-----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, SNmhFYtTCnBP9vrYq7jMs4yQ2HaoJv/Ep0mALS6kbVtfpFB1nIfZhfQA/7LmemVs Bq7T3c9w0aBCqD72xSdnfQ== 0000950123-98-003035.txt : 19980331 0000950123-98-003035.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950123-98-003035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE 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-K SEC ACT: SEC FILE NUMBER: 001-06451 FILM NUMBER: 98577145 BUSINESS ADDRESS: STREET 1: 301 CARNEGIE CENTER STREET 2: P O BOX 2066 CITY: PRINCETON STATE: NJ ZIP: 08543-2066 BUSINESS PHONE: 6099873200 MAIL ADDRESS: STREET 1: PO BOX 2066 CITY: PRINCETON STATE: NJ ZIP: 08543-2066 FORMER COMPANY: FORMER CONFORMED NAME: UJB FINANCIAL CORP /NJ/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: UNITED JERSEY BANKS DATE OF NAME CHANGE: 19890815 10-K 1 SUMMIT BANCORP 1 ================================================================================ Form 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 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) Registrant's telephone number, including area code (609) 987-3200 ------------------- Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock $.80 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 8.625% Subordinated Notes Due December 10, 2002 New York Stock Exchange
------------------- Securities registered pursuant to Section 12(g) of the Act: NONE ------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 17, 1998, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $8,587,663,945. As of February 17, 1998, there were 177,202,715 shares of common stock, $.80 par value outstanding. ------------------- DOCUMENTS INCORPORATED BY REFERENCE Summit Bancorp 1997 Annual Report to Shareholders (portion) (Parts I, II and IV). Proxy Statement dated March 6, 1998 (portion) (Parts I and III).
================================================================================ 2 SUMMIT BANCORP. Index to Form 10-K Part I
Item 1. Business Page a) General development of business .................................. 3 b) Financial information about industry segments .................... 3 c) Narrative description of business ................................ 3 d) Financial information about foreign and domestic operations and export sales .............................................. 11 e) Statistical information .......................................... 12 Item 2. Properties ........................................................... 14 Item 3. Legal Proceedings .................................................... 15 Item 4. Submission of Matters to a Vote of Security Holders .................. 18 Executive Officers of the Registrant ................................. 19 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .................................................. 20 Item 6. Selected Financial Data .............................................. 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................ 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........... 20 Item 8. Financial Statements and Supplementary Data .......................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................................. 20 Part III Item 10. Directors and Executive Officers of the Registrant ................... 21 Item 11. Executive Compensation ............................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and Management ....... 21 Item 13. Certain Relationships and Related Transactions ....................... 21 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..... 22 Signatures ........................................................... 28
2 3 PART I Item 1. Business. (a) General development of business. Summit Bancorp. ("Summit" or the "Company") has its corporate office at 301 Carnegie Center, P.O. Box 2066, Princeton, New Jersey 08543-2066. Summit, the registrant, commenced operations on October 1, 1970 as a New Jersey corporation and as a bank holding company registered under the Bank Holding Company Act of 1956. At December 31, 1997, the Company owned three banks ("bank subsidiaries") and several active non-bank subsidiaries and had total consolidated assets of $30.0 billion, which ranked it as the largest New Jersey-based bank holding company. The bank subsidiaries engage in a general banking business, and are as follows: Summit Bank ("Summit Bank NJ") and Collective Bank, both operating in New Jersey; Summit Bank ("Summit Bank PA"), operating in Pennsylvania. Collective Bank was merged into Summit Bank NJ after the close of business on March 13, 1998. The non-bank subsidiaries engage primarily in securities brokerage, insurance brokerage, venture capital investment, commercial finance lending, lease financing, asset-based lending production, letter of credit issuance, data processing, and reinsuring credit life and disability insurance policies related to consumer loans made by the bank subsidiaries. For a discussion on the development of the Company's business during 1997, see the "Financial Review" on pages 19 through 33 of the 1997 Annual Report to Shareholders which section is incorporated herein by reference through Exhibit 13. On August 1, 1997, the Company completed the acquisition of Collective Bancorp, Inc. This acquisition was accounted for as a pooling of interests and all financial information has been restated. Additionally, since October 1996, the Company completed three acquisitions that affect comparisons to prior year financial information. Two were purchase acquisitions: Continental Bancorporation and Central Jersey Financial Corporation which were completed on October 1, 1996, and December 7, 1996, respectively. On March 1, 1997, the acquisition of B.M.J. Financial Corp. was completed and has been reflected in the financial statements from January 1, 1997. For additional information on these and other acquisitions and the related 1997 and 1996 restructuring charges, see Note 2 of the Consolidated Financial Statements on page 41 of the 1997 Annual Report to Shareholders. On August 20, 1997, the Board of Directors approved a three-for-two stock split, which was paid on September 24, 1997, to shareholders of record on September 3, 1997. All share data has been retroactively adjusted for the common stock split. In connection with the stock split, the Company increased the number of authorized shares of common stock from 260 million to 390 million and preferred stock from 4 million to 6 million, and decreased the par value of the common stock from $1.20 per share to $.80 per share. In the first quarter of 1997, the Company, through the formation of a wholly-owned special purpose subsidiary, Summit Capital Trust I (the "Trust"), issued $150.0 million of capital securities. The proceeds from the issuance of the capital securities were invested in securities that provided a yield comparable to the 8.40% dividend on the capital securities. The capital securities were issued as an inexpensive form of Tier I capital. For additional information on the Trust and the subsequent issuance of securities, see Note 10 of the Consolidated Financial Statements on pages 44 and 45 of the 1997 Annual Report to Shareholders. The Company began taking a proactive stance regarding the Year 2000. For additional information, see Year 2000 on page 31 in the 1997 Annual Report to Shareholders. (b) Financial information about industry segments. Summit is engaged in the business of managing or controlling banks and such other businesses related to banking as may be authorized under the Bank Holding Company Act of 1956, as amended. The registrant is also engaged in furnishing services to, or performing services for its present operating subsidiaries. Reference is made below for a discussion about industry segments. (c) (1) Narrative description of business. Bank Subsidiaries Summit Bank NJ (formerly United Jersey Bank) was organized in 1899 and is the Company's largest bank subsidiary. After the merger of Collective Bank on March 13, 1998, Summit Bank NJ accounts for 91% of the Company's assets. Based on the latest available data concerning deposit market share, Summit Bank NJ ranked as the largest New Jersey-based commercial bank. Summit Bank NJ operates 362 banking offices throughout 19 of the 3 4 21 counties in New Jersey. Summit Bank PA (formerly First Valley Bank) was organized in 1968 and is the Company's Pennsylvania bank subsidiary, accounting for 8% of consolidated assets. Summit Bank PA operates 64 offices in 13 counties in eastern Pennsylvania. The Company's bank subsidiaries provide a broad range of retail, commercial and private banking services as well as trust and investment services through a line of business approach to individuals, businesses, not-for-profit organizations, government entities and other financial institutions. The retail banking line of business, which includes the traditional branch network, supermarket branches and automated teller machines, offers a full range of checking, savings, and time deposit products; consumer lending; telephone and personal computer banking; mortgage banking activities including originations, servicing and selling of mortgages as well as other retail financial products. The commercial banking line of business provides financial services to middle-market corporate customers including: asset-based lending; foreign exchange; leasing; term lending; private placement; correspondent banking; treasury services; structured finance; and financing for international trade, construction and development, equipment, commercial real estate and aircraft. The private banking line of business responds to the financial needs of high net-worth individuals by providing credit related products, investments, insurance, retirement and estate planning services. The bank and certain non-bank subsidiaries operate in the trust and investment services line of business, providing a full range of investment products, custodial services and insurance products for individuals and institutions. Non-Bank Subsidiaries The Company owns and operates Summit Commercial/Gibraltar Corp. and Summit Commercial Corp., which are commercial finance companies operating in the New York-New Jersey and the New Jersey-Baltimore metropolitan areas, respectively, and which specialize in making loans secured by accounts receivable, inventory and equipment, as well as financing sales and leases of equipment. The Company, through its wholly-owned bank subsidiary, Summit Bank PA, owns and operates Summit Discount Brokerage Co., which is engaged in the stock brokerage business and in the underwriting of municipal bonds. The Company, through its wholly-owned bank subsidiaries, owns and operates Summit Service Corporation, which provides data processing services to the bank subsidiaries. The Company, through Summit Bank NJ, owns and operates Corporate Dynamics, an employee benefits brokerage and consulting firm, and Philadelphia Benefits Corporation, a group health insurance general agency. Corporate Dynamics and Philadelphia Benefits Corporation operate principally in the Mid-Atlantic region. Total revenues (excluding intercompany revenues) for all non-bank subsidiaries as a group during the last three years accounted for less than 10% of consolidated revenues. Supervision and Regulation The banking industry is highly regulated. This regulatory framework is intended primarily for the protection of depositors and the federal deposit insurance funds and not for the protection of securityholders. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to employ assets and maximize income. Areas subject to regulation and supervision by the bank regulatory agencies include: nature of business activities; minimum capital levels; dividends; affiliate transactions; expansion of locations; acquisitions and mergers; interest rates paid on certain types of deposits; reserves against deposits; terms, amounts and interest rates charged to various types of borrowers; and investments. For additional information on regulatory matters, see Note 19 of the Consolidated Financial Statements on page 51 of the 1997 Annual Report to Shareholders. Bank Holding Company Regulation Summit is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). As a bank holding company, Summit is supervised by the Board of Governors of the Federal Reserve Bank (the "FRB") and is required to file reports with the FRB and provide such 4 5 additional information as the FRB may require. Summit is also regulated by the New Jersey and Pennsylvania Departments of Banking. The Holding Company Act prohibits Summit, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident thereto" if the FRB determines that such acquisitions will be, on balance, beneficial to the public. The Holding Company Act requires prior approval by the FRB of the acquisition by Summit of more than five percent of the voting stock of any additional bank. Acquisitions in any state were permitted after September 29, 1995. See "Interstate Banking" below. Satisfactory financial condition, particularly with regard to capital adequacy, and satisfactory Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions. All of Summit's subsidiary banks are currently rated "satisfactory" or better under the Community Reinvestment Act. In addition, Summit is subject to various requirements under both New Jersey and Pennsylvania laws concerning future acquisitions. Such laws require the prior approval of the relevant Department of Banking to acquire any bank chartered by that State. Statewide branching is permitted in New Jersey and Pennsylvania. Branch approvals are subject to statutory standards relating to safety and soundness, competition, and public convenience. The Holding Company Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The policy of the FRB provides that Summit is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support such subsidiary banks in circumstances in which it might not do so absent such policy. In addition, any capital loans by Summit to any subsidiary bank would be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary bank. Summit is required by the Holding Company Act to file annual reports of its operations with the FRB and is subject to examination by the FRB. Under Section 106 of the 1970 amendments to the Holding Company Act and the regulations of the FRB, bank holding companies and their subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. Regulations of the FRB under the Federal Reserve Act require that reserves be maintained by a bank subsidiary of Summit on deposits. They also place limits upon the amount of Summit's equity securities which may be repurchased or redeemed by Summit. Interstate Banking and Regulatory Relief Legislation in 1994 The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Act") permits full nationwide interstate banking (e.g., bank holding company ("BHC") acquisition of bank subsidiaries anywhere in the U.S.) and, as of June 1, 1997, interstate branching by merger. Importantly, states retain the right to require that out-of-state BHCs and banks comply with certain state rules governing entry. A brief summary of the Act's major provisions follows: (A) Interstate Banking. Adequately capitalized and adequately managed BHCs are permitted to acquire banks in any state. States cannot opt-out of this provision. State laws may prohibit the purchase of banks 5 years of age or less. Concentration limits are imposed (10% of bank and thrift deposits nationwide/ 30% in the state; the state supervisor may waive this 30% limit). States retain existing authority to impose nondiscriminatory deposit caps. (B) Bank/Thrift Affiliate Agency Authority. An insured bank subsidiary may act as agent for an affiliate bank or thrift in offering specified banking services both within and across state lines without offices of the agent being deemed branches of the affiliates on whose behalf they act. Summit Bank NJ and Summit Bank PA act as agents for each other pursuant to this authority. 5 6 (C) Interstate Branching. (1) Branching Through Bank Mergers. As of June 1, 1997, the appropriate Federal regulator may approve the merger of adequately capitalized banks across state lines, so long as the resulting institution is adequately capitalized and adequately managed. Bank mergers have to conform with state laws which impose age restrictions of up to 5 years on acquisitions of new banks. Where the bank/BHC is effectively moving into a new state as a result of the merger, regulators must consider Community Reinvestment Act compliance of all bank affiliates before approving the merger application. The 10% nationwide/30% state by state deposit concentration limits discussed above also apply to bank mergers; states retain current authority to impose deposit caps. (2) Direct Branching by Banks. National and state banks are prohibited from directly acquiring an existing branch (separate from the acquisition of a charter), or establishing a de novo branch, in a host state unless the law of the host state permits it. New Jersey permits the acquisition of an existing branch but prohibits de novo; Pennsylvania permits both. (D) Laws Applicable to State Interstate Branches. Branches of out-of-state state chartered banks are subject to the laws of the host state, including limits on permissible activities, as if they were branches of a bank whose headquarters are located in that host state. (E) Other. For financial institutions that maintain one or more branches outside the home state, the appropriate Federal banking agency must prepare a written evaluation of the entire institution's Community Reinvestment Act performance and a separate evaluation of the institution's performance for each state and metropolitan statistical area, and for the non-metropolitan portion of the state. The Act prohibits the use of interstate branches primarily for the purpose of deposit production, and requires that the interstate bank's level of lending in the host state relative to deposits from the host state (using available information) be greater than half the average of all banks with home offices in that state. The appropriate Federal regulator may require closure of a branch which fails this test. In the case of an interstate bank that proposes to close any branch in a low- or moderate-income area, the branch closure notices must contain the mailing address of the bank's Federal regulator, and a statement that comments regarding the closure may be mailed to that regulator. If a person from the area in which the branch is located submits a written request and includes a statement of specific reasons, and the request is not frivolous, the agency must consult with community leaders and convene a meeting with such leaders and depository institutions to explore the feasibility of obtaining adequate alternative facilities and services. The legislation specifically states that this process shall not affect the authority of the bank to close the branch, or the timing of the closing. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which became law in December 1991, in addition to authorizing increased funding for the Bank Insurance Fund ("BIF") by raising the FDIC's borrowing limits and eliminating the cap on deposit insurance premiums, imposes extensive additional statutory requirements regarding the roles, responsibilities, and liabilities of a bank's senior management, directors, independent auditors, and regulators in compliance, management and financial affairs of a bank. This Act has required additional time, effort and resources to be devoted to compliance and internal controls. Pursuant to FDICIA, each federal banking agency has promulgated regulations specifying the levels at which a financial institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized," and when it would take certain mandatory and discretionary supervisory actions based on the capital level of the institution. Insured institutions are generally prohibited from paying dividends or management fees if after making such payments, the institution would be "undercapitalized." An "undercapitalized" institution also is required to develop and submit to the appropriate federal banking agency a capital restoration plan, and each company controlling such institution must guarantee the institution's compliance with such plan. The liability of a holding company under any such guarantee is limited to the lesser of five percent of the institution's total assets at the time it became undercapitalized or the amount needed to comply with all applicable capital standards. The FDIC is accorded a 6 7 priority over the claims of unsecured creditors in any bankruptcy proceeding of a holding company that has guaranteed an institution's compliance with a capital restoration plan. Further, "undercapitalized," "significantly undercapitalized," and "critically undercapitalized" institutions are subject to increasingly extensive requirements and limitations, including mandatory sale of stock, forced mergers, and ultimately receivership or conservatorship. A "critically undercapitalized" institution, beginning 60 days after it becomes "critically undercapitalized," generally is prohibited from making any payment of principal or interest on the institution's subordinated debt. FDICIA provides that the FDIC insurance assessments are to move from flat-rate premiums to a new system of risk-based premium assessments. The risk-based insurance assessment evaluates an institution's potential for causing a loss to the insurance fund and bases deposit insurance premiums upon individual bank profiles. The majority of the Company's FDIC insured deposits are covered under the BIF. As a result of deposits acquired through the acquisition of thrift institutions over the last several years, the Company has approximately $4.8 billion of deposits that are insured under the Savings Association Insurance Fund ("SAIF"). The Deposit Insurance Funds Act of 1996, which became law on September 30, 1996, included measures to address the disparity in deposit insurance assessment rates that had developed between institutions whose deposits are insured by BIF and those whose deposits are insured by SAIF. The SAIF was recapitalized through a special "one time only" assessment of 0.657 percent of all deposits insured by that Fund; the proceeds of this assessment brought SAIF to its designated reserve ratio. As part of this legislation, the assessment basis for the Financing Corporation ("FICO") bonds issued to finance resolution of early stages of the savings and loan crisis, was broadened to include banks; however, banks are assessed for this purpose at only one-fifth the rate of the assessment on savings associations until December 31, 1999. As a result of these changes, the deposit insurance assessment for banks and for thrifts has been nearly equalized and will be identical for comparably rated institutions after January 1, 2000, at which time banks will share equally in the FICO assessment and the BIF and SAIF funds will be merged. FIRREA Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. These provisions have commonly been referred to as FIRREA's "cross guarantee" provisions. Liability under the "cross guarantee" provisions is subordinate to claims (other than claims by shareholders, including bank holding companies, in their capacity as shareholders, and affiliates of the institution) of depositors, secured creditors, other general or senior creditors, and holders of obligations subordinated to depositors or other creditors. FIRREA gives the FDIC as conservator or receiver of a failed depository institution express authority to repudiate contracts with such institution which it determines to be burdensome or if such repudiation will promote the orderly administration of the institution's affairs. Certain "qualified financial contracts", defined to include securities contracts, commodity contracts, forward contracts, repurchase agreements, and swap agreements, are generally excluded from the repudiation powers of the FDIC. The FDIC is also given authority to enforce contracts made by a depository institution, notwithstanding any contractual provision providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of a conservator or receiver. Insured depository institutions are also prohibited from entering into contracts for goods, products or services which would adversely affect the safety and soundness of the institution. The bank regulatory agencies have broad discretion to issue cease and desist orders if they determine that the Company or its subsidiaries are engaging in "unsafe or unsound banking practices." In addition, the Federal bank regulatory authorities are empowered to impose substantial civil money penalties for violations of certain Federal banking statutes and regulations. Dividend Restrictions Various federal and state statutory provisions limit the amount of dividends Summit's subsidiary banks can pay to Summit without prior regulatory approval. The Federal Reserve Act, which affects both Summit Bank NJ and Summit Bank PA, restricts the payment of dividends in any calendar year to the net profit of the current year combined with retained net profits of the preceding two years. Further, each bank, as a state-chartered bank, may 7 8 declare a dividend only if, after payment thereof, its capital would be unimpaired and its remaining surplus would equal 50 percent of it's capital stock (New Jersey) or its surplus would not be reduced (New Jersey and Pennsylvania). In addition, under FDICIA all institutions are prohibited from paying dividends if after doing so an institution would be undercapitalized. For additional information on dividend restrictions and amounts available for dividend distributions, see Note 19 of the Consolidated Financial Statements on page 51 of the Annual Report to Shareholders. Regulation of Subsidiaries Various laws and the regulations thereunder applicable to the Company and its bank subsidiaries impose restrictions and requirements in many areas, including capital requirements, the maintenance of reserves, establishment of new offices, the making of loans and investments, consumer protection, employment practices and other matters. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, on the extent to which a bank subsidiary may finance or otherwise supply funds to Summit or its non-bank subsidiaries. Under Federal law, a bank subsidiary is subject to individual and aggregate limits with respect to loans or extensions of credit, or investments in the securities of, its parent and the nonbank subsidiaries of its parent. Any such loans to nonbank affiliates must be collateralized in keeping with a sliding scale that varies in accordance with the quality of the collateral. See Note 19 of the Consolidated Financial Statements on page 51 of the 1997 Annual Report to Shareholders. Summit and its banking and other subsidiaries are also subject to certain restrictions with respect to engaging in the business of issuing, underwriting, public sale, flotation or distribution of securities. The two state-chartered subsidiary banks are subject to the supervision of, and to regular examination by, the New Jersey Department of Banking and Insurance, in the case of Summit Bank NJ, and the Pennsylvania Department of Banking, in the case of Summit Bank PA. In addition, the subsidiary banks are subject to review by the U.S Department of Education with respect to student loan activity. Summit Bank NJ and Summit Bank PA are subject to examination by the FRB. As a registered municipal securities dealer, Summit Bank NJ is subject to the supervision of the Municipal Securities Rulemaking Board. None of the stocks of the subsidiary banks or other subsidiaries owned or controlled by Summit carry statutory double liability. However, Article XIV, Section 11 of the Constitution of the State of Arizona provides that the stock of Summit Credit Life Insurance Company may be subject to assessment to restore impaired capital under certain circumstances as, and to the extent, provided therein. There is no such provision in New Jersey or Pennsylvania law governing the stock of Summit's state-chartered banks. Summit and its non-bank subsidiaries are subject to examination by the New Jersey and Pennsylvania state bank regulatory agencies and the FRB, and the FDIC may, at its discretion, examine the bank subsidiaries. As a mortgagee approved by the Department of Housing and Urban Development and a seller-servicer of mortgages approved by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the New Jersey Housing and Mortgage Finance Agency, Summit Bank NJ and Summit Mortgage Banking Services, Inc. are subject to regulation or supervision by these government agencies. Summit Bank PA is a participant in the mortgage program conducted by the Pennsylvania Housing Finance Agency and is subject to the supervision of that agency. Summit Discount Brokerage Co. is subject to regulation and examination by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and securities regulatory authorities of California, Connecticut, Florida, New Jersey, New York and Pennsylvania and, as a municipal securities dealer, to regulation by the Municipal Securities Rulemaking Board. Summit Credit Life Insurance Company is subject to regulation and examination by the Department of Insurance of the State of Arizona. Beechwood Insurance Agency, Inc. is subject to the jurisdiction of, and to regular examination by, the New Jersey Department of Banking and Insurance. Summit Commercial Corp. is subject to the jurisdiction of the Connecticut and Maryland Department of Banking. Corporate Dynamics and Philadelphia Benefits Corporation are licensed as insurance brokers in over 20 states and are subject to the jurisdiction of the insurance regulatory authorities of each state in which they are licensed to do business. Summit Mortgage Banking Services, Inc. is subject to the jurisdiction of the banking authorities of the states of New York and Delaware. Summit and its subsidiaries are also subject to various reporting requirements of Federal and state securities laws, and regulations of the Securities and Exchange Commission and the New York Stock Exchange. 8 9 From time to time, various bills are introduced in the United States Congress and the New Jersey or Pennsylvania Legislature which could result in additional regulation of the business of Summit and its subsidiaries, or further increase competition or expense. Legislation has been proposed at the Federal level that would provide banking organizations such as Summit with greater flexibility to provide non-banking services of a financial nature; and legislation has been proposed that would permit non-banking companies to provide banking services and to acquire banks. It cannot be determined at this time whether any of these proposals will become law, or if they do become law, what effect they will have on the operations of Summit. There is a continuing trend toward regulating every aspect of retail banking through consumer protection laws, at significant expense to financial institutions. At the same time, securities brokers, insurance companies, retailers and other non-bank entities are being allowed to offer a variety of traditional bank services without being subject to the same degree of regulation as banks and bank holding companies. If these trends continue without providing parity to the commercial banks in matters such as permissible services, taxation and interest rates chargeable on loans, adverse effects on commercial banks could ensue. In its operations in other countries, Summit Bank NJ is also subject to restrictions imposed by the laws and banking authorities of such countries. References under this caption, Supervision and Regulation, to applicable statutes are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference to such statutes. Monetary Policy and Economic Conditions The earnings and business of Summit and its subsidiaries are affected by the policies of regulatory authorities, including the FRB. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of the changing conditions in the national and international economy and in the money markets, as a result of actions by monetary and fiscal authorities, interest rates, credit availability and deposit levels may change due to circumstances beyond the control of Summit or its subsidiaries. Effects of Inflation A bank's asset and liability structure differs from that of an industrial company, since its assets and liabilities fluctuate over time based upon monetary policies and changes in interest rates. The growth in the bank's earning assets, regardless of the effects of inflation, will increase net interest income if the bank is able to maintain a consistent interest spread between earning assets and supporting liabilities, of which there can be no assurance. A purchasing power gain or loss from holding net monetary assets during the year represents the effect of general inflation on monetary assets and liabilities. Almost all of the assets and liabilities of Summit are considered monetary because they are fixed in terms of dollars and, therefore, are not materially affected by inflation. (c) (1) (i) Principal products and services rendered by industry segments. Not applicable. See response to Item l (c) (1) contained elsewhere in this report. (c) (1) (ii) Description of new products or segments. There were no new products or industry segments that required the investment of a material amount of the assets of the Company or that otherwise were material. (c) (1) (iii) Sources and availability of raw materials. Not applicable. 9 10 (c) (1) (iv) Importance of patents, trademarks, licenses, franchises and concessions held. Patents and licenses, as such, are not of importance to Summit or its subsidiaries, but operating charters (similar to licenses) - approved banking location authorizations granted by the New Jersey Department of Banking and Insurance and the Pennsylvania Department of Banking for state-chartered bank subsidiaries - are vital to the operation and expansion of the bank subsidiaries. Such charters are perpetual unless revoked by the granting authorities. Various licenses and approvals to do business are also required by the other regulatory agencies referred to under Supervision and Regulation above. Most of these licenses and approvals require periodic renewal. Summit has several registered service marks, none of which is considered material to its business. The duration of each registration is perpetual so long as the registrant continues to use the mark and renews the registration every ten years. (c) (1) (v) Seasonality of business. Not applicable. (c) (1) (vi) Working capital requirements related to inventory. Not applicable. (c) (1) (vii) Concentration of customers. The business of the registrant and its subsidiaries is not dependent on a single customer, nor on a small group of customers. (c) (1) (viii) Backlog of orders. Not applicable. (c) (1) (ix) Government contracts. No material portion of the business of Summit and its subsidiaries is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. Government. (c) (1) (x) Competition. Each bank subsidiary faces strong competition for local business in the communities it serves from other banking institutions as well as from other financial institutions. Summit's banking subsidiaries compete in the national market with other major banking and financial institutions in the New York and Philadelphia areas, many of which are substantially larger and may have greater financial resources. A number of these institutions offer their services throughout New Jersey and Pennsylvania through bank and non-bank subsidiaries, loan production offices and solicitations through broadcast and print media and direct mail. For international business, Summit competes not only with a substantial number of United States banks having foreign departments, but also with agencies and branches of foreign banks located in the United States and with other major banks throughout the world. The effect of liberalized branching and acquisition laws has been to lower barriers to entry into the banking business and to increase competition for banking business, as well as to increase both competition for and opportunities to acquire other financial institutions. Nationwide interstate banking has accelerated these trends. For most of the services which the subsidiaries perform, there is increasing competition from financial institutions other than commercial banks due to the relaxation of regulatory restrictions. Money market and mutual funds actively compete with banks for deposits. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans; such institutions, as well as securities brokers, consumer finance companies, mortgage companies, factors, insurance companies and pension trusts, are important competitors. Financial institutions such as these, as well as retailers and other non-bank entities, have acquired so-called "non-bank banks" permitting them to offer traditional banking services without being subject to the same 10 11 degree of regulation. Insurance companies, mutual fund investment counseling firms and other business firms and individuals offer competition for personal and corporate trust services and investment advisory services. Competition for banking and permitted non-bank services is based on price, nature of product, quality of service, and in the case of retail activities, convenience of location. (c) (1) (xi) Research and development. Summit and its subsidiaries conduct research activities, from time to time, relating to the development of new services. Expenditures for these activities are not considered material to the financial condition of Summit and its subsidiaries. Research expenditures during 1997 were charged directly to expense as incurred. (c) (1) (xii) Cost of compliance with environmental regulations. It is not expected that compliance with Federal, state and local provisions relating to the protection of the environment will have any material effect on Summit or its subsidiaries. (c) (1) (xiii) Number of persons employed. At December 31, 1997, there were 8,566 persons, on a full-time equivalent basis, employed by Summit and its subsidiaries. (d) Financial information about foreign and domestic operations and export sales. Summit Bank NJ operates an International Banking Department principally for the benefit of its domestic customers and an offshore banking facility on the island of Grand Cayman in the British West Indies. UJB Trade Finance (HK), Limited, operating under a Hong Kong charter, issues documentary letters of credit to Asian suppliers on behalf of U.S. importers. Business at these offshore facilities constituted less than one-half of one percent of the total assets and income of Summit Bank NJ in 1997. 11 12 (e) Statistical information The following information sets forth, on a consolidated basis, certain statistical information concerning Summit and its subsidiaries. The tables should be read in conjunction with the consolidated financial statements contained in the 1997 Annual Report to Shareholders. Average data have been derived from daily balances except in the case of certain smaller subsidiaries where month-end balances were used. Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential For information on average balances, interest and average rates earned and paid see Average Balance Sheets With Resultant Interest and Rates on pages 32 and 33 in the 1997 Annual Report to Shareholders. For information on the effective interest differential of volume and rate changes for the years 1997 and 1996 on a tax-equivalent basis see Rate/Volume Table on page 24, and for additional information on interest sensitivity see Asset/Liability Management on pages 28 and 29 in the 1997 Annual Report to Shareholders. Securities Securities available for sale are carried at fair value, and securities held to maturity are carried at amortized cost. For information on the carrying value at December 31, 1997, 1996 and 1995, and maturity distribution and weighted average yields to maturity on a tax equivalent basis for securities at December 31, 1997, see Note 3 of the Consolidated Financial Statements on page 42 of the 1997 Annual Report to Shareholders. Loan Portfolio For information on the loan portfolio for the five years ended December 31, 1997, see Year-End Loans on page 21 in the 1997 Annual Report to Shareholders. Included in commercial and industrial loans are lease financing receivables of $874.5 million in 1997, $578.8 million in 1996, $319.1 million in 1995, $317.4 million in 1994, and $204.6 million in 1993. Unearned discount on loans and leases at December 31, 1997 and 1996 were $108.9 million and $93.5 million, respectively. For information concerning concentrations of credit risk, see Note 4 of the Consolidated Financial Statements on page 43 of the 1997 Annual Report to Shareholders. For information on the approximate maturity distribution of loans at December 31, 1997, and the segregation of those loans into predetermined interest rates or floating or adjustable interest rates, see Loan Maturities on page 21 in the 1997 Annual Report to Shareholders. For information concerning the Company's accounting policy for non-performing loans, see Note 1 of the Consolidated Financial Statements on pages 38 and 39 of the 1997 Annual Report to Shareholders. For information on the principal amount of non-performing loans and loans contractually past due 90 days or more at December 31 for each of the past five years, and their resultant impact on earnings before taxes for the years then ended, see Non-Performing Assets on page 26 of the 1997 Annual Report to Shareholders. All loans referenced above represent domestic loans. There are no foreign loans included in any of the categories. Potential problem loans are those which management believes conditions indicate that the collection of principal and interest may be doubtful in accordance with the original contract terms. They are not included in non-performing loans as these loans are still performing. Potential problem loans, predominantly commercial and industrial loans, were $12.5 million and $11.0 million at December 31, 1997 and 1996, respectively. The risk associated with such loans has been factored into the Company's assessment of the adequacy of the allowance for loan losses. 12 13 Summary of Loan Loss Experience For information on the relationship over the past five years among loans, loans charged off and loan recoveries, the provision for loan losses and the allowance for loan losses, see Allowance for Loan Losses on page 27 and Note 4 on page 43 of the 1997 Annual Report to Shareholders. Specific allocations as well as a need for general reserves are identified by loan type and allocated according to the following categories of loans at December 31 for each of the past five years. The analysis of the adequacy of the allowance for loan losses for the year 1996 and prior was the result of combining Collective Bancorp, Inc. and Summit's previously restated analysis as a result of The Summit Bancorporation acquisition. The analysis for 1997 includes the effect of the merged entities under the one methodology. The percentage of loans to total loans is based upon the classification of loans shown as follows:
1997 1996 1995 1994 1993 -------------------- -------------------- ------------------- -------------------- -------------------- (In thousands) Percentage Percentage Percentage Percentage Percentage of of of of of loans loans loans loans loans to to to to to total total total total total Amount loans Amount loans Amount loans Amount loans Amount loans -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Commercial and industrial $ 52,459 26.5% $ 45,922 24.9% $ 59,357 28.4% $ 68,801 29.6% $ 84,817 28.7% Construction and development 7,718 2.0 36,617 1.8 44,390 2.7 61,777 4.6 87,210 6.9 Commercial mortgage 26,480 14.3 20,690 15.1 31,754 14.8 31,943 19.0 30,814 18.0 Residential mortgage 12,846 30.1 13,650 34.0 23,229 32.5 26,230 25.5 27,022 25.9 Consumer 28,423 22.5 22,746 20.9 21,677 19.7 25,504 19.2 21,466 19.0 Loan commitment and other loans 1,742 4.6 7,762 3.3 26,895 1.9 3,221 2.1 1,226 1.5 Unallocated 166,826 N/A 133,224 N/A 85,858 N/A 105,860 N/A 108,764 N/A -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total $296,494 100.0% $280,611 100.0% $293,160 100.0% $323,336 100.0% $361,319 100.0% ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Deposits For information on classification of average balances for deposits, see Average Balance Sheets with Resultant Interest and Rates on pages 32 and 33, and for additional information on deposits at December 31, 1997, see Note 7 to the Consolidated Financial Statements on page 44 of the 1997 Annual Report to Shareholders. The following table shows, by time remaining to maturity, all certificates of deposit $100,000 and over at December 31, 1997 (in thousands): Less than three months ....................... $ 947,485 Three to six months .......................... 120,307 Six to twelve months ......................... 184,649 More than twelve months ...................... 236,055 ---------- Total $1,488,496 ==========
