-----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, P5Q95VVA8mO2u6aD9fsZbnZQBZfLNVd9+KP++Ek3U3l4zv6z0IdYPyihf5JQf5sc odes3z+YNb/MOG5fMnQMKg== 0000101320-99-000018.txt : 19991117 0000101320-99-000018.hdr.sgml : 19991117 ACCESSION NUMBER: 0000101320-99-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT BANCORP/NJ/ CENTRAL INDEX KEY: 0000101320 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 221903313 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06451 FILM NUMBER: 99754172 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 SEPT 30, 1999 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 October 31, 1999 there were 173,768,176 shares of common stock, $.80 par value, outstanding. Summit Bancorp Form 10-Q Index Page No. Part I Financial Information Item 1. Financial Statements-Unaudited Consolidated Balance Sheets- September 30, 1999, December 31, 1998 and September 30, 1998 .... 2 Consolidated Statements of Income- Three and Nine Months Ended September 30, 1999 and 1998 ..........3 Consolidated Statements of Cash Flows- Nine Months Ended September 30, 1999 and 1998 ....................4 Consolidated Statements of Shareholders' Equity- Nine Months Ended September 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 .................................7 Item 3. Quantitative and Qualitative Disclosures About Market Risk .........22 Part II. Other Information Item 1. Legal Proceedings ..................................................22 Item 2. Changes in Securities and Use of Proceeds ..........................24 Item 3. Defaults Upon Senior Securities ....................................24 Item 4. Submissions of Matters to a Vote of Security Holders ...............24 Item 5. Other Information ..................................................24 Item 6. Exhibits and Reports on Form 8-K ...................................24 Signature ..........................................................25 Exhibit Index ......................................................26 Summit Bancorp and Subsidiaries Consolidated Balance Sheets Unaudited (In thousands) Sept. 30, Dec. 31, Sept. 30, 1999 1998 1998 ---------- ----------- ---------- Assets Cash and due from banks $1,084,844 $1,129,859 $1,088,352 Federal funds sold and securities purchased under agreements to resell 3,384 28,829 1,000 Interest-bearing deposits with banks 45,742 26,360 19,763 Securities: Trading account securities 13,072 12,553 15,962 Securities available for sale 5,187,430 3,970,941 4,432,791 Securities held to maturity 5,951,191 6,015,810 5,358,215 ---------- --------- --------- Total securities 11,151,693 9,999,304 9,806,968 Loans (net of unearned discount): Commercial 8,127,470 7,156,574 6,979,170 Commercial mortgage 3,130,815 2,888,597 2,868,823 Residential mortgage 5,510,204 5,719,305 5,417,412 Consumer 5,967,565 5,362,101 5,035,258 ---------- ---------- ---------- Total loans 22,736,054 21,126,577 20,300,663 Less: Allowance for loan losses 328,815 322,814 314,271 ---------- ---------- ---------- Net loans 22,407,239 20,803,763 19,986,392 ---------- ---------- ---------- Goodwill and other intangibles 528,393 295,461 187,367 Premises and equipment 315,398 270,843 259,033 Accrued interest receivable 223,690 195,708 195,107 Due from customers on acceptances 23,467 18,089 17,419 Other assets 379,488 333,098 290,813 ---------- ---------- ---------- Total Assets $36,163,338 $33,101,314 $31,852,214 ========== ========== ========== Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand deposits $ 5,099,733 $ 4,933,787 $ 4,694,605 Interest-bearing deposits: Savings and time deposits 18,387,777 17,250,295 16,249,801 Commercial certificates of deposit $100,000 and over 863,655 961,046 1,202,447 ---------- ---------- ---------- Total deposits 24,351,165 23,145,128 22,146,853 ---------- ---------- ---------- Other borrowed funds 4,525,690 3,189,988 4,269,565 Accrued expenses and other liabilities 349,910 358,542 288,329 Accrued interest payable 91,260 94,430 100,248 Bank acceptances outstanding 23,467 18,089 17,419 Long-term debt 3,970,698 3,572,710 2,401,826 ---------- ---------- ---------- Total liabilities 33,312,190 30,378,887 29,224,240 Shareholders' equity: Common stock par value $ .80: Authorized 390,000 shares 142,008 142,106 142,118 Surplus 956,934 1,013,393 1,004,332 Retained earnings 1,896,194 1,728,135 1,663,363 Employee stock ownership plan obligation (1,250) (3,394) (3,394) Accumulated other comprehensive (loss) income, net of tax (48,612) 12,087 37,012 Common stock held in treasury, at cost (94,126) (169,900) (215,457) ----------- ----------- ----------- Total shareholders' equity 2,851,148 2,722,427 2,627,974 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $36,163,338 $33,101,314 $31,852,214 =========== =========== =========== Common shares at period end: Issued 177,510 177,632 177,648 Treasury 2,744 3,873 4,680 Outstanding 174,766 173,759 172,968 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 Nine Months Ended September 30, September 30, ------------------ -------------------- 1999 1998 1999 1998 -------- ------- --------- --------- Interest Income Loans $428,820 $401,176 $1,239,532 $1,173,490 Securities: Trading account securities 134 260 351 1,145 Securities available for sale 75,728 67,764 195,358 229,110 Securities held to maturity 95,778 82,405 293,168 214,128 -------- ------- --------- --------- Total securities 171,640 150,429 488,877 444,383 Other interest income 858 440 2,065 1,889 -------- ------- --------- --------- Total interest income 601,318 552,045 1,730,474 1,619,762 -------- ------- --------- --------- Interest Expense Savings and time deposits 165,873 154,363 474,622 464,937 Commercial certificates of deposit $100,000 and over 9,931 14,359 30,966 38,918 Borrowed funds, including long-term debt 104,206 91,343 289,643 239,876 ------- ------- -------- -------- Total interest expense 280,010 260,065 795,231 743,731 ------- ------- -------- -------- Net interest income 321,308 291,980 935,243 876,031 Provision for loan losses 76,500 18,000 109,500 51,000 ------- ------- -------- -------- Net interest income after provision for loan losses 244,808 273,980 825,743 825,031 ------- ------- -------- -------- Non-Interest Income Service charges on deposit accounts 31,199 31,236 90,842 93,173 Retail investment and insurance fees 18,221 12,289 55,231 37,108 Service and loan fee income 14,559 15,619 46,194 43,732 Trust income 13,130 10,519 37,900 31,597 Securities gains (losses) 4,744 (58) 7,055 4,440 Other 22,846 20,844 61,561 50,062 ------- ------- ------- ------- Total non-interest income 104,699 90,449 298,783 260,112 ------- ------- ------- ------- Non-Interest Expenses Salaries 87,158 77,384 250,090 228,299 Pension and other employee benefits 28,420 27,872 87,569 81,692 Furniture and equipment 23,872 21,021 68,840 62,204 Occupancy, net 20,218 18,481 59,316 54,586 Communications 9,331 8,875 28,645 27,451 Amoritization of goodwill and other intangibles 8,257 4,850 20,596 14,264 Advertising and public relations 5,758 6,638 17,213 18,913 Other 28,943 29,045 92,341 90,329 ------- ------- ------- ------- Total non-interest expenses 211,957 194,166 624,610 577,738 ------- ------- ------- ------- Net Income before taxes 137,550 170,263 499,916 507,405 Federal and state income taxes 43,931 52,402 167,219 158,650 ------- ------- ------- ------- Net Income $ 93,619 $117,861 $332,697 $348,755 ======= ======= ======= ======= Net Income per Common Share: Basic $ 0.54 $ 0.68 $ 1.93 $ 1.99 ======= ======= ======= ======= Diluted 0.53 0.67 1.91 1.96 ======= ======= ======= ======= Average Common Shares Outstanding: Basic 173,979 173,379 172,809 175,466 ======= ======= ======= ======= Diluted 175,527 175,080 174,423 177,505 ======= ======= ======= ======= See accompanying Notes to Consolidated Financial Statements. Summit Bancorp and Subsidiaries Consolidated Statements of Cash Flows Unaudited (In thousands) Nine Months Ended September 30, -------------------- Operating activities 1999 1998 -------- -------- Net income $332,697 $348,755 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 109,500 51,000 Depreciation, amortization and accretion, net 46,537 35,051 Gains on sales of securities (7,055) (4,440) Gains on sales of mortgages held for sale (12,766) (11,442) Loss (gains) on the sales of other real estate owned 1,144 (3,963) Proceeds from the sales of other real estate owned 4,206 18,456 Proceeds from the sales of mortgages held for sale 565,515 634,781 Originations of mortgages held for sale (606,424) (731,263) Net (increase) decrease in trading account securities (519) 19,254 Net change in other accrued and deferred income and expense 5,153 4,685 ----------- ----------- Net cash provided by operating activities 437,988 360,874 ----------- ----------- Investing activities Purchases of securities held to maturity (1,657,196) (2,889,338) Purchases of investment securities available for sale (2,965,316) (2,008,875) Proceeds from maturities of securities held to maturity 1,747,995 1,673,354 Proceeds from maturities of securities available for sale 1,402,988 1,853,500 Proceeds from the sales of securities available for sale 543,431 845,309 Net decrease (increase) in Federal funds sold, securities purchased under agreements to resell and interest bearing deposits with banks 24,809 (2,231) Net increase in loans (894,856) (1,342,886) Purchases of premises and equipment, net (50,170) (44,746) ----------- ----------- Net cash used in investing activities (1,848,315) (1,915,913) ----------- ----------- Financing activities Net increase (decrease) in deposits 205,299 (182,583) Net increase in short-term borrowings 1,327,754 871,312 Principal payments on long-term debt (190,343) (235,703) Proceeds from the issuance of long-term debt 471,185 1,391,405 Dividends paid (160,028) (147,873) Purchase of common stock (317,727) (242,084) Proceeds from issuance of common stock under stock option plans 8,245 14,172 ----------- ----------- Net cash provided by financing activities 1,344,385 1,468,646 ----------- ----------- Decrease in cash and due from banks (65,942) (86,393) Beginning cash balance of acquired entities 20,927 1,627 Cash and due from banks at beginning of period 1,129,859 1,173,118 ----------- ----------- Cash and due from banks at end of period $1,084,844 $1,088,352 =========== =========== Supplemental disclosure of cash flow information Cash paid: Interest payments $799,861 $715,085 Income tax payments 131,176 146,896 Noncash investing activities: Net transfer of loans to other real estate owned 6,446 5,239 See accompanying Notes to Consolidated Financial Statements Summit Bancorp and Subsidiaries Consolidated Statements of Shareholders' Equity Unaudited (In thousands) Accum. Total Other Share- Common Retained ESOP Comprehen. Treasury holders' Stock Surplus Earnings Obligation Inc.