphs 3a, 3b, 3c and 3d of this Agreement shall each be construed as an agreement independent of any other provision in this AGREEMENT, and the existence of any claim or cause of action of Executive against SUB, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by SUB of paragraphs 3a, 3b, 3c and 3d. f. Enforcement. If at the time of the enforcement of subparagraphs 3a, 3b, 3c, 3d or 3e above a court shall hold that the period or scope of the provisions thereof are unreasonable under the circumstances then existing, the parties hereby agree that the maximum period or scope under the circumstances shall be substituted for the period or scope stated in those subparagraphs. 4. Short-Swing Securities Profits. Executive acknowledges that Executive will remain subject to the short-swing liability provisions of Section 16 of the federal Securities Exchange Act of 1934 for six months following termination of employment. 5. Release. In consideration of the payments to Executive as specified in paragraph 2 above, Executive grants SUB a RELEASE of only all claims, both known and unknown, that Executive may have that relate to the termination of Executive's employment (hereafter a "WRONGFUL TERMINATION CLAIM"). The Executive and SUB agree that a WRONGFUL TERMINATION CLAIM, specifically and without limitation, does not include claims: 1. for indemnification as a corporate agent of SUB against claims by third parties; 2. under employee benefit plans, including supplemental employee retirement plans, maintained by SUB or any of the predecessor organizations thereof, including but not limited to rights under any workers compensation program, Section 502(a) of the Employee Retirement Income Security Act, as amended, 29 U.S.C. 1001 et seq., and under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); 3. arising out of enforcement of the Contracts or this Agreement by Executive; or 4. constituting cross-claims against SUB as a result of claims brought by unaffiliated third parties against Executive based on Executive's service as an executive of SUB. The statutes which could form the basis for a WRONGFUL TERMINATION CLAIM include, but are not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 1971 et seq.; the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. 621 et seq.; Section 510 of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001 et seq.; the Americans With Disabilities Act, as amended, 42 U.S.C. 12101 et seq.; the Older Workers Benefit Protection Act, as amended, 29 U.S.C. 621 et seq.; the Civil Rights Act of 1866, as amended, 42 U.S.C. 1981 et seq.; the New Jersey Law Against Discrimination, as amended, N.J.S.A. 10:5-1 et seq.; the New Jersey Conscientious Employee Protection Act, as amended, N.J.S.A. 34:19-1 et seq.; the New York Human Rights Law, Executive Law 290 et seq.; the Pennsylvania Human Relations Act, as amended, 43 P.S. 951 et seq.; and the Pennsylvania Whistleblower Law, as amended, 43 P.S. 1421 et seq. The common law (non-statutory) theories under which a WRONGFUL TERMINATION CLAIM could be made include, but are not limited to, breach of an express employment contract, breach of a contract implied from a personnel handbook or manual, or commission of a civil wrong (known as a "tort") resulting in Executive's termination, or for alleged violation of the public policy of the United States or any state. Granting a RELEASE of any WRONGFUL TERMINATION CLAIM pursuant to this AGREEMENT means that on behalf of Executive and all who succeed to Executive's rights and responsibilities, Executive releases and gives up only any and all WRONGFUL TERMINATION CLAIMS that Executive may have against SUB, and any of its subsidiaries, affiliates or divisions, and all of their directors, officers, representatives, shareholders, agents, employees, and all who succeed to their rights and responsibilities (collectively referred to as "RELEASEES". With respect to any charges filed concerning events or actions relating to a WRONGFUL TERMINATION CLAIM that occurred on or before the date of this AGREEMENT or Executive's Termination Date (whichever is later), Executive waives and releases any right that Executive may have to recover in any lawsuit or proceeding brought by Executive or by an administrative agency on Executive's behalf against the RELEASEES. 6. Covenant Not to Sue. Executive covenants not to sue the RELEASEES over any WRONGFUL TERMINATION CLAIM. Such a covenant not to sue the RELEASEES means that Executive represents that Executive has not through the date of execution of this Agreement filed a WRONGFUL TERMINATION CLAIM, charge or lawsuit with any court or government agency against the RELEASEES, and that Executive will not file such a lawsuit subsequent to execution of this Agreement. Executive also waives any right to become, and promises not to become, a member of any class in a case in which WRONGFUL TERMINATION CLAIMS are asserted against any of the RELEASEES. 