Return on Equity and Assets For information on consolidated ratios, see Consolidated Summary of Selected Financial Data on pages 54 and 55 and see Unaudited Quarterly Financial Data on page 56 in the 1997 Annual Report to Shareholders. 13 14 Short-Term Borrowings For information relating to certain short-term borrowings for each of the past three years, see Short-Term Borrowings on page 22 and Note 8 to the Consolidated Financial Statements on page 44 of the 1997 Annual Report to Shareholders. Item 2. Properties. The Company owns its administrative headquarters building in West Windsor Township, New Jersey. Summit Bank NJ owns its principal banking office located in Hackensack, New Jersey in a nine-story building. In addition to its principal office, Summit Bank NJ also leases facilities in Cranford, Dayton, Egg Harbor and Mays Landing, New Jersey, and owns facilities in Cologne and Egg Harbor, New Jersey, all of which are used for various administrative and back office loan operations. The principal banking and administrative offices of Summit Bank PA are located in an eleven-story building in Bethlehem, Pennsylvania. Summit Bank PA leases the building for an initial term ending in the year 2000, with renewal options extending for an additional 38 years. Summit Bank PA occupies approximately two-thirds of the building. The bank subsidiaries conduct business in approximately 426 banking offices, of which approximately 49% are owned, with the remaining leased. Office space in certain of the owned buildings is leased to others. Summit Service Corporation, a wholly owned subsidiary of the bank subsidiaries, leases 300,000 square feet of real property located in Ridgefield Park, New Jersey for use as the principal data processing facility. For additional information on properties see Note 5 and Note 9 of the Consolidated Financial Statements on pages 43 and 44, respectively, of the 1997 Annual Report to Shareholders. 14 15 Item 3. Legal Proceedings. 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. Cushman & Wakefield of New Jersey, Inc. v. Alexander Summer Company and United Jersey Bank. Filed December 26, 1989 in the Superior Court of New Jersey, Bergen County, Docket No. L-000012-90; cross-appealed to the Superior Court of New Jersey, Appellate Division, Docket No. A-1531-94 (T1); petition to the New Jersey Supreme Court for certification, Docket number 43,333. Plaintiff brought this action against Alexander Summer Company and United Jersey Bank (now Summit Bank, a subsidiary of registrant), to recover brokerage commissions and punitive damages. On November 7, 1994, the trial court found in favor of the plaintiff with respect to commissions on two properties and awarded compensatory damages of $131,250, prejudgment interest of $42,759, and punitive damages in the amount of $400,000. The trial court held that damages could not be awarded to the plaintiff in connection with a third property and also that it could not consider plaintiff's legal expenses in the award of punitive damages. The parties cross-appealed. In a decision filed November 18, 1996, the Appellate Division affirmed the trial court's decision in favor of plaintiff with respect to the first two properties but, reversing the trial court, held that the plaintiff was entitled to damages for loss of the brokerage commission on the third property, and that the trial court should consider plaintiff's litigation expenses in the award of punitive damages. On April 28, 1997, the New Jersey Supreme Court granted United Jersey Bank's petition for certification but, before it had rendered a decision on the merits, a settlement was reached by the parties. A stipulation of dismissal was submitted to the Supreme Court on December 17, 1997. The Bank's contribution to the settlement was not material to the Consolidated Financial Statements. 2. 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. 95CV05258 (JBS), filed on October 4, 1995, Robert M. Gundle, III, on behalf of himself and all others similarly situated v. Summit Bank, successor in interest to United Jersey Bank, U.S. District Court for the District of New Jersey, Civil Action No. 96-4477 (JBS), filed on October 14, 1996, and Annette Loatman, on behalf of herself and all others similarly situated v. United Jersey Bank, Superior Court of New Jersey, Camden County, Docket No. L-3527-96 ("the State Action"), filed April 24, 1996, dismissed without prejudice pending the outcome of the federal actions on December 9, 1996, and reinstated October 15, 1997 with Robert M. Gundle, III as an additional named plaintiff. The plaintiffs entered into retail installment sales contracts with United Jersey Bank/South, a predecessor of Summit Bank, a subsidiary of registrant, but failed to keep insurance required by their contracts in force, as a result of which the Bank obtained collateral protection insurance for them. Plaintiffs allege that they are representatives of a class of persons who are or were parties to consumer loan agreements with Summit Bank and/or United Jersey Bank and/or any subsidiary of UJB Financial Corp. (the prior name of Summit Bancorp), and from whom any of those entities collected or sought to collect collateral protection insurance charges for the period October 4, 1989 to October 3, 1995. Their complaints allege breach of contract and breach of the implied covenants of good faith and fair dealing, unconscionable commercial practices under the New Jersey Consumer Fraud Act, unjust enrichment, and breach of fiduciary duty. Their federal court complaints also alleged violations of the National Bank Act and Depository Institution and Monetary Control Act. On August 28, 1997, the U.S. District Court entered an order directing Summit Bank to compensate Loatman's attorneys for fees and costs stemming from their efforts to enjoin the Bank and its employees from contacting plaintiff Loatman directly. Loatman's attorneys then filed an application for a specific amount which the Bank opposed and no decision has been rendered by the court. On September 24, 1997, the Bank filed a notice of appeal from the August 28, 1997 order to the United States Court of Appeals for the Third Circuit. The plaintiffs moved to dismiss the appeal and no decision has been rendered on this motion or on the merits of the appeal. 15 16 On August 29, 1997, the U.S. District Court granted the Bank's motion for summary judgment as to all federal claims asserted in both the Loatman and Gundle matters, and declined to exercise supplemental jurisdiction over the remaining counts of the complaint. On October 15, 1997, the Superior Court of New Jersey reinstated the state court actions. On December 19, 1997, the court denied the Bank's motion for summary judgment, without reaching its merits, holding that questions of fact existed which precluded summary judgment at this time. The plaintiffs have filed a motion for class certification which the Bank has opposed. The court is expected to consider this motion at the end of March 1998. 3. In re Payroll Express Corporation et al - John S. Pereira as Chapter 11 Trustee of the Estate of Payroll Express Corporation et al v. United Jersey Bank, United States District Court for the Southern District of New York, Civil Action No. 94-1565 (LAP) ("the Preference Action"), filed December 29, 1993; In re Payroll Express Corporation of New York and Payroll Express Corporation, United States Bankruptcy Court for the Southern District of New York. Case Nos. 92-B-43 149 (CB) and 92-B-43 150 (CB), Adversary proceeding No. 94-8297A, filed April 22, 1994 ("the Fraudulent Conveyance Action"); Beth Israel Medical Center, et al V. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No. 94-8256 (LAP), filed September 28, 1993; Frederick Goldman, Inc. V. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No, 94-8256 (LAP), filed March 21, 1994; Towers Financial Corporation v. United Jersey Bank, United States District Court for the District of New Jersey, Civil Action No.92-3175 (WGB), filed June 2, 1992, removed to federal court September 2, 1992; New York City Transit Authority V. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No.95-3685 (LAP), filed May 19, 1995; and Copytone, Inc. on behalf of itself and others similarly situated v. United Jersey Bank, National Westminster Bank New Jersey and John Does I through 20, United States District Court for the Southern District of New York, Civil Action No. 95-8217 (LAP), filed November 1995. Payroll Express Corp. ("Payroll"), a former customer of United Jersey Bank (now Summit Bank, a subsidiary of registrant), ("the Bank"), was primarily in the business of providing on-site check cashing services. Customers of Payroll deposited funds into a general deposit account ("Account") at the Bank to cover their payrolls and cash was obtained by debiting the Account. Payroll perpetrated a substantial check kiting scheme using the Account and another account at National Westminster Bank, NJ ("NatWest"). NatWest apparently discovered this scheme in late May 1992 and ceased honoring checks drawn by Payroll on its account. The Bank was left with a loss of approximately $4 million in the Account. In March 1994, Robert Felzenberg, the President of Payroll, pled guilty to wire and tax fraud, and was sentenced to 6 1/2 years imprisonment. After Payroll filed a petition in bankruptcy, a trustee (the "Trustee") was appointed by the court. In his Preference Action, the Trustee alleged that the Account received incoming wire transfers of at least $17,013,537.54 within the 90 days prior to the filing of bankruptcy by Payroll, that these wire transfers were used by the Bank to reduce its losses on the check kiting scheme, and that these moneys are recoverable by the Trustee as preferences under the Bankruptcy Code. The Bank successfully moved to withdraw the reference to the United States District Court for the Southern District of New York. The Bank and the Trustee then cross-moved for summary judgment and, on October 11, 1996, the court denied both motions. The Fraudulent Conveyance Action was settled in 1997 for $300,000. The settlement was approved by the Bankruptcy Court and the matter was dismissed. A number of Payroll's customers who had deposited money into the Account have also filed lawsuits against the Bank alleging various common law causes of action, including unjust enrichment, restitution, conversion, fraud, negligence and/or breach of fiduciary duty. Only the Beth Israel Medical Center, Frederick Goldman, New York City Transit Authority, and Copytone matters, which were consolidated by the Court, and the Towers Financial Corporation matter are still pending. The Bank filed motions to dismiss the consolidated complaints and, on October 11, 1996, the court granted the Bank's motion in part, dismissing the claims which were based on negligence, aiding and abetting the wrongful conduct of Payroll Express, breach of fiduciary duty, fraud, equitable fraud, conspiracy to conceal check-kiting by Payroll Express, as well as a part of the conversion claims. 16 17 The court denied the remainder of the Bank's motion but stayed the proceedings until the completion of the Trustee's Preference Action. On November 17, 1996, an order was entered dismissing the Towers Financial Corporation matter without prejudice, pending the resolution of the Trustee's Preference Action. 4. McAdoo CERCLA Matter. First Valley Bank ("FVB"), now known as Summit Bank (Pa), a subsidiary of registrant, foreclosed on property in McAdoo, Pennsylvania, taking title by a sheriff's deed in 1980. The property was later designated by the United States Environmental Protection Agency ("EPA") as a part of a site (the "McAdoo Site") listed on the National Priorities List of sites to be remediated pursuant to the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). On June 3, 1988, the United States District Court for the Eastern District of Pennsylvania entered a Consent Decree in United States v. Air Products and Chemicals, Inc., Civil Action No.87-7352 (the "Air Products litigation"), in which sixty-five potentially responsible parties ("PRPs"), not including FVB, agreed to undertake remediation of the McAdoo Site and the United States agreed to pay 25% of the settling PRPs' (the "Initial PRPS") cost of remediation. On June 11, 1988, after having made a demand upon FVB and a number of other non-settling PRPs, the United States sued a number of the PRPs other than FVB who did not enter into the Consent Decree in a matter entitled United States of America v. Alcan Aluminum et al, United States District Court, Eastern District of Pennsylvania, Civil Action No.88-4970 (the "Alcan litigation"). Although the United States did not sue FVB, on April 16, 1990, one defendant in the Alcan Litigation, Kalama Chemical, Inc., filed a motion for leave to file a third party complaint against FVB seeking contribution. The motion was denied without prejudice. FVB then participated in settlement discussions in the Alcan litigation. Pursuant to those negotiations, FVB and certain defendants, third-party defendants and other potential third-party defendants deposited, in a Court registry, a sum which the United States agreed will satisfy all of its claims against FVB. The parties also executed a Consent Decree which was approved by the District Court by Order dated June 24, 1993. The Consent Decree gives FVB a broad covenant not to sue and contribution protection to the extent available under 42 U.S.C. 9622(d)(2). The Consent Decree was the subject of public notice and comment, pursuant to 42 U.S.C. 9622(d)(2). The Initial PRPs submitted comments to the United States, objecting to the Consent Decree, including inter alia, the broad release provided to FVB. The Initial PRPs also filed a motion to intervene in the Alcan litigation, which was denied by the District Court. The Initial PRPs then appealed that denial to the United States Court of Appeals for the Third Circuit in a matter captioned United States V. Alcan Aluminum, Inc., et al, Action No.93-1099 (3rd Cir.). On May 25, 1994, the Third Circuit vacated the District Court's orders denying the motion to intervene and approving the Consent Decree, holding that the Initial PRPS could intervene as a matter of right in the Alcan litigation if they could prove that they have a protectable interest in that litigation. Consequently, the case was remanded to the District Court to determine whether the Initial PRPs have a protectable interest in the Alcan litigation. As a result of settlement negotiations, the parties reached an agreement in principle for the settlement of the case and the Court suspended all proceedings in the case. Under the agreement, the Alcan Settlors agreed to pay an additional $190,000, upon the entry of two new Consent decrees, one for the Alcan litigation and one for the Air Products litigation. FVB's portion of the $190,000 amounts to $8,500. The parties and the government then engaged in lengthy negotiations over the specific terms of the two Consent Orders, and, in September 1996, the Alcan Settlors and the Air Products Settlors signed the two Consent Decrees. In the final Alcan Consent Decree, the United States again provided FVB with a very broad release from past and future liability, similar to that contained in the earlier Alcan Consent Decree. Further, the Air Products parties are signatories to the new Alcan Consent Decree, and they specifically have agreed to the broad release afforded to FVB. The two Consent Decrees must now be signed by representatives of the United States. Before these signatures may be obtained, the Consent Decrees must undergo an internal governmental approval process that typically takes several months. If the Consent Decrees are fully executed by the United States, they will be lodged with the Court, public notice will be published and a period of public comment will be provided. The United States will reserve the right to withdraw its consent based on this public comment. If, following public comment, the United States does not withdraw its consent, it must then move for Court approval and entry of the Consent Decrees. 17 18 5. Daniel Iverson, Lawrence Cohen and Terri Cohen, on behalf of themselves and all others similarly situated v. Collective Bank, a federally chartered savings bank organized under the laws of the United States of America (improperly named as Collective Bancorp, Inc., a Delaware corporation), on behalf of itself and all others similarly situated. Superior Court of New Jersey, Atlantic County, Docket No. ATL-L-2578-95, filed on July 26, 1995. In their complaint against Collective Bank, a subsidiary of registrant, plaintiffs contend that, under the New Jersey Mortgage Financing Law, a lender may not charge an attorney review fee to a borrower in connection with a residential mortgage transaction. They contend that Collective's so doing was a violation of that law and of the New Jersey Consumer Fraud Act. The measure of damages sought is the total amount of review fees paid by members of the putative (but as yet uncertified) class. Plaintiffs also seek treble damages under the Consumer Fraud Act. On October 2, 1997, the court entered an order granting partial summary judgment to the plaintiffs. On October 17, 1997, the Bank filed a notice of motion for leave to appeal to the Appellate Division of the Superior Court of New Jersey. This motion was granted and the Iverson matter was consolidated with two other pending appeals (in which other institutional lenders are the defendants) relating to the same or similar issues. No decision has been rendered on the appeal. 6. Noel Hassett, on behalf of himself and all other similarly situated v. Summit Bank. Superior Court of New Jersey, Essex County, docket No. ESX-L-11224-97, filed on October 3, 1997. The allegations of the complaint and the measure of damages sought in this matter are substantially similar to those in the Iverson matter. The Bank has not yet filed its answer to the complaint. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 18 19 Executive Officers of the Registrant. The following data is supplied as of March 12, 1998:
Title (All positions and offices presently held with Name Age Registrant) and year appointed to office(s) -------------------------- ----- ---------------------------------------------------------- T. Joseph Semrod 61 Chairman of the Board and Chief Executive Officer (1981) Robert G. Cox 57 President (1996) John G. Collins 61 Vice Chairman (1986) John R. Howell 64 Vice Chairman (1987) John R. Haggerty 62 Senior Executive Vice President/Finance (1987) and Treasurer (1981) Sabry J. Mackoul 57 Senior Executive Vice President/ Commercial Banking (1998) Larry L. Betsinger 60 Executive Vice President/Corporate Information Services (1990) Alfred M. D'Augusta 56 Executive Vice President/Human Resources (1988) John R. Feeney 48 Executive Vice President/Asset Liability Management (1996) William J. Healy 53 Executive Vice President (1988) and Comptroller (1979) and Assistant Secretary (1980) Virginia Ibarra 65 Executive Vice President/Diversity (1997) Dorinda Jenkins-Glover 40 Executive Vice President/Marketing (1997) Joseph A. Micali, Jr. 42 Executive Vice President/Bank Operations Support (1997) Richard F. Ober, Jr. 54 Executive Vice President (1988), General Counsel (1975) and Secretary (1978) Dennis Porterfield 61 Executive Vice President/Bank Investments (1991) and Assistant Secretary (1975) Alan N. Posencheg 56 Executive Vice President/Corporate Operations and Information Services (1984) George J. Soltys, Jr. 51 Executive Vice President/Corporate Planning (1996) Edmund C. Weiss, Jr. 55 Executive Vice President (1990) and Auditor (1977) William J. Wolverton 54 Executive Vice President/ Retail Banking (1998)
The term of each of the above officers is until the next organization meeting of the Board of Directors, which occurs immediately following the annual meeting of shareholders, and until a successor is appointed by the Board of Directors. Each officer may be removed at any time by the Board of Directors without cause. Management of Summit is not aware of any family relationship between any director or executive officer or person nominated or chosen to become a director or executive officer. All of the executive officers named above have been employed in executive positions by Summit, a subsidiary of Summit or a bank holding company merged into Summit for more than the last five years, except for Mr. Micali who joined the Company in 1997. From 1991 to 1997 Mr. Micali was employed as Senior Vice President (Operations and Systems) of First Union Corporation and First Fidelity Bancorporation. 19 20 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Portions of this item have been omitted pursuant to paragraph (2) of General Instruction "G" - Information to be Incorporated by Reference. See the Shareholders' Equity and Dividends section in the Financial Review on page 23 and Notes 2, 12 and 19 to the Consolidated Financial Statements on pages 41, 45 and 51, respectively, Unaudited Quarterly Financial Data on page 56, and Quarterly Common Stock Price and Dividend Information on page 59 of the 1997 Annual Report to Shareholders. At February 28, 1998 there were 29,645 record holders of Summit Common Stock. On December 12, 1997 the Company, through its wholly owned subsidiary Summit Bank, issued 495,000 shares of the Registrant's common stock to the shareholders of Corporate Dynamics, a New Jersey corporation ("Corporate Dynamics") and Philadelphia Benefits Corporation, a Pennsylvania corporation ("Philadelphia Benefits") in exchange for all of the outstanding shares of Corporate Dynamics and Philadelphia Benefits Corporation. The Registrants common stock was issued without registration under the Securities Act of 1933 (the "Securities Act") in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act. In making the sale, the Company relied on representations of the shareholders of Corporate Dynamics and Philadelphia Benefits that they had such knowledge and experience as to make an informed investment decision. Item 6. Selected Financial Data. This item is omitted pursuant to paragraph (2) of General Instruction "G" - - Information to be Incorporated by Reference. See Consolidated Summary of Selected Financial Data on pages 54 and 55 of the 1997 Annual Report to Shareholders. Included in non-interest income for the years 1997 through 1993 were investment securities gains of $5.6 million, $3.9 million, $8.6 million, $5.0 million, and $12.7 million, respectively. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. This item is omitted pursuant to paragraph (2) of General Instruction "G" - - Information to be Incorporated by Reference. See Financial Review on pages 19 through 31 of the 1997 Annual Report to Shareholders. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Due to the nature of the Company's business, market risk is primarily limited to interest rate risk. Interest rate risk is the impact that changes in interest rates would have on future earnings. The principal objective in managing interest rate risk is to maximize net interest income within the acceptable levels of risk 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 to insulate net interest income from the effects of changes in interest rates. The company has limited or no market risks associated with foreign currencies, commodities or other marketable instruments. For information on the quantitative and qualitative disclosures about market and interest rate risk, see Asset/Liability Management on pages 28 and 29, and Notes 1, 17 and 18 to the Consolidated Financial Statements on pages 38 through 40, 49 and 50, respectively, of the 1997 Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data. This item is omitted pursuant to paragraph (2) of General Instruction "G" - Information to be Incorporated by Reference. See Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 34 through 52 and page 56 of the 1997 Annual Report to Shareholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 20 21 PART III Item 10. Directors and Executive Officers of the Registrant. This item is omitted pursuant to paragraph (3) of General Instruction "G" - - Information to be Incorporated by Reference, except that certain information on Executive Officers of the Registrant is included in Part I of this report. A definitive proxy statement, dated March 6, 1998 (the "Proxy Statement"), was filed with the Securities and Exchange Commission on March 6, 1998. Information required by Item 401 of Regulation S-K is provided at page 19 of this Annual Report on Form 10-K and in the Proxy Statement at pages 2-6 under the caption "Election of Directors", which is incorporated herein by reference. Information required by Item 405 of Regulation S-K is provided in the Proxy Statement at page 20 under the caption "Additional Information Regarding Directors and Officers - Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. Item 11. Executive Compensation. This item is omitted pursuant to paragraph (3) of General Instruction "G" - - Information to be Incorporated by Reference. Information required by Item 402 of Regulation S-K is provided in the Proxy Statement at pages 11-24 under the captions "Remuneration of Outside Directors", "Summary Compensation Table", "Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values", "Long-Term Incentive Plans - Awards in Last Fiscal Year" and "Certain Information As To Executive Officers", all of which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. This item has been omitted pursuant to paragraph (3) of General Instruction "G" "Information to be Incorporated by Reference". Information required by Item 403 of Regulation S-K is provided at pages 7-8 of the Proxy Statement under the caption "Beneficial Ownership of Summit Common Stock by Directors and Executive Officers", all of which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. This item is omitted pursuant to paragraph (3) of Instruction "G" - "Information to be Incorporated by Reference". Information required by Item 404 of Regulation S-K is provided in the Proxy Statement at page 20 under the caption "Additional Information Regarding Directors and Officers", which is incorporated herein by reference. 21 22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. a) (1) Financial statements, Summit Bancorp. and Subsidiaries:
Page* ---- Consolidated Balance Sheets - December 31, 1997 and 1996 ................. 34 Consolidated Statements of Income - Three Years Ended December 31, 1997 .. 35 Consolidated Statements of Cash Flows - Three Years Ended December 31, 1997 ................................................... 36 Consolidated Statements of Shareholders' Equity - Three Years Ended December 31, 1997 ................................................... 37 Notes to Consolidated Financial Statements ............................... 38 Management's and Independent Auditors' Report ............................ 53 Unaudited Quarterly Financial Data ....................................... 56
Financial statement schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto. a) (2) Other Exhibits (All references to Forms 8-K, 10-K, 10-Q, 8-A, S-1, S-3, S-4, S-8 and other Forms provided for by the Securities Act of 1933, Securities Exchange Act of 1934 or the Trust Indenture Act of 1940 refer to Securities and Exchange Commission File No. 1-6451 of Summit Bancorp., unless otherwise specifically noted below. Specific exhibits are numbered in accordance with Item 601 of Regulation S-K): (2) Articles of incorporation; By-Laws. A. Restated Certificate of Incorporation of Summit Bancorp., as restated August 8, 1997, as amended through September 24, 1997. B. By-Laws of Summit Bancorp., as restated October 18, 1995 (incorporated by reference to Exhibit (3)B. on Form 10-K for the year ended December 31, 1995). (3) Instruments defining the rights of security holders, including indentures. A. (i) Rights Agreement, dated as of August 16, 1989, by and between Summit Bancorp. (under former name UJB Financial Corp.) and First Chicago Trust Company of New York, as Rights Agent (incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A, filed August 28, 1989) (File No. 1-6451), and (ii) Notice to Rights Agent dated August 20, 1997 (incorporated by reference to Exhibit (3)(A)(i) on Form 10-Q for the quarter ended September 30, 1997). B. (deleted) C. (deleted) D. Note Agreement, dated as of August 19, 1993, between Summit Bancorp. (under former name UJB Financial Corp.) and The Northwestern Mutual Life Insurance Company relating to $20,000,000 of 7.95% Senior Notes Due August 25, 2003 (incorporated by reference to Exhibit (4)D. on Form 10-Q for the quarter ended September 30, 1993) (File No. 1-6451). - ----------------- *Refers to the respective page numbers of Summit Bancorp. 1997 Annual Report to Shareholders included as Exhibit 13. Such pages are incorporated herein by reference. 22 23 E. (i) Fiscal and Paying Agency Agreement, dated as of June 30, 1993, between Summit Bank, as issuer, and Summit Bank, as fiscal and paying agent acting through its Trust Department, relating to $50,000,000 of 6 3/4% Subordinated Notes due June 15, 2003 of Summit Bank (incorporated by reference to Exhibit (4)E.(i) on Form 8-K, dated April 11, 1996), and (ii) Specimen of Global Certificate for 6 3/4% Subordinated Notes due June 15, 2003 of Summit Bank (incorporated by reference to Exhibit (4)E.(ii) on Form 8-K, dated April 11, 1996). F. (deleted) G. (i) Subordinated Indenture, dated as of December 1, 1992, between Summit Bancorp. (under former name UJB Financial Corp.) and Citibank, N.A., Trustee, relating to $175,000,000 of 8 5/8% Subordinated Notes Due December 10, 2002 of Summit Bancorp. (incorporated by reference to Exhibit (4) G. on Form 10-K for the year ended December 31, 1992) (File No. 1-6451), and (ii) Specimen of Summit Bancorp.'s 8 5/8% Subordinated Notes Due December 10, 2002 (incorporated by reference to Exhibit 4 on Form 8-K, dated December 10, 1992) (File No. 1-6451). H. Indenture, dated as of March 20, 1997, between Summit Bancorp. and the First National Bank of Chicago, as Trustee, for Subordinated Debt Securities (incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-29019 on Form S-4 filed June 12, 1997). I. First Supplemental Indenture, dated as of March 20, 1997, between Summit Bancorp. and the First National Bank of Chicago, as Trustee for $154,640,000 8.40% Junior Subordinated Deferrable Interest Debentures due 2027 (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-29019 on Form S-4 filed June 12, 1997). J. Amended and restated Declaration of Trust for Summit Capital Trust I dated March 20, 1997 (incorporated by reference to Exhibit 4.5 to Registration Statement No. 333-29019 on Form S-4 filed June 12, 1997). K. Capital Securities Guarantee Agreement for Summit Capital Trust I dated as of March 20, 1997 (incorporated by reference to Exhibit 4.7 to Registration Statement No. 333-29019 on Form S-4 filed June 12, 1997). (10) Material Contracts **A. Converted Summit Bancorporation Stock Option Plan of Summit Bancorp. (incorporated by reference to Exhibit 10 to Registration Statement No. 333-02625 on Form S-8, filed April 17, 1996). B. (i) Master Agreement of Lease, dated January 26, 1982, between Summit Bancorp. (under former name United Jersey Banks) and Sha-Li Leasing Associates, Inc. relating to equipment leases in excess of $10,000,000 in aggregate lease obligations, including form of Equipment Schedule (incorporated by referenced to Exhibit (10) B. (i) on Form 10-Q for the quarter ended September 30, 1993) (File No. 1-6451), (ii) Assignment and Assumption of Equipment Lease, effective December 31, 1991, between Summit Bancorp. (under former name UJB Financial Corp.) and UJB Financial Service Corporation (relating to assignment of Master Agreement of Lease) (incorporated by reference to Exhibit (10) B. (ii) on Form 10-Q for the quarter ended September 30, 1993) (File No. 1-6451), and (iii) Form of Guaranty Agreement between Summit Bancorp. (under former name UJB Financial Corp.) and various lenders under the Master Agreement of Lease relating to certain equipment leases in excess of $10,000,000 in 23 24 aggregate lease obligations (incorporated by reference to Exhibit (10) B. (iii) on Form 10-Q for the quarter ended September 30, 1993) (File No. 1-6451). **C. (i) Summit Bancorp. 1993 Incentive Stock and Option Plan (incorporated by reference to Attachment A to the Proxy Statement of Registrant dated April 12, 1996), (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter ended June 30, 1993) (File No. 1-6451), (iii) Compensation Committee Interpretation of Section 5 (e) (ii) (F) (incorporated by reference to Exhibit (10) C. (iii) on Form 10-Q for the quarter ended March 31, 1994) (File No. 1-6451), (iv) Compensation Committee Interpretation of Stock Incentive Plans adopted June 19, 1996 (incorporated by reference to Exhibit (10)C.(iv) on Form 10-Q for the quarter ended June 30, 1996) (File No. 1-6451) and (v) Compensation Committee Consent adopted February 18, 1998. **D. (i) UJB Financial Corp. (former name of Summit Bancorp.) 1990 Stock Option Plan (incorporated by reference to Exhibit (10) to Registration Statement No. 33 -36209 on Form S- 8, filed July 26, 1990), and (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter end June 30, 1993) (File No. 1-6451). **E. Supplemental Executive Retirement Plan of The Summit Bancorporation (incorporated by reference to Exhibit (10)E. on Form 8-K, dated April 11, 1996). **F. Description of Incentive Plan approved January 20, 1982 (incorporated by reference to Exhibit (10)F. on Form 10-K for the year ended December 31, 1994). **G. (i) Deferred Compensation Plan for Directors, as revised October 17, 1979, (incorporated by reference to Exhibit (10) G. (i) on Form 10-K for the year ended December 31, 1994), and (ii) Amendment adopted April 25, 1994 (incorporated by reference to Exhibit (10) G. (ii) on Form 10-K for the year ended December 31, 1994). **H. (i) Agreement dated April 2, 1981 between Summit Bancorp. (under former name United Jersey Banks) and T. Joseph Semrod (incorporated by reference to Exhibit (10) H. (i) on Form 10-K for the year ended December 31, 1994), with (ii) Amendment No. I dated May 5, 1981 (incorporated by reference to Exhibit (10) H.(ii) on Form 10-K for the year ended December 31, 1994), (iii) Amendment No. 2 dated December 15, 1982 (incorporated by reference to Exhibit (10) H. (iii) on Form 10-K for the year ended December 31, 1994), and (iv) Amendment No. 3 dated August 20, 1986 (incorporated by reference to Exhibit (10) H. (iv) on Form 10-K for the year ended December 31, 1994). **I. (i) Employment Agreement, dated March 1, 1996, between Summit Bancorp. and Robert G. Cox (incorporated by reference to Exhibit (10)I.(i) on Form 10-K for the year ended December 31, 1995), and (ii) Agreement, dated as of September 1, 1995, between The Summit Bancorporation (predecessor corporation to Summit Bancorp.) and Robert G. Cox assumed by Summit Bancorp. (incorporated by reference to Exhibit (10)I.(ii) on Form 10-K for the year ended December 31, 1995). **J. Retirement Program for Outside Directors of Franklin State Bank (incorporated by reference to Exhibit (10)J. on Form 10-K for the year ended December 31, 1996). **K. Franklin State Bank Deferred Compensation Plan adopted January 10, 1984 (incorporated by reference to Exhibit (10)K. on Form 10-K for the year ended December 31, 1996). 24 25 **L. (i) United Jersey Banks (former name of Summit Bancorp.) 1982 Stock Option Plan (incorporated by reference to Exhibit 4 to Registration Statement No. 2-78500 on Form S-8, filed July 21, 1982) with (ii) Amendment No. 1, dated June 16, 1984 (incorporated by reference to Exhibit (10) L. (ii) on Form 10-K for the year ended December 31, 1994), (iii) Amendment No. 2, dated December 19, 1990 (incorporated by reference to Exhibit (10)L.(iii) on Form 10-K for the year ended December 31, 1995), and (iv) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter ended June 30, 1993) (File No. 1-6451). **M. (i) Retirement Restoration Plan, adopted April 19, 1983 (incorporated by reference to Exhibit (10) M.(i) on Form 10-K for the year ended December 31, 1994), (ii) Supplemental Retirement Plan, adopted August 16, 1989 (incorporated by reference to Exhibit (10) M. (ii) on Form 10-K for the year ended December 31, 1994), (iii) Written Consent of UJB Financial Corp. (former name of Summit Bancorp.) Benefits Committee interpreting the Retirement Restoration Plan, adopted August 30, 1989 (incorporated by reference to Exhibit (10) M. (iii) on Form 10-K for the year ended December 31, 1994), and (iv) Amendments to the Retirement Restoration Plan and Supplemental Retirement Plan adopted April 25, 1994 (incorporated by reference to Exhibit (10) M. (iv) on Form 10-K for the year ended December 31, 1994). N. (i) Equipment Lease Guaranty dated as of August 31, 1992 by Summit Bancorp. (under former name UJB Financial Corp.) to Sanwa General Equipment Leasing, Inc. (incorporated by reference to Exhibit (10) N. (i) on Form 10-Q for the quarter ended March 31, 1993) (File No. 1-6451), and (ii) Equipment Lease Agreement dated as of August 31, 1992 and Equipment Schedule Nos. A-1 and A-2 dated as of August 31, 1992 between Sanwa General Equipment Leasing, Inc. and UJB Financial Service Corporation, United Jersey Bank, United Jersey Bank/Central, N.A. (predecessor bank to United Jersey Bank) and United Jersey Bank/South, N.A. (predecessor bank to United Jersey Bank), pursuant to Equipment Lease Agreement dated as of August 31, 1992, for five year lease of furniture, fixtures and equipment (incorporated by reference to Exhibit (10) N. (ii) on Form 10-Q for the quarter ended March 31, 1993) (File No. 1-6451). O. (i) Equipment Lease Guaranty dated as of August 31, 1992 by Summit Bancorp. (under former name UJB Financial Corp.) to MetLife Capital Corporation (incorporated by reference to Exhibit (10) O. (i) on Form 10-Q for the quarter ended March 31, 1993) (File No. 1-6451), and (ii) Equipment Schedule Nos. B-1 and B-2 dated as of August 31, 1992 between MetLife Capital Corporation and UJB Financial Service Corporation, United Jersey Bank, United Jersey Bank/Central, N.A. (predecessor bank to United Jersey Bank) and United Jersey Bank/South, N.A. (predecessor bank to United Jersey Bank) pursuant to Equipment Lease Agreement dated as of August 31, 1992 between Sanwa General Equipment Leasing, Inc. and United Jersey Bank, United Jersey Bank/ Central, N.A. (predecessor bank to United Jersey Bank) and United Jersey Bank/South, N.A. (predecessor bank to United Jersey Bank), for five year lease of furniture, fixtures and equipment (incorporated by reference to Exhibit (10) O. (ii) on Form 10-Q for the quarter ended March 31, 1993) (File No. 1-6451). P. Twenty-year real estate lease executed and dated December 12, 1988 from Hartz Mountain Industries, Inc. for real property located in Ridgefield Park, New Jersey used as a data processing facility (incorporated by reference to Exhibit (10) P. on Form 10-K for the year ended December 31, 1993) (File No. 1-6451). Q. (i) Twenty-five year real property lease, dated June 5, 1990, between Summit Bancorp. (under name of predecessor corporation The Summit Bancorporation) and Hartz Mountain Industries, Inc. for data processing and operations center located in Cranford, New Jersey (incorporated by reference to Exhibit (10)Q.(i) on Form 8-K, dated April 11, 25 26 1996), and (ii) Lease Modification Agreement, dated February 22, 1995 and effective October 1, 1994, between Summit Bancorp. (under name of predecessor corporation The Summit Bancorporation) and Hartz Mountain Industries, Inc. relating to the twenty-five year lease for data processing and operations center in Cranford, New Jersey (incorporated by reference to Exhibit (10)Q.(ii) on Form 8-K, dated April 11, 1996). R.-V. (deleted) **W. (i) Retirement Plan for Outside Directors of UJB Financial Corp., (former name of Summit Bancorp.), as amended and restated February 20, 1991 (incorporated by reference to Exhibit (10)W.(i) on Form 10-K for the year ended December 31, 1995), (ii) Interpretation, dated March 15, 1993, of the Retirement Plan for Outside Directors of UJB Financial Corp. (former name of Summit Bancorp.) (incorporated by reference to Exhibit (10) W. (ii) on Form 10-K for the year ended December 31, 1992) (File No. 1-6451), and (iii) Amendment adopted April 25, 1994 (incorporated by reference to Exhibit (10) W. (iii) on Form 10-K for the year ended December 31, 1994). X.-DD. (deleted) **EE. (i) Form of Termination Agreement between Summit Bancorp. and each of T. Joseph Semrod, John G. Collins, John R. Howell, John R. Haggerty, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William J. Healy, Sabry J. Mackoul, Joseph A. Micali, Jr., Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Edmund C. Weiss. **FF. (i) Summit Bancorp. Executive Severance Plan, as amended through October 15, 1997. GG.-II. (deleted) **JJ. (i) Retirement Plan for Outside Directors of Commercial Bancshares, Inc. adopted May 1, 1986, (incorporated by reference to Exhibit (10)JJ. on Form 10-K for the year ended December 31, 1996) and (ii) Compensation Committee Interpretation, dated July 19, 1993 (incorporated by reference to Exhibit (10) JJ. (ii) on Form 10-Q for the quarter ended June 30, 1993) (File No. 1-6451). **KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation Plan adopted May 20, 1986 (substantially identical plans were adopted by former subsidiaries of Commercial Bancshares, Inc.) and (ii) related Master Trust Agreement (incorporated by reference to Exhibit (10)KK.(i) and (ii), respectively, on Form 10-K for the year ended December 31, 1996). **LL. (i) United Jersey Banks (former name of Summit Bancorp.) 1987 Stock Option Plan, (incorporated by reference to Exhibit (10)LL.(i) on Form 10-K for the year ended December 31, 1996) with (ii) Amendment dated April 25, 1989, (incorporated by reference to Exhibit (10) LL. (ii) on Form 10-K for the year ended December 31, 1994), (iii) amendment dated June 30, 1990, and (iv) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10) C. (ii) on Form 10-Q for the quarter ended June 30, 1993). **MM. Converted Collective Bancorp, Inc. Stock Option Plan of Summit Bancorp. (incorporated by reference to Exhibit (10) to Registration Statement No. 333-35075 on Form S-8, filed September 5, 1997). **NN. (i) Collective Federal Savings and Loan Association Directors Deferred Compensation Plan with (ii) Amendment No. 1 effective January 1, 1989, (iii) Amendment No. 2 effective July 22, 1997 and (iv) Rabbi Trust Agreement under Collective Bancorp. Directors Deferred Compensation Plan dated as of July 15, 1997. 26 27 (13) Summit Bancorp 1997 Annual Report to Shareholders. (21) Subsidiaries of the registrant. (23) Consents of Experts and Counsel A. Independent Auditors' Consent - KPMG Peat Marwick LLP (27.1) Summit Bancorp. financial data schedule - December 31, 1997 (27.2) Summit Bancorp. financial data schedule - September 30, 1997 (27.3) Summit Bancorp. financial data schedule - June 30, 1997 (27.4) Summit Bancorp. financial data schedule - March 31, 1997 (27.5) Summit Bancorp. financial data schedule - December 31, 1996 (27.6) Summit Bancorp. financial data schedule - September 30, 1996 (27.7) Summit Bancorp. financial data schedule - June 30, 1996 (27.8) Summit Bancorp. financial data schedule - March 31, 1996 (27.9) Summit Bancorp. financial data schedule - December 31, 1995 - ------------ ** Management contract or compensatory plan or arrangement. None of the Exhibits listed above other than the Summit Bancorp 1997 Annual Report to Shareholders are furnished herewith (other than certain copies filed with the Securities and Exchange Commission). Any of such Exhibits will be furnished to any requesting security holder upon payment of a fee of 15 cents per page. Contact Lori A. Wierzbinsky, Assistant Corporate Secretary, Summit Bancorp., P.O. Box 2066, Princeton, NJ 08543-2066 for a determination of the fee necessary to fulfill any request. b) Reports on Form 8-K. None. 27 28 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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. Dated: March 27, 1998 By: /s/ J. R. HAGGERTY --------------------------------------- John R. Haggerty Senior Executive Vice President/Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ T. JOSEPH SEMROD Chairman of the Board and March 27, 1998 ---------------- Director (Chief Executive Officer) T. Joseph Semrod /s/ ROBERT G. COX President and Director March 27, 1998 ------------- Robert G. Cox /s/ JOHN G. COLLINS Vice Chairman and Director March 27,1998 --------------- John G. Collins /s/ JOHN R. HOWELL Vice Chairman and Director March 27, 1998 -------------- John R. Howell /s/ J. R. HAGGERTY Senior Executive Vice March 27, 1998 -------------- President/Finance (Principal John R. Haggerty Financial Officer) /s/ WILLIAM J. HEALY Executive Vice President and March 27, 1998 ---------------- Comptroller (Principal Accounting William J. Healy Officer) /s/ S. RODGERS BENJAMIN Director March 27, 1998 ------------------- S. Rodgers Benjamin /s/ ROBERT L. BOYLE Director March 27, 1998 --------------- Robert L. Boyle /s/ JAMES C. BRADY, JR. Director March 27, 1998 ------------------- James C. Brady, Jr. /s/ T. J. DERMOT DUNPHY Director March 27, 1998 ------------------- T. J. Dermot Dunphy /s/ ANNE EVANS ESTABROOK Director March 27, 1998 -------------------- Anne Evans Estabrook /s/ ELINOR J. FERDON Director March 27, 1998 ---------------- Elinor J. Ferdon /s/ THOMAS H. HAMILTON Director March 27, 1998 ------------------ Thomas H. Hamilton
28 29 /s/ FRED G. HARVEY Director March 27, 1998 -------------- Fred G. Harvey /s/ FRANCIS J. MERTZ Director March 27, 1998 ---------------- Francis J. Mertz /s/ GEORGE L. MILES, JR. Director March 27, 1998 -------------------- George L. Miles, Jr. /s/ WILLIAM R. MILLER Director March 27, 1998 ----------------- William R. Miller /s/ HENRY S. PATTERSON II Director March 27, 1998 --------------------- Henry S. Patterson II /s/ RAYMOND SILVERSTEIN Director March 27, 1998 ------------------- Raymond Silverstein /s/ ORIN R. SMITH Director March 27, 1998 ------------- Orin R. Smith /s/ JOSEPH M. TABAK Director March 27, 1998 --------------- Joseph M. Tabak /s/ DOUGLAS G. WATSON Director March 27, 1998 ----------------- Douglas G. Watson
29 30 EXHIBIT INDEX Exhibit No. Description ----------- -------------------------------------------------------- (2)A. Restated Certificate of Incorporation of Summit Bancorp., as restated August 8, 1997, as amended through September 24, 1997. (10)C. (v) Compensation Committee Consent adopted February 18, 1998. (10)EE. (i) Form of Termination Agreement between Summit Bancorp. and each of T. Joseph Semrod, John G. Collins, John R. Howell, John R. Haggerty, Larry L. Betsinger, Alfred M. D'Augusta, John R. Feeney, William J. Healy, Sabry J. Mackoul, Joseph A. Micali, Jr., Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Edmund C. Weiss. (10)FF. (i) Summit Bancorp. Executive Severance Plan, as amended through October 15, 1997. (10)NN. (i) Collective Federal Savings and Loan Association Directors Deferred Compensation Plan with (ii) Amendment No. 1 effective January 1, 1989, (iii) Amendment No. 2 effective July 22, 1997 and (iv) Rabbi Trust Agreement under Collective Bancorp. Directors Deferred Compensation Plan dated as of July 15, 1997. (13) Summit Bancorp. 1997 Annual Report to Shareholders. (21) Subsidiaries of the Registrant. (23)A. Independent Auditors' Consent - KPMG Peat Marwick LLP (27.1) Summit Bancorp. financial data schedule - December 31, 1997 (27.2) Summit Bancorp. financial data schedule - September 30, 1997 (27.3) Summit Bancorp. financial data schedule - June 30, 1997 (27.4) Summit Bancorp. financial data schedule - March 31, 1997 (27.5) Summit Bancorp. financial data schedule - December 31, 1996 (27.6) Summit Bancorp. financial data schedule - September 30, 1996 (27.7) Summit Bancorp. financial data schedule - June 30, 1996 (27.8) Summit Bancorp. financial data schedule - March 31, 1996 (27.9) Summit Bancorp. financial data schedule - December 31, 1995 EX-2.A 2 RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit (2) A. RESTATED CERTIFICATE OF INCORPORATION OF SUMMIT BANCORP. (as Restated August 8, 1997, as amended September 24, 1997) SUMMIT BANCORP., a corporation formed pursuant to the provisions of the New Jersey Business Corporation Act (N.J.S.A. 14A: 1-1 et. seq.), hereby restates its Certificate of Incorporation pursuant to the provisions of the New Jersey Business Corporation Act (N.J.S.A. 14A:9-5). 1. The name of the Corporation is SUMMIT BANCORP. 2. The purposes for which the corporation is formed are: A. To engage in and carry on the business of a registered bank holding company. B. To acquire, by purchase, subscription or otherwise, own, hold for investment or otherwise, use, sell, exchange, mortgage, pledge, hypothecate, create a security interest in, or otherwise deal with and dispose of, any and all securities, as hereinafter defined, and to possess and exercise any and all rights, powers and privileges of ownership of any and all such securities, including the right to vote thereon and to consent, assent or dissent with respect thereto for any and all purposes, and to issue or deliver its own securities in payment or exchange, in whole or in part, for any securities or to make payment therefor by any other lawful means; to aid by loan, subsidy or in any other lawful manner any corporation, firm, organization, association or other entity in which the Corporation may be or become interested through the direct or indirect holding of securities or in any other manner; to do any and all acts and things for the enhancement, protection or preservation of any securities which are in any manner, directly or indirectly, held or guaranteed by the Corporation, and to do any and all acts and things designed to accomplish any such purpose. The term "securities", as used in this article, shall mean any and all shares, stocks, bonds, debentures, notes, acceptances, voting trust certificates, certificates of deposit, evidences of indebtedness, other obligations, certificates of any interest in or of the deposit of any of the foregoing, scrip, interim or other receipts, warrants or rights to subscribe for or purchase, or guarantees of, any of the foregoing, or any other interests or instruments commonly known as securities. C. To the extent permitted by law, to cause to be formed, organized, reorganized, consolidated, merged or liquidated and to take charge of, any corporation, firm, organization, association or other entity, foreign or domestic. D. To the extent permitted by law, to furnish services to and perform services for, and to act in any representative capacity for, any corporation, firm, organization, association, or other entity in which the Corporation may be or become 1 2 interested through the direct or indirect holding of securities or in any other manner, whether in the development, exploitation, promotion, operation, management, liquidation, or otherwise, of any of the business or property thereof or of any lawful enterprise related thereto. E. To make loans and give other forms of credit with or without security. F. To borrow money for its corporate purposes; to draw, make, accept, endorse, execute, issue, deliver and negotiate bonds, debentures, promissory notes, drafts, bills of exchange and other negotiable or transferable instruments and to secure the payment thereof and the interest thereon by a deed or deeds of trust or by mortgage or pledge of or upon, or by the creation of a security interest in, all or any part of the property of the Corporation, real or personal, or any interest therein, wherever situated, whether at the time owned or thereafter acquired, and to sell, pledge, create a security interest in or otherwise dispose of such bonds, debentures, notes or other obligations. G. To purchase, lease or otherwise acquire, take, hold, own, use, improve, maintain, develop, complete, extend, manage, operate, mortgage or otherwise impose a lien upon or create a security interest in, sell, exchange, lease or otherwise dispose of or convey or transfer in any manner, buildings, storage and other facilities, real and personal property of all kinds, and any and all rights, interests or easements therein, without limit as to amount and wherever situated. H. To engage in any such activity directly or through a subsidiary or subsidiaries, and to take all acts deemed appropriate to promote the interest of such subsidiary or subsidiaries, including without limiting the foregoing, making contracts and incurring liabilities for the benefit of such subsidiary or subsidiaries; and transferring or causing to be transferred to any such subsidiary or subsidiaries assets of the Corporation. I. To guarantee the bonds, debentures, notes or other evidences of indebtedness issued, or obligations incurred by subsidiary companies in which the Corporation holds, directly or indirectly, at least a majority of the voting stock, or by any corporation, partnership, limited partnership, joint venture or other association where the Corporation has or may acquire a substantial interest in such corporation, partnership, limited partnership, joint venture or other association or where such guarantee is otherwise in furtherance of the interest of the Corporation. J. To provide that the obligations of such subsidiary companies may be convertible into, or exchangeable for, or carry rights or options to purchase or subscribe to, or both, shares of the Corporation of any class. 2 3 K. In general, to do any and all of the acts and things herein set forth to the same extent as natural persons could do, and in any part of the world, as principal, factor, agent, contractor or otherwise, either alone or in company with any person, entity, syndicate, partnership, association, corporation or others; to establish and maintain offices and agencies within and anywhere outside of the State of New Jersey; and to exercise all or any of its corporate powers and rights in the State of New Jersey and in any and all other states, territories, districts, possessions or dependencies of the United States of America and in any other countries or places. L. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the purposes herein set forth and to do every other act and thing incidental thereto or connected therewith, provided the same be not forbidden by law. 3. The total number of shares of capital stock authorized and which may be issued by this Corporation is Three Hundred Ninety-Six Million (396,000,000) shares, of which Three Hundred Ninety Million (390,000,000) shares of Eighty Cents ($0.80) par value each shall be designated as Common Stock, and of which Six Million (6,000,000) shares without par value shall be designed as Preferred Stock. All or any part of such authorized Common Stock and Preferred Stock may be issued by the Corporation from time to time and for such consideration as may be determined upon and fixed by the Board of Directors as provided by law. No holders of shares of Common Stock or Preferred Stock of the Corporation shall be entitled, as such, as a matter of preemptive or preferential right, to subscribe for or purchase any part of any new or additional issue of shares of Common Stock or Preferred Stock, or any treasury shares of Common Stock or Preferred Stock, or of securities of the Corporation or of any subsidiary of the Corporation convertible into or exchangeable for, or carrying rights or options to purchase or subscribe to, or both, shares of any class whatsoever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise. The Board of Directors of the Corporation is, pursuant to the New Jersey Business Corporation Law (N.J.S.A. 14A:7-2), authorized to amend this Restated Certificate of Incorporation of the Corporation so as (a) to divide the authorized shares of Preferred Stock of the Corporation into series within such class, (b) to determine the designation and the number of shares of any such series, and (c) to determine the relative voting, dividend, conversion, redemption, liquidation and other rights, preferences and limitations of the authorized shares of Preferred Stock of the Corporation. A. Creation of Preferred Stock, Series R. A series of Preferred Stock of the Corporation, consisting of 1,500,000 Shares, is hereby created and designated as "Series R Preferred Stock" (the "Series R Preferred Stock") which series of Preferred Stock shall have a stated value of $100 per share and the following rights and preferences: 3 4 (a) Dividends and Distributions. (1) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series R Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to one hundred (100) times the aggregate per share amount of all cash dividends declared or paid on the Common Shares, $1.20 par value per share, of the Corporation (the "Common Shares"), and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, on the first business day of February, May, August and November of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series R Preferred Stock in an amount equal to $1.00 per share of Series R Preferred Stock reduced (but not to an amount less than zero) by the per share amount of all cash dividends declared on the Series R Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series R Preferred Stock. In the event the Corporation shall, at any time after the issuance of any share or fraction of a share of Series R Preferred Stock, make any distribution on the Common Shares of the Corporation, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Corporation or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence, a distribution of Common Shares or other capital stock of the Corporation or a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Fair Market Value (as hereinafter defined) of such share), then and in each such event the Corporation shall simultaneously pay on each then outstanding share of Series R Preferred Stock of the Corporation a distribution, in like kind, of one hundred (100) times such distribution paid on a Common Share (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series R Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Participating Dividends" and the multiple of such cash and non-cash dividends on the Common Shares applicable to the determination of the Participating Dividends, which shall be one hundred (100) initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Corporation shall at any time after August 28, 1989 declare or pay any dividend or make any distribution on Common Shares payable in Common Shares or any class or series thereof, or effect a subdivision 4 5 or split or a combination, consolidation or reverse split of the outstanding Common Shares into a greater or lesser number of Common Shares, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Participating Dividends which holders of shares of Series R Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (2) The Corporation shall declare each Participating Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Shares in respect of which a Participating Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Shares in respect of which a Participating Dividend is required to be paid shall be paid or set aside for payment on the Common Shares unless a Participating Dividend in respect of such dividend or distribution on the Common Shares shall be simultaneously paid, or set aside for payment, on the Series R Preferred Stock. (3) Preferential Dividends shall begin to accrue on outstanding shares of Series R Preferred Stock commencing with the Quarterly Dividend Payment Date next following the date of issuance of any shares of Series R Preferred Stock and shall accrue on and as of such date and each successive Quarterly Dividend Payment Date thereafter. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series R Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. b) Voting Rights. The holders of shares of Series R Preferred Stock shall have the following voting rights: (1) Subject to the provisions for adjustment hereinafter set forth, each share of Series R Preferred Stock shall entitle the holder thereof to one hundred (100) votes on all matters submitted to a vote of the shareholders of the Corporation. The number of votes which a holder of Series R Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Corporation shall at any time after August 28, 1989 declare or pay any dividend on Common Stock payable in Common Shares, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding Common Shares into a greater or lesser number of Common Shares, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series R Preferred Stock 5 6 shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (2) Except as otherwise provided herein, or by law, the Certificate of Incorporation or the By-laws, the holders of shares of Series R Preferred Stock and the holders of Common Shares shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (3) If at the time of any annual meeting of shareholders of the Corporation for the election of directors, the Corporation shall have failed to pay the Preferential Dividends on the shares of the Series R Preferred Stock for six dividend payment periods, whether or not consecutive, or shall fail to pay in full such dividends, if any, as may accumulate on any other series of Preferred Stock for a period of 18 months (referred to herein as a "Dividend Payment Default"), the number of directors of the Corporation shall be increased by two and the holders of the all outstanding series of Preferred Stock in respect of which such a default in payment of dividends as described hereinabove exists, voting as a single class without regard to series, will be entitled to elect such additional two directors until full cumulative dividends for all past dividend periods upon all series of Preferred Stock have been paid or declared and set apart for payment. If and when the full cumulative dividends on all series of Preferred Stock for all past dividend payment periods shall have been paid or declared and set apart for payment, the holders of Preferred Stock shall be divested of the foregoing special voting right, subject to revesting in the event of each and every subsequent Dividend Payment Default. Upon the termination of each such special voting right, the term of office of each director elected by the holders of shares of Preferred Stock in respect of which a default exists in the payment of dividends as described hereinabove (herein referred to as a "Preferred Director") pursuant to such special voting right shall forthwith terminate and the number of directors constituting the Board of Directors shall be reduced by two. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Preferred Stock in respect of which such a default exists, voting together as a single class without regard to series, at a meeting of the shareholders, or of the holders of shares of such Preferred Stock, called for the purpose. As long as a Dividend Payment Default shall continue (A) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preferred Director and filed with the Corporation and (B) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preferred Stock in respect of which such a default exists, voting 6 7 together as a single class without regard to series, at the same meeting at which such removal shall be voted or a subsequent meeting. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. (4) Except as otherwise set forth herein or required by law, the Certificate of Incorporation or the By-laws, holders of Series R Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Shares as set forth herein) for the taking of any corporate action. (c) Certain Restrictions. (1) Whenever Preferential Dividends or Participating Dividends are in arrears or the Corporation shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Participating Dividends, whether or not declared, on shares of Series R Preferred Stock outstanding shall have been paid or declared and a sum sufficient for the payment thereof set apart for payment, and in addition to any and all other rights which any holder of shares of Series R Preferred Stock may have in such circumstances, the Corporation shall not: (i) declare or pay or set apart for payment dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series R Preferred Stock; (ii) declare or pay or set apart for payment dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series R Preferred Stock, unless dividends are paid ratably on the Series R Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph (c)(1), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series R Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series R Preferred Stock; or 7 8 (iv) purchase or otherwise acquire for consideration any shares of Series R Preferred Stock, or any shares of stock ranking on a parity with the Series R Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (2) The Corporation shall not permit any Subsidiary (as hereinafter defined) of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (1) of this Section (c), purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Corporation shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by the Corporation or by any corporation or other entity that is otherwise controlled by the Corporation. (3) The Corporation shall not issue any shares of Series R Preferred Stock except upon exercise of rights issued pursuant to that certain Rights Agreement dated as of August 16, 1989 between the Corporation and First Chicago Trust Company of New York, as Rights Agent, a copy of which is on file with the Secretary of the Corporation at its principal executive office and shall be made available to shareholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Corporation from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series R Preferred Stock. (d) Reacquired Shares. Any shares of Series R Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. (e) Liquidation, Dissolution or Winding Up. Upon the dissolution, liquidation or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series R Preferred Stock 8 9 unless the holders of shares of Series R Preferred Stock shall have received, subject to adjustment as hereinafter provided, (1) $1.00 per one-hundredth share ($100 per share) plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (2) if greater than the amount specified in clause (i)(1) of this sentence, an amount equal to one hundred (100) times the aggregate amount to be distributed per share to holders of Common Shares, as the same may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series R Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series R Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series R Preferred Stock are entitled under clause (i)(1) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series R Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Corporation pursuant to clause (i)(2) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of Common Shares upon the liquidation, dissolution or winding up of the Corporation applicable, pursuant to said clause, to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Corporation shall at any time after August 28, 1989 declare or pay any dividend on Common Shares payable in Common Shares or any class or series thereof, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding Common Shares into a greater or lesser number of Common Shares, then in each such case the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series R Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. The sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property and assets of the Corporation shall not be deemed a dissolution, liquidation or winding up of the Corporation for the purposes of this Section (e), nor shall the merger or consolidation of the Corporation into or with any other corporation or association or the merger or consolidation of any other corporation or association into or with the Corporation, be deemed to be a dissolution, liquidation or winding up of the Corporation for the purposes of this Section (e). (f) Certain Reclassifications and Other Events. (1) In the event that holders of Common Shares of the Corporation receive after August 28, 1989 in respect of their Common Shares any share of capital stock of the Corporation (other than any Common Shares of the Corporation of the same class and series as such 9 10 outstanding Common Shares), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Series R Preferred Stock shall be adjusted so that after such event the holders of Series R Preferred Stock shall be entitled, in respect of each share of Series R Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a Common Share shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock; (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a Common Share shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock; and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a Common Share shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. 10 11 (2) In the event that all holders of Common Shares of the Corporation receive after August 28, 1989 in respect of their Common Shares any right or warrant to purchase Common Shares (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Shares) at a purchase price per share less than the Fair Market Value of a Common Share on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Series R Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of Common Shares outstanding immediately before such issuance of rights or warrants plus the maximum number of Common Shares which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of Common Shares outstanding immediately before such issuance of rights or warrants plus the number of Common Shares which could be purchased, at the Fair Market Value of the Common Shares at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (3) In the event that holders of Common Shares of the Corporation receive after August 28, 1989 in respect of their Common Shares any right or warrant to purchase capital stock of the Corporation (other than Common Shares of any class or series), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Corporation (other than Common Shares of any class or series), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Corporation of the shares of Series R Preferred Stock shall each be adjusted so that after such event each holder of a share of Series R Preferred Stock shall be entitled, in respect of each share of Series R Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a Common Share shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined); (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a Common Share shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and 11 12 multiplied again by the Discount Fraction; and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a Common Share shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of Common Shares of the Corporation as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (4) For purposes hereof, the "Fair Market Value" of a share of capital stock of the Corporation (including a Common Share) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board of Directors of the Corporation to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Corporation. The term 12 13 "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Corporation is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Corporation. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Corporation. (g) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series R Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each Common Share is changed or exchanged multiplied by the highest of the Dividend Multiple, the Vote Multiple or the Liquidation Multiple in effect immediately prior to such event. (h) Effective Time of Adjustments. (1) Adjustments to the Series R Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (2) The Corporation shall give prompt written notice to each holder of a share of Series R Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Corporation of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Corporation to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. (i) No Redemption. The shares of Series R Preferred Stock shall not be redeemable at the option of the Corporation or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Corporation may acquire shares of Series R Preferred Stock in any other manner permitted by law, the provisions hereof and the Certificate of Incorporation of the Corporation. (j) Ranking. Unless otherwise provided in the Certificate of Incorporation of the Corporation or a Certificate of Amendment relating to a subsequent series of preferred stock of the Corporation, the Series R Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to 13 14 the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and senior to the Common Shares. (k) Conversion or Exchange. The holders of shares of Series R Preferred Stock shall not have any rights to convert such shares into or exchange such shares for Common Shares of the Corporation or any other stock of the Corporation. (l) Preemptive Rights. Shares of the Series R Preferred Stock are not entitled to any preemptive rights. (m) Amendment. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least 66-2/3% of all of the shares of this Series R Preferred Stock at the time outstanding given in person or by proxy, either in writing or by a vote at a meeting called for the purpose, on which matter the holders of shares of this Series R Preferred Stock shall vote together as a separate class, shall be necessary to authorize, effect or validate any amendment, alteration or repeal of any of the provisions of the Restated Certificate of Incorporation of the Corporation or of any certificate amendatory or supplemental thereto which amendment, alteration or repeal would, if effected, adversely affect the preferences, rights, powers or privileges of this Series R Preferred Stock. 4. The location of the current registered office of the Corporation in this State is 301 Carnegie Center, P. O. Box 2066, Princeton, New Jersey 08543-2066, and the name of the current agent therein and in charge thereof upon whom process against this Corporation may be served is Richard F. Ober, Jr. 5. The current Board of Directors consists of eighteen persons whose names and addresses are as follows: S. RODGERS BENJAMIN Chairman Flemington Fur Company 8 Spring Street Flemington, NJ 08822 ROBERT L. BOYLE Publisher Emeritus of the Dispatch 7 Orchard Lane Rumson, NJ 07760 JAMES C. BRADY, JR. Partner Mill House Associates, Inc. Box 351 Gladstone, NJ 07934 14 15 JOHN G. COLLINS Vice Chairman Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, NJ 08543-2066 ROBERT G. COX President Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, NJ 08543-2066 T. J. DERMOT DUNPHY President & CEO Sealed Air Corporation Park 80 Plaza East Saddle Brook, NJ 07662 ANNE EVANS ESTABROOK Owner Elberon Development Co. P.O. Box 677 Kenilworth, NJ 07033-0677 ELINOR J. FERDON Professional Volunteer Litchfield Way P.O. Box 255 Alpine, NJ 07620 FRED G. HARVEY Vice President E. & E. Corp. 225 West 2nd Street Bethlehem, PA 18015 JOHN R. HOWELL Chairman First Valley Corporation One Bethlehem Plaza Bethlehem, PA 18018 FRANCIS J. MERTZ President Fairleigh Dickinson University 1000 River Road Teaneck, NJ 07666 GEORGE L. MILES, JR. President & CEO WQED Pittsburgh 4802 Fifth Avenue Pittsburgh, PA 15213 15 16 HENRY S. PATTERSON II President E'town Corporation P.O. Box 788 Westfield, NJ 07091 T. JOSEPH SEMROD Chairman and CEO Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, NJ 08543-2066 RAYMOND SILVERSTEIN Consultant Alloy, Silverstein, Shapiro, Adams Mulford & Co. 900 North Kings Highway Cherry Hill, NJ 08034 ORIN R. SMITH Chairman and CEO Engelhard Corporation 101 Wood Avenue Iselin, NJ 08830 JOSEPH M. TABAK President and CEO JPC Enterprises, Inc. 30 South Adelaide Avenue Penthouse F Highland Park, NJ 08904 DOUGLAS G. WATSON President Pharmaceuticals Division Ciba-Geigy Corporation 556 Morris Avenue Summit, NJ 07901 16 17 The Board of Directors shall consist of not less than five (5) persons and not more than forty (40) persons, as may be determined from time to time in the discretion of the Board of Directors. Except as otherwise provided by statute, by this Restated Certificate of Incorporation as the same may be amended from time to time, or by By-Laws as the same may be amended from time to time, all corporate powers may be exercised by the Board of Directors. Without limiting the foregoing, the Board of Directors shall have power, without shareholders' action: A. To authorize and cause to be executed and/or issued mortgages, liens, bonds, debentures or other obligations including bonds, debentures or other obligations convertible into, or exchangeable for stock of any class, or bearing, warrants or other evidences of optional rights to purchase or subscribe to, or both, stock of any class, upon the terms, in the manner and under the condition fixed by resolution of the Board of Directors prior to the issue thereof, secured or not secured, upon the real and personal or other property of the Corporation, or any part thereof, provided that a majority of the whole Board of Directors concur therein by resolution or in writing. B. With the sanction of a resolution passed by the holders of two-thirds of the shares issued and outstanding at any annual or special meeting of shareholders duly called for that purpose, to sell, assign, transfer or otherwise dispose of all the rights, franchises and property of the Corporation as an entirety; and any such sale may be wholly or partly in consideration of the bonds, mortgages, debenture obligations, securities or evidences of indebtedness, or shares of the capital stock, of any corporation or corporations of any state, territory or foreign country, formed or to be formed for the purpose of purchasing the same. C. To loan money to, or guarantee an obligation of, or otherwise assist any officer or other employee of the Corporation or of any subsidiary, including an officer or employee who is also a director of the Corporation, whenever, in the judgment of the Board of Directors, such loan, guarantee, or assistance may reasonably be expected to benefit the Corporation. D. To designate three (3) or more of their number to constitute an executive committee, which committee shall for the time being and subject to the control and direction of the Board of Directors have and exercise all the powers of the Board of Directors which may be lawfully delegated for the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. 6. Except to the extent prohibited by law, no Director or officer of the Corporation shall be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, provided that a Director or officer shall not be relieved from liability for any breach of duty based upon an act or omission (a) in breach of such person's duty of loyalty to the Corporation or its shareholders, (b) not in good faith or involving a knowing violation of law or (c) resulting in receipt by such person of an improper personal benefit. Neither the amendment or repeal of this Article 7, nor the adoption of any provision of 17 18 this Restated Certificate of Incorporation inconsistent with this Article 7, shall eliminate or reduce the effect of this Article 7 in respect of any matter which occurred, or any cause of action, suit or claim which but for this Article 7 would have accrued or arisen, prior to such amendment, repeal or adoption. 7. Except as may be otherwise provided in respect of directors to be elected by the holders of Preferred Stock, or any series thereof, by the terms of any resolution or resolutions of the Board of Directors providing for any series of Preferred Stock adopted pursuant to the provisions of Article 3 hereof, the Board of Directors shall be classified, with respect to the time for which directors shall hold office, into three classes, as determined by the Board of Directors, each as nearly equal in number as possible. At the annual meeting of the shareholders of the Corporation at which this Article 8 is adopted, the first such class of directors shall be elected for a term expiring upon the next following annual meeting of shareholders and upon the election and qualification of their respective successors, the second such class of directors shall be elected for a term expiring upon the second following annual meeting of shareholders and upon the election and qualification of their respective successors, and the third such class of directors shall be elected for a term expiring upon the third following annual meeting of shareholders and upon the election and qualification of their respective successors. At each annual meeting of shareholders following the annual meeting at which this Article 8 is adopted, directors of the class of directors whose term expires at such annual meeting shall be elected for a term expiring upon the third following annual meeting of shareholders and upon the election and qualification of their respective successors. Whenever the number of directors constituting the whole Board of Directors is changed, except as may be otherwise provided in respect of directors to be elected by the holders of Preferred Stock, or any series thereof, by the terms of any resolution or resolutions of the Board of Directors providing for any series of Preferred Stock adopted pursuant to the provisions of Article 3 hereof, any increase or decrease in the number of directors shall be apportioned by the Board of Directors among the three classes so as to maintain all the classes as equal in number as possible, and each such director shall hold office until the next annual meeting of shareholders and until such director's successor shall have been elected and qualified; provided, however, that no decrease in the number of directors shall effect the then-current term of any director then in office. A director may be disqualified from office as required by law or under any applicable rules, regulations or orders of any federal or state regulatory authority or by provisions of general applicability in the Restated Certificate of Incorporation or By-Laws adopted prior to such director's election. Any action by the Board of Directors or shareholders creating one or more vacancies on the Board of Directors by increasing the authorized number of directors shall be effective only if such action has received the affirmative vote, in the case of the Board of Directors, of eighty percent (80%) or more of the directors then holding office or, in the case of the shareholders, of eighty percent (80%) or more of the combined voting power of the then outstanding shares of all classes and series of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 8. Subject to the rights of the holders of shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as to dividends or upon liquidation, any action required or permitted to be taken by the shareholders of the Corporation must be effected exclusively either at a duly called annual or special meeting of 18 19 shareholders of the Corporation or by the unanimous (but no less than unanimous) written consent of the shareholders. 9. In addition to any requirements of law and any other provision of the Restated Certificate of Incorporation of the Corporation or any resolution or resolutions of the Board of Directors providing for any series of Preferred Stock adopted pursuant to Article 3 hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law, any other Article, or other provisions hereof or any such resolution or resolutions), the affirmative vote of the holders of eighty percent (80%) or more of the combined voting power of the then outstanding shares of all classes and series of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter or repeal, or adopted any provision or take action inconsistent with, this Article 10 or Articles 8 or 9 hereof. 19 EX-10.C 3 COMPENSATION COMMITTEE CONSENT 1 Exhibit (10)C.(v) SUMMIT BANCORP. COMPENSATION COMMITTEE FEBRUARY 18, 1998 Pursuant to Section 14A:6-7.1(5) of the New Jersey Business Corporation Act, and Article III, Section 10 of the By-Laws of this Corporation, the undersigned, being all of the members of the Compensation Committee of the above-named Corporation, hereby consent and agree that in connection with the three-for-two split up of the Corporation's capital stock effective September 24, 1997 (the "Stock Split") the following adjustments be made: 1. The 1993 Incentive Stock and Option Plan ("Plan") restrictions approved by the Board of Directors and shareholders of the Corporation in 1996 to bring the Plan into compliance with Section 162(m) of the Internal Revenue Code of 1986 are amended to give effect to the Stock Split as follows: a) Section 2(a) of the Plan setting forth the maximum number of shares that may be awarded as Program Stock and made subject to Options in a fiscal year is amended to increase "1,800,000" to "2,700,000"; b) Section 2(a) of the Plan setting forth the maximum number of shares that may be made subject to Options granted to any individual in a fiscal year is amended to increase "175,000" to "262,500"; and c) Section 2(a) of the Plan setting forth the maximum number of shares of Performance Stock that may be awarded to any individual in a fiscal year is amended increase "50,000" to "75,000". 2. The actions of officers of the Corporation to give effect to the Stock Split by making appropriate adjustments to the number of shares and exercise price per share of all outstanding stock options granted under all stock option plans of the Corporation and by making appropriate adjustments to the number of shares subject to unearned Performance Stock awards are hereby ratified and approved. EX-10.EE 4 TERMINATION AGREEMENT 1 Exhibit (10)EE TERMINATION AGREEMENT THIS AGREEMENT dated and entered into effective and as of the _____ day of ______________, _____, by and between Summit Bancorp., a New Jersey corporation (the "Company"), and ______________________________, residing at ______________________________, _____________, __________ ___________ (the "Executive"). W I T N E S S E T H: WHEREAS, should the Company receive a proposal from a third person, whether solicited by the Company or unsolicited, concerning a possible business combination with or the acquisition of a substantial share of the equity or voting securities of, the Company, the Board of Directors of the Company (the "Board") has deemed it imperative that it and the Company be able to rely on the Executive to continue to serve in the Executive's position, and that the Board and the Company be able to receive and rely upon the Executive's advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks that such a proposal might otherwise create; and WHEREAS, the Company desires to enhance executive morale and its ability to retain existing management; and WHEREAS, the Company desires to reward the Executive for the Executive's valuable, dedicated service to the Company or one or more of its subsidiary corporations (each, a "Subsidiary") should the Executive's service be terminated under circumstances hereinafter described; and WHEREAS, the Board therefore considers it in the best interests of the Company and its shareholders for the Company to enter into Termination Agreements, in form similar to this Agreement, with certain key executive officers of the Company and one or more of its Subsidiaries; and WHEREAS, the Executive is presently the duly elected and acting [insert title of executive] of [insert Company or name of Subsidiary] and is a key executive with whom the Company has been authorized by the Board to enter into this Agreement; NOW, THEREFORE, to assure the Company of the Executive's continued dedication and the availability of the 1 2 Executive's advice and counsel in the event of any such proposal, to induce the Executive to remain in the employ of the Company or a Subsidiary, and to reward the Executive for the Executive's valuable, dedicated service to the Company or a Subsidiary should the Executive's service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy whereof each party acknowledges, the Company and the Executive agree as follows: 1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT. (a) This Agreement is effective and binding on both parties as of the date hereof. Notwithstanding its present effectiveness, the provisions of paragraphs 3 and 4 of this Agreement shall become operative only when, as and if there has been a "Change in Control" of the Company. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to occur (i) upon a Change in Control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A or Item 1a of Form 8-K promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); or (ii) if any "person" (including as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company and its Subsidiaries or an employee benefit plan of the Company (or any fiduciary thereof) or a corporation controlled by the Company's shareholders in substantially the same character and proportions as their ownership of stock of the Company, or an underwriter temporarily holding securities pursuant to an offering of such securities) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's outstanding securities then entitled to vote for the election of directors; or (iii) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof (excluding, for purposes of this calculation, any director who dies during such period); or (iv) if the Company shall meet the delisting criteria of the New York Stock Exchange or any successor exchange in respect of the number of publicly-held shares or the number of stockholders holding one hundred (100) shares or more; or (v) if the Board shall approve the sale of all or substantially all of the assets of the 2 3 Company; or (vi) if the Board shall approve any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (i), (ii), (iii) or (iv) above or that the stockholders of the Company receive or retain stock having less than 65% combined voting power of the company resulting from such transaction in substantially the same proportions as their prior ownership of the Company. (b) The Company shall be obligated to make the payments referred to in paragraphs 3 and 4 hereof following, and the provisions of paragraph 2 hereof shall apply to, a Change in Control of the Company only if such Change in Control shall have occurred prior to, or as a result of efforts designed to attain such and known to the parties hereto to have commenced prior to, the earliest to occur of the Executive's death, Disability (as hereinafter defined), Normal Retirement Date (as hereinafter defined) or the fifth anniversary of the date hereof; provided, however, that commencing on the fifth anniversary of the date hereof and each annual anniversary of such day thereafter (such day and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), the term of this Agreement shall automatically be extended for one additional year unless at the Renewal Date the Executive is no longer employed by the Company or a Subsidiary or has reached the Executive's Normal Retirement Date (as hereinafter defined) or at least twelve (12) months prior to the next Renewal Date (and prior to a Change in Control of the Company), the Company shall have given notice to the Executive that it does not wish to extend the term of this Agreement; provided, further, however, if a Change in Control of the Company shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of not less than thirty-six (36) months beyond the month in which each such Change in Control of the Company occurred, and thereafter solely to the extent necessary for the Executive to enforce the obligations of the Company or Subsidiary employing Executive incurred prior thereto. 2. EMPLOYMENT OF EXECUTIVE. Nothing herein shall affect any right which the Executive or the Company or a Subsidiary may otherwise have to terminate the Executive's employment by the Company or a Subsidiary at any time in any lawful manner, subject always 3 4 to the Company's providing to the Executive the payments and benefits specified in paragraphs 3 and 4 of this Agreement to the extent hereinbelow provided. In the event any person commences a tender or exchange offer, circulates a proxy statement to the Company's shareholders or takes other steps designed to effect a Change in Control of the Company as defined in paragraph 1 of this Agreement, the Executive agrees that before the Executive's Normal Retirement Date the Executive will not voluntarily leave the employ of the Company or a Subsidiary, and will continue to perform the Executive's regular duties and to render the services specified in the recitals of this Agreement, until such person has abandoned or terminated that person's efforts to effect a Change in Control or until a Change in Control has occurred. Should the Executive voluntarily terminate the Executive's employment before any such effort to effect a Change in Control of the Company has commenced, or after any such effort has been abandoned or terminated without effecting a Change in Control and no other such effort is then being undertaken by any other person, this Agreement shall lapse and be of no further force or effect. 3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If any of the events described in paragraph 1 hereof constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in paragraph 4 hereof upon the subsequent termination of the Executive's employment within the applicable period set forth in paragraph 4 hereof following such Change in Control unless such termination is (i) due to the Executive's death after the Window Period referred to below or Retirement (other than Early Retirement during the Window Period); or (ii) by the Company or a Subsidiary by reason of the Executive's Disability or for Cause (as hereinafter defined); or (iii) by the Executive other than for Good Reason (as hereinafter defined). (b) If following a Change in Control the Executive's employment is terminated by reason of the Executive's death after the Window Period, Retirement (other than Early Retirement during the Window Period) or Disability, the Executive shall be entitled to death, retirement or disability benefits, as the case may be, from 4 5 the Company no less favorable than those benefits to which the Executive would have been entitled had the death, Retirement or termination for Disability occurred during the six (6) month period prior to the Change in Control. If prior to any such termination for Disability, the Executive fails to perform the Executive's duties as a result of incapacity due to physical or mental illness, the Executive shall continue to receive the Executive's Base Salary (as hereinafter defined), less any benefits as may be available to the Executive under the Company's or Subsidiary's disability plans, until the Executive's employment is terminated for Disability. (c) If the Executive's employment shall be terminated by the Company or a Subsidiary for Cause or by the Executive other than for Good Reason, the Company shall pay (subject to any applicable payroll or other taxes required to be withheld) to the Executive the Executive's Base Salary through the Date of Termination, and the Company or a Subsidiary shall have no further obligations to the Executive under this Agreement. This paragraph 3(c) shall not apply to a termination of the Executive's employment by the Company or a Subsidiary by reason of Death, Retirement or Disability. (d) For purposes of this Agreement: (i) "Disability" shall mean the Executive's incapacity to perform the Executive's duties with the Company or Subsidiary on a full-time basis for one hundred eighty (180) consecutive days due to physical or mental illness such that the Executive shall have become qualified to receive benefits under the Company's or a Subsidiary's long-term disability plans applicable to the Executive. Any question as to the existence of Disability upon which the Executive and the Company or Subsidiary cannot agree shall be determined by a qualified independent physician selected by the Company or Subsidiary employing the Executive or its insurers and acceptable to the Executive or an adult member of the Executive's immediate family, which acceptance shall not be unreasonably withheld. The Executive shall be obligated to submit to such medical examinations as may be necessary to determine whether Disability exists. 5 6 (ii) "Retirement" shall mean that the Executive shall have reached the normal retirement date provided in the Company's or Subsidiary's defined benefit retirement plans applicable to such Executive (the "Normal Retirement Date") or that the Executive shall have taken early retirement (as defined in such retirement plans) and shall no longer be employed by the Company or a Subsidiary ("Early Retirement"). (iii) "Cause" shall mean: (A) the willful commission by the Executive of an illegal act or other act of willful misconduct that causes or will probably cause substantial economic damage to the Company or a Subsidiary or substantial injury to the business reputation of the Company or a Subsidiary; (B) the commission by the Executive of an act of fraud in the performance of such Executive's duties on behalf of the Company or a Subsidiary; (C) the continuing willful failure of the Executive to perform the duties of such Executive to the Company or a Subsidiary (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the Executive by the Compensation Committee of the Board; or (D) the final order of a federal or state regulatory agency or a court of competent jurisdiction requiring the termination of the Executive's employment with the Company or a Subsidiary. (iv) "Good Reason" shall mean, excluding for this purpose an isolated, insubstantial and 6 7 inadvertent action or failure to act, which is not in bad faith and which is remedied by the Company or applicable Subsidiary promptly after receipt of notice thereof given by the Executive: (A) Without the Executive's express written consent, the assignment by the Company or a Subsidiary to the Executive of duties which (i) are materially different or require travel significantly more time consuming or extensive than the Executive's duties or business travel obligations immediately prior to the Change in Control, or (ii) result, without the Executive's express written consent, in either a significant reduction in the Executive's authority and responsibility as a senior executive of the Company or Subsidiary employing the Executive when compared to the highest level of authority and responsibility assigned to the Executive at any time during the six (6) month period prior to the Change in Control, or, (iii) the removal of the Executive from, or any failure to reappoint or reelect the Executive to, the highest title held since the date six (6) months before the Change in Control, except in connection with a termination of the Executive's employment by the Company or a Subsidiary for Cause (including during the pendency of any Dispute), during any period of incapacity due to physical or mental illness, or by reason of the Executive's death, Disability or Retirement; (B) A reduction by the Company or a Subsidiary of the Executive's Base Salary, or the failure to grant increases in the Executive's Base Salary on a basis at least substantially comparable to those granted to other executives of the Company or a Subsidiary of comparable title, salary grade and performance ratings made in good faith; (C) Requiring the Executive to be based anywhere other than an executive office of the Company or a Subsidiary located in New 7 8 Jersey or Pennsylvania within twenty-five (25) geographic (not road) miles of the location of the Executive's office prior to the Change in Control, except for required travel on the Company's or a Subsidiary's business to an extent substantially consistent with the Executive's present business travel obligations, without the Executive's express written consent, or in the event of any relocation of the Executive with the Executive's express written consent, the failure by the Company or a Subsidiary to pay (or reimburse the Executive for) all reasonable moving expenses by the Executive relating to a change of principal residence in connection with such relocation and to indemnify the Executive against any loss realized in the sale of the Executive's principal residence in connection with any such change of residence, all to the effect that the Executive shall incur no loss on an after tax basis; (D) The failure by the Company or a Subsidiary to continue to provide the Executive with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) and perquisites, including participation on a comparable basis in the Company's or a Subsidiary's retirement plans, Incentive Bonus Plan (cash bonus plan), Savings Incentive Plan, Incentive Stock and Option Plans, Executive Severance Plan and other plans in which executives of the Company or a Subsidiary of comparable title and salary grade participate, as were provided to the Executive in the twelve (12) months immediately prior to such Change in Control of the Company, or with a package of welfare benefits and perquisites, that, though one or more of such benefits or perquisites may vary from those set forth above, is substantially 8 9 comparable in all material respects to such welfare benefits and perquisites, taken as a whole; (E) The failure of the Company to obtain the express written assumption of and agreement to perform this Agreement by any successor as contemplated in subparagraph 6(c) hereof; (F) A termination of employment by the Executive for any reason other than Disability or Normal Retirement during the thirty (30) day period immediately following the first anniversary of a Change in Control of the Company defined in subparagraphs 1(a)(i), (ii) (iii) or (iv) or the consummation of a transaction described in subparagraphs 1(a)(v) or (vi) (such thirty (30) day period being referred to herein as the "Window Period"). (G) The giving by the Company or applicable Subsidiary of a notice that participation by the Executive in the Company's Executive Severance Plan or that the Executive's Termination Agreement would not be renewed; (H) The filing by the Company of a petition for bankruptcy or similar insolvency of the Company or the filing by any other party of such a petition which is not dismissed within sixty (60) days; or (I) Any failure by the Company or applicable Subsidiary to comply with any provision of this Agreement. (v) "Dispute" shall mean (A) in the case of termination of employment of the Executive with the Company or a Subsidiary by the Company or a Subsidiary for Disability or Cause, that the Executive challenges the existence of Disability or Cause and (B) in the case of termination of employment of an Executive with the Company or a Subsidiary by the Executive for Good Reason, that 9 10 the Company or a Subsidiary challenges the existence of Good Reason. (vi) "Base Salary" shall mean the amount determined by multiplying the Executive's highest semi-monthly or other periodic rate of base pay paid to the Executive during the twelve-month period immediately prior to the giving of the Notice of Termination by the number of pay periods per year. The following items are not part of base pay, as used herein: reimbursed expenses, any amount paid on account of overtime or holiday work, payment on account of insurance premiums or other contributions made to other welfare or benefit plans, and any year-end or other bonuses, commissions and gifts. (vii) "Bonus Amount" means the highest annual cash incentive bonus earned by the Executive from the Company or a Subsidiary during the last three (3) completed fiscal years of the Company immediately preceding the Executive's Date of Termination (annualized in the event the Executive was not employed by the Company or a Subsidiary for the whole of any such fiscal year). For purposes of this subparagraph (d), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company or a Subsidiary. (e) Any purported termination of employment by the Company or a Subsidiary or by the Executive shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the Executive or the Company or a Subsidiary, as the case may be, which shall indicate the specific provision of this Agreement applicable to such termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. The Executive shall not be entitled to give a Notice of Termination that the Executive is terminating the Executive's employment with the Company or a Subsidiary for 10 11 Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good Reason. (f) For purposes of this Agreement, except as provided below, the "Date of Termination" shall mean the date specified in a Notice of Termination, which shall be not more than ninety (90) days after such Notice of Termination is given. The Date of Termination of a proposed Termination for Disability shall be at least thirty (30) days after the giving of the Notice of Termination. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a Dispute exists, the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company or a Subsidiary shall continue to pay the Executive the same Base Salary and to provide the Executive with the same or substantially comparable welfare benefits and perquisites, including participation in the Company's or a Subsidiary's retirement plans, Savings Incentive Plan, Incentive Bonus Plan, Incentive Stock and Option Plans and Executive Severance Plan that the Executive was paid and provided in the twelve (12) months immediately prior to the Change in Control of the Company. Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Executive's Disability or for Cause was justified, or that a challenged termination by the Executive for Good Reason was not justified, then all sums paid by the Company or a Subsidiary to the Executive from the date of termination specified in the Notice of Termination until final resolution of the Dispute pursuant hereto shall be repaid promptly by the Executive to the Company or a Subsidiary, with interest at the base rate charged from time to time by Summit Bank, New Jersey, all options, rights and restricted stock granted to the Executive during such period shall be 11 12 canceled or returned to the Company or Subsidiary, and, to the extent permitted by law, no service as an employee shall be credited to the Executive for such period for pension purposes. The Executive shall not be obligated to pay to the Company or a Subsidiary the cost of providing the Executive with employee benefits and perquisites for such period unless the final judgment, order or decree of a court resolving the Dispute determines that the Executive acted in bad faith in giving a notice of Dispute. Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Executive's Disability or for Cause was not justified, or that a challenged termination by the Executive for Good Reason was justified, then the Executive shall be entitled to retain all sums paid to the Executive pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits provided for in paragraph 4 hereof. 4. PAYMENTS UPON TERMINATION. If within three (3) years after a Change in Control of the Company, there occurs a termination of employment of the Executive with the Company or a Subsidiary, other than a termination of employment which is (i) due to the Executive's death after the Window Period or Retirement other than Early Retirement during the Window Period; or (ii) by the Company or a Subsidiary by reason of the Executive's Disability or for Cause; or (iii) by the Executive other than for Good Reason, then, and expressly on the condition that the Company or Subsidiary employing the Executive receive on the Date of Termination (as hereinafter defined) a Release, Covenant Not to Sue, Non-Disclosure and Non-Solicitation Agreement executed by the Executive (or the Executive's legal representative in the event of the death or Disability of the Executive), in the form set forth in Exhibit A to this Agreement (the "Release Agreement"), and that such Release Agreement be effective: (a) The Company or a Subsidiary will pay to the Executive as compensation for services rendered, promptly following the effective date of the Release Agreement, a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld computed at the rate for supplemental payments) equal to (X) the sum of (i) three (3) 12 13 times the Executive's Base Salary, plus (ii) three (3) times the Executive's Bonus Amount, less (Y) the aggregate lump sum cash severance amount in respect of base salary and bonus pursuant to subparagraphs 5(a)(i) and (v) of the Company's Executive Severance Plan (or any successor provision) payable to the Executive upon termination of employment, delivery by the Executive of the Release, Covenant Not to Sue, Non-Disclosure and Non-Solicitation Agreement referred to therein, and the expiration of all periods during which the Executive may revoke any release of claims in such agreement. (b) The Executive will be entitled to receive "Special Retirement Benefits" as provided herein, so that the total retirement benefits the Executive receives from the Company will approximate the total retirement benefits the Executive would have received under all defined benefit retirement plans (which may include non-qualified, supplemental and excess benefits retirement plans but shall not include severance plans) and other employment contracts of the Company and its Subsidiaries in which the Executive participates were the Executive fully vested under such retirement plans and entitled to all benefits payable under such other employment contracts and had the Executive continued in the employ of the Company or a Subsidiary for one hundred twenty (120) months following the Date of Termination or until the Executive's Normal Retirement Date, if earlier (provided that such additional period shall be inclusive of and shall not be in addition to any period of service credited under any severance plan of the Company or a Subsidiary). The benefits specified in this subparagraph will include all ancillary benefits, such as early retirement and survivor rights and other benefits available to full-time exempt employees of the Company or Subsidiary employing the Executive, as applicable, at Retirement including, but not limited to, post-retirement health and life insurance benefits. The amount payable to the Executive or the Executive's beneficiaries under this subparagraph shall equal the excess of (1) the retirement benefits that would be paid to the Executive or the Executive's beneficiaries, under all retirement plans and other employment contracts of the Company and its Subsidiaries in which the Executive participates if (A) the Executive were fully vested under such plans and entitled to all benefits payable under such other employment contracts, (B) the one hundred twenty (120) month period (or the period 13 14 until the Executive's Normal Retirement Date, if less) following the Date of Termination were added to the Executive's credited service under such plans and contracts, (C) the terms of such plans were those most favorable to the Executive which were in effect at any time during the period commencing twelve (12) months prior to the Change of Control and ending on the date of Notice of Termination, and (D) the Executive's highest average annual base salary as defined under such retirement plans and other employment contracts and any cash bonus which under the terms of such plan or contract is used to calculate benefits thereunder were calculated as if the Executive had been employed by the Company or a Subsidiary for a one hundred and twenty (120) month period (or the period until the Executive's Normal Retirement Date, if earlier) following the Date of Termination and had the Executive's salary and cash bonus during such period been equal to the Executive's Base Salary and Bonus Amount; over (2) the retirement benefits that are payable to the Executive or the Executive's beneficiaries under all retirement plans and other employment contracts of the Company and its Subsidiary in which the Executive participates. These Special Retirement Benefits are provided on an unfunded basis, are not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be payable solely from the general assets of the Company. These Special Retirement Benefits shall be payable at the times and in the manner provided in the applicable retirement plans and other employment contracts to which they relate, or at the election of the Executive they shall be paid in a lump sum actuarial equivalent utilizing the actuarial assumptions of the defined benefit pension plan applicable to the Executive. (c) As used herein, "Welfare Plans" shall mean the medical, dental, vision, life, dependent life, personal accident, employee banking services, and educational matching gift plans of the Company or a Subsidiary in which the Executive was participating at the Date of Termination, and shall not include disability, tuition reimbursement, medical and dependent care spending plans, and business travel accident plans. The Executive will remain an active participant in all Welfare Plans with the Executive's Base Salary used as the basis for determining the level of benefits, for a period of thirty-six (36) months after the Date of Termination, but only to the extent permitted by 14 15 applicable law or the terms (including terms and conditions related to the Executive's death, disability or retirement, such as changes in benefits upon retirement) of any such Welfare Plan, as interpreted by the Company; provided, however, that if employee contributions are generally required by any such plan the Executive pays to the Company or Subsidiary an amount equal to the required contribution, if any, which such plans provide are to be made by employees of status and seniority comparable to the status and seniority of the Executive at the Date of Termination, which amounts shall be paid by the Executive at the time or times required by such plans for employee contributions. In the event applicable law or the terms of any such Welfare Plan do not permit continued participation by the Executive, then the Company or a Subsidiary will arrange to provide the Executive with benefits substantially similar to and no less favorable than the benefits the Executive was entitled to receive under such Welfare Plan immediately prior to the giving of the Notice of Termination for a period terminating thirty-six (36) months after the Date of Termination; provided, however, that if employee contributions are generally required by any such plan the Executive pays to the Company or Subsidiary an amount equal to the required contribution, if any, which such plans provide are to be made by employees of status and seniority comparable to the status and seniority of the Executive at the Date of Termination, which amounts shall be paid by the Executive at the time or times required by such plans for employee contributions. In lieu of continued participation in the Company or a Subsidiary's disability plans, in the event that the Executive becomes disabled during the period of participation in Welfare Plans provided for herein, as determined by approval for disability benefits under the federal Social Security program, the Company or Subsidiary shall make direct payments to the Executive commencing upon termination of participation in the Welfare Plans hereunder and under any Severance Plan and during the continuation of such disability, as determined under the federal Social Security program, until the Executive's Normal Retirement Date of the amounts the Executive would have received under the Company or Subsidiary's long-term disability plan (after taking into account any offsets to income under such plan) as if the Executive had qualified for long-term disability payments under the Company or Subsidiary's long-term disability plan immediately prior to the Date of Termination. The continuation of welfare benefits provided 15 16 by this subparagraph shall be inclusive of any period of welfare benefits continuation provided by any severance plan or other contract of the Company or a Subsidiary, it being the intention of the parties that the Executive shall receive continuation of welfare benefits for the longest period provided by any severance plan or contract and this Agreement, not the sum of the periods provided in various severance plans and contracts and this Agreement. If any benefits provided hereunder are provided outside of a Welfare Plan and would have been tax-exempt or tax-favored to the Executive if provided under a Welfare Plan, the Company or Subsidiary shall make additional payments to the Executive in reimbursement of taxes in order to put the Executive in the same after tax position as if the benefits had been provided under a Welfare Plan. In the event the Executive becomes employed with another employer and becomes eligible to receive welfare benefits under plans provided by such employer, the welfare benefits provided hereunder shall be secondary to those provided under such other plans. 16 17 5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement (the "Contract Payments") or of any other plan, arrangement or agreement of the Company (or any affiliate) ("Other Payments" and, together with the Contract Payments, the "Payments") would, in the opinion of independent tax counsel selected by the Company and reasonably acceptable to the Executive ("Tax Counsel"), be subject to the excise tax (the "Excise Tax") imposed by section 4999 of the Code (in whole or in part), as determined as provided below, then, unless subparagraph 5(e) below is applicable, the Company shall pay to the Executive, at the time specified in subparagraph 5(b) hereof, an additional amount (the "Offset Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on the Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this subparagraph 5(a), and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total present value of the Contract Payments and Other Payments at the time such Payments are to be made. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of Tax Counsel, a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Offset Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal 17 18 rates of federal income taxation applicable to individuals in the calendar year in which the Offset Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Offset Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (b) The Offset Payments provided for in subparagraph 5(a) hereof shall be made upon the earlier of (i) the payment to the Executive of any Contract Payment or Other Payment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding or the opinion of Tax Counsel that the Excise Tax is less than the amount taken into account under subparagraph 5(a) hereof, the Executive shall repay to the Company within five days of the Executive's receipt of notice of such final determination or opinion the portion of the Offset Payment attributable to such reduction (plus the portion of the Offset Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Offset Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a federal, state and local income tax deduction) plus any interest received by the Executive from the taxing authorities on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding or the opinion of Tax Counsel that the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Offset Payment), the Company shall make an additional Offset Payment in respect of such excess within five days of the Company's receipt of notice of such final determination or opinion. (d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder subsequent to a Change in 18 19 Control, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Tax Counsel incurred in connection with this Agreement shall be borne by the Company. (e) If in the opinion of Tax Counsel the Company would not be required to make an Offset Payment if the Payments to the Executive that would be treated as "parachute payments" under Section 280G of the Code were reduced by up to $50,000, then the amounts payable to the Executive under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to the Executive without giving rise to the Excise Tax (the "Safe Harbor Cap") and no Offset Payment shall be required to be made to the Executive. The reduction of the amounts payable under this Agreement, if applicable, shall be made by reducing first the payments under paragraph 4(a) above, unless an alternative method of reduction is elected by the Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder by an amount not exceeding $50,000 would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. 6. GENERAL. (a) The Company or a Subsidiary shall pay promptly as incurred the Executive's reasonable attorney's fees and expenses incurred in good faith by the Executive as a result of any dispute (regardless of the outcome thereof) with the Company or a Subsidiary or any other party regarding the validity or enforceability of, or liability under, any provision of this Agreement or the act of any party thereunder or any guarantee of performance thereof and pay prejudgment interest on any delayed payment to the Executive calculated at the Summit Bank, New Jersey base rate of interest in effect from time to time from the date that payment should have been made under this Agreement; provided, however, that the Executive shall not have been found by the court to have acted in bad faith. Any finding 19 20 of bad faith must be final with the time to appeal therefrom having expired and no appeal having been perfected. (b) The Company's obligation to pay the Executive (or the Executive's dependents, beneficiaries or estate) the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in paragraphs 3(f) and 5(c) herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from the Executive or any person entitled thereto. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (d) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to the Executive hereunder if the Executive had 20 21 continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. The obligations of the Executive hereunder shall not be assignable by the Executive. (e) The Executive's rights under this Agreement shall be non-transferable except by will or by the laws of descent and distribution and except insofar as applicable law may otherwise require. Subject to the foregoing, no right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall, to the full extent permitted by law, be null, void and of no effect. 7. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, or if delivered personally or by courier, receipt requested, or by facsimile transmission, receipt acknowledged, addressed as follows: If to the Executive: If to the Company: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: Secretary to the Board or to such other address as either party may have furnished to the other in writing in accordance herewith, except that 21 22 notices of change of address shall be effective only upon receipt. 8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No assurances or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the law of the State of New Jersey. 9. FINANCING. All amounts due and benefits provided under this Agreement shall constitute general obligations of the Company or Subsidiary employed by the Executive in accordance with the terms of this Agreement. The Executive shall have only an unsecured right to payment thereof out of the general assets of the Company or such Subsidiary. Notwithstanding the foregoing, the Company or such Subsidiary may, by agreement with one or more trustees to be selected by the Company or such Subsidiary, create a trust on such terms as the Company or such Subsidiary shall determine to make payments to the Executive in accordance with the terms of this Agreement. 10. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or 22 23 unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11. SUPERSEDEAS. While this Agreement is in addition to and not in lieu of any other plan providing for payments to or benefits for the Executive or any agreement now existing or which hereafter may be entered into between the Company and the Executive, this Agreement supersedes all prior agreements and understandings of the parties hereto with respect to the Company's severance obligations to the Executive and any other similar payments to the Executive due upon termination of employment other than those agreements and understandings contained in the Company's Executive Severance Plan or specifically provided for in any employment agreement between the Company and the Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. SUMMIT BANCORP. EXECUTIVE By: ---------------------------- ---------------------------- Name: Title: 23 24 EXHIBIT A RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT This RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT (the "AGREEMENT") dated as of ______________ among (1) __________________________________ ("Executive"), and (2) Summit Bancorp. and all parent and subsidiary corporations, partnerships and other entities and affiliates controlled by, controlling or under common control with Summit Bancorp. (together with any predecessor and successor entities hereinafter being collectively referred to as "SUB") sets forth the agreements of the parties hereto with regard to the matters set forth herein: 1. Background. Executive is an Executive of SUB and a party to a Participation Agreement last amended October 15, 1997 pursuant to which Executive participates in SUB's Executive Severance Plan and a Termination Agreement last amended October 15, 1997 (the Plan and these Agreements together being collectively referred to as the "Contracts"). Any capitalized terms used but not defined herein shall have the meaning set forth in the applicable Contract. a. A Change of Control [has/has NOT] occurred [on (date)]. If a Change of Control has NOT occurred, Executive is not entitled to any benefits under the Termination Agreement. b. Executive's employment with SUB will or has terminated on ______________, which shall be the Date of Termination for purposes of the Contracts, notwithstanding any failure to adhere to the provisions for giving a Notice of Termination and the method of determining the Date of Termination set forth in the Contracts, any such failures being hereby waived by the parties. c. This termination shall constitute a termination "[for cause/ disability /retirement /other than for cause /by mutual agreement]" for purposes of any stock options and restricted stock which Executive holds, and the Termination Date shall be the termination date for the purposes of such options. Attached hereto as Appendix A is a list of all outstanding SUB options held by Executive on the date hereof. 24 25 2. Payment. Executive shall receive promptly following the EFFECTIVE DATE (as defined in paragraph 7 hereof) $____________________, the gross amount due to Executive under the Contracts, which shall be paid to Executive as $_________________ by check or deposit in Executive's bank account, with the balance withheld in respect of federal, state and local taxes and benefits contributions, which Executive acknowledges represents all amounts currently due Executive under the Contracts. SUB continues to be obligated to provide certain welfare and pension benefits and perquisites, and both parties are obligated to make certain adjustments to the Offset Payments if required, all as more fully set forth in the Contracts. 3. Restrictive Covenants. In consideration of the payments to Executive as specified in paragraph 2 above, Executive agrees as follows: a. Non-Solicitation of SUB Customers. For a period of three (3) years from the date hereof, Executive will not solicit or induce any person, corporation, or other entity that is a customer of SUB or that was such at any time within one year prior to the date hereof to become a customer of any other person, firm, corporation, or other entity which directly or indirectly competes with SUB, or approach any such person, firm, corporation, or other entity for such purpose or authorize or knowingly approve the taking of such actions by other persons. b. Non-Solicitation of SUB Employees. For a period of five (5) years from the date hereof, Executive will not solicit or induce any person who is an employee of SUB or was such at any time within three months prior to the date hereof to become employed by any other person, firm or corporation or approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by other persons. c. Non-Disclosure of Proprietary Information. Executive acknowledges that during the course of Executive's employment with SUB Executive received, obtained or became aware of or had access to proprietary information, lists and records of customers and trade secrets which are the property of SUB and which are not known by competitors or generally by the public ("Proprietary Information") and recognizes such Proprietary Information to be valuable and unique assets of SUB. For purposes of this subparagraph: (i) Proprietary Information is deemed to include, without limitation, (A) marketing materials, marketing manuals, policy manuals, procedure manuals, policy and procedure manuals, operating manuals and 25 26 procedures and product documentation, (B) all information about pricing, products, procedures, practices, business methods, systems, plans, strategies or personnel of SUB, (C) circumstances surrounding the relationships with, knowledge of, or information about the customers, clients, and accounts of SUB, including but not limited to the identity of current active customers or prospects who have been contacted by SUB, the expiration dates and other terms of loans or deposit or other banking relationships, details or special product provisions or special combinations of products, or special prices, and (D) all other information about SUB which has not been disclosed in documents filed with the U.S. Securities and Exchange Commission or otherwise publicly disseminated by SUB, whether or not that information is recorded and notwithstanding the method of recordation, if any; and (ii) Proprietary Information is deemed to exclude all information legally in the public domain. Executive agrees to hold the Proprietary Information in the strictest confidence and agrees not to use or disclose any Proprietary Information, directly or indirectly, at any time for any purpose, without the prior written consent of SUB or to use for Executive's benefit or the benefit of any person, firm, corporation or other entity (other than SUB), any Proprietary Information, and to use Executive's best efforts to prevent such prohibited use or disclosure by any other persons. Executive has returned all Proprietary Information in Executive's possession or control to SUB. d. Cooperation, No Detrimental Actions. Executive will cooperate with SUB in enforcing its claims against customers and former customers of SUB, including appearing as a witness for SUB in court or administrative proceedings, subject to reasonable reimbursement for Executive's time and expenses. Executive will not take actions or make disparaging statements which are detrimental to SUB or the RELEASEES, as defined in paragraph 5 below. e. Remedies. Executive hereby acknowledges that Executive's duties and responsibilities under this paragraph 3 are unique and extraordinary and that irreparable injury may result to SUB in the event of a breach of the terms and conditions of this paragraph 3, which may be difficult to ascertain, and that the award of damages would not be adequate relief to SUB and the RELEASEES. Executive therefore agrees that in the event of Executive's breach of any of the terms or conditions of this paragraph 3, SUB shall have the right, without posting any bond or other security, to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from 26 27 such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which SUB may be entitled against Executive. The covenants of Executive in paragraphs 3a, 3b, 3c and 3d of this Agreement shall each be construed as an agreement independent of any other provision in this AGREEMENT, and the existence of any claim or cause of action of Executive against SUB, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by SUB of paragraphs 3a, 3b, 3c and 3d. f. Enforcement. If at the time of the enforcement of subparagraphs 3a, 3b, 3c, 3d or 3e above a court shall hold that the period or scope of the provisions thereof are unreasonable under the circumstances then existing, the parties hereby agree that the maximum period or scope under the circumstances shall be substituted for the period or scope stated in those subparagraphs. 4. Short-Swing Securities Profits. Executive acknowledges that Executive will remain subject to the short-swing liability provisions of Section 16 of the federal Securities Exchange Act of 1934 for six months following termination of employment. 5. Release. In consideration of the payments to Executive as specified in paragraph 2 above, Executive grants SUB a RELEASE of only all claims, both known and unknown, that Executive may have that relate to the termination of Executive's employment (hereafter a "WRONGFUL TERMINATION CLAIM"). Executive and SUB agree that a WRONGFUL TERMINATION CLAIM, specifically and without limitation, does not include claims: a. for indemnification as a corporate agent of SUB against claims by third parties; b. under employee benefit plans, including supplemental employee retirement plans, maintained by SUB or any of the predecessor organizations thereof, including but not limited to rights under any workers compensation program, Section 502(a) of the Employee Retirement Income Security Act, as amended, 29 U.S.C. ss.1001 et seq., and under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); 27 28 c. arising out of enforcement of the Contracts or this Agreement by Executive; or d. constituting cross-claims against SUB as a result of claims brought by unaffiliated third parties against Executive based on Executive's service as an executive of SUB. The statutes which could form the basis for a WRONGFUL TERMINATION CLAIM include, but are not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. ss.1971 et seq.; the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. ss.621 et seq.; Section 510 of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. ss.1001 et seq.; the Americans With Disabilities Act, as amended, 42 U.S.C. ss.12101 et seq.; the Older Workers Benefit Protection Act, as amended, 29 U.S.C. ss.621 et seq.; the Civil Rights Act of 1866, as amended, 42 U.S.C. ss.1981 et seq.; the New Jersey Law Against Discrimination, as amended, N.J.S.A. 10:5- 1 et seq.; the New Jersey Conscientious Employee Protection Act, as amended, N.J.S.A. 34:19-1 et seq.; the New York Human Rights Law, Executive Law ss.290 et seq.; the Pennsylvania Human Relations Act, as amended, 43 P.S. ss.951 et seq.; and the Pennsylvania Whistleblower Law, as amended, 43 P.S. ss.1421 et seq. The common law (non-statutory) theories under which a WRONGFUL TERMINATION CLAIM could be made include, but are not limited to, breach of an express employment contract, breach of a contract implied from a personnel handbook or manual, or commission of a civil wrong (known as a "tort") resulting in Executive's termination, or for alleged violation of the public policy of the United States or any state. Granting a RELEASE of any WRONGFUL TERMINATION CLAIM pursuant to this AGREEMENT means that on behalf of Executive and all who succeed to Executive's rights and responsibilities, Executive releases and gives up only any and all WRONGFUL TERMINATION CLAIMS that Executive may have against SUB, and any of its subsidiaries, affiliates or divisions, and all of their directors, officers, representatives, shareholders, agents, employees, and all who succeed to their rights and responsibilities (collectively referred to as "RELEASEES"). With respect to any charges filed concerning events or actions relating to a WRONGFUL TERMINATION CLAIM that occurred on or before the date of this AGREEMENT or Executive's Termination Date (whichever is later), Executive waives and releases any right that Executive may have to recover in any lawsuit or proceeding brought by Executive or by an administrative agency on Executive's behalf against the RELEASEES. 6. Covenant Not to Sue. Executive covenants not to sue the RELEASEES over any WRONGFUL TERMINATION CLAIM. Such a covenant not to sue the 28 29 RELEASEES means that Executive represents that Executive has not through the date of execution of this Agreement filed a WRONGFUL TERMINATION CLAIM, charge or lawsuit with any court or government agency against the RELEASEES, and that Executive will not file such a lawsuit subsequent to execution of this Agreement. Executive also waives any right to become, and promises not to become, a member of any class in a case in which WRONGFUL TERMINATION CLAIMS are asserted against any of the RELEASEES. 7. Review Period. Executive acknowledges that Executive has up to 21 days to review this AGREEMENT and was advised to review it with an attorney of Executive's choice. Executive also acknowledges that Executive was further advised that Executive has seven days after Executive signs this AGREEMENT to revoke it by notifying SUB in writing of such revocation as set forth under Notices below. This AGREEMENT shall become effective on the tenth (10th) day following its execution by Executive (the "EFFECTIVE DATE"), unless revoked in accordance with the preceding sentence. 8. Revocation of Authority. Executive agrees and acknowledges that as of the Termination Date Executive shall no longer be empowered to bind SUB in any agreement, whether verbal or written, and that Executive shall have no authority to execute any documents, deeds, leases, or other contracts on behalf of SUB. To the extent not effected by termination of Executive under the Contracts, Executive resigns from all offices and positions with SUB. 9. Successors and Assigns. All rights and duties of SUB under this Agreement shall be binding on and inure to the benefit of SUB, its successors and assigns. All rights of Executive hereunder shall be binding upon and inure to the benefit of Executive's personal or legal representatives. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally with receipt acknowledged or sent by registered or certified mail, postage prepaid or by reputable national overnight delivery service, to the addresses shown below, unless changed by notices given as herein provided, except that notice of change of address only shall be effective upon actual receipt: If to SUB, to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 29 30 Attention: Executive Vice President of Human Resources With a copy to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: General Counsel If to the Executive, to: ________________________________ 11. Covenant Not to Challenge Enforceability. Both Executive and SUB understand that this AGREEMENT is final and binding when executed by both parties, subject to paragraph 7 above, and both agree not to thereafter challenge its enforceability. 12. Applicable Law. This AGREEMENT shall be deemed to have been made within the State of New Jersey, and it shall be interpreted, construed, and enforced in accordance with the law of the State of New Jersey, and before the Courts of the State of New Jersey. 13. Amendments, Modifications, Waivers. This AGREEMENT cannot be amended or modified except by a written document signed by both SUB and Executive and no provision can be waived except by a written document signed by the waiving party. 30 31 14. By signing this AGREEMENT, Executive acknowledges: a. EXECUTIVE HAS READ THIS AGREEMENT COMPLETELY. b. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSIDER THE TERMS OF THIS AGREEMENT. c. EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY OF EXECUTIVE'S CHOOSING PRIOR TO EXECUTING THIS AGREEMENT. d. EXECUTIVE KNOWS THAT EXECUTIVE MAY BE GIVING UP IMPORTANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT. e. EXECUTIVE UNDERSTANDS AND MEANS EVERYTHING THAT EXECUTIVE HAS SAID IN THIS AGREEMENT, AND EXECUTIVE AGREES TO ALL ITS TERMS. f. EXECUTIVE IS NOT RELYING ON SUB OR ANY REPRESENTATIVE OF SUB TO EXPLAIN THIS AGREEMENT AND RELEASE TO EXECUTIVE. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSULT AN ATTORNEY OR OTHER ADVISOR TO EXPLAIN THIS AGREEMENT AND ITS CONSEQUENCES TO EXECUTIVE BEFORE EXECUTIVE SIGNED IT, AND EXECUTIVE HAS AVAILED HIMSELF OR HERSELF OF THIS OPPORTUNITY TO WHATEVER EXTENT EXECUTIVE DESIRED. g. EXECUTIVE HAS SIGNED THIS AGREEMENT VOLUNTARILY AND ENTIRELY OF EXECUTIVE'S OWN FREE WILL, WITHOUT ANY PRESSURE FROM SUB OR ANY REPRESENTATIVE OF SUB, OR ANYONE ELSE. 31 32 IN WITNESS WHEREOF, and intending to be legally bound hereby, this Agreement has been executed as of the day and year first above written. ATTEST: SUMMIT BANCORP. By: - --------------------------------- --------------------------------- Secretary Executive Vice President - --------------------------------- EXECUTIVE - --------------------------------- (Social Security Number) STATE OF NEW JERSEY: COUNTY OF _______________________: I certify that on this _______ day of ____________, _______ personally came before me __________________________ (Executive), who, being duly sworn, acknowledged under oath to my satisfaction that such person is named in and personally executed the foregoing Release, Covenant not to Sue, Non-Disclosure and Non-Solicitation Agreement as such person's voluntary act and deed, for the purposes set forth therein. IN WITNESS WHEREOF, I have set my hand this ____ day of _____________, ______. By------------------------------------ Notary Public of the State of New Jersey My Commission expires __________________ 32 EX-10.FF 5 EXECUTIVE SEVERANCE PLAN 1 Exhibit (10) FF SUMMIT BANCORP. EXECUTIVE SEVERANCE PLAN (as Amended through October 15, 1997) 1. PURPOSES The purposes of the Summit Bancorp. Executive Severance Plan (the "Plan") are (a) to enhance executive morale, (b) to enhance the ability of Summit Bancorp. (formerly known as UJB Financial Corp. and United Jersey Banks) (the "Company") to retain existing management and, if needed, to attract new executives, (c) to reward eligible executives for their valuable, dedicated service to the Company or one or more of its subsidiary corporations (each, a "Subsidiary") with reasonable compensation in the event of their termination of employment with the Company or a Subsidiary, and (d) by providing generally applicable terms of severance, to avoid the legal expense and reduce management time associated with terminations. 2. EFFECTIVE DATE This amendment and restatement of the Plan is effective as of October 15, 1997 and will determine the eligibility for benefits of all executives who are selected to participate in the Plan (the "Participants") and who are terminated on or after such date. 3. ADMINISTRATION The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"), consisting of three or more directors having full authority to act in the matter, all of whom are Disinterested Persons. For purposes of this section, a Disinterested Person shall mean a person who, at the time action is taken, and within the one (1) year period prior thereto, is not, and has not been, an employee of the Company. The Committee shall have the power to interpret and construe the Plan and other powers and duties as set forth in the Plan, and any such interpretation and construction of any provisions of this Plan shall be final. The Committee shall report any actions taken to the Board at the next meeting of the Board following such Committee action. 1 2 4. PARTICIPATION The Committee shall from time to time select the Participants from among those key executives who are determined by the Committee to be rewarded for their valuable, dedicated service to the Company or a Subsidiary. The Company shall provide each Participant with a letter (a "Participation Letter") evidencing the Participant's participation in the Plan and setting forth the payments and benefits to which the Participant may become entitled and containing such other terms, provisions and conditions not inconsistent with the Plan, including but not limited to provisions for the extension or renewal of such agreement, as shall be determined by the Committee. Without limiting the foregoing, it is an express condition to a Participant's entitlement to the payments of amounts and the provision of benefits provided for by paragraph 5(a) hereof that the Company receive on the Date of Termination (as hereinafter defined) a Release, Covenant Not to Sue, Non-Disclosure and Non- Solicitation Agreement executed by the Participant, or the Participant's legal representative, in the event of the death or Disability of the Participant, in the form set forth in Exhibit A to this Plan ("Release Agreement"), and that such Release Agreement be effective. The Participation Letter shall clearly set forth this requirement and provide that a Participant's participation is also conditioned on the Participant's acknowledgment of the terms of the Participation Letter by delivery to the Company of a counterpart thereof signed by the Participant to evidence such acknowledgment. Any purported termination of employment by the Company or a Subsidiary or by the Participant shall be communicated by written Notice of Termination to the other party. For purposes of this Plan, a "Notice of Termination" shall mean a notice given by a Participant or the Company or a Subsidiary, as the case may be, which shall indicate the specific provision of this Plan applicable to such termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Plan. A Participant shall not be entitled to give a Notice of Termination that the Participant is terminating the Participant's employment with the Company or a Subsidiary for Good Reason (as hereinafter defined) more than six (6) months following the occurrence of the event alleged to constitute Good Reason. 2 3 A Participant shall cease to be a Participant in the Plan upon the earliest to occur of the Date of Termination (as hereinafter defined), the Participant's Retirement (as hereinafter defined) and the date set forth in the Participation Letter as provided therein. For purposes of this Plan, except as provided below, the "Date of Termination" shall mean the date specified in a Notice of Termination, which shall be not more than ninety (90) days after such Notice of Termination is given. The Date of Termination of a proposed Termination for Disability (as hereafter defined), shall be at least thirty (30) days after the giving of the Notice of Termination. If, within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a Dispute (as hereinafter defined) exists, the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company or a Subsidiary shall continue to pay the Participant the same Base Salary (as hereinafter defined) and to provide the Participant with the same or substantially comparable employee benefits and perquisites, including participation in the Company's or a Subsidiary's retirement plans and Savings Incentive Plan (but excluding the Incentive Bonus Plan (cash bonus plan), Incentive Stock and Option Plans, and other plans not available to employees generally), that the Participant was paid and provided in the twelve (12) months immediately prior to the giving of the Notice of Termination. For purposes of this Plan, a Dispute shall mean (i) in the case of termination of employment of a Participant with the Company or a Subsidiary by the Company or a Subsidiary for Disability or Cause (as hereinafter defined), that the Participant challenges the existence of Disability or Cause and (ii) in the case of termination of employment of a Participant with the Company or a Subsidiary by the Participant for Good Reason, that the Company or such Subsidiary challenges the existence of Good Reason. 3 4 Should it ultimately be determined that a challenged termination by the Company or a Subsidiary by reason of the Participant's Disability or for Cause was justified, or that a challenged termination by the Participant for Good Reason was not justified, then (1) the Participant shall promptly pay to the Company or a Subsidiary (as the case may be) an amount equal to all sums paid by the Company or a Subsidiary to the Participant from the date of termination specified in the Notice of Termination until final resolution of the Dispute pursuant hereto, with interest at the base rate charged from time to time by Summit Bank, New Jersey, and (2) to the extent permitted by law, no service as an employee shall be credited to the Participant for such period for pension purposes. The Participant shall not be obligated to repay to the Company or a Subsidiary the cost of providing the Participant with employee benefits and perquisites for such period (which cost for purposes of health plans means the applicable premium under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended) unless the final judgment, order or decree of a court resolving the Dispute determines that the Participant acted in bad faith in giving a notice of Dispute. Should it be ultimately determined that a challenged termination by the Company or a Subsidiary by reason of the Participant's Disability or for Cause was not justified, or that a challenged termination by the Participant for Good Reason was justified, then the Participant shall be entitled to retain all sums paid to the Participant pending resolution of the Dispute and shall be entitled to receive ,in addition, the payments and other benefits provided for in paragraph 5 hereof. 