(Loss) Stock Equity -------- -------- ---------- ----------- ---------- -------- ---------- Balance, December 31, 1997 $ 141,272 $ 987,281 $1,467,193 $ (4,201) $ 20,875 $ - $ 2,612,420 Comprehensive income: Net income - - 348,755 - - - 348,755 Unrealized holding gain on securities arising during the period (net of tax $10,243) - - - - 19,023 - Less: Reclassification adjustment for gains included in net income (net of tax $1,554) - - - - 2,886 - ------- Net unrealized holding gains on securities arising during the period (net of tax $8,689) - - - - 16,137 - 16,137 --------- Total comprehensive income 364,892 Cash dividend declared on common stock - - (152,585) - - - (152,585) Employee stock plans (1,322 shares) 846 18,269 - - - 13,132 32,247 Shares issued for acquisitions (280 shares) - (1,218) - - - 13,495 12,277 Purchase of common stock (5,224 shares) - - - - - (242,084) (242,084) ESOP debt repayment - - - 807 - - 807 -------- --------- --------- ------- ------ --------- ---------- Balance, September 30, 1998 $ 142,118 $1,004,332 $1,663,363 $ (3,394) $ 37,012$(215,457) $2,627,974 ======== ========= ========= ======= ====== ========= ========== 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 - - 332,697 - - - 332,697 Unrealized holding loss on securities arising during the period (net of tax $30,215) - - - - (56,113) - Less: Reclassification adjustment for gains included in net income (net of tax $2,469) - - - - 4,586 - ----- Unrealized holding loss on securities arising during the period (net of tax $32,684) - - - - (60,699) - (60,699) -------- Total comprehensive income 271,998 Cash dividend declared on common stock - - (164,638) - - - (164,638) Employee stock plans (837 shares) (98) (46,451) - - - 40,824 (5,725) Shares issued for acquisitions (8,541 shares) - (10,008) - - - 352,677 342,669 Purchase of common stock (8,371 shares) - - - - - (317,727) (317,727) ESOP debt repayment - - - 2,144 - - 2,144 ------- ------- --------- ------- -------- -------- ---------- Balance, September 30, 1999 $ 142,008 $ 956,934 $1,896,194 $ (1,250) $ (48,612)$(94,126) $2,851,148 ======= ======= ========= ======= ======== ======== ========== 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 completed the acquisition 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 7.4 million shares of treasury stock. The cost in excess of the fair value of net assets acquired resulted in goodwill of $220.0 million. On October 4, 1999 a definitive merger agreement was announced to acquire NMBT Corp. NMBT Corp is headquartered in New Milford, Connecticut and operates 10 branches with $392.0 million in assets. The acquisition is expected to be consummated in the first quarter of 2000, subject to regulatory and shareholder approvals, and will be accounted for as a purchase. Summit Bancorp expects to repurchase in the open market from time to time, outstanding Summit Bancorp shares in a number equal to the approximate number of shares to be issued in the acquisition, or reissue treasury shares, depending upon market conditions and other factors. Pursuant to the merger agreement, if the merger is consummated, shareholders of NMBT Corp will be entitled to receive between .7024 and .9503 shares of Summit Bancorp stock in exchange for each share of NMBT Corp common stock owned. 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, Three months ended Nine months ended except per share data) Sept. 30, Sept. 30, - ---------------------------------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------- Net Income $ 93,619 $117,861 $332,697 $348,755 ============================================================================ Basic weighted-average common shares outstanding 173,979 173,379 172,809 175,466 Plus: Common stock equivalents 1,548 1,701 1,614 2,039 - ---------------------------------------------------------------------------- Diluted weighted-average common shares outstanding 175,527 175,080 174,423 177,505 ============================================================================ Net income per common share: Basic $ 0.54 $ 0.68 $ 1.93 $ 1.99 Diluted 0.53 0.67 1.91 1.96 - ---------------------------------------------------------------------------- 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ----------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - ------------------------------------------------- Summit Bancorp is a bank holding company headquartered in Princeton, New Jersey. Summit Bancorp owns bank subsidiaries in New Jersey, Pennsylvania and Connecticut and several active non- bank subsidiaries. Summit Bancorp's bank subsidiaries provide a broad range of retail, insurance, commercial and private banking services as well as trust and investment services to individuals, businesses, not-for-profit organizations, government entities and other financial institutions. These services are provided through an extensive branch network, including supermarket branches and private banking facilities, as well as through automated teller machines and the internet. FINANCIAL CONDITION Total assets at September 30, 1999, were $36.2 billion, an increase of $3.1 billion, or 9.3 percent, from year-end 1998. The growth came most notably from the loan and securities portfolios, and was generally funded with the increase in savings and time deposits, and borrowed funds. The purchase of Prime Bancorp and New Canaan added $1.5 billion to total assets. Total securities at September 30, 1999 were $11.2 billion, an increase of $1.2 billion, or 11.5 percent, from year-end 1998. Securities held to maturity at September 30, 1999, were $6.0 billion and mainly comprised of $3.9 billion of U.S. Government and Federal agency securities, $1.9 billion of other securities, predominately corporate collateralized mortgage obligations ("CMOs"), and $126.1 million of state and political subdivision securities. These securities decreased $64.6 million, or 1.1 percent, from year-end 1998. For the nine months of 1999, $1.7 billion of held to maturity securities were purchased, offset by principal repayments and maturities of $1.7 billion. At September 30, 1999, and December 31, 1998, net unrealized (losses) gains on securities held to maturity amounted to ($143.0) million and $15.0 million, respectively. At September 30, 1999, securities available for sale amounted to $5.2 billion and were predominately comprised of U.S. Government and Federal agency securities. These securities increased $1.2 billion, or 30.6 percent, from year-end 1998. The increase resulted from $3.0 billion in purchases partially offset by sales and maturities of $1.9 billion. At September 30, 1999, total loans amounted to $22.7 billion, an increase of $1.6 billion, or 7.6 percent, from year-end 1998. Increases in commercial loans of $970.9 million, commercial mortgages of $242.2 million and consumer loans of $605.5 million were offset by the $209.1 million decrease in residential mortgages. The increase in commercial loans was primarily related to growth in asset based lending, commercial media and the acquisition of Prime Bancorp, which added approximately $280.0 million. The increase in commercial mortgages was primarily related to the acquisition of Prime Bancorp, which added approximately $183.5 million. The increase in the consumer loan portfolio can generally be attributed to purchases of home equity loans and the acquisition of Prime Bancorp. The decline in residential mortgages of $209.1 million, or 3.7 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 $78.7 million and $183.3 million for the periods ended September 30, 1999 and December 31, 1998 respectively. Total deposits were $24.4 billion at September 30, 1999, an increase of $1.2 billion, or 5.2 percent, from December 31, 1998. Savings and time deposits at $18.4 billion, increased $1.1 billion, or 6.6 percent, from December 31, 1998. The growth came most notably from Summit's new cash management product, the Summit Navigator Account, which increased $2.4 billion from year-end 1998. Also increasing were demand deposits, which increased $165.9 million, or 3.4 percent, from year-end 1998 to $5.1 billion. The increase in demand deposits came mainly from personal accounts and public funds. Partially offsetting this increase was a decrease in commercial certificates of deposit $100,000 and over, which were down $97.4 million, or 10.1 percent, compared to December 31, 1998. Other borrowed funds at September 30, 1999, increased $1.3 billion, or 41.9 percent, from December 31, 1998, to $4.5 billion. The increase in other borrowed funds can be attributed to increases in short-term repurchase agreements, federal funds purchased and short term Federal Home Loan Bank notes. Long-term debt at September 30, 1999, increased $398.0 million, or 11.1 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. The increase in other borrowed funds and long-term debt was to fund growth in earning assets. 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 September 30, 1999 was $2.9 billion, an increase of $128.7 million, or 4.7 percent, from December 31, 1998. The increase was primarily attributed to retained profits. Treasury stock at September 30, 1999 amounted to $94.1 million and was comprised of 2.7 million shares. These shares will be used for acquisitions, employee benefit plans, and general corporate purposes. During the year, 8.4 million shares of common stock were purchased. On August 1, 1999, 7.4 million shares were used for the acquisition of Prime Bancorp. Included in shareholders' equity at September 30, 1999, was accumulated other comprehensive (loss) income, net of tax, amounting to a loss of ($48.6) million, compared to a gain of $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 the market value of fixed income securities. Summit Bancorp's capital ratios for September 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 September 30, 1999, were principally attributable to purchase acquisitions, treasury stock purchases and asset growth. - ------------------------------------------------------------------------------- Minimum Sept. 30, Dec. 31, Sept. 30, Required Well Selected Capital Ratios: 1999 1998 1998 Capital Capitalized - ------------------------------------------------------------------------------- Equity to assets 7.88% 8.22% 8.25% -% -% Leverage ratio 7.24 8.00 8.25 3.00 5.00 Tier I capital 9.59 10.86 11.29 4.00 6.00 Total risk-based capital 11.35 12.72 13.33 8.00 10.00 - ------------------------------------------------------------------------------- Non-Performing Assets Non-performing assets include non-performing loans and other real estate owned (OREO) and are shown in the following table as of the dates indicated. - ------------------------------------------------------------------------------- Non-performing assets Sept. 30, Dec. 31, Sept. 30, (in thousands) 1999 1998 1998 - ------------------------------------------------------------------------------- Non-performing loans: Commercial and industrial $64,312 $55,245 $57,194 Commercial mortgage 14,084 26,446 19,500 Construction and development 6,539 5,046 3,118 - ------------------------------------------------------------------------------- Non-performing loans 84,935 86,737 79,812 OREO, net 8,782 2,829 3,233 - ------------------------------------------------------------------------------- Non-performing assets $93,717 $89,566 $83,045 - ------------------------------------------------------------------------------- Non-performing loans to total loans 0.37% 0.41% 0.39% Non-performing assets to total loans and OREO 0.41 0.42 0.41 - ------------------------------------------------------------------------------- The average balances of non-performing loans amounted to $96.0 million and $75.2 million, for the nine months ended September 30, 1999 and September 30, 1998, respectively. Interest income received on non-performing loans amounted to $2.3 million for the nine months ended September 30, 1999, compared to $1.7 million for the nine months ended September 30, 1998. Loans, not included in the table above, which are past due 90 days or more amounted to $39.2 million, $45.3 million and $36.1 million at September 30, 1999, December 31, 1998, and September 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 $7.1 million, $8.0 million and $3.6 million at September 30, 1999, December 31, 1998, and September 30, 1998, respectively. 