7. Review Period. Executive acknowledges that Executive has up to 21 days to review this AGREEMENT, and was advised to review it with an attorney of Executive's choice. Executive also acknowledges that Executive was further advised that Executive has seven days after Executive signs this AGREEMENT to revoke it by notifying SUB in writing, of such revocation as set forth under Notices below. This AGREEMENT shall become effective on the tenth (10th) day following its execution by Executive (the "EFFECTIVE DATE"), unless revoked in accordance with the preceding sentence. 8. Revocation of Authority. Executive agrees and acknowledges that as of the Termination Date Executive shall no longer be empowered to bind SUB in any agreement, whether verbal or written, and that Executive shall have no authority to execute any documents, deeds, leases, or other contracts on behalf of SUB. To the extent not effected by termination of Executive under the Contracts, Executive resigns from all offices and positions with SUB. 9. Successors and Assigns. All rights and duties of SUB under this Agreement shall be binding on and inure to the benefit of SUB, its successors and assigns. All rights of Executive hereunder shall be binding upon and inure to the benefit of Executive's personal or legal representatives. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally with receipt acknowledged or sent by registered or certified mail, postage prepaid or by reputable national overnight delivery service, to the addresses shown below, unless changed by notices given as herein provided, except that notice of change of address only shall be effective upon actual receipt: If to SUB, to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: Executive Vice President of Human Resources With a copy to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: General Counsel If to the Executive, to: With a copy to: 11. Covenant Not to Challenge Enforceability. Both Executive and SUB understand that this AGREEMENT is final and binding when executed by both parties, subject to paragraph 7 above, and both agree not to thereafter challenge its enforceability. 12. Applicable Law. This AGREEMENT shall be deemed to have been made within the State of New Jersey, and it shall be interpreted, construed, and enforced in accordance with the law of the State of New Jersey, and before the Courts of the State of New Jersey. 13. Amendments, Modifications, Waivers. This AGREEMENT cannot be amended or modified except by a written document signed by both SUB and Executive and no provision can be waived except by a written document signed by the waiving party. 14. By signing this AGREEMENT, Executive acknowledges: 1. EXECUTIVE HAS READ THIS AGREEMENT COMPLETELY. 2. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSIDER THE TERMS OF THIS AGREEMENT. 3. EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY OF EXECUTIVE'S CHOOSING PRIOR TO EXECUTING THIS AGREEMENT. 4. EXECUTIVE KNOWS THAT EXECUTIVE MAY BE GIVING UP IMPORTANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT. 5. EXECUTIVE UNDERSTANDS AND MEANS EVERYTHING THAT EXECUTIVE HAS SAID IN THIS AGREEMENT, AND EXECUTIVE AGREES TO ALL ITS TERMS. 6. EXECUTIVE IS NOT RELYING ON SUB OR ANY REPRESENTATIVE OF SUB TO EXPLAIN THIS AGREEMENT AND RELEASE TO EXECUTIVE. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSULT AN ATTORNEY OR OTHER ADVISOR TO EXPLAIN THIS AGREEMENT AND ITS CONSEQUENCES TO EXECUTIVE BEFORE EXECUTIVE SIGNED IT, AND EXECUTIVE HAS AVAILED HIMSELF OR HERSELF OF THIS OPPORTUNITY TO WHATEVER EXTENT EXECUTIVE DESIRED. 7. EXECUTIVE HAS SIGNED THIS AGREEMENT VOLUNTARILY AND ENTIRELY OF EXECUTIVE'S OWN FREE WILL, WITHOUT ANY PRESSURE FROM SUB OR ANY REPRESENTATIVE OF SUB, OR ANYONE ELSE. IN WITNESS WHEREOF, and intending to be legally bound hereby, this Agreement has been executed as of the day and year first above written. ATTEST: SUMMIT BANCORP. ______________________________By:______________________________ Secretary Executive Vice President ------------------------------ EXECUTIVE -------------------------------- (Social Security Number) STATE OF NEW JERSEY: COUNTY OF _______________________: I certify that on this _______ day of ____________, _______ personally came before me _______________(Executive), who, being duly sworn, acknowledged under oath to my satisfaction that such person is named in and personally executed the foregoing Receipt and Release as such person's voluntary act and deed, for the purposes set forth therein. IN WITNESS WHEREOF, I have set my hand this ____ day of - - -------------, ------. By: ___________________________________ Notary Public of the State of New Jersey My Commission expires __________________ EX-27 5 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT (27)
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1999 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1999 Jun-30-1999 1,009,863 15,297 16,463 18,990 4,375,966 6,378,484 6,238,289 21,538,820 321,700 34,225,760 23,442,900 3,734,712 444,757 4,001,925 0 0 142,018 2,459,448 34,225,760 407,045 161,054 612 568,711 166,807 260,120 308,591 16,500 2,094 207,216 180,802 120,337 0 0 120,337 0.71 0.70 3.92 94,825 37,674 0 64,476 328,302 28,838 5,736 321,700 167,485 0 154,215
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