5. PAYMENTS AND BENEFITS UPON TERMINATION OF EMPLOYMENT (a) In the event of a termination of employment of a Participant with the Company or a Subsidiary, other than a termination of employment which is (i) due to the Participant's death or Retirement; or (ii) by the Company or a Subsidiary by reason of the Participant's Disability or for Cause; or (iii) by the Participant other than for Good Reason, the Participant shall be entitled, subject to compliance with paragraph 7 hereof, as compensation for services rendered (subject to any applicable payroll or other taxes required to be withheld), until the expiration of the applicable period set forth below; to: 4 5 (i) receive, promptly following the effective date of the Release Agreement, a lump sum cash amount equal to two (2) times the Participant's Base Salary; (ii) receive, promptly following the effective date of the Release Agreement, but only if the Participant participates in the Savings Investment Plan (i.e., a 401(k) plan) immediately preceding the Date of Termination, a lump sum cash amount equal to the aggregate amount of matching contributions that the Company or a Subsidiary would have been required to contribute under such plan for the account of the Participant, assuming the Participant had contributed the maximum amount allowable by law to such plan during a period of twenty-four (24) months after the Date of Termination. (iii) remain an active participant in all Welfare Plans (as used herein, "Welfare Plans" shall mean the medical, dental, vision, life, dependent life, personal accident, employee banking services, and educational matching gift plans of the Company or a Subsidiary in which the Participant was participating at the Date of Termination, and shall not include disability, tuition reimbursement, medical and dependent care spending plans, and business travel accident plans) with the Participant's Base Salary used as the basis for determining the level of benefits, for a period of twenty-four (24) months after the Date of Termination, but only to the extent permitted by applicable law or the terms (including terms and conditions related to the Participant's death, disability or retirement, such as changes in benefits upon retirement) of any such Welfare Plan, as interpreted by the Company; provided, however, that if employee contributions are generally required by any such plan the Participant pays to the Company or Subsidiary an amount equal to the required contribution, if any, which such plans provide are to be made by employees of status and seniority comparable to the status and seniority of the Participant at the 5 6 Date of Termination, which amounts shall be paid by the Participant at the time or times required by such plans for employee contributions. In the event applicable law or the terms of any such Welfare Plan do not permit continued participation by the Participant, then the Company or a Subsidiary will arrange to provide the Participant with benefits substantially similar to and no less favorable than the benefits the Participant was entitled to receive under such Welfare Plan immediately prior to the giving of the Notice of Termination for a period terminating twenty-four (24) months after the Date of Termination; provided, however, that if employee contributions are generally required by any such plan the Participant pays to the Company or Subsidiary an amount equal to the required contribution, if any, which such plans provide are to be made by employees of status and seniority comparable to the status and seniority of the Participant at the Date of Termination, which amounts shall be paid by the Participant at the time or times required by such plans for employee contributions. In lieu of continued participation in the Company or a Subsidiary's disability plans, in the event that the Participant becomes disabled during the period of participation in Welfare Plans provided for herein, as determined by approval for disability benefits under the federal Social Security program, the Company or Subsidiary shall make direct payments to the Participant commencing upon termination of participation in the Welfare Plans hereunder and under any Termination Agreement and during the continuation of such disability, as determined under the federal Social Security program, until the Participant's Normal Retirement Date (as hereinafter defined) of the amounts the Participant would have received under the Company or Subsidiary's long-term disability plan (after taking into account any offsets to income under such plan) as if the Participant had qualified for long-term disability payments under the Company or Subsidiary's long-term disability plan immediately prior to the Date of Termination. If any benefits provided hereunder are provided outside of a 6 7 Welfare Plan and would have been tax-exempt or tax-favored to the Participant if provided under a Welfare Plan, the Company or Subsidiary shall make additional payments to the Participant in reimbursement of taxes in order to put the Participant in the same after tax position as if the benefits had been provided under a Welfare Plan. In the event the Participant becomes employed with another employer and becomes eligible to receive welfare benefits under plans provided by such employer, the welfare benefits provided hereunder shall be secondary to those provided under such other plans; (iv) receive, promptly following the effective date of the Release Agreement, any awards previously made to the Participant under the Company's Incentive Bonus Plan or comparable plan, or any successor plan, for any year of employment prior to the year which includes the Date of Termination, payment of which had not been made prior to the Date of Termination, and any accrued vacation or other paid time off; (v) receive, promptly following the effective date of the Release Agreement, a lump sum cash amount equal to two (2) times the Participant's Bonus Amount (as hereinafter defined); (vi) receive "Special Retirement Benefits" as provided herein, so that the total retirement benefits the Participant receives from the Company will approximate the total retirement benefits the Participant would have received under all defined benefit retirement plans (which may include non- qualified, supplemental and excess benefits retirement plans but shall not include severance plans) and other employment contracts of the Company and its Subsidiaries in which the Participant participates were the Participant fully vested under such retirement plans and entitled to all benefits payable under such other employment contracts and had the Participant continued in the employ of the Company or a Subsidiary for twenty-four (24) months following 7 8 the Date of Termination or until the Participant's Normal Retirement Date, if earlier. The benefits specified in this subparagraph will include all ancillary benefits, such as early retirement and survivor rights and other benefits available to full-time exempt employees of the Company or Subsidiary employing the Participant, as applicable, at Retirement including, but not limited to, post-retirement health and life insurance benefits. The amount payable to the Participant or the Participant's beneficiaries under this subparagraph shall equal the excess of (1) the retirement benefits that would be paid to the Participant or the Participant's beneficiaries, under all retirement plans and other employment contracts of the Company and its Subsidiaries in which the Participant participates if (A) the Participant were fully vested under such plans and entitled to all benefits payable under such other employment contracts, (B) the twenty-four (24) month period (or the period until the Participant's Normal Retirement Date, if less) following the Date of Termination were added to the Participant's credited service under such plans and contracts, (C) the terms of such plans were those most favorable to the Participant which were in effect at any time during the period commencing twelve (12) months prior to the Change of Control and ending on the date of Notice of Termination, and (D) the Participant's highest average annual base salary as defined under such retirement plans and other employment contracts and any cash bonus which under the terms of such plan or contract is used to calculate benefits thereunder were calculated as if the Participant had been employed by the Company or a Subsidiary for a twenty-four (24) month period (or the period until the Participant's Normal Retirement Date, if earlier) following the Date of Termination and had the Participant's salary and cash bonus during such period been equal to the Participant's Base Salary and Bonus Amount; over (2) the retirement benefits that are payable to the Participant or the Participant's beneficiaries under all retirement plans and other employment contracts of 8 9 the Company and its Subsidiary in which the Participant participates These Special Retirement Benefits are provided on an unfunded basis, are not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be payable solely from the general assets of the Company. These Special Retirement Benefits shall be payable at the times and in the manner provided in the applicable retirement plans and other employment contracts to which they relate, or at the election of the Participant they shall be paid in a lump sum actuarial equivalent utilizing the actuarial assumptions of the defined benefit pension plan applicable to the Participant; (vii) continued provision of perquisites, such as tax preparation services, use of any automobile and club memberships provided by the Company or a Subsidiary, in all cases for a period of twelve (12) months following the Date of Termination, provided that any personal expenses incurred by the Participant in connection with such club memberships shall be paid by the Participant. Club dues shall not be considered a personal expense. The Participant may elect to have any or all of such club memberships transferred to the Participant during or upon the expiration of such twelve (12) month period, and the Company or such Subsidiary shall assign and transfer to the Participant without charge the rights to any amounts which would be recoverable upon the termination of all such club memberships which the Participant has elected to be transferred to the Participant, such as a bond or shares; and (viii) senior executive level outplacement services, at least comparable to what is being provided to senior executives on the date hereof, for a period of up to two years. Notwithstanding the foregoing, if the Participant's Date of Termination is within two (2) years of the normal retirement date provided in the Company's or Subsidiary's defined benefit 9 10 retirement plan applicable to the Participant ( the "Normal Retirement Date"), the sums provided for in subparagraphs 5(a)(i), (ii), and (v) shall be multiplied by a fraction ("Adjustment Fraction"), the numerator of which is equal to the number of full months from the Date of Termination to the Normal Retirement Date, and the denominator of which is equal to 24. (b) In the event of termination of employment of a Participant with the Company or a Subsidiary due to the Participant's death, Retirement or Disability, the Participant shall be entitled to a cash bonus for the portion of the fiscal year in which death, Retirement or Disability occurs equal to a pro rata (determined by dividing the number of days elapsed in such fiscal year to such Death, Retirement or Disability by 365 or 366, as applicable) portion of the Bonus Amount, and such death, retirement or disability benefits, as the case may be, as are provided in the Company's or a Subsidiary's plans covering such Participant on such events and the Company or a Subsidiary shall have no further obligation to the Participant under this Plan. (c) In the event of termination of employment of a Participant with the Company or a Subsidiary by the Company or a Subsidiary for Cause or by the Participant other than for Good Reason, the Participant shall be entitled (subject to any applicable payroll or other taxes required to be withheld), to receive the Participant's Base Salary through the Date of Termination and the Company or a Subsidiary shall have no further obligation to the Participant under this Plan. This paragraph 5(c) shall not apply to a termination of employment by reason of Death, Retirement or Disability. 6. DEFINITIONS For purposes of the Plan: (a) Base Salary shall mean the amount determined by multiplying the Participant's highest semi-monthly or other periodic rate of base pay paid to the Participant during the twelve-month period immediately prior to the giving of the Notice of Termination by the number of pay periods per year. The following items are not part of base pay, as used herein: reimbursed expenses, any amount paid on account of overtime or holiday work, payments on account of insurance premiums or other 10 11 contributions made to other welfare or benefit plans, and any year-end or other bonuses, commissions and gifts. (b) Bonus Amount means the highest annual cash incentive bonus earned by the Participant from the Company or a Subsidiary during the last three (3) completed fiscal years of the Company immediately preceding the Participant's Date of Termination (annualized in the event the Participant was not employed by the Company or a Subsidiary for the whole of any such fiscal year). (c) Cause shall mean: (i) the willful commission by the Participant of an illegal act or other act of willful misconduct that causes or will probably cause substantial economic damage to the Company or a Subsidiary or substantial injury to the business reputation of the Company or a Subsidiary; (ii) the commission by the Participant of an act of fraud in the performance of such Participant's duties on behalf of the Company or a Subsidiary; (iii) the continuing willful failure of the Participant to perform the duties of such Participant to the Company or a Subsidiary (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the Participant by the Committee; or (iv) the final order of a federal or state regulatory agency or a court of competent jurisdiction requiring the termination of the Participant's employment with the Company or a Subsidiary. No act, or failure to act, on the Participant's part shall be considered "willful" unless done or omitted to be done by the Participant not in good faith and without reasonable belief that the Participant's action or omission was in the best interests of the Company or a Subsidiary. 11 12 (d) Good Reason shall mean, excluding for this purpose an isolated insubstantial and inadvertent action or failure to act, which is not in bad faith and which is remedied by the Company or applicable Subsidiary promptly after receipt of notice thereof given by the Participant: (i) Without the Participant's express written consent, the assignment by the Company or a Subsidiary to the Participant of duties which are inconsistent with the Participant's then title and salary grade or a significant reduction in the Participant's authority and responsibility as a senior executive or the removal of the Participant from, or any failure to reappoint or reelect the Participant to, the title of Executive Vice President or above, except in connection with a termination of the Participant's employment by the Company or a Subsidiary for Cause (including during the pendency of any Dispute), during any period of incapacity due to physical or mental illness, or by reason of the Participant's death, Disability or Retirement; (ii) A reduction by the Company or a Subsidiary of the Participant's Base Salary, or the failure to grant increases in the Participant's Base Salary on a basis at least substantially comparable to those granted to other executives of the Company or a Subsidiary of comparable title, salary grade and performance ratings made in good faith; (iii) Requiring the Participant to be based anywhere other than an executive office of the Company or a Subsidiary located in New Jersey or Pennsylvania within sixty (60) geographic (not road) miles of 301 Carnegie Center, West Windsor Township, New Jersey, except for required travel on the Company's or a Subsidiary's business to an extent substantially consistent with the Participant's present business travel obligations, without the Participant's express written consent; or in the event of any relocation of the Participant with the Participant's express written consent, the failure by the Company or a Subsidiary to pay (or reimburse the Participant for) all reasonable moving expenses by the Participant relating to a 12 13 change of principal residence in connection with such relocation and to indemnify the Participant against any loss realized in the sale of the Participant's principal residence in connection with any such change of residence, all to the effect that the Participant shall incur no loss on an after tax basis; (iv) The failure by the Company or a Subsidiary to continue to provide the Participant with substantially the same welfare benefits and perquisites, including participation on a comparable basis in the Company's or a Subsidiary's retirement plans, Incentive Bonus Plan (cash bonus plan), Savings Incentive Plan, Incentive Stock and Option Plans, and other plans in which executives of the Company or a Subsidiary of comparable title and salary grade participate, as are presently provided to the Participant, or with a package of welfare benefits and perquisites, that, though one or more of such benefits or perquisites may vary from those set forth above, is substantially comparable in all material respects to such welfare benefits and perquisites, taken as a whole; provided, however, that a reduction, amendment or elimination of any benefit, perquisite or plan shall not be Good Reason if applicable to all executives of comparable title, salary grade and performance ratings made in good faith; (v) The giving by the Company or applicable Subsidiary of a notice that participation by the Participant in the Company's Executive Severance Plan or the Participant's Termination Agreement would not be renewed; (vi) The filing by the Company of a petition for bankruptcy or similar insolvency of the Company or the filing by any other party of such a petition which is not dismissed within sixty (60) days; or (vii) Any failure by the Company or applicable Subsidiary to comply with any of the provisions of this Plan with respect to the Participant. 13 14 (e) Disability shall mean the Participant's incapacity to perform Participant's duties with the Company or Subsidiary on a full-time basis for one hundred eighty (180) consecutive days due to physical or mental illness such that the Participant shall have become qualified to receive benefits under the Company's or a Subsidiary's long-term disability plans applicable to the Participant. Any question as to the existence of Disability upon which Participant and the Company or Subsidiary cannot agree shall be determined by a qualified independent physician selected by the Company or Subsidiary employing the Participant or its insurers and acceptable to the Participant or an adult member of the Participant's immediate family, which acceptance shall not be unreasonably withheld. Participant shall be obligated to submit to such medical examinations as may be necessary to determine whether Disability exists. (f) Retirement shall mean that the Participant shall have reached the Participant's Normal Retirement Date or that the Participant shall have taken early retirement (as defined in the Company's or Subsidiary's defined benefit retirement plan applicable to the Participant) and shall no longer be employed by the Company or a Subsidiary. 7. RELEASE OF CLAIMS BY PARTICIPANT The payment of all amounts and provision of all benefits provided for by paragraph 5(a) shall be conditioned on the execution by the Participant and delivery to the Company or applicable Subsidiary of a Release Agreement and the effectiveness of such Release Agreement. 8. FINANCING All amounts due and benefits provided under the Plan shall constitute general obligations of the Company or Subsidiary employing the Participant in accordance with the terms of the Plan. A Participant shall have only an unsecured right to payment thereof out of the general assets of the Company or such Subsidiary. Notwithstanding the foregoing, the Company or such Subsidiary may, by agreement with one or more trustees to be selected by the Company or such Subsidiary, create a trust on such terms as the Company or such Subsidiary shall determine to make payments to Participants in accordance with the terms of the Plan. 14 15 9. TERMINATION AND AMENDMENT OF THE PLAN The Board shall have the power at any time, in its discretion, to amend, in whole or in part, or terminate the Plan, except that no amendment or termination shall impair or abridge the obligations of the Company or a Subsidiary or the rights of the Participants under any Participation Letters previously delivered pursuant to the Plan. Any amendment or termination of the Plan shall be adopted by the Board, by resolution of the Board at a regular meeting of the Board or special meeting called for such purpose or by unanimous written consent. 10. BENEFIT OF PLAN The Plan shall be binding upon and shall inure to the benefit of the Participant, the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and the Company, its Subsidiaries and their respective Successors. The term "Successor" shall mean any person, firm, corporation or other business entity that, at any time, whether by merger, acquisition or otherwise, acquires all or substantially all of the stock, assets or business of the Company or a Subsidiary, as the case may be. If the Participant should die while any amounts would still be payable to the Participant hereunder if the Participant had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Participant's devisee, legatee or other designee or, if there be no such designee, to the Participant's estate. 11. NON-ASSIGNABILITY Each Participant's rights under this Plan shall be non- transferable except by will or by the laws of descent and distribution and except insofar as applicable law may otherwise require. Subject to the foregoing, no right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall, to the full extent permitted by law, be null, void and of no effect. 15 16 12. EFFECT OF OTHER PLANS Except as provided in paragraph 5, (a) nothing in the Plan shall affect the level of benefits provided to or received by any Participant (or the Participant's estate or beneficiaries) as part of any employee benefit plan of the Company or a Subsidiary and (b) the Plan shall not be construed to affect in any way a Participant's rights and obligations under any other plan maintained by the Company or a Subsidiary on behalf of employees or any other contract between the Company or a Subsidiary and the Participant. The Participant shall not be required to mitigate the amount of any payment under the Plan by seeking employment or otherwise, and there shall be no right of setoff or counterclaim, in respect of any claim, debt or obligation, against any payments to the Participant, the Participant's dependents, beneficiaries or estate provided for in the Plan. 13. TERMINATION OF EMPLOYMENT Nothing in the Plan shall be deemed to entitle a Participant to continued employment with the Company or a Subsidiary, and the rights of the Company or a Subsidiary to terminate the employment of a Participant in any lawful manner shall continue as fully as though this Plan were not in effect. 16 17 14. SEVERABILITY In the event that any provision or portion of the Plan shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of the Plan shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 15. LEGAL COSTS The Company or a Subsidiary shall pay promptly as incurred the Participant's reasonable attorney's fees and expenses incurred in good faith by the Participant as a result of any dispute (regardless of the outcome thereof) with the Company or a Subsidiary or any other party regarding the validity or enforceability of, or liability under, any provision of this Plan or the act of any party thereunder or any guarantee of performance thereof and pay prejudgment interest on any delayed payment to the Participant calculated at the Summit Bank, New Jersey base rate of interest in effect from time to time from the date that payment should have been made under the Plan; provided, however, that the Participant shall not have been found by the court to have acted in bad faith. Any finding of bad faith must be final with the time to appeal therefrom having expired and no appeal having been perfected. 16. GOVERNING LAW All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of New Jersey. 17. OTHER IMPORTANT INFORMATION 1. Plan Sponsor: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Telephone No.: 609-987-3200 EIN: 22-1903313 (Plan I.D. #506) 17 18 2. Plan Administrator and Agent for Service of Legal Process: Compensation Committee The Compensation Committee is appointed by the Board of Directors of Summit Bancorp. Agent for Service of Legal Process: General Counsel Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 3. Type of Plan - Executive Severance Plan 4. Type of Administration - Employer administered 5. Plan Trustee: Not Applicable 6. Plan Year The Plan year is January 1-December 31 7. ERISA Rights As a Participant in the Plan you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan Participants shall be entitled to: Examine, without charge, at the Plan Administrator's office and at other locations, all Plan documents, including insurance contracts and copies of all documents filed by the Plan with the U.S. Department of Labor, such as annual reports and plan descriptions. Obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies. 18 19 In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your Plan, called "fiduciaries", have a legal duty to do so prudently and in the interest of you and the other Plan Participants and beneficiaries. No one, including your employer or any other person, may discriminate against you in any way to prevent you from obtaining a severance benefit or exercising your rights under ERISA. If your claim for a severance benefit is denied in whole or part you must receive a written explanation of the reason for the denial. You have the right to have the Plan Administrator review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights: For instance, if you request materials from the Plan Administrator and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that plan fiduciaries misuse the plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in federal court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to pay these costs and fees. If 19 20 you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the U.S. Labor-Management Services Administration, Department of Labor. 20 21 EXHIBIT A RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT This RELEASE, COVENANT NOT TO SUE, NON-DISCLOSURE AND NON- SOLICITATION AGREEMENT (the "AGREEMENT") dated as of ______________ among (1) __________________________________ ("Executive"), and (2) Summit Bancorp. and all parent and subsidiary corporations, partnerships and other entities and affiliates controlled by, controlling or under common control with Summit Bancorp. (together with any predecessor and successor entities hereinafter being collectively referred to as "SUB") sets forth the agreements of the parties hereto with regard to the matters set forth herein: 1. Background. Executive is an Executive of SUB and a party to a Participation Agreement last amended October 15, 1997 pursuant to which Executive participates in SUB's Executive Severance Plan and a Termination Agreement last amended October 15, 1997 (the Plan and these Agreements together being collectively referred to as the "Contracts"). Any capitalized terms used but not defined herein shall have the meaning set forth in the applicable Contract. a. A Change of Control [has/has NOT] occurred [on (date)]. If a Change of Control has NOT occurred, Executive is not entitled to any benefits under the Termination Agreement. b. Executive's employment with SUB will or has terminated on ______________, which shall be the Date of Termination for purposes of the Contracts, notwithstanding any failure to adhere to the provisions for giving a Notice of Termination and the method of determining the Date of Termination set forth in the Contracts, any such failures being hereby waived by the parties. c. This termination shall constitute a termination "[for cause/ disability /retirement /other than for cause /by mutual agreement]" for purposes of any stock options and restricted stock which Executive holds, and the Termination Date shall be the termination date for the purposes of such options. Attached hereto as Appendix A is a list of all outstanding SUB options held by Executive on the date hereof. 21 22 2. Payment. Executive shall receive promptly following the EFFECTIVE DATE (as defined in paragraph 7 hereof) $____________________, the gross amount due to Executive under the Contracts, which shall be paid to Executive as $_________________ by check or deposit in Executive's bank account, with the balance withheld in respect of federal, state and local taxes and benefits contributions, which Executive acknowledges represents all amounts currently due Executive under the Contracts. SUB continues to be obligated to provide certain welfare and pension benefits and perquisites, and both parties are obligated to make certain adjustments to the Offset Payments if required, all as more fully set forth in the Contracts. 3. Restrictive Covenants. In consideration of the payments to Executive as specified in paragraph 2 above, Executive agrees as follows: a. Non-Solicitation of SUB Customers. For a period of three (3) years from the date hereof, Executive will not solicit or induce any person, corporation, or other entity that is a customer of SUB or that was such at any time within one year prior to the date hereof to become a customer of any other person, firm, corporation, or other entity which directly or indirectly competes with SUB, or approach any such person, firm, corporation, or other entity for such purpose or authorize or knowingly approve the taking of such actions by other persons. b. Non-Solicitation of SUB Employees. For a period of five (5) years from the date hereof, Executive will not solicit or induce any person who is an employee of SUB or was such at any time within three months prior to the date hereof to become employed by any other person, firm or corporation or approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by other persons. c. Non-Disclosure of Proprietary Information. Executive acknowledges that during the course of Executive's employment with SUB Executive received, obtained or became aware of or had access to proprietary information, lists and records of customers and trade secrets which are the property of SUB and which are not known by competitors or generally by the public ("Proprietary Information") and recognizes such Proprietary Information to be valuable and unique assets of SUB. For purposes of this subparagraph: (i) Proprietary Information is deemed to include, without limitation, (A) marketing materials, marketing manuals, policy manuals, procedure manuals, policy and procedure manuals, operating manuals and procedures and product documentation, (B) all information about pricing, products, procedures, practices, business methods, systems, plans, strategies or 22 23 personnel of SUB, (C) circumstances surrounding the relationships with, knowledge of, or information about the customers, clients, and accounts of SUB, including but not limited to the identity of current active customers or prospects who have been contacted by SUB, the expiration dates and other terms of loans or deposit or other banking relationships, details or special product provisions or special combinations of products, or special prices, and (D) all other information about SUB which has not been disclosed in documents filed with the U.S. Securities and Exchange Commission or otherwise publicly disseminated by SUB, whether or not that information is recorded and notwithstanding the method of recordation, if any; and (ii) Proprietary Information is deemed to exclude all information legally in the public domain. Executive agrees to hold the Proprietary Information in the strictest confidence and agrees not to use or disclose any Proprietary Information, directly or indirectly, at any time for any purpose, without the prior written consent of SUB or to use for Executive's benefit or the benefit of any person, firm, corporation or other entity (other than SUB), any Proprietary Information, and to use Executive's best efforts to prevent such prohibited use or disclosure by any other persons. Executive has returned all Proprietary Information in Executive's possession or control to SUB. d. Cooperation, No Detrimental Actions. Executive will cooperate with SUB in enforcing its claims against customers and former customers of SUB, including appearing as a witness for SUB in court or administrative proceedings, subject to reasonable reimbursement for Executive's time and expenses. Executive will not take actions or make disparaging statements which are detrimental to SUB or the RELEASEES, as defined in paragraph 5 below. e. Remedies. Executive hereby acknowledges that Executive's duties and responsibilities under this paragraph 3 are unique and extraordinary and that irreparable injury may result to SUB in the event of a breach of the terms and conditions of this paragraph 3, which may be difficult to ascertain, and that the award of damages would not be adequate relief to SUB and the RELEASEES. Executive therefore agrees that in the event of Executive's breach of any of the terms or conditions of this paragraph 3, SUB shall have the right, without posting any bond or other security, to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which SUB may be entitled against Executive. The covenants of Executive in paragraphs 3a, 3b, 3c and 3d of this Agreement shall each be construed as an agreement independent of any other provision in this AGREEMENT, and the existence of any claim or cause of action 23 24 of Executive against SUB, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by SUB of paragraphs 3a, 3b, 3c and 3d. f. Enforcement. If at the time of the enforcement of subparagraphs 3a, 3b, 3c, 3d or 3e above a court shall hold that the period or scope of the provisions thereof are unreasonable under the circumstances then existing, the parties hereby agree that the maximum period or scope under the circumstances shall be substituted for the period or scope stated in those subparagraphs. 4. Short-Swing Securities Profits. Executive acknowledges that Executive will remain subject to the short-swing liability provisions of Section 16 of the federal Securities Exchange Act of 1934 for six months following termination of employment. 5. Release. In consideration of the payments to Executive as specified in paragraph 2 above, Executive grants SUB a RELEASE of only all claims, both known and unknown, that Executive may have that relate to the termination of Executive's employment (hereafter a "WRONGFUL TERMINATION CLAIM"). Executive and SUB agree that a WRONGFUL TERMINATION CLAIM, specifically and without limitation, does not include claims: a. for indemnification as a corporate agent of SUB against claims by third parties; b. under employee benefit plans, including supplemental employee retirement plans, maintained by SUB or any of the predecessor organizations thereof, including but not limited to rights under any workers compensation program, Section 502(a) of the Employee Retirement Income Security Act, as amended, 29 U.S.C. ss.1001 et seq., and under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); c. arising out of enforcement of the Contracts or this Agreement by Executive; or d. constituting cross-claims against SUB as a result of claims brought by unaffiliated third parties against Executive based on Executive's service as an executive of SUB. The statutes which could form the basis for a WRONGFUL TERMINATION CLAIM include, but are not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. ss.1971 et seq.; the Age Discrimination in Employment Act of 1967, as amended, 24 25 29 U.S.C. ss.621 et seq.; Section 510 of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. ss.1001 et seq.; the Americans With Disabilities Act, as amended, 42 U.S.C. ss.12101 et seq.; the Older Workers Benefit Protection Act, as amended, 29 U.S.C. ss.621 et seq.; the Civil Rights Act of 1866, as amended, 42 U.S.C. ss.1981 et seq.; the New Jersey Law Against Discrimination, as amended, N.J.S.A. 10:5- 1 et seq.; the New Jersey Conscientious Employee Protection Act, as amended, N.J.S.A. 34:19-1 et seq.; the New York Human Rights Law, Executive Law ss.290 et seq.; the Pennsylvania Human Relations Act, as amended, 43 P.S. ss.951 et seq.; and the Pennsylvania Whistleblower Law, as amended, 43 P.S. ss.1421 et seq. The common law (non-statutory) theories under which a WRONGFUL TERMINATION CLAIM could be made include, but are not limited to, breach of an express employment contract, breach of a contract implied from a personnel handbook or manual, or commission of a civil wrong (known as a "tort") resulting in Executive's termination, or for alleged violation of the public policy of the United States or any state. Granting a RELEASE of any WRONGFUL TERMINATION CLAIM pursuant to this AGREEMENT means that on behalf of Executive and all who succeed to Executive's rights and responsibilities, Executive releases and gives up only any and all WRONGFUL TERMINATION CLAIMS that Executive may have against SUB, and any of its subsidiaries, affiliates or divisions, and all of their directors, officers, representatives, shareholders, agents, employees, and all who succeed to their rights and responsibilities (collectively referred to as "RELEASEES"). With respect to any charges filed concerning events or actions relating to a WRONGFUL TERMINATION CLAIM that occurred on or before the date of this AGREEMENT or Executive's Termination Date (whichever is later), Executive waives and releases any right that Executive may have to recover in any lawsuit or proceeding brought by Executive or by an administrative agency on Executive's behalf against the RELEASEES. 6. Covenant Not to Sue. Executive covenants not to sue the RELEASEES over any WRONGFUL TERMINATION CLAIM. Such a covenant not to sue the RELEASEES means that Executive represents that Executive has not through the date of execution of this Agreement filed a WRONGFUL TERMINATION CLAIM, charge or lawsuit with any court or government agency against the RELEASEES, and that Executive will not file such a lawsuit subsequent to execution of this Agreement. Executive also waives any right to become, and promises not to become, a member of any class in a case in which WRONGFUL TERMINATION CLAIMS are asserted against any of the RELEASEES. 7. Review Period. Executive acknowledges that Executive has up to 21 days to review this AGREEMENT and was advised to review it with an attorney of Executive's choice. Executive also acknowledges that Executive was further advised that Executive has seven 25 26 days after Executive signs this AGREEMENT to revoke it by notifying SUB in writing of such revocation as set forth under Notices below. This AGREEMENT shall become effective on the tenth (10th) day following its execution by Executive (the "EFFECTIVE DATE"), unless revoked in accordance with the preceding sentence. 8. Revocation of Authority. Executive agrees and acknowledges that as of the Termination Date Executive shall no longer be empowered to bind SUB in any agreement, whether verbal or written, and that Executive shall have no authority to execute any documents, deeds, leases, or other contracts on behalf of SUB. To the extent not effected by termination of Executive under the Contracts, Executive resigns from all offices and positions with SUB. 9. Successors and Assigns. All rights and duties of SUB under this Agreement shall be binding on and inure to the benefit of SUB, its successors and assigns. All rights of Executive hereunder shall be binding upon and inure to the benefit of Executive's personal or legal representatives. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally with receipt acknowledged or sent by registered or certified mail, postage prepaid or by reputable national overnight delivery service, to the addresses shown below, unless changed by notices given as herein provided, except that notice of change of address only shall be effective upon actual receipt: If to SUB, to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: Executive Vice President of Human Resources With a copy to: Summit Bancorp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 Attention: General Counsel If to the Executive, to: ________________________________ 26 27 11. Covenant Not to Challenge Enforceability. Both Executive and SUB understand that this AGREEMENT is final and binding when executed by both parties, subject to paragraph 7 above, and both agree not to thereafter challenge its enforceability. 12. Applicable Law. This AGREEMENT shall be deemed to have been made within the State of New Jersey, and it shall be interpreted, construed, and enforced in accordance with the law of the State of New Jersey, and before the Courts of the State of New Jersey. 13. Amendments, Modifications, Waivers. This AGREEMENT cannot be amended or modified except by a written document signed by both SUB and Executive and no provision can be waived except by a written document signed by the waiving party. 27 28 14. By signing this AGREEMENT, Executive acknowledges: a. EXECUTIVE HAS READ THIS AGREEMENT COMPLETELY. b. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSIDER THE TERMS OF THIS AGREEMENT. c. EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY OF EXECUTIVE'S CHOOSING PRIOR TO EXECUTING THIS AGREEMENT. d. EXECUTIVE KNOWS THAT EXECUTIVE MAY BE GIVING UP IMPORTANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT. e. EXECUTIVE UNDERSTANDS AND MEANS EVERYTHING THAT EXECUTIVE HAS SAID IN THIS AGREEMENT, AND EXECUTIVE AGREES TO ALL ITS TERMS. f. EXECUTIVE IS NOT RELYING ON SUB OR ANY REPRESENTATIVE OF SUB TO EXPLAIN THIS AGREEMENT AND RELEASE TO EXECUTIVE. EXECUTIVE HAS HAD AN OPPORTUNITY TO CONSULT AN ATTORNEY OR OTHER ADVISOR TO EXPLAIN THIS AGREEMENT AND ITS CONSEQUENCES TO EXECUTIVE BEFORE EXECUTIVE SIGNED IT, AND EXECUTIVE HAS AVAILED HIMSELF OR HERSELF OF THIS OPPORTUNITY TO WHATEVER EXTENT EXECUTIVE DESIRED. g. EXECUTIVE HAS SIGNED THIS AGREEMENT VOLUNTARILY AND ENTIRELY OF EXECUTIVE'S OWN FREE WILL, WITHOUT ANY PRESSURE FROM SUB OR ANY REPRESENTATIVE OF SUB, OR ANYONE ELSE. 28 29 IN WITNESS WHEREOF, and intending to be legally bound hereby, this Agreement has been executed as of the day and year first above written. ATTEST: SUMMIT BANCORP. By: - ---------------------------------- ------------------------------------ Secretary Executive Vice President ------------------------------------ EXECUTIVE ------------------------------------ (Social Security Number) STATE OF NEW JERSEY: COUNTY OF _______________________: I certify that on this _______ day of ____________, _______ personally came before me __________________________ (Executive), who, being duly sworn, acknowledged under oath to my satisfaction that such person is named in and personally executed the foregoing Release, Covenant not to Sue, Non-Disclosure and Non-Solicitation Agreement as such person's voluntary act and deed, for the purposes set forth therein. IN WITNESS WHEREOF, I have set my hand this ____ day of _____________, ______. By:___________________________________ Notary Public of the State of New Jersey My Commission expires __________________ 29 EX-10.NN 6 DIRECTORS DEFERRED COMPENSATION PLAN 1 Exhibit (10)NN. DIRECTORS' DEFERRED COMPENSATION PLAN This Agreement, made this 17th day of December , 1984 by and between Collective Federal Savings and Loan Association (the "Association") and the Board of Directors of Collective Federal Savings and Loan Association (the "Board"). Whereas, the parties hereto are desirous of providing a method for deferring the payment of directors' fees to electing members of the Board; and providing for the payment of interest on such deferred fees until the date of distribution. NOW THEREFORE, effective as of the date first above written, and in consideration of the prior and continuing services of the members of the Board, set forth below is a mutually agreed upon Directors' Deferred Compensation Plan (the "Plan"): 1. Election to Defer Compensation Directors' fees earned by each Board member during calendar year 1985 and during subsequent calendar years shall be paid on a current basis, unless, at least ten (10) days prior to the commencement of any such calendar year, the Board member has delivered a written notice requesting that all or a designated portion of the directors' fees to be earned in the forthcoming year by such Board member be deferred, in which event the requested amounts shall be credited as Deferred Compensation hereunder and shall be treated in the manner hereinafter provided. Any such notice given by a Board member shall, unless otherwise stated therein, be deemed to be a continuing election which shall be effective for each subsequent calendar year until revoked. 2. Net Income Upon Deferred Compensation Deferred Compensation which shall be accumulated under the terms of this Plan during calendar year 1985, together with all further Deferred Compensation accrued by a Board member hereunder in subsequent years, shall be credited with interest (referred to herein as "Net Income") annually in the manner set forth below. (a) An initial Net Income calculation for any calendar year shall be made by multiplying the aggregate amount of Deferred Compensation and Net Income accrued thereon, if any, credited to the account of a participating Board member prior to said year by the decimal fraction which represents a rate of return equal to the consolidated yield, including fees, on earning assets of the Association and its subsidiaries for that calendar year or such other rate as the Board may hereafter select, provided that any change in rate made by the Board shall be communicated to participating Board members and shall, except to the extent participating Board members otherwise agree, be effective on a prospective basis only. (b) A second Net Income calculation for any calendar year shall be made by multiplying the amounts of Deferred Compensation, if any, credited during such year by the annual rate 2 specified in Paragraph 2(a) above. For purposes of this second calculation, the Deferred Compensation credited during any calendar year shall be treated as having been credited in twelve (12) equal installments as of the last day of each month during said calendar year, and the rate specified in Paragraph 2(a) above shall be appropriately adjusted as to each assumed monthly credit to reflect the foregoing assumption that such Deferred Compensation has been credited in twelve (12) equal monthly installments. (c) The total amount of Net Income accrued with respect to Deferred Compensation in any calendar year shall be the sum of the amounts calculated as provided in Paragraphs 2(a) and (b) above. (d) Net income shall continue to be credited upon the remaining unpaid balance of all Deferred Compensation and all Net Income therefore accrued thereon until such date as the remaining balances are totally distributed to the Board member as hereinafter provided; provided, that in the final calendar year in which distributions are made to a Board member hereunder, the rate referred to in Paragraph 2(a) above shall be the corresponding rate for the month in which the final distribution is made. 3. Plan Committee, Distributions (a) This Plan shall be administered by a Committee (the "Committee") composed of three (3) members of the Board duly designated by the Board. No member of the Committee, while serving as a Committee member, shall be eligible to receive any form of distribution under the Plan. Decisions and determinations by the Committee shall be final and binding upon all parties, including the Association and the participants in this Plan. The Committee shall have the authority to interpret this Plan, to adopt and revise rules and regulations relating hereto and to make any other determination which it believes necessary or advisable for the administration of this Plan. Subject to the terms and conditions hereof, the Committee shall have exclusive jurisdiction to determine the time or times at which and the manner in which all amounts credited to Board members hereunder shall be paid or distributed. (b) The Committee may from time to time enter into binding agreements with Board members respecting the times and manner of distribution of any amounts credited to them hereunder; provided that such agreements shall be entered into prior to the time that the designated Board member actually terminates his services as a member of the Board. (c) All distributions to Board members of Deferred Compensation and Net Income accrued thereon shall be in the form of cash and, if the Committee and a Board member have not otherwise agreed pursuant to Paragraph 3(b) above, shall be made in sixty (60) monthly installments commencing in the month subsequent to the month in which the Board member actually terminates his service as a member of the Board. In addition, within sixty (60) days after the end of each calendar year in which distributions are made hereunder (or, in the case of the final year in which distributions are made, within sixty (60) days of the date after the date of such final distribution), the Association shall pay to the Board member or other person entitled thereto, the amount of any Net Income which accrued during such year (or final portion of a 3 year) under the terms of this Plan upon the theretofore unpaid balance of the Deferred Compensation, and Net Income accrued thereon, for the account of such Board member. (d) All amounts credited to a Board member hereunder shall be paid or distributed to the Board member or, in the event of his death, to the parties designated by such Board member pursuant to written instructions delivered by the Board member to the Committee, which instructions may be revoked or amended by the Board member in any manner whatsoever prior to death and without the consent of the prior beneficiary. In the event that no such written instructions have been given hereunder prior to the time of death, the amount credited hereunder shall be paid or distributed to the Board member's estate. 4. Nature of Association Obligation (a) Nothing in this Agreement shall be deemed to require the Association to deposit, invest or set apart in trust or otherwise any amounts of cash, stock or property equal to or reflective of any of its obligations hereunder, whether by reason of Deferred Compensation, Net Income or otherwise. Nothing contained herein shall be deemed to give any Board member participating in this Plan any ownership or other proprietary, security or other rights in any funds, stock or assets owned or possessed by the Association whether or not earmarked for the Association's own purposes as a reserve or fund to be utilized by the Association for the discharge of its obligations hereunder, it being understood that the definitions of Deferred Compensation and Net Income set forth herein are intended simply as formulae for computing benefits hereunder. To the extent that any person acquires a right to receive payments or distributions from the Association under this Plan, such right shall be no greater than the right of any unsecured creditor of the Association. (b) To the extent permitted by law, the rights of any Board member or any beneficiary of a Board member hereunder shall not be subject in any manner to attachment or other legal process for the debt of such Board member or beneficiary; and any such benefit or payment shall not be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. 