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 the amount of allocated and unallocated reserves relative to the total loan portfolio. The unallocated portion of the allowance for loan losses, in excess of specific and general reserves, was $149.7 million at September 30, 1999, compared to $164.5 million at December 31, 1998. The 1999 provision for loan losses for the third quarter was $76.5 million, a $58.5 million increase from the same period a year ago, and $109.5 million, for the nine months ended September 30, 1999, an increase of $58.5 million from the same period a year ago. The increase in the provision for loan losses for the three and nine months ended September 30, 1999 was attributed to the increase in the level of charge offs, loan growth and an increase in the inherent risk in the loan portfolio. The provision for loan losses is charged to expense to bring the allowance for loan losses to a level deemed appropriate by management to cover the credit risk inherent in the loan portfolio. The provision for loan losses may vary from quarter to quarter due to loan growth or if there is a significant increase in the inherent risk in the loan portfolios. The allowance as a percentage of loans was 1.45 percent at September 30, 1999, compared to 1.53 percent and 1.55 percent at December 31, 1998 and September 30, 1998, respectively. Transactions in the allowance for loan losses, by loan category, for the three and nine month periods ended September 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 Nine months ended September 30, September 30, (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------ Balance, Beginning of period $321,700 $308,753 $322,814 $296,494 Allowance of acquired institutions 9,584 - 11,724 - Provision for loan losses 76,500 18,000 109,500 51,000 - ------------------------------------------------------------------------------ 407,784 326,753 444,038 347,494 - ------------------------------------------------------------------------------ Loans charged off: Commercial and industrial 75,830 4,197 104,229 15,687 Construction and development - 920 13 2,215 Commercial mortgage 1 632 2,273 2,739 Residential mortgage 578 4,044 3,526 7,693 Consumer 6,918 8,248 22,083 26,104 - ------------------------------------------------------------------------------ Total loans charged off 83,327 18,041 132,124 54,438 - ------------------------------------------------------------------------------ Recoveries: Commercial and industrial 2,193 2,728 8,058 9,132 Construction and development 142 151 989 2,968 Commercial mortgage 15 82 756 1,800 Residential mortgage 31 316 466 1,145 Consumer 1,977 2,282 6,632 6,170 - ------------------------------------------------------------------------------ Total recoveries 4,358 5,559 16,901 21,215 - ------------------------------------------------------------------------------ Net charge offs 78,969 12,482 115,223 33,223 - ------------------------------------------------------------------------------ Balance, end of period $328,815 $314,271 $328,815 $314,271 ============================================================================== - ----------------------------------------------------------------------- Sept. 30, Dec. 31, Sept. 30, 1999 1998 1998 - ----------------------------------------------------------------------- Net charge offs to average loans: Quarter to date 1.41% 0.23% 0.25% Year-to-date 0.72 0.23 0.23 Allowance for loan losses to: Total loans 1.45 1.53 1.55 Non-performing loans 387.14 372.18 393.76 Non-performing assets 350.86 360.42 378.43 - ----------------------------------------------------------------------- The increase in commercial and industrial charge offs for the third quarter was as a result of the full charge off of a $60.0 million media credit. Summit Bancorp and Subsidiaries Consolidated Average Balance Sheets with Resultant Interest and Rates Unaudited (Tax-equivalent basis, dollars in thousands) Three Months Ended --------------------------------------------------------------- September 30, 1999 September 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 $ 27,872 $ 415 5.91% $ 5,226 $ 82 6.23% Interest-bearing deposits with banks 31,803 443 5.53 20,816 358 6.82 Securities: Trading account securities 15,309 144 3.73 21,246 275 5.14 Securities available for sale 4,858,464 75,988 6.26 4,309,938 68,195 6.33 Securities held to maturity 6,167,783 96,797 6.28 5,258,401 83,584 6.36 ---------- ------- ---- --------- ------- ---- Total securities 11,041,556 172,929 6.26 9,589,585 152,054 6.34 ---------- ------- ---- --------- ------- ---- Loans, net of unearned discount: Commercial 7,771,020 153,101 7.82 6,818,345 141,484 8.23 Commercial mortgage 3,049,055 61,698 8.09 2,843,079 60,312 8.49 Residential mortgage 5,549,722 98,495 7.10 5,534,399 100,453 7.26 Consumer 5,792,765 116,741 8.00 4,748,341 100,129 8.37 ---------- ------- ---- ---------- ------- ---- Total loans 22,162,562 430,035 7.70 19,944,164 402,378 8.00 ---------- ------- ---- ---------- ------- ---- Total interest-earning assets 33,263,793 603,822 7.20 29,559,791 554,872 7.45 ---------- ------- ---- ---------- ------- ---- Non-interest earning assets: Cash and due from banks 957,042 1,009,560 Allowance for loan losses (332,077) (314,481) Other assets 1,395,619 962,213 ----------- ----------- Total non-interest earning asset 2,020,584 1,657,292 ----------- ----------- Total Assets $35,284,377 $31,217,083 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits $11,386,504 $ 78,980 2.75% $ 9,354,200 $ 61,597 2.61% Time deposits 7,001,622 86,893 4.92 6,944,902 92,766 5.30 Commercial certificates of Deposit $100,000 and over 788,110 9,931 5.00 1,051,402 14,359 5.42 ---------- ------- ---- ---------- ------- ---- Total interest-bearing deposits 19,176,236 175,804 3.64 17,350,504 168,722 3.86 ---------- ------- ---- ---------- ------- ---- Other borrowed funds 3,815,511 48,115 5.00 4,241,502 58,330 5.46 Long-term debt 4,036,142 56,091 5.56 2,125,216 33,013 6.21 ---------- ------- ---- ---------- ------- ---- Total interest-bearing liabilities 27,027,889 280,010 4.11 23,717,222 260,065 4.35 ---------- ------- ---- ---------- ------- ---- Non-interest bearing liabilities: Demand deposits 4,972,403 4,514,032 Other liabilities 510,525 380,879 ---------- --------- Total non-interest bearing liabilities 5,482,928 4,894,911 Shareholders' equity 2,773,560 2,604,950 ---------- --------- Total Liabilities and Shareholders' Equity $35,284,377 $31,217,083 ========== ========== Net interest spread 323,812 3.09% 294,807 3.10% ==== ==== Tax-equivalent basis adjustment (2,504) (2,827) -------- -------- Net interest income $321,308 $291,980 ======== ======== Net interest margin 3.86% 3.96% ==== ====
Summit Bancorp and Subsidiaries Consolidated Average Balance Sheets with Resultant Interest and Rates Unaudited (Tax-equivalent basis, dollars in thousands) Year to Date --------------------------------------------------------------- September 30, 1999 September 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 $ 22,626 $ 910 5.38% $ 16,395 $ 725 5.91% Interest-bearing deposits with banks 29,773 1,155 5.19 24,194 1,164 6.43 Securities: Trading account securities 12,186 430 4.72 25,633 1,217 6.35 Securities available for sale 4,271,410 196,296 6.13 4,827,005 230,776 6.37 Securities held to maturity 6,315,080 296,255 6.25 4,548,299 217,886 6.39 ---------- ------- ---- --------- ------- ---- Total securities 10,598,676 492,981 6.20 9,400,937 449,879 6.38 ---------- ------- ---- --------- ------- ---- Loans, net of unearned discount: Commercial 7,437,604 431,955 7.76 6,516,600 407,143 8.35 Commercial mortgage 2,940,324 177,265 8.04 2,815,705 179,144 8.48 Residential mortgage 5,600,750 298,973 7.12 5,658,856 310,081 7.31 Consumer 5,557,732 335,173 8.06 4,460,655 280,783 8.42 ---------- --------- ---- ---------- --------- ---- Total loans 21,536,410 1,243,366 7.72 19,451,816 1,177,151 8.09 ---------- --------- ---- ---------- --------- ---- Total interest-earning assets 32,187,485 1,738,412 7.22 28,893,342 1,628,919 7.54 ---------- --------- ---- ---------- --------- ---- Non-interest earning assets: Cash and due from banks 956,920 1,014,882 Allowance for loan losses (329,462) (307,418) Other assets 1,232,417 958,338 ----------- ----------- Total non-interest earning assets 1,859,875 1,665,802 ----------- ----------- Total Assets $34,047,360 $30,559,144 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits $10,743,079 $212,085 2.64% $ 9,436,582 $183,478 2.60% Time deposits 7,023,997 262,537 5.00 7,089,932 281,459 5.31 Commercial certificates of deposit $100,000 and over 852,874 30,966 4.85 959,234 38,918 5.42 ---------- ------- ---- ---------- ------- ---- Total interest-bearing deposits 18,619,950 505,588 3.63 17,485,748 503,855 3.85 ---------- ------- ---- ---------- ------- ---- Other borrowed funds 3,497,126 128,244 4.90 3,808,597 155,223 5.45 Long-term debt 3,900,156 161,399 5.52 1,797,203 84,653 6.28 ---------- ------- ---- ---------- ------- ---- Total interest-bearing liabilities 26,017,232 795,231 4.09 23,091,548 743,731 4.31 ---------- ------- ---- ---------- ------- ---- Non-interest bearing liabilities: Demand deposits 4,814,028 4,440,046 Other liabilities 502,457 381,271 --------- --------- Total non-interest bearing liabilities 5,316,485 4,821,317 Shareholders' equity 2,713,643 2,646,279 --------- --------- Total Liabilities and Shareholders' Equity $34,047,360 $30,559,144 ========== ========== Net interest spread 943,181 3.13% 885,188 3.23% ==== ==== Tax-equivalent basis adjustment (7,938) (9,157) -------- ------- Net interest income $935,243 $876,031 ======== ======== Net interest margin 3.92% 4.10% ==== ====
RESULTS OF OPERATIONS Net income for the quarter ended September 30, 1999, was $93.6 million, or $.54 per basic share, compared to $117.9 million, or $.68 per basic share, for the third quarter of 1998. On a diluted per share basis, net income for the three months ended September 30, 1999, was $.53 per diluted share compared to $.67 for the same period in 1998. For the nine months ended September 30, 1999, net income was $332.7 million or $1.93 per basic share compared to $348.8 million or $1.99 per basic share. On a diluted basis, net income for the nine months ended September 30, 1999, was $1.91 per diluted share, compared to $1.96 for the nine months ended September 30, 1998. The decline in net income per share for the three and the nine months ended can be attributed to the increase in the provision for loan losses in the third quarter. The following are key performance indicators for the three and nine month periods ended September 30, 1999 and 1998. The cash- based financial data excludes the after tax impact of amortization of goodwill and other intangibles. - ------------------------------------------------------------------------------ (in thousands) Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 - ------------------------------------------------------------------------------ FINANCIAL DATA: Net income 93,619 117,861 332,697 348,755 Per share-diluted 0.53 0.67 1.91 1.96 Return on average assets 1.05% 1.50% 1.31% 1.53% Return on average equity 13.39 17.95 16.39 17.62 Efficiency ratio 49.96 50.71 50.56 50.79 - ------------------------------------------------------------------------------ CASH-BASED FINANCIAL DATA*: Net income 101,663 122,252 352,663 361,464 Per share-diluted 0.58 0.70 2.02 2.04 Return on average tangible assets 1.16% 1.52% 1.40% 1.57% Return on average tangible equity 17.26 19.59 19.82 19.54 Efficiency Ratio 48.01 49.45 48.89 49.56 - ------------------------------------------------------------------------------ * 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 $1.7 billion for the nine months ended September 30, 1999, an increase of $109.5 million, or 6.7 percent, compared to a year ago. Interest- earning assets averaged $32.2 billion, an increase of $3.3 billion, or 11.4 percent, compared to the prior year period. The increase in interest-earning assets contributed $183.0 million to the increase in tax-equivalent interest income, partially offset by a decline of $73.5 million due to the reduction in the yield. The rate earned on interest-earning assets decreased 32 basis points to 7.22 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 $51.5 million, or 6.9 percent, for the nine months ended September 30, 1999, compared to the same period in 1998. The $2.9 billion or 12.7 percent growth in the average balance of interest-bearing liabilities to $26.0 billion in the 1999 period contributed $95.1 million to the increase in interest expense. This increase was partially offset by a decrease of $43.6 million in interest expense resulting from a decline in rates paid on interest-bearing liabilities. The rate paid on interest-bearing liabilities decreased 22 basis points to 4.09 percent in the 1999 period. Net interest income on a tax-equivalent basis was $943.2 million for the nine months ended September 30, 