5. Administrative Provisions (a) The Board may amend, alter or terminate this Plan from time to time without the approval of any participating Board members, provided that no such change may adversely affect vested rights hereunder without the written consent of the affected participating Board members or their representatives. All obligations and rights under this Plan shall be binding upon the participating Board members, their heirs, beneficiaries, administrators, executors and assigns, and upon the successors and assigns of the Association. (b) Any notice required or desired to be given to the Association or a participating Board member hereunder shall be given in writing. Any such notice to the Association shall be addressed to the "Board of Directors Deferred Compensation Committee" at the Association's then executive headquarters office, and any such notice to a participating Board member may be addressed to the address designated by such Board member from time to time. Any such notice shall be sufficiently given by personal delivery thereof or by mailing the same postpaid, 4 addressed to the party to whom such notice is being given as herein specified, and the date of such personal delivery or mailing shall be deemed to be the date such notice is given. (c) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan and the administration thereof, and the Association shall indemnify and hold harmless each Committee member from any action or loss incurred in connection therewith. IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals the date first above written. Collective Federal Savings and Loan Association by: /s/ Thomas H. Hamilton ----------------------------------------------- Thomas H. Hamilton, President /s/ Scott T. Page ----------------------------------------------- Scott T. Page, Secretary Board of Directors Collective Federal Savings and Loan Association by: /s/ Thomas H. Hamilton ----------------------------------------------- Thomas H. Hamilton, Director /s/ George W. French ----------------------------------------------- George W. French, Director /s/ Walter Henschel ----------------------------------------------- Walter Henschel, Director /s/ Claude M. Larned ----------------------------------------------- Claude M. Larned, Director /s/ Robert F. Mutschler ----------------------------------------------- Robert F. Mutschler, Director /s/ Herman O. Wunsch ----------------------------------------------- Herman O. Wunsch, Director /s/ Wesley J. Bahr ----------------------------------------------- Wesley J. Bahr, Director 5 AMENDMENT NO. 1 TO DIRECTORS DEFERRED COMPENSATION PLAN WHEREAS, by resolution duly adopted on December 17, 1984 the board of Directors of Collective Federal Savings and Loan Association, as predecessors to the Board of Directors of Collective Federal Savings Bank and Collective Bancorp, Inc. ("the Board"), adopted a deferred compensation plan (the "Plan) providing for the deferral of payment of directors fees to electing members of the Board: and WHEREAS, the Plan by its terms may be amended by the Board from time to time in such manner as the Board deems appropriate; and WHEREAS, the Board desires to amend the Plan to reflect certain changes in the legal structure of the institution and to provide for the inclusion of consultants to the Board under the Plan; NOW, THEREFORE, effective as of January 1, 1989 the Plan is hereby amended as follows: 1. For purposes of eligibility to defer fees under the Plan, all references to the Board shall include all members of the Board of Directors of Collective Bancorp, Inc., the Board of Directors of Collective Federal Savings Bank and any individual hired to act as non-voting consultant or advisor to the Board as herein defined; 2. All references to the "Association" shall include Collective Federal Savings Bank, together with any other insured savings institution subsidiary which may be acquired by Collective Bancorp, Inc. from time to time; 3. Except as modified herein, all terms and conditions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals this 9th day of July, 1990. Collective Bancorp, Inc. by: /s/ Thomas H. Hamilton ---------------------------------------------- Thomas H. Hamilton, President /s/ Scott T. Page ---------------------------------------------- Scott T. Page, Secretary 6 Board of Directors of Collective Bancorp, Inc. by: /s/ Thomas H. Hamilton ---------------------------------------------- Thomas H. Hamilton /s/ Wesley J. Bahr ---------------------------------------------- Wesley J. Bahr, Director /s/ George W. French ---------------------------------------------- George W. French, Director /s/ Claude M. Larned ---------------------------------------------- Claude M. Larned, Director /s/ Miles Lerman ---------------------------------------------- Miles Lerman, Director /s/ William R. Miller ---------------------------------------------- William R. Miller, Director /s/ Robert F. Mutschler ---------------------------------------------- Robert F. Mutschler, Director /s/ Herman O. Wunsch ---------------------------------------------- Herman O. Wunsch, Director 7 AMENDMENT NO. 2 TO DIRECTORS DEFERRED COMPENSATION PLAN WHEREAS, by resolution duly adopted on December 17, 1984, the Board of Directors of Collective Federal Savings and Loan Association, as predecessors to the Board of Directors of Collective Bank and Collective Bancorp, Inc. (the "Board"), adopted the Directors Deferred Compensation Plan (the "Plan") providing for the deferral of payment of directors fees to eligible participants; and WHEREAS, the Plan by its terms may be amended by the Board from time to time in such manner as the Board deems appropriate; and WHEREAS, the Board desires to amend the Plan to provide for certain changes in the manner in which net income upon deferred compensation is calculated for each Board member following his termination of service as a member of the Board, NOW THEREFORE, effective as of July 22, 1997, the Plan is hereby amended as follows: 1. At or prior to the time which Collective Bancorp, Inc. is merged with and into Summit Bancorp, all amounts accrued under a participant's account shall be credited to a Rabbi Trust Agreement (the "Trust") established with Summit Bank for the purpose of providing a mechanism for payment of benefits accrued under the Plan. 2. Upon creation of a participant's account under the Trust, the amount allocated thereto shall no longer be credited with Net Income as defined in Section 2 of the Plan. Such balances shall thereafter be invested by the Trustee in accordance with the written instructions of the participant. 3. Except as modified herein, all terms and conditions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals this 22nd day of July, 1997. Collective Bancorp, Inc. by: /s/ Thomas H. Hamilton ----------------------------------------- Thomas H. Hamilton, Chairman Attest: /s/ Scott T. Page ----------------------------------------- Scott T. Page, Secretary 8 Board of Directors of Collective Bancorp, Inc. by: /s/ Thomas H. Hamilton ----------------------------------------- Thomas H. Hamilton, Director /s/ Wesley J. Bahr ----------------------------------------- Wesley J. Bahr, Director /s/ George W. French ----------------------------------------- George W. French, Director ----------------------------------------- Miles Lerman, Director ----------------------------------------- David S. MacAllaster, Director /s/ Edward J. McColgan ----------------------------------------- Edward J. McColgan, Director /s/ William R. Miller ----------------------------------------- William R. Miller, Director /s/ Robert F. Mutschler ----------------------------------------- Robert F. Mutschler, Director /s/ Herman O. Wunsch ----------------------------------------- Herman O. Wunsch, Director /s/ Alfred J. Hedden ----------------------------------------- Alfred J. Hedden, Consultant 9 RABBI TRUST AGREEMENT UNDER COLLECTIVE BANCORP. DIRECTORS DEFERRED COMPENSATION PLAN THIS TRUST AGREEMENT is made as of the 15th day of July, 1997 by and between Collective Bancorp. (the "Company") and Summit Bank, a New Jersey banking corporation with trust powers ("Trustee"). WHEREAS, Company has adopted the non qualified deferred compensation plan as set forth in Exhibit I at the end hereof (the "Plan"); and WHEREAS, Company has incurred or expects to incur liability under the terms of the Plan with respect to the individuals participating in the Plan; and WHEREAS, Company wishes to establish the trust (the "Trust") with the Trustee and to contribute to the Trust funds that shall be held therein, subject to the claims of Company's general creditors in the event of Company's Insolvency, as herein defined, until paid to the Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not adversely affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees pursuant to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and WHEREAS, it is also the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist in meeting its liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Continuation of Trust (a) From time to time Company shall deposit with Trustee in trust such sums of money and other property, as the Company shall determine, in its sole discretion, to contribute, including, without limitation all, funds transferred from the Predecessor Trustee, which shall become the principal of the Trust, to be held, administered and disposed of by Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be revocable by the Company. However, it shall become irrevocable upon a Change of Control, as defined in Section 14 (d) hereof. 10 (c) The Trust is intended to be a grantor trust, of which Company is the grantor within the meaning of subpart E. part 1, subchapter J, chapter I, subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon. shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or, any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property, in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. (f) Trustee may conclusively rely upon directions from the Plan Committee established by the Company, in taking any action with respect to this Trust Agreement, including the making of payments from Trust assets and the investment of Trust assets pursuant to this Trust Agreement. Trustee shall have no liability for actions taken, or for failure to act, on the direction of the Committee. Moreover, Trustee shall have no liability for failure to act in the absence of proper written directions. Section 2. Payments to Plan Participants and Their Beneficiaries. (a) Committee shall deliver to Trustee a schedule (the ("Payment Schedule") that indicates the amounts payable in respect to each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amount so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, and to the extent Trustee is in possession of sufficient assets, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. If Trustee is not in possession of sufficient assets to make all payments in accordance with the Payment Schedule, Trustee will pay each participant or beneficiary a proportionate share of the Trust assets in its possession as directed by the Committee. If so directed by the Committee, Trustee shall make provision for the withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay the amounts withheld to the appropriate taxing authorities on behalf of the Company. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan. and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. 11 (c) Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Plan participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments in accordance with the terms of the Plan. Trustee shall make payments in accordance with subparagraph (a) of this Section, and Company shall make the balance of each payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient. To the extent of available Trust assets, and if so requested by the Committee at any time, Trustee shall reimburse Company out of Trust assets for any Plan benefits previously paid under the terms of the Plan directly by Company and not previously reimbursed by Trustee, provided that after a Change of Control no such reimbursement shall be made for any benefits paid by Company prior to the Change of Control. Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When Company is Insolvent. (a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section I (d) hereof. the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of Company shall have the duty to inform Trustee in writing of Company's Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee shall determine whether Company is Insolvent (in accordance with the procedure set forth in subsections (2) and (3), below) and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (2) Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have not duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and which provides Trustee with a reasonable basis for making a determination concerning Company's solvency. (3) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to Plan participants or their Beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights as general creditors of the Company with respect to benefits of Plan participants or their beneficiaries to pursue their rights due under the Plan or otherwise. 12 (4) Upon receipt of notice of Company's Insolvency from any person, other than the Board of Directors and the Chief Executive Officer, Trustee shall seek in writing a determination of the Board of Directors and Chief Executive Officer or any appropriate court as to the Insolvency of Company. Trustee may conclusively rely upon a determination of the Board of Directors and Chief Executive Officer as to Company's Insolvency. (5) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 hereof only after Trustee has determined in accordance with subsection (b)(2) hereof that Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. Payments to Company. Except as provided in Section 3 hereof, after the Trust has become irrevocable, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. Section 5. Investment Authority. (a) The Trustee shall have the following powers and authority in the administration of the Trust Fund to be exercised as provided in Section 8 hereof; (1) All rights associated with assets of the Trust shall be exercised by Trustee or Company and shall in no event be exercisable by or rest with Plan participants; (2) To retain any investment and property which may be received by it for such length of time as may seem proper, without liability by reason of such retention; (3) To invest and reinvest all or any part of the Trust assets in any common or preferred stocks, shares of investment trusts and investment companies, bonds, debentures, mortgages, deeds of trust, mortgage participations, notes, real estate or other property which the Committee, in its discretion, may select; provided that the Trustee may not invest in its own stock or securities or in stock or securities issued by a parent or affiliate company of the Trustee; and further provided that the Trustee may not invest in securities (including stock or rights to acquire stock) or obligations issued by Company, other than a de minimis amount held in common investment vehicles in which Trustee invests). Any such investments may be held in bearer form, or in the name of the Trustee, or in the name of a nominee or nominees: 13 (4) To retain cash or the proceeds from the sale of any assets until such time or times as it receives direction from Company regarding the appropriate investments of such funds; (5) To hold uninvested cash awaiting investment or distribution, and such additional cash balances as it shall deem reasonable or necessary, without incurring any liability for the payment of interest thereon; (6) Which respect to any securities forming part of the Trust created hereunder, to exercise all voting rights, either in person or by proxy, as directed by the Committee; to exercise conversation, subscription, option and similar rights: to enter or refuse to enter into any dissolution, liquidation, consolidation, recapitalization, reorganization, merger or other change in capital structure, and in connection therewith, to make exchanges of securities and to enter into agreements on such terms and conditions as it may deem advisable; and to enter into voting trusts and agreements with other stockholders, and other holders of securities, and the corporations which shall have issued such stocks or securities, any one or more of such persons, for such purposes and for such period of time (whether or not the same extends beyond the actual or probable duration of the trusts created hereunder), and upon such terms and conditions as it shall deem advisable; (7) To enter into any lease or leases, without application to any court of any or all real or personal property held hereunder, for such period (whether or not the same expires prior to or extends beyond the actual or probable duration of the trusts created hereunder), and upon such terms and conditions as it shall deem advisable; (8) To borrow money or property, either upon the security of any or all of the assets of the trusts created hereunder, or without security or otherwise, upon such terms and conditions and for such purposes in connection with the administration of the trusts as it shall deem proper; (9) To grant, bargain, sell, exchange, mortgage, grant options to buy, or otherwise dispose of any or all personal property, at any time held hereunder, either at public or private sale, for cash or on credit, or partly for cash and partly on credit, upon such terms and conditions, in such manner and for such purposes, and either in whole or in part, as it may deem proper: and to make, execute, acknowledge and deliver good and sufficient instruments for that purpose. No purchaser, upon any sale or either disposition, shall be bound to see to the application of the moneys or property arising therefrom or to inquire into the validity, expediency or propriety of any such sale or disposition; (10) to adjust, compromise or arbitrate claims or demands of, or, against. the Trust created hereunder, whether such claims are due or shall become due in the future, including without limitation any overpayment or refund claim, or any deficiency, additional assessment or other liability, relating to any federal, state, county, municipal or other tax, irrespective of the nature thereof; 14 (11) In any case where the applicable law is unclear or uncertain, to allocate to income or to principal, or to apportion between income and principal, receipts disbursements, depletion and depreciation in such manner as it shall deem proper; (12) To execute and deliver all documents, contracts, and instruments necessary or advisable in connection with the administration of the Trust created hereunder: (13) To invest in any investment company for which Trustee or any affiliate of Trustee receives a fee for investment, advisory, custodial services or other services Trustee is permitted to perform for said investment company and which said fee is in addition to the fees payable hereunder; and (14) Notwithstanding anything in this Section to the contrary, if the authority to direct Trustee as to the investment of all or any part of the assets held in the Trust has been granted to the Plan participants, Trustee shall not have any obligation to investigate the prudence of any such investments and shall be indemnified and held harmless by Company for any act or failure to act made pursuant to such direction. Section 6. Disposition of Income. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 7. Accounting By Trustee. Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued) interest paid or receivable being shown separately) and showing all cash, securities and other property held in the Trust at the resignation as the case may be. (a) If objections to specific items in such account are filed with Trustee within ninety (90) days after the account has been furnished and Trustee believes such objections to be valid, Trustee shall adjust the account in such manner as it deems equitable under the circumstances. (b) Trustee shall then give written notice to the Committee of the adjustment of the account and if no objection to specific items in such account, as adjusted, are filed with Trustee within ninety (90) days after notice of such adjustment has been furnished, then, the account of Trustee with respect to all matters contained therein (as originally furnished, if no adjustment was made, or as adjusted, if an adjustment was made), shall be deemed to have been approved and Trustee shall to the extent permitted by applicable law, be relieved and discharged of and 15 from all liability to anyone with respect to its acts or failures to act which are reasonably capable of identification by means of such account during the period covered thereby. Notwithstanding anything in the foregoing to the contrary, this Section 7 shall not operate to relieve or discharge the Trustee from liability for any act or failure to act that involves gross negligence, willful misconduct or fraud. Section 8. Responsibility of Trustee. (a) Trustee shall act in a manner that, under the circumstances then prevailing (specifically including, but not limited to, the general economic conditions and the anticipated needs of the Plan participants and beneficiaries), persons of skill, prudence, and diligence, acting in a similar capacity and familiar with those matters would use in the conduct of an enterprise of similar character and similar aims, to attain Company's goals under this Trust Agreement; provided, however, that Trustee shall incur no liability to any person and shall be indemnified and held harmless for any action taken pursuant to a direction, request or approval given by Company or the Committee which is in conformity with the terms of this Trust Agreement and is given in writing by Company or the Committee, except to the extent such liability is due to the Trustee's negligence or noncompliance with the terms of this Trust Agreement or with ERISA. Regardless of liability, Trustee shall notify the committee if it knows of any violation of applicable law in connection with this Trust Agreement, or discovers a mistake in the administration of the Trust. In the event of a dispute between Company and third party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If Trustee undertakes to defends any litigation arising in connection with this Trust, company agrees to indemnify Trustee on a current basis against Trustee's costs, expenses and liabilities (including, without limitation, attorney's fees and expenses) relating thereto and to be primarily liable for such payments. If Company does not pay such costs, expenses and liabilities within sixty (60) days of presentation, Trustee may obtain payment from the Trust. Trustee shall be under no obligation to take or defend any legal action of whatever nature unless it is first indemnified against expenses by Company or to the shall be sufficient property in the Trust to indemnify Trustee with respect to the expenses or losses to which it may be subjected. (c) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (d) Trustee, may hire agents, accountants, actuaries, investment advisors. financial consultants, counsel, or other professionals to assist it in performing any of its duties or obligations hereunder and to pay their reasonable expenses from the Trust. (e) Trustee shall have, without exclusion, all powers conferred on Trustee by applicable law, unless expressly provided otherwise herein, provided, however, that if any insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor trustee, or to loan to any person the proceeds of any borrowing against such policy. 16 (f) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or pursuant to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. (g) Trustee shall not be liable for making or withholding any payments as may be required by a court order. (h) To do all acts, whether or not expressly authorized herein, which the Trustee may deem necessary or desirable for the protection of the Trust Fund. Section 9. Responsibility of Committee. (a) Until a Change of Control has occurred, this Section 9(a) shall be effective and the Committee shall direct the Trustee as to the administration of the Trust in accordance with the following provisions: (1) The Committee shall be identified to the Trustee by a copy of the resolution or resolutions adopted by the Board appointing the Committee. In the absence of any such appointment, the Board shall be the Committee. Persons authorized to give directions to the Trustee of behalf of the committee shall be identified to the Trustee by written notice from the Committee, and such notice shall contain specimens of the authorized signatures. The Trustee shall be entitled to rely on such written notice as evidence of the identity and authority of the persons appointed until a written cancellation of the appointment, or the written appointment of a successor, is received by the Trustee. (2) Directions by the committee, or its delegate, to the Trustee shall be in writing and signed by the Committee or persons authorized by the Committee, or may be made by such other method as is acceptable to the Trustee. (3) The Trustee may conclusively rely upon directions from the committee in taking any action with respect to this Trust Agreement, including the making of payments from the Trust and the investment of the trust assets pursuant to this Trust Agreement. The Trustee shall have no liability for actions taken, or for failure to act, on the direction of the committee, except to the extent such liability is due to Trustee's own negligence or its noncompliance with terms of this Trust Agreement or applicable law. Where the Trustee is required to act on the direction of the committee, the Trustee shall have no liability for failure to act in the absence of proper written directions. (4) With respect to actions the Trustee is required to take subject to the instructions of the committee, the Trustee shall request instructions from the committee in writing and upon such request shall have no duty to act or shall have no liability for the failure to act if such instructions are not forthcoming from the Committee. If requested instructions are not received within a reasonable time, the Trustee may, but is under o duty to, act on its own discretion to carry out the provisions of this Trust Agreement and the Plan. 17 Section 10. Compensation and Expenses of Trustee. Trustee shall receive reasonable compensation for its services in accordance with its schedule of compensation, as set forth in Exhibit 2 attached hereto. The schedule may be amended from time to time in any manner that is agreed upon between Trustee and Company. If after a Change of Control, Trustee and Company fail to agree upon a compensation schedule, Trustee shall be entitled to compensation of a rate equal to the rate charged by Trustee for similar services rendered by it for other trusts similar to the Trust. Company shall pay all administrative and Trustee's fees and expenses, including taxes levied upon the Trust. If not so paid, the fees and expenses shall be paid from the Trust. Section 11. Resignation and Removal of Trustee. (a) Trustee may resign at any time by written notice to Company, which shall be effective thirty (30) days after receipt of such notice unless Company and Trustee agree otherwise. (b) Trustee may be removed by Company on thirty (30) days notice or upon shorter notice accepted by Trustee. (c) Upon a Change of Control Trustee may not be removed by Company for five (5) years. (d) If Trustee resigns within five (5) years after a Change of Control, Company shall apply to a court of competent jurisdiction for the appointment of a successor trustee or for instructions. (e) Upon resignation or removal of Trustee and appointment of a successor trustee, all assets shall subsequently be transferred to the successor trustee. The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless Company, in its sole discretion. extends the time limit. (f) If Trustee resigns or is removed and no successor trustee shall have been appointed by the effective date of Trustee's resignation or removal, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions or may pay the assets of the Trust to Company. All expenses of Trustee in connection with such proceeding shall be allowed as administrative expenses of the Trust. Section 12. Appointment of Successor. (a) If Trustee resigns or is removed in accordance with Section I I (a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trust powers under state law, as a successor trustee. The appointment shall be effective when accepted in writing by the new trustee, which shall have all of the rights and 18 powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instruments necessary or reasonably requested by Company or the successor trustee to evidence the transfer. (b) The successor trustee need not examine the records and acts of any prior trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor trustee shall not be responsible for, and Company shall indemnify and defend the successor trustee from and against any claim or liability resulting from any action or inaction of any prior trustee or from any other past events or any condition existing at the time it becomes successor trustee. Section 13. Amendment or Termination. (a) Subject to the prohibition set forth in subsection (e), below, this Trust Agreement may be amended by a written instrument executed by Trustee and Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof (b) Trustee is not a party to the Plan except insofar as Trustee has assumed duties specifically provided in this Trust Agreement. Company retains, in its sole discretion the right to amend any provisions of the Plan; provided, however, that the allocation of responsibilities to Trustee shall not be amended, altered or modified without the prior written consent of Trustee (c) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. (d) Upon written approval of all of the Plan participants or beneficiaries then entitled to payment of benefits pursuant to the terms of the Plan, Company may terminate this Trust prior tot he time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Company. (e) This Trust Agreement may not be amended by Company for five (5) years following a Change of Control. Section 14. Miscellaneous. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Notwithstanding any Qualified Domestic Relations Order, as that term is defined in ERISA, and subject to any Internal Revenue Service levy, benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 19 (c) Except to the extent preempted by federal law, this Trust Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey. (d) For purposes of this Trust, Change of Control shall mean (i) the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 1 3(d) or 14(d) of the Securities Exchange Act of 1934 ("Act") or any comparable successor provisions, of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Act) of thirty (30) percent or more of either the outstanding shares of common stock or the combined voting power of Company's ten outstanding voting securities entitled to vote generally, (ii) the approval by the stockholders of Company of a reorganization, merger or consolidation the effect of which in each case, is that the persons who were stockholders of Company immediately prior to such reorganization, merger or consolidation will not, immediately thereafter, own more than fifty (50) percent of combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding securities, (iii) a liquidation or dissolution of Company or (iv) the sale of all or substantially all of Company's assets to an unrelated third party. (e) Any person dealing with Trustee may rely upon a copy of this Trust Agreement and any amendments thereto certified to be true by Trustee. (f) No notice given or representation made by Company to Trustee pertaining to the provisions of this Trust Agreement or the Plan shall be effective unless such notice is given or representation made in writing by the Board of Directors or the Secretary of Company. Section 15. Effective Date. The effective date of this Trust Agreement shall be July 15, 1997. IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be executive by their respective duly authorized officers and attested on the date and year first above written. Attest: By: Title: Attest: SUMMIT BANK By: Title: EX-13 7 1997 ANNUAL REPORT TO SHAREHOLDERS 1 Summit Bancorp Annual Report 1997 [PICTURE: YOUNG BOY JUMPING OFF A ROCK REACHING HIGHER] We Reach Higher for Financial Solutions 2 Summit Bancorp is a leading regional financial services organization with $30 billion in assets and a market capitalization of $9.3 billion at year end. Through our retail, commercial, investment management and private banking lines of business, Summit bankers provide customized financial solutions to individuals and businesses throughout New Jersey, eastern Pennsylvania and beyond. Contents... page 1 Financial Highlights page 2 Lines of Business page 4 Chairman's Message page 7 Reach Higher for Financial Solutions page 16 Board of Directors page 18 Community Development page 19 Financial Review page 34 Consolidated Financial Statements and Notes page 57 Corporate Directory page 59 Shareholder and Corporate Information Net Income per Common Share before non-recurring items
YEAR - ---- 1993 $1.21 1994 1.60 1995 1.89 1996 2.15 1997 2.43
Annual Indicated Dividend
YEAR - ---- 1993 $0.56 1994 0.69 1995 0.85 1996 0.96 1997 1.08
3 FINANCIAL HIGHLIGHTS Summit Bancorp and Subsidiaries ================================================================================
Percent Change ----------------- 1997 1996 vs. vs. (Dollars in millions, except per share data) 1997 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 Before non-recurring items: Net income ....................................... $ 424.7 $ 360.4 $ 300.4 17.8% 20.0% Net income per common share: Basic .......................................... 2.43 2.15 1.89 13.0 13.8 Diluted ........................................ 2.39 2.12 1.87 12.7 13.4 After non-recurring items: Net income ....................................... 371.0 283.7 300.4 30.8 (5.6) Net income per common share: Basic .......................................... 2.12 1.69 1.89 25.4 (10.6) Diluted ........................................ 2.09 1.67 1.87 25.1 (10.7) Per common share: Cash dividends declared .......................... 1.02 0.90 0.79 13.3 13.9 Book value ....................................... 14.79 13.61 13.04 8.7 4.4 Market value ..................................... 52.88 29.17 23.75 81.3 22.8 ================================================================================================================= BALANCE SHEET DATA AT DECEMBER 31 Total assets ....................................... $29,964.2 $27,767.3 $26,647.5 7.9% 4.2% Total deposits ..................................... 22,329.4 21,629.5 21,232.9 3.2 1.9 Total loans ........................................ 18,888.4 17,386.1 16,413.2 8.6 5.9 Allowance for loan losses .......................... 296.5 280.6 293.2 5.7 (4.3) Shareholders' equity ............................... 2,612.4 2,290.8 2,130.1 14.0 7.5 ================================================================================================================= INCOME STATEMENT DATA Net interest income ................................ $ 1,145.1 $ 1,053.3 $ 1,009.7 8.7% 4.3% Provision for loan losses .......................... 59.1 64.0 72.1 (7.7) (11.2) Non-interest income ................................ 301.9 260.0 235.3 16.1 10.5 Non-interest expenses, excluding non-recurring items 733.7 693.8 705.5 5.8 (1.7) Non-recurring items, net of taxes .................. 53.7 76.7 -- (29.9) -- Net income ......................................... 371.0 283.7 300.4 30.8 (5.6) ================================================================================================================= CONSOLIDATED RATIOS Before non-recurring items: Return on average assets ......................... 1.47% 1.32% 1.17% Return on average common equity .................. 17.08 16.48 15.49 After non-recurring items: Return on average assets ......................... 1.28 1.04 1.17 Return on average common equity .................. 14.92 12.95 15.49 Efficiency ratio ................................... 50.28 52.11 55.72 Allowance for loan losses to year-end loans ........ 1.57 1.61 1.79 Non-performing loans to year-end loans ............. 0.45 0.80 1.18 ================================================================================================================= CAPITAL RATIOS Average equity to average assets ................... 8.61% 8.12% 7.63% Tier I capital to average assets (leverage) ........ 8.76 7.73 7.63 Tier I capital to risk-adjusted assets ............. 12.64 11.68 11.32 Total capital to risk-adjusted assets .............. 14.83 14.17 13.87 ================================================================================================================= OTHER DATA (at year end) Number of banking offices .......................... 426 423 433 Number of employees (full-time equivalent) ......... 8,566 8,402 8,593 =================================================================================================================
1 4 Lines of Business Commercial Banking ================================================================================ Overview Provides a full array of commercial financial services including asset based lending, international trade services, equipment leasing, real estate financing, private placement, mezzanine financing, aircraft lending, correspondent banking, treasury services and structured finance - -------------------------------------------------------------------------------- Market Penetration o N.J.'s largest commercial and industrial lender, serving 30,000 clients and 15 major industry groups o Leader in providing financial services to middle market companies with annual sales of $5 to $250 million o One of Northeast's largest asset based lenders; offices in NYC, Stamford, Greater Philadelphia and Baltimore/ Washington, D.C. areas - -------------------------------------------------------------------------------- Highlights of 1997 o Grew asset based lending to $1.1 billion; opened new office in the Baltimore/ Washington, D.C. area o Provided variety of real estate financing services through commercial real estate sector o Continued to offer expertise to health care industry, focusing on relationships with hospitals and larger medical practices; expanded this area to include long-term care facilities - -------------------------------------------------------------------------------- Key Market Data [The following table was depicted as a pie graph in the original] Loan Portfolio Middle Market 19% International 3% Bus. Banking 5% Leasing 6% Health Care 5% Media 4% Large Corp. 11% Asset Based 14% Commercial Real Estate 33% - -------------------------------------------------------------------------------- Reaching Higher, Looking Ahead o Cultivate opportunities in lower middle market, asset based lending, international trade, health care, communications and fee-based treasury services o Maximize business potential through aggressive sales and marketing o Build on asset based lending capability with small business, aircraft related and transportation concerns Retail Banking ================================================================================ Overview Sells and delivers retail banking products and services to consumers and small businesses through 385 traditional and 41 supermarket branches, as well as telephone banking centers in N.J. and eastern Pa. - -------------------------------------------------------------------------------- Market Penetration o Largest deposit market share in N.J., serving 40 percent of state's three million households o 600 ATMs in N.J., N.Y. and Pa. including 200 off-site o Largest N.J. issuer of Visa check cards to individuals and small businesses; over one million debit cards outstanding o Largest merchant bankcard processor in N.J. and among the top 40 in the nation - -------------------------------------------------------------------------------- Highlights of 1997 o Grew lending to small businesses over 10 percent and ranked number 22 in nation in small business loans of up to $1 million o Defined our trade area into six regions with regional presidents to bring bank closer to customer base o Processed nearly 34 million ATM transactions o Exceeded $230 million in in-store deposits o Launched PC Banking product, growing at approximately 2,000 PC Banking accounts per month - -------------------------------------------------------------------------------- Key Market Data [The following table was depicted as a pie graph in the original] Consumer Loan Portfolio Auto/Leasing 22% Unsecured Personal Loans 6% Student Loans 2% Credit Cards 1% All Other 2% Home Equity 67% - -------------------------------------------------------------------------------- Reaching Higher, Looking Ahead o Increase N.J. household relationships to 50 percent o Expand supermarket branches to 70 by year-end 1998, 100 by 2000 o Open 15 in-stores beginning in March 1998 through 1999 in Genuardi's, upscale food retailer in Southeastern Pa. and N.J. o Become leading small business lender in N.J. and eastern Pa. - -------------------------------------------------------------------------------- 2 5 Investment Services ================================================================================ Overview Provides investment management as well as a full range of investment products and administrative and custodial services, including discount brokerage, to individuals and institutions, and a wide array of insurance products for the personal and corporate marketplace - -------------------------------------------------------------------------------- Market Penetration o Assets under management total $8.2 billion, $2.3 billion in 17 proprietary Pillar Funds(R) o Leader in Special Needs Trusts for disabled and Trust Care for seniors o Offers life, health, disability and long-term care insurance products o 85 Investment Counselors in Summit branches give advice on mutual funds and annuities - -------------------------------------------------------------------------------- Highlights of 1997 o Four star rating awarded to four Pillar Funds by Morningstar o Introduced Summit Asset Management Account (sweeps checking account balances into interest bearing investments) o Acquired Corporate Dynamics, employee benefit consultant to businesses o Upgraded 401(k) program o Developed Women's Financial Future to build strategic relationships across lines of business - -------------------------------------------------------------------------------- Key Market Data Retail Investment Sales of Mutual Funds and Annuities (In Millions)
YEAR - ---- 1993 $212 1994 197 1995 196 1996 259 1997 344
- -------------------------------------------------------------------------------- Reaching Higher, Looking Ahead o Build trust and investment customer base in untapped Collective Bank markets o Merge Summit Discount Brokerage with our Investment Counselor program to provide full-service brokerage through 100 investment counselors o Introduce state-of-the-art asset allocation accounts o Build mutual fund assets under management - -------------------------------------------------------------------------------- The Private Bank ================================================================================ Overview Offers customers a creative response to their financial needs including credit, investments, insurance, retirement and estate planning - -------------------------------------------------------------------------------- Market Penetration o More private banking offices than any other bank in N.J. o Private banking office in NYC to serve N.J., Conn. and N.Y. commuters o Premier provider of products and services to lawyers, accountants, and their firms; 80 percent of N.J.'s top 50 law firms bank with Summit o Escrow control product is number one deposit product in N.J. for attorney trust accounts - -------------------------------------------------------------------------------- Highlights of 1997 o Opened offices in Upper Montclair and Mays Landing, N.J. o Developed Women's Financial Future to build strategic relationships across lines of business o Further expanded cross-sell and referral programs with other business lines to take advantage of large high net worth market o Further developed "team" approach to managing private banking relationships - -------------------------------------------------------------------------------- Key Market Data Private Banking [PIE GRAPH DIVIDED INTO SIX EQUAL PARTS: Asset Management Accounts, Escrow Control, Investment Services, Women's Financial Future, Jumbo Mortgages, and Business & Personal Loans] - -------------------------------------------------------------------------------- Reaching Higher, Looking Ahead o Open private banking and investment services offices in Ridgewood and Edison, N.J. and Main Line area of Philadelphia o Increase market penetration by targeting emerging affluent o Continue to expand share of niche markets and create new ones o Continue to team with Investment Services and other lines of business to capitalize on cross-sell opportunities - -------------------------------------------------------------------------------- Mortgage Banking ================================================================================ Overview Provides complete range of full-service mortgage banking activities - -------------------------------------------------------------------------------- Market Penetration o Largest originator of residential mortgages in N.J. and strong presence in eastern Pa. o Residential mortgage asset portfolio of $5.7 billion o In addition to own portfolio, Summit services $2.2 billion for other investors - -------------------------------------------------------------------------------- Highlights of 1997 o Originated over $1 billion of new residential mortgages, making Summit one of the largest providers of home loans in our trade area o Implemented cross-sell strategy for referrals to and from other lines of business o Completed the formation of an alternative delivery unit (Direct Mortgage Group) - -------------------------------------------------------------------------------- Key Market Data AVERAGE RESIDENTIAL MORTGAGE LOANS (IN BILLIONS)
YEAR - ---- 1993 $3.226 1994 3.773 1995 4.805 1996 6.651 1997 5.925
- -------------------------------------------------------------------------------- Reaching Higher, Looking Ahead o Achieve originations of $1.5 to $2.0 billion o Expand servicing portfolio to over $9 billion o Achieve greater market penetration by utilizing strength of Summit franchise o Continue to streamline mortgage process to reach goal of 24-hour approval - -------------------------------------------------------------------------------- 3 6 Chairman's Message In 1998, our challenge is to maximize the value of our existing customer relationships by providing superior service and making cross-selling our mandate. "We reach higher for financial solutions" explicitly defines how we do business. Summit Bancorp is already the leading provider of financial services to one of the most desirable banking markets in the nation. In 1998, our challenge is to maximize the value of our existing customer relationships by providing superior service and making cross-selling -- increasing profitability by selling customers additional services -- our mandate. "Reach higher" has been a motivating theme for Summit's employees, and it inspires our anytime, anywhere approach to customer service. Providing excellent service is not an option in this competitive environment. It is an absolute necessity. Building total relationships is also essential. By knowing our customers, we can effectively cross-sell financial solutions from our broad spectrum of retail, commercial and investment products. Income from operations in 1997 rose 18 percent to $425 million, or $2.39 per diluted share. We achieved a return on assets of 1.47 percent and a return on equity of 17.08 percent for the year, before non-recurring items. On December 31, 1997, we had a market capitalization of $9.3 billion and $30 billion in assets. Demonstrating confidence in our performance and potential for continued success, your Board of Directors raised the cash dividend for the second time in two years and authorized a three-for-two common stock split, effective September 24, 1997. The quarterly common stock dividend increased 12.5 percent to $.27 per share on a post-split basis. In another milestone, Summit was named to the S&P 500 Index. Considered a benchmark of corporate performance, Standard & Poor's selects companies for the Index based on strong, long-term fundamentals and viability. The compound annual total return on your Summit Bancorp stock over the past five years was 30 percent, compared to 20 percent for the S&P. Ten bank acquisitions since 1993 have helped us double our assets and achieve impressive market penetration. During 1997, we completed the most recent of these mergers: B.M.J. Financial Corp. and Collective Bancorp, with combined assets of $6.2 billion. Marketing to these customers has already begun contributing to revenues. We are now poised for vigorous growth in South Jersey, particularly Atlantic County. 4 7 [PICTURE: (LEFT) CHAIRMAN AND CHIEF EXECUTIVE OFFICER T. JOSEPH SEMROD AND PRESIDENT ROBERT G. COX] Strategic expansions in 1997 added new product capabilities and broadened the reach of core businesses. The acquisitions of Corporate Dynamics and Philadelphia Benefits Corp. added employee benefits consulting and brokerage capabilities to our array of insurance services. They provide significant opportunities to cross-sell our existing customer base and attract new business. Our asset based lending group, under the banner of Summit Commercial, expanded geographically with a new office in the Baltimore/Washington, D.C. area. This extends the reach of our specialty lending capabilities and enhances our position as one of the Northeast's largest asset based lenders. New sales and service initiatives augment our traditional strengths. In 1997, both commercial and consumer lending benefited from aggressive selling. Utilizing the considerable power of our branch network enabled us to realize a 23 percent increase in fee income from sales of trust and investment products. Alternative delivery systems, such as ATMs and PC banking, are enlarging our sales capacity and allowing customers to bank on their own terms. Our intense focus on superior customer service has not gone unnoticed. Commercial customers 5 8 voted us "Most Admired Bank" in an independent survey of 2,000 companies conducted recently by Business News New Jersey. Chief among the winning criteria were: responsiveness to customers, quality of service, name recognition, customization of services and high ethical standards. Understanding how our customers want to bank clearly differentiates Summit in the marketplace. Our Managing Local Markets strategy allows us to combine the services of a major financial institution with the personal service of a local bank. Local decision making and direct access to top management also provide important competitive advantages. A discussion of future strategies must include the Year 2000. Thanks to the foresight of our technology subsidiary, we are prepared to meet the challenges of the new millennium head on. We have maintained a single technology platform through merger integrations. As a result, our Year 2000 costs compare favorably with our peers, and we are ahead of regulatory deadlines. Entering 1998, we welcome the perspective of our two new directors, Thomas H. Hamilton and William R. Miller, who joined us from Collective Bancorp. Formerly Chairman, President and CEO, Mr. Hamilton led Collective for 35 years. Mr. Miller, who retired from Lenox China, Inc. as a senior vice president, served on Collective's board since 1985. We look forward to the insights they will provide. It is always our goal to enhance shareholder value. In 1998, we will work to accomplish this by: o Aggressively seeking cross-sell opportunities both within and across our business lines; o Raising the perception of the Summit brand by defining us as the region's leader in value-added financial solutions; o Continuing to pursue new revenue streams through acquisitions and expansion of our core businesses; o Striving to make Summit even more responsive to the needs of an exceptionally diverse marketplace. In closing, we are grateful for the trust and support of our customers, shareholders and employees as we continue to reach higher for financial solutions in 1998. /s/ T. Joseph Semrod T. Joseph Semrod Chairman and Chief Executive Officer /s/ Robert G. Cox Robert G. Cox President March 6, 1998 6 9 Summit Bancorp: The following pages describe how each of our lines of business -- commercial, retail, investment services and private banking -- reach higher for customers' financial solutions. [PICTURED: SUMMIT EMPLOYEE SITTING AT A COMPUTER TAKING A CUSTOMER'S TELEPHONE CALL.] 7 10 Summit Solution: Reaching Higher for Customers As part of Summit's efforts to build total relationships with our customers, investment counselors offer mutual funds, annuities, insurance and brokerage services throughout our branch network. Retail banking is a strong contributor to Summit's bottom line, as our 426 branches throughout New Jersey and eastern Pennsylvania closely tie us to the region's communities. With all the advantages of a large financial institution, we are still structured to respond like a community bank. Retail banking targets the 450,000 companies in New Jersey and eastern Pennsylvania with sales up to $5 million. Over 27 percent of these companies already bank with Summit. In 1998, we'll capitalize on these existing relationships with cross-sell initiatives. Summit has unique products tailored to this niche including our small business line of credit, community real estate mortgage, a check card and our newest product, the small business VISA credit card. Summit's Managing Local Markets (MLM) strategy focuses on selling the right products to the right customers through the right delivery channels. Our MLM tactics continue to fuel both consumer and small business growth. Our market trade area is divided into six regions, each with a regional president and senior lender. They are supported by a team of small business lenders with authority to make loan decisions at the local level. Branches are organized into market segments, each with distinct demographics. The result is target marketing based on an intimate knowledge of our customer base. We continue to shift transactional volume to more cost effective self service channels including ATMs, PC banking, telephone banking, the Call Center and the Internet. Summit's Internet site is both a sales and marketing tool, and includes on-line trading through Summit's discount brokerage. Our Customer Call Center is open 24 hours a day, seven days a week. In 1997, it handled nearly 15 million calls, a 44 percent increase over 1996, and a 100 percent increase over 1995. The significance is that customers are choosing to do their banking remotely, and through a less expensive automated option. Forty percent of all loan applications come through the Call Center, and our goal is 70 percent or more by the year 2000. This drives down costs and improves customer turn around time. Summit is the region's largest player for in-store banking. At year end, we had 41 in-store branches primarily in Pathmark, A&P and ShopRite stores. We just signed an agreement with Genuardi's, an upscale food retailer in Southeastern Pennsylvania and New Jersey, to open 15 in-stores beginning this March through 1999. We expect to have 70 supermarket branches by year-end 1998, 100 by the year 2000. As a result of our alternative delivery initiatives, we have closed or sold 24 branches unrelated to mergers over the past two years. During 1998, we expect to consolidate another 15. One product that has been very popular with old and new Summit customers is Preferred Banking. Customers can link deposit and loan accounts to avoid monthly fees and receive a combined monthly statement. Auto finance generated $600 million in new loans and leases in 1997 by working with a network of over 400 dealers throughout our region. In retail banking, Summit's product leadership and market differentiation will be the driving force in achieving growth in 1998. 8 11 [PICTURE: SUMMIT EMPLOYEE DISCUSSING INVESTMENT OPPORTUNITIES WITH A CUSTOMER] [PICTURE: BUILDING AT MORAVIAN COLLEGE IN BETHLEHEM, PA] Summit has a strong presence in eastern Pennsylvania and is proud to have a long-term relationship with Moravian College in Bethlehem. 9 12 [PICTURE: SUMMIT EMPLOYEE AT A CONSTRUCTION SITE LOOKING AT PROGRESS] [PICTURE: SKY VIEW OF THE NEW ATLANTIC CITY CONVENTION CENTER AND ATLANTIC CITY CONVENTION HALL] Summit was designated the official bank of The New Atlantic City Convention Center and Atlantic City Convention Hall where we have exclusive rights to provide ATM and other services. 10 13 Summit Solution: Helping Our Region Grow Summit has the knowledge and resources to help clients' businesses grow. An example is the financing to build Raytheon Engineers & Constructors, Inc.'s new headquarters. Summit is recognized as the largest commercial and industrial lender headquartered in New Jersey. A thorough understanding of our markets, consistency in management and the ability to make loan decisions locally have made us a leader. We have maintained that position by having the knowledge and resources to help our clients' businesses grow. Our goal is always to build a relationship with clients and provide complete financial solutions. What separates Summit from the competition is our ability to customize solutions that not only include traditional financing, but also a wide spectrum of non-traditional approaches, previously available only from Wall Street to very large corporations. Another Summit advantage is that our most senior officers regularly meet with clients and share their many years of banking expertise. We specialize in middle market companies with annual sales between $5 million and $250 million, where personal relationships and specialized services are customary requirements. In New Jersey and eastern Pennsylvania there are over 17,000 middle market companies. We also enjoy significant relationships with many of the Fortune 1000 companies. Our Business Banking division serves the unique needs of companies with annual sales of $5 million to $15 million, providing a blend of sophisticated products, efficient services and professional attention. Our relationship managers provide expertise in several specialized industries. One example is the health care industry where we focus on relationships with hospitals, larger medical practices and long-term care facilities. In addition, our reputation in communications -- newspapers, radio and television -- is nationally recognized. We also continue to expand our portfolio in the transportation/maritime, food processing and delivery industries. Summit is also acknowledged for its expertise in specialty lending. Summit Commercial Corp. (SCC) is the non-bank commercial finance subsidiary of the company, and is one of the largest asset based lenders in the Northeast with offices in New Jersey, New York City, the Philadelphia area, Stamford, Connecticut and, most recently, the Baltimore/ Washington, D.C. area. SCC specializes in asset based lending, international trade finance, transportation finance including aircraft lending, equipment leasing and structured finance. A major portion of its business is related to mergers, acquisitions and restructurings. Summit has increased efforts to give value added services to our commercial customers that also generate fee-based income. Summit's Corporate Finance specialists provide capital raising assistance and funding for public and private companies. These services include private placements, mezzanine financing, and mergers and acquisitions. Our knowledge of New Jersey and eastern Pennsylvania has helped to make Summit the leading construction lending bank in our region. We understand the development business, and are able to provide quick response time and expedite credit approval. Summit's commercial real estate division provides a variety of real estate financing services including commercial mortgages, construction loans, bridge loans and credit lines. 11 14 Summit Solution: Partnering with Customers for Financial Results Summit bankers help our clients realize their financial objectives. Here our investment professionals explain 401(k) options at Merrimac Industries, Inc. Investment Services and The Private Bank have always been important interest and non-interest income areas for Summit. These two lines of business continue to grow and operate as a team to capitalize on cross-sell opportunities. Investment Services manages over $8 billion of investment portfolios for individuals, corporations, trusts, estates, charities, endowments, foundations and our mutual fund family, the Pillar Funds(R). We have a broad product line with 17 proprietary mutual funds, and four of our Pillar Funds enjoy four star ratings from Morningstar, a national rating service. The Pillar money market funds are also offered in Summit's Asset Management (SAM) Account, a checking account where excess balances are swept daily into an interest-bearing investment. In April 1998, clients will be able to link the SAM account to a Summit brokerage account and be fully invested with immediate liquidity. Known for traditional trust, estate and investment services, Summit has also focused on niches that meet customer needs. One example is our Special Needs Trust for the disabled, where we are recognized as a leader by the legal community. A second example is Summit's Trust Care account for seniors, where we see demand increasing as the population ages. In the past, Summit has offered brokerage services in two distinct ways. This will change in 1998 when we combine our 85 investment counselors who advise retail customers on mutual funds and annuities with our discount brokers who execute individual security transactions at low cost. In 1997, we expanded our insurance services with the acquisition of Corporate Dynamics, an insurance consultant and broker that provides health and other employee benefits to businesses. Investment Services and The Private Bank have created a specialized unit called Women's Financial Future (WFF) to help Summit build strategic relationships with women. WFF is referring business throughout the company, particularly in investment management, private banking and small business. What differentiates The Private Bank from the competition is that it offers our clients all the products of a large financial institution with the total service of a community bank, including access to our most senior executives. The Private Bank provides a host of credit products for the affluent sector including jumbo mortgages for primary residences or vacation homes, stock option loans, and commercial real estate loans for owner-occupied or investment properties. Summit is the bank of choice in the professionals market serving lawyers, accountants and their firms. Over 80 percent of the top 50 law firms in New Jersey bank with us. Our escrow control product is number one in the state for attorney trust accounts. Summit proudly sponsors the Centennial Year of the New Jersey Society of Certified Public Accountants. During 1997 in conjunction with our Collective merger, we opened two new private banking and investment services offices, and in 1998 three additional sites in New Jersey and eastern Pennsylvania will be opened. 12 15 [PICTURE: SUMMIT EMPLOYEES AND CUSTOMERS DISCUSSING THE SOLUTIONS TO REALIZE THEIR FINANCIAL OBJECTIVES] [PICTURE: TOP OF THE CAPITAL BUILDING IN TRENTON, NJ] Summit is a recognized market leader in providing banking services to all levels of government. 13 16 [PICTURE: SUMMIT EMPLOYEE WITH A GROUP OF HIGH SCHOOL STUDENTS IN A GYM] [PICTURE: LIBERTY SCIENCE MUSEUM] Summit co-sponsors a program to take 3,000 students from Newark's 29 school districts to the Liberty Science Museum. 14 17 Summit Solution: Focusing On Our Communities People in our communities are not only our customers, they're our neighbors and friends. We're proud of our long relationship with the Hopatcong Borough school system. Summit bankers develop strong relationships in the communities we serve. We understand that healthy, prosperous communities are not only good for the economy, but are essential components in supporting our own business growth. Our loans and investments help create stable neighborhoods, promote new businesses and foster economic development. As part of the largest bank headquartered in New Jersey, Summit's Government Banking Division is naturally a leading provider of banking products and services to local government. In fact, we have significant deposit relationships with over 500 local government entities throughout New Jersey and eastern Pennsylvania. These include counties, municipalities, school districts and local and regional authorities. Government account relationships are a meaningful source of cost-effective core deposits. Summit has targeted this important sector and has partnered with all levels of government to meet the demands of the publics they serve. We provide our local government accounts a broad array of banking products and services. Summit's experienced staff understands not only banking, but also government and public administration issues. With this knowledge, they are able to match the right financial product or service to specific needs of local government. In addition, Government Banking can refer its customer base to each of our lines of business and cross-sell a number of Commercial, Retail and Investment Services to different areas of government. We have been effectively meeting the financial needs of local governments for many years. Through our recent strategic acquisitions, we not only expanded our customer base, but have retained and nurtured the government relationships of the banks we acquired. In 1998, Summit will continue to expand our government business by meeting the changing needs and priorities of our local governments. An important component of Government Banking is government relations. Here, we work with the various business, trade and government organizations to promote economic development in the state, counties and municipalities. Another way we support our local communities and expand market share is through mortgage financing. Summit is the largest bank mortgage originator in New Jersey and has a strong presence in eastern Pennsylvania. In 1997, we implemented cross-sell strategies for referrals from and to other lines of business. During 1998, we will utilize the strength of Summit's franchise to achieve greater market penetration, and will continue to streamline the mortgage process toward our goal of approvals in 24 hours. The people who live in our communities are not only our customers, they are our neighbors and friends. We operate in a region that enjoys an exceptionally rich multicultural population. Summit believes that our company should reflect the global mosaic of the customers we serve, and we are committed to creating an environment that encourages and values these differences. We believe this makes us a better, stronger and more competitive company. 15 18 Board of Directors Summit Bancorp S. Rodgers Benjamin Chairman and CEO Flemington Fur Company. Director since 1996. Member Executive, Compensation, Capital and Dividend, Acquisition Committees. Robert L. Boyle Representative William H. Hintelmann Firm. Director since 1986. Publisher Emeritus of The Dispatch. Director Summit Bank. Member Capital and Dividend, Nominating, Audit Committees. James C. Brady, Jr. Partner Mill House Associates, L.P. Director since 1996. Director Summit Bank. Chair Risk Management Committee. Member Acquisition, Audit Committees. John G. Collins Vice Chairman Summit Bancorp. Director since 1986. Vice Chairman and Director Summit Bank. Member Acquisition Committee. Robert G. Cox President Summit Bancorp. Director since 1996. President and Director Summit Bank. Member Executive Committee. T.J. Dermot Dunphy Chairman and CEO Sealed Air Corporation. Director since 1984. Director Summit Bank. Chair Executive, Compensation Committees. Member Acquisition, Nominating, Risk Management Committees. Anne Evans Estabrook Owner Elberon Development Co. Director since 1994. Director Summit Bank. Member Capital and Dividend, Nominating, Audit Committees. Elinor J. Ferdon Volunteer Professional. National President Girl Scouts of U.S.A. Director since 1984. Director Summit Bank. Chair Audit Committee. Member Executive, Compensation, Risk Management Committees. Thomas H. Hamilton President and Chief Executive Officer Collective Bank. Director since 1997. Director Collective Bank. Fred G. Harvey Vice President E&E Corporation. Director since 1988. Director Summit Bank, Pennsylvania. Chair Capital and Dividend Committee. Member Executive, Compensation, Risk Management Committees. John R. Howell Vice Chairman Summit Bancorp. Director since 1988. Chairman, President, CEO and Director Summit Bank, Pennsylvania. Member Risk Management Committee. Francis J. Mertz President Fairleigh Dickinson University. Director since 1986. Director Summit Bank. Member Nominating, Risk Management, Audit Committees. George L. Miles, Jr., CPA President and CEO WQED Pittsburgh. Director since 1994. Director Summit Bank. Member Executive, Compensation, Capital and Dividend, Risk Management Committees. William R. Miller Former Senior Vice President of Manufacturing Lenox China, Inc. Director since 1997. Director Collective Bank. Henry S. Patterson II Former President E'town Corporation. Director since 1971. Director Summit Bank. Member Executive, Compensation, Capital and Dividend, Acquisition, Risk Management, Audit Committees. T. Joseph Semrod Chairman and CEO Summit Bancorp. Director since 1981. Chairman, CEO and Director Summit Bank. Member Executive Committee. Raymond Silverstein, CPA Consultant Alloy, Silverstein, Shapiro, Adams, Mulford & Co., P.C. Director since 1991. Director Summit Bank. Chair Nominating Committee. Member Executive, Compensation, Capital and Dividend, Acquisition Committees. Orin R. Smith Chairman and CEO Engelhard Corporation. Director since 1996. Director Summit Bank. Member Capital and Dividend, Acquisition Nominating, Audit Committees. Joseph M. Tabak President and CEO JPC Enterprises, Inc. Director since 1987. Director Summit Bank. Chair Acquisition Committee. Member Nominating, Audit Committees. Douglas G. Watson President and CEO Novartis Corporation. Director since 1996. Member Executive, Compensation, Nominating Committees. 16 19 [PICTURE: BOARD OF DIRECTORS] Group 1 from left to right Douglas G. Watson Thomas H. Hamilton George L. Miles,Jr. T. Joseph Semrod Group 2 Orin R. Smith Robert L. Boyle Group 3 William R. Miller John R. Howell S. Rodgers Benjamin Group 4 Anne Evans Estabrook Joseph M. Tabak Group 5 Raymond Silverstein Fred G. Harvey T. J. Dermot Dunphy Group 6 Robert G. Cox Elinor J. Ferdon James C. Brady, Jr. Henry S. Patterson II Group 7 John G. Collins Francis J. Mertz 17 20 Community Development [PICTURE: SUMMIT EMPLOYEES DISCUSSING COMMUNITY DEVELOPMENT] Community development is a major component of Summit Bank's overall business strategy. Through our Partners in PRIDE (Programs to Initiate Development) program, Summit has financed the construction of affordable housing, funded community redevelopment, sponsored urban and minority business growth, and facilitated many projects that benefit our communities. Our partners include local and state government agencies, nonprofit groups, faith-based organizations, community members and other banks. It is the power of these partnerships that enables Summit to reach higher for all of its communities. Summit was recognized for its extensive efforts by receiving The Federal Home Loan Bank of New York's Award for Excellence in Community Lending; Governor Whitman's Excellence in Housing Award; The Women's Fund of New Jersey's Opening Doors Award; and the New Jersey Corporate Counsel Association's Diversity Award. In addition, many Summit staff members received individual recognition from a variety of organizations for their efforts in our communities. AFFORDABLE HOUSING [PICTURE: HOUSE] o Originated 1,200 purchase money mortgages totaling $111 million to low-and-moderate-income households in N.J. and Pa. o Funded two credit counseling offices for New Jersey Citizen Action which resulted in over 150 successful mortgage applications o Worked with the Lehigh County Housing Authority to provide affordable mortgages to low-and-moderate-income households in Lehigh Valley o Closed 15 affordable mortgages through Allentown's Neighborhood Housing Services SMALL BUSINESS [PICTURE: BAKER] o Originated 1,000 small business loans totaling $130 million in low-and-moderate-income neighborhoods o Participated in government sponsored loan programs such as the Small Business Administration and New Jersey Economic Development Association o Collaborated with the New Brunswick Micro-Loan Program, the Paterson Small Business Loan Program and the Cooperative Business Assistance Corporation in Camden o Invested in the Chester and Delaware County MicroLoan Fund which addresses business development and capital needs of new and existing businesses HOME IMPROVEMENT [PICTURE: PAINTER CAULKING AROUND A WINDOW] o Originated 1,700 home improvement loans totaling $16 million to low-and-moderate-income households o Provided the opportunity for renters to improve their dwellings and establish traditional credit histories through our Signature Loan Program o Co-sponsored lead paint remediation seminars with the New Jersey Department of Community Affairs in Irvington and Paterson COMMUNITY DEVELOPMENT [PICTURE: SUMMIT EMPLOYEES RECYCLING] o Provided $60 million to support community development activities throughout N.J. and Pa. o Participated in the first loan under New Jersey Governor Whitman's Urban Home Ownership Recovery Program which financed 25 two-family homes in Newark, N.J. o Provided rehabilitation and permanent financing for the Latin American Economic Development Association's building in Camden, N.J. Facility houses a Summit Bank branch, the Cooperative Business Assistance Corporation in Camden and Mercy Health Care o Established lending relationship with Ken-Crest Centers, a Pennsylvania nonprofit corporation that promotes the welfare of the mentally challenged INVESTMENTS [PICTURE: SECURITIES] o Provided a $2 million equity investment in a 38-unit senior citizen apartment complex in Reading, Pa. o Invested $2 million in New Jersey Housing Opportunity Fund II which invests in low-income rental housing throughout N.J. o Donated land and buildings in Franklin Township to the First Baptist Church of Lincoln Gardens which will sponsor a charter school, offer college courses through Raritan Valley Community College, and provide space to social service organizations o Contributed funds to nonprofit organizations which provide a variety of services to low-and moderate-income communities SPECIAL BANKING SERVICES [PICTURE: TWO HANDS SHAKING] o Created the Home Buyers Certificate of Deposit which provides special benefits to first-time home buyers o Conducted small business and home ownership seminars throughout N.J. and Pa. o Sponsored and administered nonprofit applications to the Federal Home Loan Banks of New York and Pittsburgh for Affordable Housing Program grants to obtain grant funding for affordable housing projects o Encouraged Summit personnel to volunteer in variety of projects affecting our communities including: Habitat for Humanity, Christmas in July, Career Closet at the Urban Women's Center in Trenton, School Savers Program in Pennsylvania and the Liberty Science Museum 18 21 FINANCIAL REVIEW Summit Bancorp and Subsidiaries ================================================================================ Basis of Presentation ================================================================================ On August 1, 1997, Summit Bancorp (the Company) completed the acquisition of Collective Bancorp, Inc. (Collective). This acquisition was accounted for as a pooling of interests and all financial information has been restated. On August 20, 1997, the Board of Directors approved a three-for-two common stock split, which was paid on September 24, 1997. All share data has been retroactively adjusted for the common stock split. Additionally, since October 1996, Summit Bancorp completed three acquisitions that affect comparisons to prior year financial information. Two were purchase acquisitions; Continental Bancorporation and Central Jersey Financial Corporation (Central Jersey) which were completed on October 1, 1996, and December 7, 1996, respectively. On March 1, 1997, the acquisition of B.M.J. Financial Corp. (B.M.J.) was completed and has been reflected in the financial statements from January 1, 1997. The Financial Review should be read in conjunction with the Consolidated Average Balance Sheets on pages 32 and 33, and the Consolidated Financial Statements and Notes beginning on page 34, and the Consolidated Summary of Selected Financial Data on pages 54 and 55. Summary of Performance ================================================================================ For the year ended December 31, 1997, net income was $371.0 million, an increase of $87.3 million, or 30.8%, compared to $283.7 million in 1996. On a per share basis, net income increased $.43 to $2.12 per share compared to $1.69 per share in 1996. Diluted net income for 1997 was $2.09 per share, compared to $1.67 per share in 1996. The results for 1997 include merger-related restructuring charges of $83.0 million ($53.7 million or $.31 per share, after tax) associated with the Collective and B.M.J. acquisitions. Net income for 1996 included merger-related restructuring charges of $110.7 million ($70.0 million or $.42 per share, after tax) and a one-time Savings Association Insurance Fund (SAIF) assessment of $11.1 million ($6.7 million or $.04 per share, after tax). The 1996 restructuring charges were recorded for the acquisitions of The Summit Bancorporation, The Flemington National Bank and Trust Company, Garden State Bancshares, Inc. and a supermarket branch initiative. Before these non-recurring items, net income increased 17.8% to $424.7 million, or $2.43 per share for the year ended December 31, 1997, compared to $360.4 million, or $2.15 per share for 1996. Diluted net income per share before non-recurring items was $2.39 for 1997, compared to $2.12 the prior year. Summit Bancorp's performance for 1997 was highlighted by loan growth, continued success in controlling expenses while integrating recent mergers, and an improvement in asset quality ratios. These factors contributed to increases in key profitability measures. Excluding non-recurring items, return on average assets increased to 1.47%, compared to 1.32% the previous year, and return on average common equity rose to 17.08% versus 16.48% for 1996. In addition, the efficiency ratio improved to 50.28% for 1997 from 52.11% in 1996. The following chart illustrates the growth in net income before non-recurring items for the past five years. NET INCOME BEFORE NON-RECURRING ITEMS (IN MILLIONS)
YEAR ---- 1993 $189.845 1994 249.548 1995 300.412 1996 360.419 1997 424.745
Average total loans increased $1.4 billion, or 8.1%, of which $861.1 million was core loan growth and $525.0 million was from acquisitions. The commercial and consumer loan portfolios represented $975.6 million of the total loan growth. Net interest income rose $91.8 million, or 8.7%, to $1.1 billion primarily as a result of loan growth and a $274.7 million increase in non-interest bearing deposits. In addition, non-interest income rose $41.8 million, or 16.1%, to $301.9 million as a result of increased fee-based income on loans, deposits, trust and other accounts. Non-interest expenses, excluding non-recurring charges, increased $39.9 million, or 5.7%, to $733.7 million primarily attributable to acquisitions. Continued improvement in asset quality ratios reflected the decline in non-performing assets. During 1997, non-performing assets were reduced by $66.2 million, or 40.0%, to $99.3 million. Non-performing assets as a percentage of total loans and other real estate owned declined to 0.53% at year-end 1997 from 0.95% at the prior year end. Reflecting this improvement, the provision for loan losses was reduced $4.9 million to $59.1 million in 1997. 19 22 Financial Condition ================================================================================ Interest-Earning Assets and Interest-Bearing Liabilities: Average interest-earning assets totaled $27.2 billion in 1997, an increase of $1.8 billion, or 7.3%, compared to 1996, reflecting an increase in loans and securities. Total loans increased $1.4 billion, or 8.1%, to average $18.5 billion, while total investment securities increased $459.0 million, or 5.6%, to average $8.6 billion, compared to last year. Average interest-bearing liabilities totaled $21.9 billion in 1997, an increase of $1.1 billion, or 5.3%, compared to 1996. This increase was attributable to a $416.0 million increase in interest-bearing deposits, primarily due to acquisitions, and a $695.9 million increase in total borrowed funds. This growth funded the increase in interest-earning assets. Securities: Securities available for sale may be sold in response to changing market and interest rate conditions. These securities are reported at fair value; with unrealized gains and losses, net of tax, included as a separate component of shareholders' equity. Securities available for sale averaged $3.8 billion during 1997 compared to $2.6 billion in 1996, an increase of $1.2 billion. During 1997, several strategies were employed, which included reinvesting cash flows from held-to-maturity securities into securities available for sale, and the realignment of investment portfolios of acquired banks in accordance with Summit's asset management approach. Approxi-mately $482.0 million of maturities from the held-to-maturity portfolio were reinvested in securities available for sale, and $805.9 million of Collective and B.M.J. held-to-maturity securities were transferred to securities available for sale. The available-for-sale portfolio consists of U.S. Government and Federal agency securities, equity securities and other securities, primarily corporate collateralized mortgage obligations (CMOs). During 1997, U.S. Government and Federal agency securities averaged $3.2 billion compared with $2.1 billion in 1996. Other securities averaged $558.1 million during 1997, compared with $567.7 million in the prior year. During 1997, $820.2 million of securities available for sale were sold for a net gain of $5.6 million. Maturities for 1997 amounted to $1.0 billion. At December 31, 1997, there were net unrealized gains of $35.3 million on securities available for sale compared to $11.4 million at the prior year end. At December 31, 1997, the average estimated life of securities available for sale, adjusted for historical prepayments on mortgage-backed securities, was 4 years, 6 months. The average yield on this portfolio increased 12 basis points to 6.46% in 1997, compared to 6.34% in 1996. This increase is primarily attributable to the higher interest rate environment. The average prime rate increased approximately 17 basis points to average 8.44% in 1997, compared to 8.27% in 1996. Securities held to maturity are carried at amortized historical cost and consist of those securities for which there is a positive intent and ability to hold to maturity. Securities held to maturity averaged $4.9 billion during 1997, a decline of $711.8 million, or 12.8%, from the 1996 average of $5.6 billion. At December 31, 1997, these securities totaled $4.2 billion, a decrease of $1.2 billion, or 23.3%, from the $5.4 billion at year-end 1996. The held-to-maturity portfolio consists primarily of U.S. Government and Federal agency securities which averaged $3.5 billion and other securities, principally corporate CMOs, which averaged $1.1 billion. The average estimated life of securities held to maturity, adjusted for historical prepayments on mortgage-backed securities, was 2 years, 8 months at December 31, 1997. The average yield on this portfolio increased 4 basis points during 1997 to 6.50%, compared to 6.46% in 1996. Loans: The following chart illustrates the growth in average total loans for the past five years. TOTAL AVERAGE LOANS (IN BILLIONS)
YEAR ---- 1993 $13.304 1994 14.120 1995 15.569 1996 17.066 1997 18.452
20 23 ================================================================================ Total loans averaged $18.5 billion during 1997, an increase of $1.4 billion, or 8.1%, compared to $17.1 billion in 1996. On average commercial loans increased $386.2 million, as commercial mortgage loans grew $136.5 million, residential mortgage loans increased $274.0 million, and consumer loans rose $589.4 million. The average yield on the total loan portfolio increased to 8.19% in 1997, compared to 8.14% in 1996. Commercial and industrial (C & I) loans totaled $5.9 billion at December 31, 1997, an increase of $979.5 million, or 20.0%, over 1996. Most of this growth occurred in the last six months of 1997. During 1997, asset based, large corporate and middle market lending contributed to the growth in C & I loans during the year. This portfolio continued to mirror the business diversification of the region with no industry concentrations greater than 10% of total C & I loans. Construction and development loans amounted to $369.5 million at December 31, 1997, compared to $316.2 million at year-end 1996. The average yield on the commercial portfolio increased 16 basis points to 8.52% in 1997 from 8.36% the prior year. Commercial mortgage loans averaged $2.8 billion for 1997, an increase of $136.5 million, or 5.1%, from 1996. Generally, these loans represent owner-occupied or investment properties and complement a broader commercial lending relationship. At December 31, 1997, these loans amounted to $2.7 billion, an increase of $79.4 million, or 3.0%, from 1996. The average yield on commercial mortgage loans was 8.76% for 1997 compared to 8.71% for 1996, an increase of 5 basis points. During 1997, residential mortgage loans averaged $5.9 billion, up $274.0 million, or 4.8%, from 1996. Contributing to this increase were $240.0 million of residential mortgage loans from acquired institutions that were not reflected in 1996. At December 31, 1997, residential mortgage loans totaled $5.7 billion, a decrease of $233.3 million, or 4.0%, compared to the prior year end. This decline was due, in part, to $140.5 million in loan sales, predominately adjustable rate mortgages, during the third quarter of 1997. These loans were sold as part of a strategy to mitigate prepayment risk within the portfolio. Mortgage loan originations during 1997 totaled $1.0 billion, compared to $1.3 billion in 1996. Residential mortgage loans held for sale totaled $75.7 million at December 31, 1997, versus $50.0 million at year-end 1996. Sales of loans in the secondary market, generally fixed-rate loans, were $444.1 million compared to $481.6 million in 1996. The average yield on residential mortgage loans was 7.42% for 1997, compared to 7.46% for 1996. Consumer loans averaged $4.1 billion for the year, an increase of $589.4 million, or 17.0%, from 1996. The growth in this portfolio occurred primarily in home equity loans. As a result of successful promotions, and acquisitions, home equity loans increased $395.3 million, or 16.9%, totaling $2.7 billion at year-end 1997. Automobile loans totaled $1.1 billion as of December 31, 1997, an increase of $181.8 million, or 20.3%, over year-end 1996 and reflected growth in indirect lending and leasing activity. Due to competitive pricing of these products, the average yield earned on the consumer loan portfolio declined 1 basis point to 8.46% in 1997, compared to 8.47% earned in 1996. The following table shows the expected life of total loans at December 31, 1997, and segregates loans with fixed interest rates from those with floating or adjustable interest rates. - ------------------------------------------------------------------------------- Loan Maturities
Within 1 to 5 After (In millions) 1 Year Years 5 Years Total - ------------------------------------------------------------------------------- Commercial and industrial ................. $ 2,586 $ 3,037 $ 261 $ 5,884 Construction and development .............. 178 188 4 370 Commercial mortgages ...................... 413 1,530 761 2,704 Residential mortgages ..................... 1,329 2,209 2,133 5,671 Consumer loans ............................ 1,115 2,166 978 4,259 - ------------------------------------------------------------------------------- Total ................................ $ 5,621 $ 9,130 $ 4,137 $18,888 =============================================================================== Amount of loans based upon: Fixed interest rates .................... $ 2,024 $ 4,610 $ 1,982 $ 8,616 Floating or adjustable interest rates ... 3,597 4,520 2,155 10,272 - ------------------------------------------------------------------------------- Total ................................ $ 5,621 $ 9,130 $ 4,137 $18,888 ===============================================================================
The table below presents the classification of the loan portfolio by major category at December 31 for each of the past five years. Total loans have grown $5.3 billion, or 39.4%, since December 31, 1993, primarily in C&I and residential mortgage loans. - ------------------------------------------------------------------------------- Year-End Loans
(In millions) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------- Commercial and industrial ........ $ 5,884 $ 4,905 $ 4,978 $ 4,772 $ 4,089 Construction and development...... 370 316 437 693 933 - ------------------------------------------------------------------------------- Commercial ..................... 6,254 5,221 5,415 5,465 5,022 Commercial mortgage .............. 2,704 2,624 2,427 2,868 2,442 Residential mortgage ............. 5,671 5,905 5,331 3,833 3,516 Consumer ......................... 4,259 3,636 3,240 2,883 2,572 - ------------------------------------------------------------------------------- Total loans .................... $18,888 $17,386 $16,413 $15,049 $13,552 ===============================================================================
21 24 ================================================================================ Deposits: During 1997, deposits continued to be impacted by the investors' desire for higher-yielding investment alternatives such as mutual funds, annuities, and the stock market. Average total deposits were $22.0 billion for 1997 compared to $21.3 billion for 1996, an increase of $690.7 million, or 3.2%. This increase in deposits was primarily due to acquisitions, with the most significant growth in demand and savings deposits. Average demand deposits were $4.1 billion for 1997, an increase of $274.7 million, or 7.1%, from the prior year. Demand deposit growth occurred in both business and personal accounts. The following chart illustrates the growth in average demand deposits for the past five years. AVERAGE DEMAND DEPOSITS (IN BILLIONS)
YEAR ---- 1993 $3.071 1994 3.375 1995 3.482 1996 3.857 1997 4.131
Savings deposits, which include interest-bearing checking, money-market and savings accounts, increased $387.4 million, or 4.2%, to average $9.6 billion during 1997. Money market accounts increased $236.7 million and interest-bearing checking accounts increased $239.3 million, offset by a decline of $88.6 million in other savings accounts. The average cost of savings deposits increased 7 basis points to 2.63% in 1997, compared to 2.56% in 1996. Time deposits, which consist primarily of retail certificates of deposit, increased $28.7 million, or 0.4%, during 1997 and averaged $7.3 billion. The average cost of time deposits increased 7 basis points to 5.20% in 1997 from 5.13% in 1996. Commercial certificates of deposit $100,000 and over are primarily used as a funding source to support balance sheet growth and as an alternative to borrowed funds. These deposits averaged $891.9 million during 1997, unchanged from a year ago. The cost of these deposits increased 4 basis points during the year to 5.41% compared with 5.37% in 1996. Other Borrowed Funds: Other borrowed funds generally include securities sold under agreements to repurchase, Federal funds purchased, commercial paper, Federal Home Loan Bank (FHLB) borrowings, and other short-term borrowings. During 1997, other borrowed funds increased $239.0 million, or 8.1%, to average $3.2 billion. These borrowings are a source of funds to support growth in the loan and securities portfolios. The average cost of other borrowed funds rose 22 basis points during the year to 5.50% compared with 5.28% in 1996. Commercial paper, a funding source for the Parent Corporation, averaged $45.4 million during 1997 compared with $44.5 million in 1996. The average cost of commercial paper increased 16 basis points to 5.42% in 1997 from 5.26% in 1996. The table below summarizes certain short-term borrowing information for each of the past three years. - -------------------------------------------------------------------------------- Short-Term Borrowings
1997 1996 1995 -------------- -------------- -------------- (In millions) Amount Rate Amount Rate Amount Rate - ------------------------------------------------------------------------------------------------------- Securities sold under agreements to repurchase: At December 31 .............................. $2,689 5.42% $2,263 5.36% $1,694 5.76% Average during year ......................... 2,427 5.44 2,082 5.13 1,932 5.49 Maximum month-end balance during year ....... 2,780 -- 2,299 -- 2,024 -- Federal funds purchased: At December 31 .............................. $ 655 5.84% $ 200 6.22% $ 201 5.57% Average during year ......................... 473 6.02 591 5.84 254 5.85 Maximum month-end balance during year ....... 699 -- 1,187 -- 443 -- =======================================================================================================
22 25 ================================================================================ Long-Term Debt: Long-term debt averaged $887.2 million for 1997, an increase of $456.9 million, or 106.2%, from 1996. At year-end 1997, long-term debt totaled $1.0 billion, an increase of $351.8 million, or 50.6%, compared to December 31, 1996. This increase was due to additional long-term borrowings of $214.3 million from the FHLB and a $150.0 million issuance of capital trust pass-through securities (capital securities). The increase in long-term debt was to provide matched-maturity funding for cetain loans and investments. FHLB borrowings that are classified as long-term debt include borrowings with an original maturity greater than one year. At December 31, 1997, FHLB borrowings totaled $640.7 million, compared to $426.4 million the prior year. In the first quarter of 1997, Summit Bancorp, through the formation of a wholly-owned special purpose subsidiary, Summit Capital Trust I, issued $150.0 million of capital securities. The proceeds from the issuance of the capital securities were invested in securities that provided a yield comparable to the 8.40% dividend on the capital securities. The capital securities were issued as an inexpensive form of Tier I capital. The dividends paid to the holders of the trust securities are deductible for income tax purposes. Certain long-term debt agreements contain limitations on the amount of additional funded debt that can be assumed. At December 31, 1997, under the most restrictive debt covenants, the amount of additional funded debt that could have been incurred was $725.4 million. At December 31, 1997, long-term debt totaling $189.6 million qualified as Tier II capital for risk-based capital purposes. For additional information on long-term debt, see Note 10 of the Notes to Consolidated Financial Statements. Shareholders' Equity and Dividends: Summit Bancorp has a policy of maintaining a strong capital position. The maintenance of a strong capital base promotes investor confidence, enhances the flexibility to capitalize on business growth and acquisition opportunities and to serve the needs of depositors and creditors. At year-end 1997, shareholders' equity was $2.6 billion, an increase of $321.6 million, or 14.0%, compared to the prior year. Contributing to this increase were retained profits of $194.5 million, $68.4 million of capital from the acquisitions, and $44.0 million due to common stock issuance from stock plans. Book value per common share rose 8.7% to $14.79, compared to $13.61 for the prior year. As a result of continued earnings improvement and capital levels in excess of the "well capitalized" status under regulatory requirements, the quarterly dividend paid on common stock was increased from $.24 per share to $.27 per share during the third quarter of 1997. Common stock dividends declared totaled $1.02 per share for 1997 compared to $.90 for 1996, an increase of 13.3%. The following chart illustrates the growth in total average equity for the past five years. TOTAL AVERAGE EQUITY (IN BILLIONS)
YEAR ---- 1993 $1.625 1994 1.768 1995 1.966 1996 2.212 1997 2.487
On August 20, 1997, the Board of Directors approved a three-for-two common stock split, which was paid on September 24, 1997, to shareholders of record on September 3, 1997. In connection with the stock split, the Company increased the number of authorized shares of common stock from 260 million to 390 million and preferred stock from 4 million to 6 million, and decreased the par value of the common stock from $1.20 per share to $.80 per share. Additionally, all share data has been adjusted for the common stock split. The market price of the common stock was $52.88 at December 31, 1997, compared to $29.17 the prior year end. The common stock of Summit Bancorp is traded on the New York Stock Exchange under the symbol SUB. The quarterly market price ranges and dividends declared per common share for the last two years are shown on page 59. Summit Bancorp and its bank subsidiaries are subject to various regulatory capital requirements administered by the Federal Reserve Board and Federal Deposit Insurance Corporation. For additional information on regulatory capital, see Note 19 of the Notes to Consolidated Financial Statements. 23 26 ================================================================================ Results of Operations ================================================================================ Net Interest Income: Interest income on a tax-equivalent basis was $2.1 billion, an increase of $157.1 million, or 8.2%, compared to 1996. This increase was primarily due to the growth in interest-earning assets. On average, interest-earning assets increased $1.8 billion, or 7.3%, to $27.2 billion. Growth in the loan and investment portfolios contributed $1.4 billion and $459.0 million of this increase, respectively. The average yield on interest-earning assets was 7.64% for 1997 compared to 7.57% for 1996, an increase of 7 basis points attributable to a slightly higher interest rate environment in 1997. Interest expense was $919.6 million for 1997, an increase of $65.9 million, or 7.7%, from a year ago. On average, interest-bearing liabilities increased $1.1 billion, or 5.3%, resulting from increases in long-term debt, other borrowings and interest-bearing deposits. The average cost of interest-bearing liabilities was 4.20% in 1997, an increase of 10 basis points from 4.10% in 1996. Net interest income on a tax-equivalent basis amounted to $1.2 billion, an increase of $91.2 million, or 8.5%, from $1.1 billion earned in 1996. Net interest spread declined 3 basis points to 3.44% for the year compared to 3.47% in 1996. The decline was attributable to a narrowing of spreads between yields earned on the investment and loan portfolios and rates paid on deposits and borrowed funds during 1997. Net interest margin increased to 4.26% for 1997 compared to 4.21% in 1996. This increase was partially due to a $733.9 million increase in interest-free funds resulting from an increase in demand deposits and a decrease in cash balances resulting from lower reserve requirements. The Rate/Volume Table below presents an analysis of the impact on interest income and interest expense resulting from changes in average volumes and rates over the past two years. Changes that are not due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values. Non-Interest Income: Non-interest income, including securities gains, amounted to $301.9 million in 1997 compared to $260.0 million the prior year, an increase of $41.8 million, or 16.1%. Non-interest income categories compared to the prior year are shown in the following table.