1999, an increase of $58.0 million, or 6.6 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 3.13 percent for the nine months ended September 30, 1999, compared to 3.23 percent for the prior year period. Net interest income on a tax-equivalent basis as a percentage of average interest-earning assets was 3.92 percent for the nine months ended September 1999, compared to 4.10 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/Volume Table ---------------------------------------------------------------- Three Months ended Sept 30, Nine Months Ended Sept 30, 1999 versus 1998 1999 versus 1998 ------------------------------ ------------------------------ Due to Change in: Due to Change in: -------------------- -------------------- (Tax-equivalent basis, in millions) Volume Rate Total Volume Rate Total - -------------------------------------------------------------------------------------------------------------- Interest Income Loans Commercial $19.0 $(7.4) $11.6 $ 54.9 $(30.1) $ 24.8 Commercial mortgage 4.3 (2.9) 1.4 7.7 (9.6) (1.9) Residential mortgage 0.3 (2.3) (2.0) (3.1) (8.0) (11.1) Consumer 21.1 (4.5) 16.6 66.3 (11.9) 54.4 - -------------------------------------------------------------------------------------------------------------- Total Loans 44.7 (17.1) 27.6 125.8 (59.6) 66.2 Securities held to maturity 14.3 (1.1) 13.2 83.3 (4.9) 78.4 Securities available for sale 8.6 (0.8) 7.8 (26.0) (8.5) (34.5) Other interest earning assets 0.4 (0.1) 0.3 (0.1) (0.5) (0.6) - -------------------------------------------------------------------------------------------------------------- Total Interest Earning Assets 68.0 (19.1) 48.9 183.0 (73.5) 109.5 - -------------------------------------------------------------------------------------------------------------- Interest Expense Deposits Savings deposits 14.0 3.4 17.4 25.7 2.9 28.6 Time deposits 0.8 (6.7) (5.9) (2.6) (16.3) (18.9) Commercial CD's > $100M (3.3) (1.1) (4.4) (4.1) (3.9) (8.0) - -------------------------------------------------------------------------------------------------------------- Total Time Deposits 11.5 (4.4) 7.1 19.0 (17.3) 1.7 Other borrowed funds (5.5) (4.7) (10.2) (12.1) (14.9) (27.0) Long-term debt 26.8 (3.8) 23.0 88.2 (11.4) 76.8 - -------------------------------------------------------------------------------------------------------------- Total Interest Expense 32.8 (12.9) 19.9 95.1 (43.6) 51.5 - -------------------------------------------------------------------------------------------------------------- Net interest income-Fully Taxable Equivalent $35.2 $ (6.2) $ 29.0 $ 87.9 $(29.9) $ 58.0 - -------------------------------------------------------------------------------------------------------------- Decrease in tax-equivalent adjustment 0.3 1.2 ----- ---- Increase in Net Interest Income $ 29.3 $ 59.2 ===== =====
Non-Interest Income Non-interest income categories for the three and nine month periods ended September 30, 1999 and 1998 are shown in the following table: - ------------------------------------------------------------------------------------------------------ (in millions) Three months ended Sept. 30, Nine months ended Sept. 30, - ------------------------------------------------------------------------------------------------------ Percent Percent 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------ Service charges on deposit accounts $ 31.2 $31.2 (0.1)% $ 90.8 $ 93.2 (2.5)% Retail investment and insurance fees 18.2 12.3 48.3 55.2 37.1 48.8 Service and loan fee income 14.6 15.6 (6.8) 46.2 43.7 5.6 Trust income 13.1 10.5 24.8 37.9 31.6 19.9 Other 22.9 20.9 9.6 61.6 50.1 23.0 - ------------------------------------------------------------------------------------------------------ Total non-interest operating income 100.0 90.5 10.4 291.7 255.7 14.1 Securities gains 4.7 (0.1) - 7.1 4.4 58.9 - ------------------------------------------------------------------------------------------------------ Total non-interest income $104.7 $90.4 15.8 % $298.8 $260.1 14.9 % ======================================================================================================
Service charges on deposit accounts remained unchanged for the quarter ended September 30, 1999 compared with 1998 and decreased $2.4 million, or 2.5 percent, for the nine months ended September 30, 1999, compared with the same period a year ago. The decrease was a result of lower minimum balance requirements on retail deposit accounts resulting in lower monthly maintenance fees. Retail investment and insurance fees increased $5.9 million, or 48.3 percent, for the quarter ended September 30, 1999, compared with 1998, and increased $18.1 million or 48.8 percent, for the nine months ended September 30, 1999, compared with the same period a year ago. The increase in retail investment and insurance fees for the three and nine months ended September 30, 1999, was primarily due to increased annuity fees and insurance fees, resulting from acquired insurance agencies. Service and loan fee income decreased $1.0 million, or 6.8 percent, for the quarter ended September 30, 1999, compared with 1998. The decrease was primarily a result of lower mortgage origination income, which was partially offset by higher merchant credit card activity. Service and loan fee income increased $2.5 million, or 5.6 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. The increase is due primarily to increased merchant credit card activity and mortgage servicing income. Trust income increased $2.6 million, or 24.8 percent, for the quarter ended September 30, 1999 compared with 1998, and $6.3 million, or 19.9 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. The increase in trust income for both the three and nine months ended September 30, 1999 was generally due to increases in personal trust fees and asset management advisory fees. Other income increased $2.0 million, or 9.6 percent, for the three months ended September 30, 1999, compared with 1998, and $11.5 million or 23.0 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. The increase for the three months ended September 30, 1999, was attributable to a $4.1 million gain on sale of mortgage servicing rights. The increase for the nine months ended September 30, 1999 was primarily attributable to a $5.9 million gain on the sale of the credit card portfolio in the first quarter, as well as the previously mentioned third quarter gain. Included in the third quarter of 1998, was a $7.0 million gain from limited partnership investment. Non-Interest Expense Non-interest expense categories for the three and nine month periods ended September 30, 1999, and 1998, are shown in the following table: - ---------------------------------------------------------------------------------------------------------------- (in millions) Three months ended Sept. 30, Nine months ended Sept. 30, - ---------------------------------------------------------------------------------------------------------------- Percent Percent 1999 1998 Change 1999 1998 Change - ---------------------------------------------------------------------------------------------------------------- Salaries $ 87.2 $ 77.4 12.6 % $250.1 $228.3 9.5 % Pension and other employee benefits 28.4 27.9 2.0 87.6 81.7 7.2 Furniture and equipment 23.9 21.0 13.6 68.8 62.2 10.7 Occupancy, net 20.2 18.5 9.4 59.3 54.6 8.7 Communications 9.3 8.9 5.1 28.6 27.5 4.3 Amortization of goodwill and other intangibles 8.3 4.9 70.2 20.6 14.3 44.4 Advertising and public relations 5.8 6.6 (13.3) 17.2 18.9 (9.0) Other 28.9 29.0 (0.4)% 92.4 90.2 2.2 - ---------------------------------------------------------------------------------------------------------------- Total non-interest expense $212.0 $194.2 9.2 $624.6 $577.7 8.1 % ================================================================================================================
Salaries increased $9.8 million, or 12.6 percent, for the quarter ended September 30,1999, compared to the same quarter in 1998, and $ 21.8 million, or 9.5 percent, for the nine months ended September 30, 1999 compared to the same period a year ago. In addition to the annual merit increases, salaries rose approximately $3.9 million and $7.5 million from acquisitions, for the three and nine month periods ended September 30, 1999, respectively. There were 8,971 full-time equivalent employees at September 30, 1999, compared to 8,244 the same period a year ago. Pension and employee benefits increased $.5 million, or 2.0 percent, for the three months ended September 30, 1999, compared with the same quarter in 1998, and $5.9 million, or 7.2 percent for the nine months ended September 30, 1999, compared to the same period a year ago. The increases were primarily attributable to pension and incentive compensation expense related to higher levels of core salaries. Furniture and equipment expenses increases $2.9 million, or 13.6 percent, for the quarter ended September 30, 1999, compared with the same quarter in 1998, and $6.6 million or 10.7 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. This increase was primarily due to the recent bank acquisitions, increases in equipment maintenance, mainframe application software and increases in leasing expenses associated with personal computers. Occupancy increased $1.7 million, or 9.4 percent, for the quarter ended September 30, 1999, compared with the same quarter in 1998, and $4.7 million, or 8.7 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. The increase was primarily due to recent bank acquisitions and increases in rent and depreciation expense. Communications expense increased $.4 million, or 5.1 percent, for the quarter ended September 30, 1999,compared with the same quarter in 1998, and $1.1 million, or 4.3 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. The increases were primarily due to increased telephone usage and an increase in postage expense. Amortization of goodwill and intangibles increased $3.4 million, or 70.2 percent, for the three months ended September 30, 1999, and $6.3 million or 44.4 percent for the nine months ended September 30, 1999, compared to the same period a year ago. The increase was due to the purchase acquisitions of Prime Bancorp, NSS Bancorp, New Canaan Bank & Trust Company, W.M. Ross and Company, and Madison Consulting Group. Advertising and public relations expense decreased $.8 million, or 13.3 percent, for the quarter ended September 30, 1999, compared to the same quarter in 1998, and $1.7 million, or 9.0 percent, for the nine months ended September 30, 1999, compared to the same period a year ago. The decrease was mainly due to a decline in general advertising costs. Other expenses did not vary significantly from period to period. Included in other expenses were legal and professional fees of $7.0 million and $21.9 million, for the three and nine month periods, respectively. The effective income tax rate was 31.9 percent for the three months ended September 30, 1999, compared with 30.8 percent compared with the same quarter in 1998, and 33.4 percent for the nine months ended September 30, 1999, compared with 31.3 percent for the same period a year ago. The lower effective 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. During the fourth quarter of 1999, the Company will take a restructuring charge of approximately $25 - $30 million pretax in conjunction with the realignment of its key lines of business and lines of support. The Company estimates that its business realignment will eliminate between 200 and 250 positions, and produce estimated cost saving of $20.0 million pretax annually. 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. Results of Operations Investment Services/ Quarter Ended September 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 $207.0 $187.9 $72.2 $66.4 $14.6 $14.2 $27.5 $23.5 $321.3 $292.0 Provision for loan losses 7.6 8.5 68.5 8.9 0.4 0.6 - - 76.5 18.0 ---------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 199.4 179.4 3.7 57.5 14.2 13.6 27.5 23.5 244.8 274.0 Non-interest income 55.5 49.1 11.9 17.0 31.8 23.3 5.5 1.1 104.7 90.5 Non-interest expense 140.1 132.2 33.7 27.4 33.2 26.4 5.0 8.2 212.0 194.2 ---------------------------------------------------------------------------------------------------- Income before taxes 114.8 96.3 (18.1) 47.1 12.8 10.5 28.0 16.4 137.5 170.3 Federal and state income taxes 39.6 30.3 (6.0) 14.5 4.3 3.3 6.0 4.3 43.9 52.4 ---------------------------------------------------------------------------------------------------- Net income (loss) $ 75.2 $ 66.0 $(12.1) $32.6 $ 8.5 $ 7.2 $22.0 $12.1 $93.6 $117.9 ===================================================================================================== Selected Average Balances: Securities $ 55.0 $ 44.1 $ - $ - $ 15.6 $ 21.4 $10,971.0 $ 9,524.1 $11,041.6 $ 9,589.6 Loans 11,780.9 11,086.6 9,043.0 7,723.3 1,338.7 1,134.3 - - 22,162.6 19,944.2 Assets 12,163.9 11,494.7 8,994.4 7,795.0 1,430.2 1,207.6 12,695.9 10,719.8 35,284.4 31,217.1 Deposits 21,403.1 18,896.6 1,059.8 945.6 798.4 734.4 887.3 1,287.9 24,148.6 21,864.5
Results of Operations Investment Services/ Nine Months Ended September 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 $609.0 $565.8 $207.3 $195.6 $42.6 $40.5 $76.3 $74.1 $935.2 $876.0 Provision for loan losses 26.7 24.5 81.5 24.9 1.3 1.6 - - 109.5 51.0 ------------------------------------------------------------------------------------------------- Net interest income after Provision for loan losses 582.3 541.3 125.8 170.7 41.3 38.9 76.3 74.1 825.7 825.0 Non-interest income 159.9 145.0 35.8 37.3 94.3 70.3 8.8 7.5 298.8 260.1 Non-interest expense 407.2 395.1 95.8 82.2 97.7 76.3 23.9 24.1 624.6 577.7 ------------------------------------------------------------------------------------------------- Income before taxes 335.0 291.2 65.8 125.8 37.9 32.9 61.2 57.5 499.9 507.4 Federal and state income taxes 114.8 93.0 20.6 38.9 12.9 10.6 18.9 16.1 167.2 158.6 ------------------------------------------------------------------------------------------------- Net income $220.2 $198.2 $ 45.2 $ 86.9 $25.0 $22.3 $42.3 $41.4 $332.7 $348.8 ================================================================================================= Selected Average Balances: Securities $ 55.0 $ 42.0 $ - $ - $ 12.3 $ 25.6 $ 10,531.4 $ 9,333.3 $10,598.7 $ 9,400.9 Loans 11,732.6 10,969.0 8,521.8 7,426.8 1,282.0 1,056.0 - - 21,536.4 19,451.8 Assets 12,105.3 11,418.4 8,485.6 7,500.5 1,372.6 1,128.8 12,083.9 10,511.4 34,047.4 30,559.1 Deposits 20,692.2 19,066.4 1,023.5 939.3 768.4 711.8 949.9 1,208.3 23,434.0 21,925.8
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, 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 September 30, 1999, increased $694.3 million, or 6.3 percent, to $11.8 billion from the same period in 1998, primarily in the consumer lending area. Total average deposits for the third quarter of 1999 increased to $21.4 billion, up $2.5 billion from a year ago. This increase was attributable to the growth in the Summit Navigator Account introduced in the fourth quarter of 1998. Net interest income for the quarter increased $19.1 million, or 10.2 percent, over last year, primarily due to similar growth in loans and deposits. The increase in non-interest income of $6.4 million is primarily due to a $4.1 million gain on the sale of mortgage servicing rights. Non-interest expenses for the quarter increased $7.9 million, or 6.0 percent, over last year, primary due to salary and miscellaneous expenses of which half are due to acquisitions. Net income for the quarter was up $9.2 million, or 13.9 percent, from a year ago to $75.2 million. 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 September 30, 1999, were $9.0 billion, an increase of $1.3 billion, or 17.0 percent, over the same period in 1998 primarily in asset-based lending and commercial media lending. Net interest income for the third quarter of 1999 increased $5.8 million, or 8.7 percent, from 1998, driven by the increase in average loans. Non-interest income for the quarter ended September 30, 1999 declined $5.1 million, or 30.0 percent, from prior year due to $7.0 million in limited partnership investment income recorded in the third quarter of 1998. Non-interest expense increased $6.3 million over the prior year to $33.7 million due to higher salaries and indirect expenses. Net income decreased $44.7 million, or 137.1 percent, from the same period last year due to a $60.0 loan loss provision prompted by the adverse outlook for a borrower following a bankruptcy filing. 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 individuals, lawyers, accountants and their firms, and business loans, lines of credit and deposit accounts and services. 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 was higher fee income in trust, mutual funds and annuities. Net income for the quarter was $8.5 million, up $1.3 million, or 18.1 percent, from a year ago. 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 increased $4.0 million, or 17.0 percent, from 1998, primarily due to growth in the securities portfolio. The securities portfolios, averaged $11.0 billion for the second quarter of 1999, up $1.4 billion, or 15.2 percent, from the prior year. The increase in non-interest income in 1999 was primarily due to gains on security transactions in the third quarter of 1999. Net income was up for the quarter $9.9 million, or 81.8 percent, to $22.0 million. 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 non- critical, 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, the capability Summit Bancorp established for its customers to test their automated interfaces with Summit Bancorp between May and September of 1999 was extended into late October 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 Year 2000 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 Year 2000 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 96 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 Year 2000 readiness. Summit Bancorp will have appropriate contingency plans in place for those which are not making satisfactory progress. 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 $7.4 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, $12.4 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 $19.8 million. Of the remaining balance, approximately $2.0 million is expected to be used for the payment of retention bonuses in the Year 2000 and the expense of maintaining additional staff in premises over the Year 2000 weekend. 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 have been 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 nine months of 1999, net cash provided by operating activities totaled $438.0 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 $1.8 billion. For the nine months ended September 30, 1999, net cash used in transactions involving the investment portfolios totaled $928.1 million, while the loan portfolio used $894.9 million. Scheduled maturities and anticipated principal repayments of the securities portfolio's will approximate $568.0 million throughout the balance of 1999. In addition, all or part of $5.2 billion securities available for sale portfolio could be sold, providing another source of liquidity. These sources can also be used to meet the funding needs during periods of loan growth. Net cash provided by financing activities totaled $1.3 billion. During the first nine months of 1999, other borrowed funds and long-term debt increased $1.6 billion. This increase was partially offset by the purchase of common stock of $317.7 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 September 30, 1999, Summit Bancorp would expect a decrease of $53.0 million in net interest income and an increase of $43.0 million in net interest income, if interest rates increase or decrease 100 basis points, respectively, from current interest rates in an immediate and parallel shock over a twelve month period. At December 31, 1998, Summit Bancorp expected a decrease of $17.0 million in net interest income and an increase of 1.4 million in net interest income if interest rates decreased or increased 100 basis points, respectively. The interest simulation model does not include asset and liability strategies that could be deployed to mitigate the impact of changes in the interest rate environment. Interest rate risk management efforts also involve the use of certain derivative financial instruments 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 September 30, 1999, the notional values of these instruments were $279.0 million. These derivatives resulted in a reduction in net interest income of $1.3 million for the first nine months of 1999. The cost to terminate these contracts at September 30, 1999, would have been $197.6 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 the company and its subsidiaries, taken as a whole. 1. Annette Loatman on behalf of herself and all others similarly situated v. United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 95-5258 (JBS), filed on October 4, 1995, Robert M. Gundle, III, on behalf of himself and all others similarly situated v. Summit Bank, successor in interest to United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 96-4477 (JBS), filed on October 14, 1996, and Annette Loatman, on behalf of herself and all others similarly situated v. United Jersey Bank, Superior Court of New Jersey, Camden County, Docket No. L-3527-96 ("the State Action"), filed April 24, 1996, dismissed without prejudice pending the outcome of the federal actions on December 9, 1996, and reinstated October 15, 1997 with Robert M. Gundle, III as an additional named plaintiff. Reported on Form 10-K for the period ended December 31, 1998 and on Form 10-Q for the periods ended March 31, 1999 and June 30, 1999. On July 23, 1999, the Court granted partial summary judgment dismissing plaintiffs' Consumer Fraud Act claims against the bank. Plaintiff filed a motion for reconsideration of that decision, which the Court denied on October 8, 1999. 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 periods ended March 31, 1999 and June 30, 1999. The court reserved decision on the summary judgment motions in the Preference Action and the trial took place from September 13, 1999 to September 22, 1999. At the conclusion of the trial, the court ordered the parties to submit proposed findings of fact and conclusions of law by November 5, 1999. Responses to the opposing party's findings of fact and conclusions of law are due on November 19, 1999. 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 periods ended March 31, 1999 and June 30, 1999. On September 27, 1999, the New Jersey Supreme Court heard argument on (1) plaintiffs' nunc pro tunc appeal of the Appellate Division's decision that the bank is entitled to charge an attorney review fee in connection with a residential mortgage loan; and (2) Collective Bank's cross-appeal of the Appellate Court's ruling concerning federal preemption. The Court reserved decision. 4. John Baker, Margaret Baker, Elaine Coopersmith, and Arnold Coopersmith on behalf of themselves and all others similarly situated v. Summit Bank, United States District Court for the Eastern District of Pennsylvania, Civil Action No. CV-2010, filed April 21, 1999. Plaintiffs are representatives of a class of holders of demand and/or fixed rate certificates of Walnut Equipment Leasing Company ("Walnut") and its wholly-owned subsidiary, Equipment Leasing Corporation of America ("ELCOA"), for which Summit Bank (Pennsylvania) (formerly known as First Valley Bank) acted as indenture trustee. Plaintiffs allege that the bank breached contractual and fiduciary duties and violated the Trust Indenture Act by (1) continuing to act as Trustee despite knowledge that the money being raised under the Walnut and ELCOA Indenture Agreements was being used to pay off the companies' debt to past purchasers; (2) permitting Walnut and ELCOA to default on their obligations under the Trust Indenture Act and the Trust Indenture Agreement by submitting false and misleading reports and Registration Statements to the SEC; and (3) acting as Indenture Trustee with respect to the issuance of certificates by both ELCOA and Walnut despite knowledge that the interests of the two groups of holders were adverse to one another. Plaintiffs also alleged violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Act. On September 17, 1999, the Court granted the Bank's motion to dismiss this claim. Plaintiffs' complaint does not specify and Summit is currently unable to ascertain or approximate the amount of damages sought against it. 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 -------- (10) C. (vii) Summit Bancorp stock plan amendments (10) O. (i) Agreement of Purchase and Sale between United Trust Fund Limited Partnership, as purchaser, and Summit Bank, as seller, (relating to sale and leaseback of 250 Moore Street, 214 Main Street, 210 Main Street, and 210 Moore Street, Hackensack, NJ) dated November 5, 1999. (27) Summit Bancorp. Financial Data Schedule - September 30, 1999. (b) Reports on Form 8-K ------------------- Not applicable SIGNATURE - --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUMMIT BANCORP -------------- Registrant DATE: November 12, 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 - ----------- ----------- (10) C. (vii) Summit Bancorp stock plan amendments (10) O. (i) Agreement of Purchase and Sale between United Trust Limited Partnership, as purchaser, and Summit Bank, as seller, (relating to sale and leaseback of 250 Moore Street, 214 Main Street, 210 Main Street, and 210 Moore Street, Hackensack, NJ) dated November 5, 1999. (27) Summit Bancorp. Financial Data Schedule - September 30, 1999. EX-10 2 STOCK PLAN AMENDMENTS SUMMIT BANCORP. BOARD OF DIRECTORS MEETING August 18, 1999 Stock Plan Amendments WHEREAS, legal counsel and the accounting staff of the Corporation have recommended certain changes to the Corporation's stock option plans to conform the plan language to the Corporation's current administrative practices and a recently proposed interpretation of the Financial Accounting Standards Board regarding APB Opinion No. 25 "Accounting for Stock Issued to Employees." NOW THEREFORE, BE IT, RESOLVED, that the first sentence of Section 12(b) of the Summit Bancorp. 1993 Incentive Stock and Option Plan is hereby amended and restated in its entirety to read as follows: Upon the occurrence of a taxable event, except as set forth below with respect to persons subject to Sections 16(a) and (b) of the Exchange Act, an employee, if so permitted by the Committee, may elect to satisfy, in whole or in part, the employee's related estimated personal tax liabilities (including any tax withholding obligations described in Section 12(a) above) (an "Election") by (i) directing the Company or the subsidiary corporation or parent corporation employing the employee to withhold from the Shares issuable in the related exercise or distributable in connection with the award of unrestricted Incentive Stock or the satisfaction of all requirements, restrictions and conditions applicable to particular Program Stock either (A) a specified percentage of Shares, (B) a specified number of Shares or (C) Shares having a specified value; provided, however, that in the case of option exercises the withheld shares may not have a value in excess of the minimum required for tax withholding and in no case may the shares have a value in excess of the related estimated tax liabilities, (ii) tendering Shares previously issued pursuant to an exercise or other shares of the Company's Common Stock owned by the employee or (iii) combining any or all of the foregoing options in any fashion. FURTHER RESOLVED, that the first sentence of Section 11(b) of the Summit Bancorp. 1999 Non-Executive Option Plan is hereby amended in its entirety to read as follows: Upon the occurrence of a taxable event, an employee, if so permitted by the Committee, may elect to satisfy, in whole or in part, the employee's related estimated personal tax liabilities (including any tax withholding obligations described in Section 11(a) above (an "Election") by (i) directing the Company or the subsidiary corporation or parent corporation employing the employee to withhold from the Shares issuable in the related exercise either (A) a specified percentage of Shares, (B) a specified number of Shares or (C) Shares having a specified value; provided, however, that in the case of option exercises the withheld shares may not have a value in excess of the minimum required for tax withholding and in no case may the shares have a value in excess of the related estimated tax liabilities, (ii) tendering Shares previously issued pursuant to an exercise or other Shares of Summit Common Stock owned by the employee or (iii) combining any or all of the foregoing options in any fashion. EX-10 3 UNITED TRUST/SUMMIT AGREEMENT AGREEMENT OF PURCHASE AND SALE Between UNITED TRUST FUND LIMITED PARTNERSHIP, as Purchaser, and SUMMIT BANK as Seller Dated November 5, 1999 TABLE OF CONTENTS
Page Section 1. Agreement To Purchase................................................................................1 Section 2. Purchase Price.......................................................................................1 Section 3. Survey; Title; Environmental Audit...................................................................2 Section 4. Inspection; Due Diligence............................................................................3 Section 5. Closing..............................................................................................4 Section 6. Conditions to Closing................................................................................4 Section 7. Prorations...........................................................................................6 Section 8. Risk of Casualty Loss................................................................................6 Section 9. Representations of Seller............................................................................6 Section 10. Representations of Purchaser........................................................................7 Section 11. Notices.............................................................................................8 Section 12. Assignment..........................................................................................9 Section 13. Earnest Money; Remedies.............................................................................9 Section 14. Brokerage Commission................................................................................9 Section 15. Transaction Costs...................................................................................9 Section 16. Miscellaneous......................................................................................10 EXHIBIT A--Legal Descriptions EXHIBIT B--Purchase Price Allocations and Rents EXHIBIT C--Lease SCHEDULE I--Severable Property SCHEDULE II--Requirements for Environmental Investigation Report SCHEDULE III--Engineering Report Guidelines SCHEDULE IV--Appraisal Requirements
AGREEMENT OF PURCHASE AND SALE THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made and entered into as of the 5th day of November, 1999 by and between UNITED TRUST FUND LIMITED PARTNERSHIP, a Delaware limited partnership ("Purchaser"), and Summit Bank, a New Jersey banking corporation ("Seller"). W I T N E S S E T H : For and in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto do hereby mutually covenant and agree as follows: Section 1. Agreement To Purchase. The Purchaser agrees to purchase and the Seller agrees to sell, for the purchase price and subject to and upon each and every one of the terms and conditions hereinafter set forth, three parcels of property described below (each, a "Parcel") the following-described property (all of which are collectively referred to as the "Premises"): (a) the land located at 250 Moore Street, Hackensack, New Jersey, more particularly described on Exhibit A-1 (the "250 Moore Parcel"), the land located at 214 Main Street, Hackensack, New Jersey more particularly described on Exhibit A-2 (the ("214 Main Parcel") and the land located at 210 Main Street and 210 Moore Street (the ("210 Parcel") (collectively, the "Land"); (b) all of the buildings, structures, fixtures, facilities, installations and other improvements of every kind and description now in, on, over and under the Land, and all plumbing, gas, electrical, ventilating, lighting and other utility systems, ducts, hot water heaters, oil burners, domestic water systems, elevators, escalators, canopies, air conditioning systems and all other building systems and fixtures attached to or comprising a part of the building, but excluding Severable Property as set forth on Schedule I hereto (the "Improvements"); and (c) all of the Seller's right, title and interest, if any, in and to all easements, rights-of-way, appurtenances and other rights and benefits thereunto belonging, and to all public or private streets, roads, avenues, alleys or passways, open or proposed, on or abutting the Land, and to any award made to or to be made in lieu thereof, and in and to any award for damage to the land or any part thereof by reason of a change of grade in any street, alley, road or avenue, as aforesaid (all of the foregoing being included within the term "Land"). Each Parcel is to be purchased by Purchaser in its "as is" condition, subject to the representations and warranties set forth in this Agreement. Section 2. Purchase Price. The purchase price to be paid to Seller for the Premises shall be $19,600,000 plus the Capitalized Costs (as defined in Section 15 hereof) (the "Purchase Price") and shall be allocated to each Parcel as set forth on Exhibit B and as may be reallocated based upon the Appraisals described in Section 3 hereof. At Closing (as defined in Section 5 hereof) each Parcel shall 1 be leased to Seller pursuant to a Lease Agreement (as defined in Section 6 (a)(ii) hereof) and the annual rent thereunder shall be as set forth on Exhibit B and shall be proportionately increased to reflect the payment of the Capitalized Costs as part of the Purchase Price and shall be allocated among the Parcels based upon the allocation of the Purchase Price as described above. The Purchase Price shall be paid by Purchaser by bank wire of same day funds as follows: (a) Fifty Thousand Dollars ($50,000) (the "Earnest Money") shall be paid within two business after the execution of this Agreement to the Title Company (as defined herein) and which will be placed in an interest-bearing account in an insured money market fund account for the benefit of Purchaser, to be dealt with as provided in Subsection 13(a) of this Agreement; and (b) At Closing the balance of the Purchase Price shall be deposited with the Title Company and shall be paid to Seller. Section 3. Survey; Title; Environmental Audit. With reasonable promptness, with respect to each Parcel, Purchaser, with the cooperation of Seller, shall request from third party providers the following items which comply with the requirements set forth herein: (a) a certified ALTA/ACSM Class A "as built" survey (the "Survey") of each Parcel, together with six (6) copies thereof, in form and substance reasonably satisfactory to Purchaser, showing such Parcel separately by metes and bounds and showing, without limitation, the location of all existing buildings and dimensions thereof and all set-back lines, all improvements and parking areas (including the number of parking spaces therein) and the location thereof and the extent of any and all existing utility and other easements on such Parcel which are shown on the title commitment or are visible from the surface; (b) an owner's title insurance commitment (the "Commitment") with respect to each Parcel issued by Chicago Title Insurance Corporation (the "Title Company"), National Business Unit, 1129-20th Street NW, Suite 300, Washington, D.C. 20036, Attention: Selina I. Parelskin, for an ALTA Form B policy or its equivalent with extended coverage and such endorsements (including, but not limited to a zoning endorsement) as requested by Purchaser bearing a date subsequent to the date of this Agreement; (c) a current complete Phase I environmental investigation report of each Parcel (the "Environmental Audit") conducted by an environmental inspection company acceptable to Purchaser and detailing and analyzing those aspects of such Parcel as set forth in the guidelines attached as Schedule II; (d) a current engineering report on each Parcel (the "Engineering Report") prepared in accordance with the guidelines attached hereto as Schedule III in form and substance reasonably satisfactory to Purchaser, prepared by an engineering company acceptable to Purchaser; (e) a current appraisal in form and substance satisfactory to Purchaser (the "Appraisal"), prepared by an appraiser reasonably acceptable to Purchaser in accordance with 2 the guidelines attached hereto as Schedule IV; and (f) copies of any existing leases between Seller and tenants of any Parcel (the "Subleases"). The materials referred to in Subsections 3(a), 3(b), 3(c), 3(d) and 3(e) are hereinafter referred to as the "Due Diligence Materials." The date upon which the last of the Due Diligence Materials are delivered to Purchaser is referred to herein as the "Delivery Date." If the Delivery Date is on or before November 15, 1999, Purchaser shall have until December 10, 1999 (the "Due Diligence Period") within which to object in writing to the substantive matters reflected in the Due Diligence Materials. Seller shall within 30 days thereafter (i) use all diligence and good faith to forthwith remove or cure any such substantive matters to which Purchaser has objected or (ii) enter into an agreement in form and substance acceptable to Purchaser to remove or cure such matters prior to Closing and proceed to Closing. With respect to any Parcel, Seller shall not be obligated to expend in excess of $50,000 to remove or cure such matters, except for monetary liens such as mortgages, mechanics' liens, judgements and other similar encumbrances. If Seller shall fail to remove or cure, or agree to remove or cure, such substantive matters to which Purchaser has objected within such 30-day period or if in the judgment of Seller such matters cannot be cured then Purchaser may terminate this Agreement with respect to any or all Parcels or close on such Parcel without any reduction in the Purchase Price for such Parcel. In the event of such termination with respect to all Parcels the Earnest Money shall be returned to Purchaser and neither party shall have any further obligation under this Agreement except as specifically set forth herein. Prior to the Delivery Date, Seller shall have delivered with respect to each Parcel, a certificate of occupancy, if the local zoning ordinance requires issuance of a new certificate of occupancy as a condition of transfer. Section 4. Inspection; Due Diligence. During the term of this Agreement, Purchaser or its agents shall be permitted access to the Premises during normal business hours upon reasonable notice so long as Purchaser shall not interfere with the operations of Seller and shall comply with the security requirements of Seller. Purchaser shall have until the expiration of the Due Diligence Period to perform whatever investigations, tests and inspections Purchaser deems reasonably appropriate. Seller shall cooperate with Purchaser's due diligence review and shall make available to Purchaser, upon reasonable notice and during business hours, all books and records concerning the operation and maintenance of the Premises. Seller shall also make available to Purchaser (i) all public information concerning Seller's general business affairs and (ii) financial information for Seller's parent holding company Summit Bancorp which would comply with Securities and Exchange Commission requirements for reporting by a public company for the most recent annual and quarterly fiscal periods and the most recent "call report" filed by Seller with the Federal Reserve Bank of New York. Prior to the expiration of the Due Diligence Period, Purchaser shall have the right to terminate this Agreement with respect to any or all of the Parcels if Purchaser's due diligence reveals any matters which would make any Parcel or the transaction contemplated by this Agreement unacceptable to Purchaser in Purchaser's sole discretion. Purchaser agrees to indemnify against and hold Seller harmless from any claim for liabilities, costs, expenses (including reasonable attorneys' fees actually incurred), damages or injuries arising out of or resulting from the inspection of the 3 Premises by Purchaser or its agents, and notwithstanding anything to the contrary in this Agreement, such obligation to indemnify and hold harmless Seller shall survive Closing or any termination of this Agreement. Section 5. Closing. Subject to the provisions of Section 6 of this Agreement the closing of the purchase and sale transaction contemplated by this Agreement (the "Closing") shall occur not later than 15 days after the expiration of the Due Diligence Period (the "Closing Date"). The Closing shall occur on the Closing Date at 10:00 a.m. in the offices of the Title Company unless another place of Closing is mutually agreed to by Seller and Purchaser. At the Closing, and as a condition of Purchaser's obligation to close, Seller is to convey title to each Parcel to Purchaser by a bargain and sale deed with covenant against grantor's acts sufficient to permit the issuance of the owner's policy of title insurance referred to in subsection 6(a)(iii) of this Agreement, free and clear of any and all liens, encumbrances, covenants, conditions and restrictions, except for such exceptions as are set forth on Schedule B, Section 2 of each Commitment and are not objected to by Purchaser (the "Permitted Exceptions"). Any monetary judgements of record against Seller may be insured over by the Title Company and removed as exceptions to the title policies for any Parcel. To the extent any title defect with respect to any Parcel arises after the date of the Commitment and prior to the Closing, except with respect to defects arising out of Purchaser's action on such Parcel, Seller shall be obligated to cure such defect to the same extent as if it appeared during the Due Diligence Period and if it is not cured or waived by Purchaser, Purchaser may terminate this Agreement without further liability of one to the other. Section 6. Conditions to Closing. (a) Purchaser shall not be obligated to close the purchase and sale transaction contemplated by this Agreement until all of the following conditions have been waived by Purchaser or satisfied: (i) Purchaser shall have received all items referred to in Section 3 of this Agreement; (ii) With respect to each Parcel acquired by Purchaser, Seller shall have executed and delivered to Purchaser (A) a total of five original counterparts executed by Seller, as lessee, of a lease agreement with Purchaser, as lessor, with respect to such Parcel in form attached as Exhibit C to this Agreement with modifications as may be required by applicable state law and to conform to the particular facts of such Parcel; provided, however, the rent during the Primary Term and Extended Terms, if any, shall be as indicated on the Rent Schedule attached as Exhibit B to this Agreement as allocated pursuant to this Agreement, together with (B) a memorandum thereof in recordable form (a "Lease Agreement"). To the extent that Purchaser finances a portion of the Purchaser Price and places a mortgage on any Parcel, such mortgage will either be subordinate to the Lease Agreement or the holder of such mortgage shall have entered into a subordination and nondisturbance agreement reasonably acceptable to Seller; (iii) The Title Company shall have issued to Purchaser an ALTA 1992 Form B owner's fee policy of title insurance or its equivalent for each Parcel, insuring title to such Parcel to be in the name of Purchaser as set forth herein, and a simultaneously issued ALTA 4 lender's policy of title insurance to Purchaser's financial institution, if one is used, in an amount equal to the Purchase Price with respect to the owner's policy and in an amount not in excess of the Purchase Price with respect to the lender's policy and containing only Permitted Exceptions and otherwise consistent with the title insurance commitment referred to in Subsection 3(b) of this Agreement or, in the alternative, an irrevocable commitment for the issuance thereof showing that all requirements have been satisfied. (iv) Seller shall have delivered to Purchaser certificates in form and substance satisfactory to Purchaser evidencing the insurance coverage and policies to be carried by Seller, as lessee, under the terms of each Lease Agreement naming Purchaser or Purchaser's nominee or assigns (if any) as additional insured to the extent required by the Lease Agreement; (v) Seller shall have delivered to Purchaser a certified copy of the resolutions of the Board of Directors of Seller authorizing the sale of the Premises and authorizing the execution, delivery and performance of each Lease Agreement; (vi) Seller shall have caused to be delivered to Purchaser and Purchaser's financial institution with respect to this transaction, if any, an opinion by Seller's counsel, to the effect that each Lease Agreement constitutes the legal, valid and binding obligation of Seller, as lessee thereunder enforceable against Seller, as lessee, in accordance with its terms, subject to qualifications for bankruptcy or insolvency and principles of equity, and to such other effects as Purchaser may reasonably require; (vii) There shall have been no material adverse change in the financial condition of Seller from the date hereof; (viii) Seller shall have delivered to Purchaser a "nonforeign" certificate pursuant to Treas. Reg. ss. 1.14452T(b)(2), in form and substance satisfactory to Purchaser, or such other evidence that Seller is not a "foreign person" within the meaning of Internal Revenue Code Section 1445 as Purchaser may reasonably require; (ix) With respect to each Parcel, Seller shall have obtained, at its sole cost and expense, a Letter of Non-Applicability" or a "No Further Action Letter" pursuant to the terms of the Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.); (x) All representations, warranties and covenants of Seller set forth herein shall have been true and correct in all material respects when made and Seller shall deliver to Purchaser at Closing a certificate stating that all such representations, warranties and covenants remain true and correct in all material respects at and as of the Closing; and (xi) Seller shall have delivered to Purchaser such further documents as reasonably may be required in order to fully and legally close this transaction. (b) Seller shall not be obligated to close until all of the following conditions have been waived by Seller or satisfied: 5 (i) Purchaser, as lessor, shall have caused to be executed and delivered to Seller a total of five original counterparts of each Lease Agreement; (ii) Purchaser shall have delivered to Seller a certified copy of the resolutions of the Board of Directors of the general partner of Purchaser authorizing the purchase of the Premises and the execution, delivery and performance of each Lease Agreement; (iii) All representations, warranties and covenants of Purchaser set forth herein shall have been true and correct in all material respects when made and Purchaser shall deliver to Seller at Closing a certificate stating all such representations, warranties and covenants remain true and correct in all material respects at and as of the Closing; and (iv) Purchaser shall have delivered to Seller such further documents as may reasonably be required in order to fully and legally close this transaction. Section 7. Prorations. In view of the continuing relationship between lessee and lessor under each Lease Agreement, and the obligations of lessee, under the terms and conditions of each Lease Agreement, there shall be no proration of insurance, taxes, special assessments, utilities or any other costs; it being the intention of Purchaser and Seller that all such costs shall be the obligation of Seller prior to Closing and the obligation of Seller, as lessee from and after Closing. Section 8. Risk of Casualty Loss. From the date hereof until Closing, Seller shall continue to maintain each Parcel and all other improvements in good condition and repair, and promptly notify Purchaser of the occurrence of any event known to it which materially affects the value or utility of any Parcel. Notwithstanding anything herein to the contrary, from and after the date hereof to the Closing, Seller is considered the owner of each Parcel for all purposes and shall be entitled to receive all insurance proceeds and/or condemnation awards that may become payable with respect thereto. Any and all risks associated with ownership of any Parcel shall be borne by Seller from the date hereof until Closing. If any Parcel is substantially damaged or condemned as to a material part prior to the Closing Date and is not substantially repaired or restored on or before the Closing Date, Purchaser may, with respect to such Parcel, at its election, (i) terminate and cancel this Agreement in which event Seller and Purchaser shall be relieved and discharged of any further liability or obligation under this Agreement with respect to such Parcel, except as otherwise expressly set forth herein, or (ii) proceed to Closing on such Parcel in which event the occurrence shall be dealt with under the terms of the applicable Lease Agreement as if it had occurred after the commencement date of each Lease Agreement. Section 9. Representations of Seller. Seller represents and warrants to and covenants with Purchaser as follows: (a) Organization and Standing, Etc. Seller is a banking corporation duly organized, validly existing and in good standing under the laws of New Jersey and has all requisite corporate power and authority to own and operate the Premises, to enter into this Agreement and each Lease Agreement and to carry out the transactions contemplated hereby and thereby; 6 (b) Litigation. There are no actions or proceedings pending with respect to the Premises and no actions or proceedings pending against Seller, which in any way materially adversely affects the Premises, Seller or Seller's ability to perform under any Lease Agreement or this Agreement; (c) Condemnation and Compliance With Laws. Seller has received no notice from any governmental authority of any proposed condemnation of any portion of the Premises. Seller has not received any notice that the Premises or the use thereof is not presently and at the Closing Date will not be in material violation of or in material noncompliance with applicable codes, ordinances, regulations or laws (including, but not limited to, those relating to environmental matters); and (d) Satisfy Conditions. Seller agrees to use its reasonable efforts to satisfy all conditions set forth in Subsection 6(a) of this Agreement on or prior to the Closing Date. All such representations and warranties shall be true and correct as of the Closing Date and shall not survive the Closing Date Section 10. Representations of Purchaser. Purchaser represents and warrants to and covenants with Seller as follows: (a) Organization and Standing, Etc. Purchaser is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to acquire the Premises, to enter into this Agreement and each Lease Agreement and to carry out the transactions contemplated hereby and thereby. (b) Litigation. There are no actions, proceedings or investigations pending involving Purchaser which question the validity of this Agreement or adversely affect Purchaser's ability to consummate the transactions contemplated by this Agreement or each Lease Agreement; (c) Compliance With Other Instruments. The execution, delivery and performance by Purchaser of this Agreement will not violate, or constitute a default under, any provision of Purchaser's partnership agreement or of any agreement or other instruments to which Purchaser is a party or by which Purchaser or any of its property is bound; and (d) Satisfy Conditions. Purchaser agrees to use its reasonable efforts to satisfy all conditions set forth in Subsection 6(b) of this Agreement on or prior to the Closing Date. All such representations and warranties shall be true and correct as of the Closing Date and shall not survive the Closing Date Section 11. Notices. All notices given or delivered under this Agreement shall be in writing and shall be validly given when hand-delivered or sent by a courier or express service guaranteeing overnight delivery or by telecopy, with original being sent promptly as otherwise provided above, addressed as follows: 7 If intended for Purchaser: c/o United Trust Fund, Inc. Suite 1300 701 Brickell Avenue Miami, FL 33131 Attention: Sidney Domb, President Telecopy: (305) 358-4002 With a copy to: Kutak Rock The Omaha Building 1650 Farnam Street Omaha, NE 68102 Attention: Walter L. Griffiths, Esq. Telecopy: (402) 346-1148 If intended for Seller: Summit Bank 301 Carnegie Center Princeton, NJ 08543-3200 Attention: Director of Real Estate Telecopy: (609) 987-3107 With a copy to: Summit Bank 301 Carnegie Center-Second Floor Princeton, NJ 08543-3200 Attention: General Counsel Telecopy: (609) 987-3107 And a copy to: Drinker Biddle & Shanley LLP 500 Campus Drive Florham Park, NJ 07932-1047 Attention: Gerald W. Hull, Jr., Esq. Telecopy: (973) 360-9831 or such other person or address which Seller or Purchaser shall have given upon notice as herein provided. Notices given by any means described herein shall be deemed delivered on the day after such notices are sent. 8 Section 12. Assignment. Except as otherwise set forth in the immediately succeeding sentence, the rights and obligations of Purchaser arising under this Agreement may not be assigned without the prior written consent of Seller, which consent will not be unreasonably withheld or delayed. The rights and obligations of Purchaser under this Agreement may be assigned to one or more entities owned or controlled by Purchaser or General Electric Capital Business Asset Funding Corporation formed for the sole purpose of entering into the transaction contemplated by this Agreement, without the prior written consent of Seller. In any assignment which may be made by Purchaser of its rights and obligations under this Agreement, Purchaser shall remain primarily liable under this Agreement. Seller may not assign its rights under this Agreement. Section 13. Earnest Money; Remedies. (a) The Earnest Money shall be dealt with as provided in this Subsection 13(a). (i) Subject to the provisions of Subsection 13(a)(ii) of this Agreement, if the Closing of the purchase and sale transaction contemplated by this Agreement shall fail to occur pursuant to the terms hereof for any reason, Title Company shall immediately return the Earnest Money, together with accrued interest thereon, to Purchaser; (ii) If Purchaser shall be obligated by the provisions of this Agreement to Close the purchase and sale transaction contemplated by this Agreement and shall fail to Close, Seller's sole remedy against Purchaser shall be to receive the Earnest Money from Title Company, together with accrued interest thereon, as liquidated damages. Purchaser and Seller acknowledge that actual damages suffered by Seller in such event will be difficult or impossible to measure and that the amount of the Earnest Money, together with interest thereon, represents a good-faith estimate thereof; and (iii) At Closing, the Earnest Money, together with accrued interest thereon, shall be paid to Seller as part of the Purchase Price. (b) If Seller shall be obligated by the provisions of this Agreement to Close the purchase and sale transaction contemplated by this Agreement and shall fail to Close, in addition to a return of the Earnest Money, together with accrued interest thereon, Purchaser shall have the remedy of specific performance as its sole and exclusive remedy hereunder. Section 14. Brokerage Commission. Each of the parties represents and warrants to the other that neither party dealt with, negotiated through or communicated with any broker in connection with this transaction. Each party shall indemnify, defend and hold harmless the other party from and against any and all claims, loss, costs and expenses, including reasonable counsel fees, resulting from any claims that may be made against such party by any broker claiming a commission by, through or under the other party. Section 15. Transaction Costs. The costs of this transaction shall be paid at or prior to Closing by Seller whether or not the transaction closes and shall include the Appraisal, the Engineering Report, the Environmental Audit, the Survey, all title insurance and title updates, property transfer taxes and all other similar costs and reasonable fees and expenses of Purchaser's counsel and may be included in the Purchase Price as Capitalized Costs. The transaction costs 9 described in this Section 15, if paid by Purchaser on behalf of Seller and included in the Purchase Price shall be referred to as "Capitalized Costs". Seller shall not be obligated to pay the fees and expenses of Purchaser's counsel in the event Closing does not occur as a result of Purchaser's default. Section 16. Miscellaneous. (a) The provisions of this Agreement shall not be amended, waived or modified except by an instrument, in writing, signed by the parties hereto to be charged. (b) In construing this Agreement, the singular shall include the plural, the plural shall include the singular and the use of any gender shall include every other and all genders. (c) All sections and descriptive headings of this Agreement are inserted for convenience only and shall not affect the construction or interpretation hereof. (d) This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, but all counterparts shall together constitute one and the same instrument. (e) This Agreement and the exhibits hereto constitute the entire understanding between the parties with respect to the Premises. (f) The waiver of any party of any breach or default by any other party under any of the terms of this Agreement shall not be deemed to be, nor shall the same constitute, a waiver of any subsequent breach or default on the part of any other party. (g) This Agreement shall be used as instructions to the Title Company, as escrow agent, if one is appointed, which may attach hereto its standard conditions of acceptance of escrow; provided, however, that in the event of any inconsistency between such standard conditions of acceptance and the terms of this Agreement, the terms of this Agreement shall prevail. If requested by the Title Company, Purchaser and Seller shall enter into an escrow agreement on the Title Company's standard form so long as the provisions of such form are not inconsistent with this Agreement. (h) This Agreement shall be construed and enforced pursuant to the laws of the State of New Jersey. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first set forth above. UNITED TRUST FUND LIMITED PARTNERSHIP By United Trust Fund, Inc., its General Partner By /s/ Fred M. Berliner Printed Name: Fred M. Berliner Title: Senior Vice President SUMMIT BANK By /s/ Marion B. Brady Printed Name: Marion B. Brady Title: Senior Vice President 11 EX-27 4 EXHIBIT (27)
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION THE September 30, 1999 10-Q FINANCIAL STATEMENTS AND IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEM 1000 9-MOS DEC-31-1999 Sep-30-1999 1,084,844 45,742 3,384 13,072 5,187,430 5,951,191 5,807,765 22,736,054 328,815 36,163,338 24,351,165 4,525,690 464,637 3,970,698 0 0 142,008 2,709,140 36,163,338 1,239,532 488,877 2,065 1,730,474 505,588 289,643 935,243 109,500 7,055 624,610 499,916 499,916 0 0 332,697 1.93 1.91 3.92 93,717 39,245 0 7,078 322,814 132,124 16,901 328,815 179,126 0 149,689
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