- ------------------------------------------------------------------------------- Increase (Decrease) - ------------------------------------------------------------------------------- (In thousands) 1997 1996 Amount Percent - ------------------------------------------------------------------------------- Service charges on deposit accounts ....................... $114,569 $105,967 $ 8,602 8.1% Service and loan fee income ...... 52,205 44,577 7,628 17.1 Trust income ..................... 48,488 39,540 8,948 22.6 Other ............................ 80,986 66,096 14,890 22.5 - ------------------------------------------------------------------------------- 296,248 256,180 40,068 15.6 Securities gains ................. 5,637 3,862 1,775 46.0 - ------------------------------------------------------------------------------- $301,885 $260,042 $41,843 16.1% ===============================================================================
Service charges on deposit accounts amounted to $114.6 million in 1997, an increase of $8.6 million, or 8.1%. This increase was primarily attributable to higher fee income in both business and personal demand deposit accounts. Fee income on demand deposit accounts increased primarily as a result of a larger customer base resulting from acquisitions. - --------------------------------------------------------------------------------
Rate/Volume Table Amount of Increase (Decrease) -------------------------------------------------------- 1997 versus 1996 1996 versus 1995 -------------------------- -------------------------- Due to Change in: Due to Change in: ----------------- ----------------- (Tax-equivalent basis, in millions) Volume Rate Total Volume Rate Total - -------------------------------------------------------------------------------------------------------------------- Interest Income: Loans: Commercial ......................................... $ 32.9 $ 8.6 $ 41.5 $(16.3) $(15.7) $(32.0) Commercial mortgage ................................ 12.1 1.3 13.4 36.7 (6.0) 30.7 Residential mortgage ............................... 20.6 (2.3) 18.3 63.1 (4.9) 58.2 Consumer ........................................... 49.9 (0.3) 49.6 35.8 (6.5) 29.3 - -------------------------------------------------------------------------------------------------------------------- Total loans ...................................... 115.5 7.3 122.8 119.3 (33.1) 86.2 Securities held to maturity ........................... (46.2) 2.2 (44.0) (93.4) (10.3) (103.7) Securities available for sale ......................... 75.5 3.2 78.7 92.7 4.1 96.8 Other interest-earning assets ......................... -- (0.4) (0.4) (7.6) 1.1 (6.5) - -------------------------------------------------------------------------------------------------------------------- Total interest income ............................ 144.8 12.3 157.1 111.0 (38.2) 72.8 - -------------------------------------------------------------------------------------------------------------------- Interest Expense: Deposits: Savings deposits ................................... 9.9 6.5 16.4 4.1 (8.3) (4.2) Time deposits ...................................... 1.4 4.9 6.3 17.1 6.5 23.6 Commercial certificates of deposit $100,000 and over -- 0.3 0.3 14.2 (4.9) 9.3 - -------------------------------------------------------------------------------------------------------------------- Total deposits ................................... 11.3 11.7 23.0 35.4 (6.7) 28.7 Other interest-bearing liabilities .................... 40.5 2.4 42.9 8.3 (5.5) 2.8 - -------------------------------------------------------------------------------------------------------------------- Total interest expense ........................... 51.8 14.1 65.9 43.7 (12.2) 31.5 - -------------------------------------------------------------------------------------------------------------------- Net interest income ..................................... $ 93.0 $ (1.8) $ 91.2 $ 67.3 $(26.0) $ 41.3 ====================================================================================================================
24 27 ================================================================================ Service and loan fee income increased $7.6 million, or 17.1%, to $52.2 million in 1997. This increase is primarily attributable to prepayment fee income on C&I and commercial mortgage loans, and an increase in merchant credit card and consumer debit card fees due to higher processing volumes. Trust income of $48.5 million increased $8.9 million, or 22.6%, over the prior year. This increase is primarily due to an $8.4 million increase in fee income on proprietary mutual funds, third party mutual fund commissions and investment advisory accounts. These funds include Summit's proprietary funds, the Pillar Funds(R), which totaled $2.3 billion at December 31, 1997. Assets under trust administration, including corporate debt trusteeships, totaled $26.3 billion at December 31, 1997. Assets under discretionary management were $8.2 billion at year-end 1997. Other income amounted to $81.0 million, an increase of $14.9 million, or 22.5%, compared to the prior year. This increase was partially due to an $8.3 million increase in gains recorded from the sale of certain branch assets and deposits. Other income also benefited from a $2.7 million increase in service fees on annuity products and a $2.7 million increase in automated teller machine fees. For the year ended December 31, 1997, securities gains were $5.6 million, an increase of $1.8 million, or 46.0%, above 1996. These gains were principally due to sales of equity securities. Non-Interest Expenses: Non-interest expenses totaled $816.7 million in 1997, an increase of $1.1 million compared to 1996. Impacting the comparison of 1997 non-interest expenses to 1996 are three acquisitions not included in the prior year results. As discussed in the Summary of Performance on page 19, non-interest expenses for 1997 and 1996 included non-recurring items of $83.0 million and $121.8 million, respectively. Excluding these non-recurring items, non-interest expenses increased $39.9 million or 5.7 % compared to 1996. Non-interest expense categories compared to the prior year are shown in the following table.
- -------------------------------------------------------------------------------- Increase (Decrease) - -------------------------------------------------------------------------------- (In thousands) 1997 1996 Amount Percent - -------------------------------------------------------------------------------- Salaries .......................... $290,515 $267,854 $ 22,661 8.5% Pension and other employee benefits ........................ 93,711 87,718 5,993 6.8 Occupancy, net .................... 72,074 77,242 (5,168) (6.7) Furniture and equipment ........... 78,259 69,732 8,527 12.2 Communications .................... 35,214 33,292 1,922 5.8 Other ............................. 163,918 157,994 5,924 3.7 - -------------------------------------------------------------------------------- 733,691 693,832 39,859 5.7 Savings Association Insurance Fund assessment ................. -- 11,059 (11,059) (100.0) Restructuring charges ............. 83,000 110,700 (27,700) (25.0) - -------------------------------------------------------------------------------- $816,691 $815,591 $ 1,100 0.1% ================================================================================
Salaries totaled $290.5 million in 1997, an increase of $22.7 million, or 8.5%, compared to 1996. The rise in salaries was due in part to increased staff levels and annual merit increases. Total full-time equivalent employees at December 31, 1997, were 8,566, compared to 8,402 at December 31, 1996, an increase of 2.0%. Pension and other employee benefits expense totaled $93.7 million for the year ended December 31, 1997, and was $6.0 million, or 6.8%, greater than 1996. Most of this increase can be attributed to higher costs for medical insurance, unemployment taxes and other employee costs. During 1997, net occupancy expenses decreased $5.2 million or 6.7% from the prior year. This decline was due in part to lower rental and maintenance expenses associated with the closing of 28 traditional full service branches from the prior year end. Furniture and equipment totaled $78.3 million, an increase of $8.5 million, or 12.2%, from 1996. This was primarily due to equipment upgrades for merger support, as well as purchased central site equipment needed to support new client-server networked applications. In addition, part of this increase was due to new computer equipment to support branch automation at acquired institutions. Communications expense totaled $35.2 million in 1997, an increase of $1.9 million, or 5.8%, compared to 1996. This increase was attributable to higher telecommunication expenses, as a result of branch rewiring and technology upgrades. Other expenses, which consist primarily of legal and professional fees, advertising and public relations expenses, amortization expense for goodwill and intangibles, and other expenses were $163.9 million in 1997, an increase of $5.9 million, or 3.7%, from 1996. This increase included an additional $6.4 million in advertising and public relations expenses that were due to costs to promote the Summit name and products in new markets it serves, as a result of the acquisitions in late 1996 and 1997. Also contributing to the rise in other expenses was a $3.5 million increase in amortization expense for goodwill and intangibles, reflecting the prior year purchase acquisitions. Additionally included are $4.0 million of expenses associated with the Year 2000 conversion. Partially offsetting the increase in other expenses were declines in deposit insurance premiums and other real estate owned (OREO) expenses. Deposit insurance premiums declined $4.2 million, or 42.4%, from 1996 as a result of premium reductions. OREO expenses declined $1.9 million, or 51.3%, from 1996, to total $1.8 million for 1997, reflecting the continued decline in the number of OREO properties. Income Taxes: Federal and state income tax expenses for 1997 were $200.2 million compared to $150.0 million in 1996. The 33.5% increase was primarily the result of the 31.7% increase in pre-tax income. The combined Federal and state effective income tax rate was 35.1% for 1997 compared to 34.6% for 1996. For additional information on income taxes, see Note 16 of the Notes to Consolidated Financial Statements. 25 28 ================================================================================ Asset Quality ================================================================================ Non-Performing Loans: At December 31, 1997, non-performing loans totaled $85.1 million and represented 0.45% of total loans, compared to $139.1 million, or 0.80% of total loans the prior year. Non-performing loans declined $54.0 million, or 38.8%, in 1997. The following chart illustrates the trend in non-performing loans for the past five years. NON-PERFORMING LOANS (IN MILLIONS)
Year - ---- 1993 $330,569 1994 306,943 1995 193,561 1996 139,131 1997 85,090
The continued reduction in non-performing loans can be attributed to a stabilized real estate market and continued aggressive loan workout strategies. During 1997, Summit Bancorp continued to employ a strategy of selling smaller-balance commercial non-performing loans to enhance credit quality ratios and reduce the number of accounts under management. Since 1996, there have been seven bulk sales (three in 1996 and four in 1997), representing over 500 accounts, which have reduced non-performing loans by $72.6 million. During 1997, additions into non-performing loans totaled $137.9 million, a decrease of $42.1 million, or 23.4%, compared to $180.0 million in the prior year. As a result of the reduction in the non-performing loans, charge-offs on non-performing loans declined $32.6 million to total $37.1 million, compared to $69.7 million in 1996. Loans 90 days or more past due not included in the non-performing loan category totaled $48.6 million at year-end 1997, compared to $79.0 million at the prior year end. These loans are comprised of residential mortgages and consumer loans which are generally well-secured and in the process of collection. The decline of these loans can be partially attributed to $37.1 million of bulk sales in the fourth quarter of 1997. Other Real Estate Owned: OREO, net of a valuation allowance, amounted to $14.2 million at year end compared to $26.4 million the prior year, a decline of $12.2 million, or 46.0%. OREO is carried at the lower of cost or fair value less estimated costs to sell with any deficiency charged against the valuation allowance. At year-end 1997, the allowance totaled $5.7 million, compared to $9.2 million at the prior year end. - -------------------------------------------------------------------------------- Non-Performing Assets
(In thousands) 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- Non-performing loans: Commercial and industrial ........................................... $42,644 $ 54,308 $ 52,086 $ 52,082 $ 86,842 Construction and development ........................................ 4,453 31,901 52,975 52,620 97,040 Commercial mortgage ................................................. 37,993 52,922 88,500 102,241 146,687 - --------------------------------------------------------------------------------------------------------------------------------- Non-performing loans ............................................. 85,090 139,131 193,561 206,943 330,569 Other real estate owned, net .......................................... 14,249 26,406 30,771 55,800 135,951 - --------------------------------------------------------------------------------------------------------------------------------- Non-performing assets $99,339 $165,537 $224,332 $262,743 $466,520 - --------------------------------------------------------------------------------------------------------------------------------- Loans, not included above, past due 90 days or more (1) ............... $48,609 $ 79,013 $ 60,463 $ 59,780 $ 87,779 - --------------------------------------------------------------------------------------------------------------------------------- Impact on interest income: Interest income that would have been recorded on non-performing loans in accordance with their original terms .......................... $ 5,340 $ 14,154 $ 20,192 $ 20,408 $ 29,646 Interest income received and recorded on non-performing loans ....... 1,040 1,817 2,833 2,642 5,332 - --------------------------------------------------------------------------------------------------------------------------------- Lost income on non-performing loans $ 4,300 $ 12,337 $ 17,359 $ 17,766 $ 24,314 - --------------------------------------------------------------------------------------------------------------------------------- Non-performing assets as a percentage of: Total assets ........................................................ 0.33% 0.60% 0.84% 1.03% 2.06% Total loans and other real estate owned ............................. 0.53 0.95 1.36 1.74 3.41 =================================================================================================================================
(1) Primarily residential mortgage and consumer loans, well secured and in the process of collection. 26 29 ================================================================================ Allowance for Loan Losses and Related Provision: The allowance for loan losses at December 31, 1997, was $296.5 million, an increase of $15.9 million, or 5.7%, compared to $280.6 million the prior year end. The ratio of the allowance for loan losses to total loans was 1.57% at December 31, 1997, and 1.61% at year-end 1996. The allowance for loan losses as a percentage of non-performing loans was 348.45% at December 31, 1997, compared to 201.69% at the end of 1996. A standardized process has been established to assess the adequacy of the allowance for loan losses and to identify the risks inherent in the loan portfolio. This process incorporates credit reviews and gives consideration to areas of exposure such as concentrations of credit, economic and industry conditions, trends in delinquencies and collections, collateral coverage, and the composition of the performing and non-performing loan portfolios. Specific allocations, when required under Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," are identified by individual loan, while general reserve percentages are identified by loan category or grade and allocated accordingly. All loans, whether performing or non-performing, are graded and incorporated in the process of assessing the adequacy of the allowance for loan losses. The allowance is maintained at a level considered sufficient to absorb estimated losses in the loan portfolio. At year-end 1997, $20.0 million of the total $296.5 million loan loss allowance was identified for non-performing loans, while $109.7 million was allocated to specific categories or grades of loans not considered impaired under the assessment process. The remaining $166.8 million was considered a general unallocated reserve for the residual inherent risk in the portfolio. The provision for loan losses was $59.1 million for the year ended December 31, 1997, down $4.9 million, or 7.7%, from $64.0 million recorded in 1996. This decrease resulted primarily from reductions in non-performing loans during 1997. Net charge offs of $53.2 million were recorded in 1997, a decrease of $31.9 million, or 37.5%, compared to $85.1 million recorded in 1996. These net charge offs represented 0.29% of average loans in 1997 compared to 0.50% of average loans in 1996. - -------------------------------------------------------------------------------- Allowance for Loan Losses
(In thousands) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ Balance, beginning of period ................. $ 280,611 $ 293,160 $ 323,336 $ 361,319 $ 378,793 Acquisition adjustments, net ................. 9,994 8,492 6,131 1,910 15,991 Provision charged to operating expenses ...... 59,100 64,034 72,090 94,347 115,902 Loans charged off: Commercial and industrial .................. 22,355 37,047 46,819 38,043 75,966 Construction and development ............... 3,319 17,036 35,451 39,542 38,382 Commercial mortgage ........................ 12,993 25,695 25,741 21,731 18,590 Residential mortgage ....................... 19,117 7,558 8,608 9,726 4,664 Consumer ................................... 28,891 20,970 13,873 10,504 29,768 - ------------------------------------------------------------------------------------------------------------------------ Total loans charged off ................. 86,675 108,306 130,492 119,546 167,370 - ------------------------------------------------------------------------------------------------------------------------ Recoveries: Commercial and industrial .................. 16,167 12,602 14,684 13,921 10,856 Construction and development ............... 3,686 2,427 2,072 1,320 1,657 Commercial mortgage ........................ 5,089 2,466 1,920 2,838 724 Residential mortgage ....................... 957 838 667 594 315 Consumer ................................... 7,565 4,898 2,752 3,585 4,451 - ------------------------------------------------------------------------------------------------------------------------ Total recoveries ........................ 33,464 23,231 22,095 22,258 18,003 - ------------------------------------------------------------------------------------------------------------------------ Net charge offs .............................. 53,211 85,075 108,397 97,288 149,367 Write downs on transfer to assets held for accelerated disposition ................ -- -- -- 36,952 -- - ------------------------------------------------------------------------------------------------------------------------ Balance, end of period ....................... $ 296,494 $ 280,611 $ 293,160 $ 323,336 $ 361,319 ======================================================================================================================== Loans: At year end ................................ $18,888,366 $17,386,059 $16,413,222 $15,048,579 $13,552,381 Average during year ........................ 18,451,893 17,065,753 15,568,502 14,120,398 13,304,441 Net charge offs to average loans outstanding 0.29% 0.50% 0.70% 0.69% 1.12% Allowance for loan losses to: Total loans at year end .................... 1.57 1.61 1.79 2.15 2.67 Non-performing loans ....................... 348.45 201.69 151.46 156.24 109.30 Non-performing assets ...................... 298.47 169.52 130.68 123.06 77.45 Net charge offs ............................ 5.6x 3.3x 2.7x 3.3x 2.4x ========================================================================================================================
27 30 ================================================================================ Asset/Liability Management ================================================================================ Interest Sensitivity: Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by the Asset/Liability Management Committee. The principal objective of asset/liability management is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. To mitigate the impact of changes in interest rates, the balance sheet must be structured so that repricing opportunities exist for both assets and liabilities in approximately equivalent amounts at basically the same time intervals. An imbalance in these repricing opportunities at any point in time constitutes an interest-sensitivity gap, which is the difference between interest-sensitive assets and interest-sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate exposures. As illustrated by the interest rate sensitivity table, sensitivity to interest rate fluctuations is measured in a number of time frames. The gap position is presented on an adjusted basis allowing for the impact of off-balance-sheet transactions. An asset-sensitive gap means an excess of interest-sensitive assets over interest-sensitive liabilities, whereas a liability-sensitive gap means an excess of interest-sensitive liabilities over interest-sensitive assets. At December 31, 1997, there was a thirty-day liability-sensitive gap of $73.9 million and a one-year cumulative liability-sensitive gap of $157.6 million. In a rising rate environment, a liability-sensitive gap position generally indicates that increases in the cost of interest bearing liabilities will outpace increases in income from interest-earning assets. This risk can be reduced by various strategies, including the administration of liability costs, the re-investment of asset maturities and the use of off-balance-sheet financial instruments to insulate net interest income from the effects of changes in interest rates. Interest rate sensitivities are also monitored through the use of simulation modeling techniques which apply alternative interest rate scenarios to periodic forecasts of future business activity and estimate the related impact on net interest income. The use of simulation modeling assists management in its continuing efforts to achieve earnings growth in varying interest rate environments. Key assumptions in the model include anticipated prepayments on mortgage-related instruments, contractual cash flow and maturities of all financial instruments including derivatives, anticipated future business activity, deposit sensitivity and changes in market conditions. Selected core deposit rates have not been changed based on the results of analysis of historical rate movements. These assumptions are inherently uncertain, and as a result, these models cannot precisely estimate the impact that higher or lower rate environments will have on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in market conditions as well as changes in management's strategies. Based on the results of the interest simulation model as of December 31, 1997, Summit Bancorp would expect a decrease of $10.3 million in net interest income and an increase of $11.9 million in net interest income if interest rates increase or decrease 100 basis points, respectively, from current rates in an immediate and parallel shock over a twelve month period. Asset/liability management efforts also involved the use of derivative financial instruments, primarily interest rate swaps, interest rate caps and interest rate floors, to modify the interest rate characteristics of designated assets and liabilities. These interest rate swaps, caps and floors were accounted for as hedges and not recorded on the balance - -------------------------------------------------------------------------------- Interest Rate Sensitivity Table as of December 31, 1997
(In thousands) Interest Sensitivity Period Total --------------------------------------------------- Within 30 Day 90 Day 180 Day 365 Day One Year - ------------------------------------------------------------------------------------------------------ Earning Assets: Total securities ................. $ 1,801,573 $ 297,638 $ 671,732 $ 1,212,507 $ 3,983,450 Loans, net ....................... 5,625,270 1,403,041 952,922 1,986,805 9,968,038 Other interest-earning assets .... 18,532 -- -- -- 18,532 - ------------------------------------------------------------------------------------------------------ 7,445,375 1,700,679 1,624,654 3,199,312 13,970,020 - ------------------------------------------------------------------------------------------------------ Sources of Funds: Savings and time deposits ........ 5,024,742 1,337,942 1,254,882 1,743,445 9,361,011 Commercial CDs ................... 613,057 218,561 43,007 9,636 884,261 Other interest-bearing liabilities 2,556,427 886,340 640 350,805 3,794,212 Non-interest-bearing sources ..... -- -- -- -- -- - ------------------------------------------------------------------------------------------------------ 8,194,226 2,442,843 1,298,529 2,103,886 14,039,484 - ------------------------------------------------------------------------------------------------------ Asset (Liability) Interval Gap ..... (748,851) (742,164) 326,125 1,095,426 (69,464) Net effect of off-balance sheet instruments ...................... 675,000 (238,167) (675,000) 150,000 (88,167) - ------------------------------------------------------------------------------------------------------ Asset (Liability) Sensitivity Gap: Period gap ....................... (73,851) (980,331) (348,875) 1,245,426 (157,631) Cumulative gap ................... $ (73,851) $(1,054,182) $(1,403,057) $ (157,631) $ (157,631) ====================================================================================================== One Year Non-Interest to Sensitive and Two Years Over Two Years Total - ----------------------------------------------------------------------------- Earning Assets: Total securities ................. $ 1,631,787 $ 3,652,418 $ 9,267,655 Loans, net ....................... 2,007,496 6,616,338 18,591,872 Other interest-earning assets .... -- -- 18,532 - ----------------------------------------------------------------------------- 3,639,283 10,268,756 27,878,059 - ----------------------------------------------------------------------------- Sources of Funds: Savings and time deposits ........ 1,387,663 6,165,811 16,914,485 Commercial CDs ................... -- -- 884,261 Other interest-bearing liabilities 296,365 554,126 4,644,703 Non-interest-bearing sources ..... -- 5,434,610 5,434,610 - ----------------------------------------------------------------------------- 1,684,028 12,154,547 27,878,059 - ----------------------------------------------------------------------------- Asset (Liability) Interval Gap ..... 1,955,255 (1,885,791) Net effect of off-balance sheet instruments ...................... 88,167 - ----------------------------------------------------------------------------- Asset (Liability) Sensitivity Gap: Period gap ....................... 2,043,422 (1,885,791) Cumulative gap ................... $ 1,885,791 $ -- =============================================================================
28 31 ================================================================================ sheet. Income or expense related to these instruments was accrued monthly and recognized as an adjustment to interest income or interest expense for those balance sheet instruments being hedged. These derivative financial instruments reduced net interest income by $1.0 million in 1997, compared to a $2.0 million reduction in 1996. The following table illustrates the aggregate notional amounts and expected maturities of interest rate swaps, interest rate caps and interest rate floors at December 31, 1997.
- -------------------------------------------------------------------------------- Derivative Financial Instruments Weighted Notional Avg. Est. (In millions) Amount Maturity - -------------------------------------------------------------------------------- Interest rate swaps: Receive fixed/pay floating .................. $ 83.2 2/99 Receive floating/pay fixed .................. 350.0 9/98 Interest rate caps ............................ 717.9 4/98 Interest rate floors .......................... 430.0 12/98 - -------------------------------------------------------------------------------- $1,581.1 8/98 ================================================================================
The notional values of these instruments represent the contractual balances on which calculations of the amount of interest to be exchanged are based. At year-end 1997, the swap agreements had an average remaining maturity of 10 months. The interest rate floors were purchased primarily to hedge adjustable rate LIBOR based assets. The interest rate caps were purchased primarily to hedge short-term liability positions being managed as part of the Collective acquisition. Additionally, a portion of the caps were purchased to accommodate customers who desire rate protection on variable rate loans. The following table illustrates the interest rate swap activity for the past two years. - -------------------------------------------------------------------------------- Interest Rate Swap Activity
(In millions) 1997 1996 - -------------------------------------------------------------------------------- Balance, beginning of year ........................... $ 386.3 $ 967.5 Additions .......................................... 350.0 225.0 Maturities/amortization ............................ (303.1) (673.6) Terminations ....................................... -- (132.6) - -------------------------------------------------------------------------------- Balance, end of year ................................. $ 433.2 $ 386.3 ================================================================================
At December 31, 1997, the remaining unamortized termination costs on interest rate swaps were $1.0 million with a remaining amortization period of 19 months. For additional information on the use of derivative financial instruments, see Notes 1, 17 and 18 of the Notes to Consolidated Financial Statements. Liquidity: Liquidity management includes monitoring current and projected cash flows, as well as economic forecasts for the industry. A liquidity contingency plan is in place, which is designed to effectively manage potential liquidity concerns due to changes in interest rates, credit markets, or other external risks. Bank liquidity is the ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of customers. Traditional sources of liquidity include asset maturities, asset repayments, and deposit growth. In addition, borrowed funds represent another major source of funding. The bank subsidiaries have established borrowing relationships with the FHLB and other correspondent banks which further support and enhance liquidity. Liquidity is also important at the Parent Corporation in order to provide funds for operations and to pay dividends to shareholders. Parent Corporation cash requirements are met primarily through management fees and dividends from its subsidiaries and the issuance of short and long-term debt. The amount of dividends from bank subsidiaries is subject to certain regulatory restrictions as detailed in Note 19 of the Notes to Consolidated Financial Statements. The Consolidated Statements of Cash Flows on page 36 present the changes in cash from operating, investing, and financing activities. Net cash provided by operating activities totaled $480.4 million. This amount was primarily due to results of operations adjusted for: provisions for loan losses, depreciation expense, amortization of intangibles and restructuring charges. Net cash used in investing activities totaled $1.4 billion and was the result of loan and securities growth. Net cash provided by financing activities totaled $710.5 million, reflecting increases in short-term borrowings and long-term debt to fund asset growth, offset by dividends paid. The combined securities portfolios are also a source of liquidity as portfolio assets provide cash flows through maturities and periodic repayments of principal. During 1997, proceeds from maturities and other cash flows in the combined securities portfolios were $2.2 billion, while proceeds from the sales of securities available for sale were $825.9 million. Anticipated principal payments of the combined securities portfolios are expected to approximate $2.8 billion during 1998. In addition, all or part of the $5.1 billion of securities available for sale could be sold to provide additional liquidity. In addition to the securities portfolios, cash flows may be derived from loan maturities. Approximately $5.6 billion in loans, adjusted for prepayments, are scheduled to be paid in 1998. 29 32 ================================================================================ Results of Operations -- 1996 Compared with 1995 ================================================================================ For the year ended December 31, 1996, net income was $283.7 million, or $1.69 per share, compared to net income of $300.4 million, or $1.89 per share, earned in 1995. Diluted net income per common share for 1996 was $1.67 per share compared to $1.87 per share in 1995. The results for 1996 included merger-related restructuring charges of $110.7 million ($70.0 million or $.42 per share, after tax) and a one-time SAIF assessment of $11.1 million ($6.7 million, or $.04 per share, after tax). Excluding non-recurring items, net income was $360.4 million or $2.15 per share for the year ended December 31, 1996, compared to $300.4 million or $1.89 per share for 1995. Diluted net income per share before non-recurring items was $2.12 for 1996 compared to $1.87 in 1995. Summit Bancorp's performance for 1996 was highlighted by the successful integration of acquisitions, the realization of merger cost savings, and an improvement in asset quality ratios. These factors contributed to increases in key profitability measures. Excluding non-recurring items, return on average assets improved to 1.32% compared to 1.17% the previous year and return on average common equity rose to 16.48% versus 15.49% for 1995. In addition, the efficiency ratio improved to 52.11% for 1996 from 55.72% in 1995. Impacting the comparison of 1996 to the prior year was the 1995 acquisition of Bancorp New Jersey, Inc. and the 1996 acquisitions of Garden State Bancshares, Inc., The Flemington National Bank and Trust Company, and Central Jersey Financial Corporation. Interest income on a tax-equivalent basis was $1.9 billion, an increase of $72.8 million, or 3.9%, compared to 1995. This increase was primarily due to growth in interest-earning assets. On average, interest-earning assets increased $1.4 billion, principally in loans. Partially offsetting the increase in interest-earning assets was a $38.2 million decrease in interest income due to the decline in interest rates during 1996. The average yield on interest-earning assets was 7.57% for 1996 compared to 7.72% for 1995, a decrease of 15 basis points. Interest expense was $853.7 million for 1996, an increase of $31.5 million, or 3.8%, from the prior year. On average, interest-bearing liabilities increased $876.3 million, primarily due to acquisitions. Interest expense rose $43.7 million from the increase in interest-bearing liabilities, partially offset by the lower interest rate environment. The average cost of total interest-bearing liabilities was 4.10% in 1996, compared to 4.12% in 1995. Net interest income on a tax-equivalent basis amounted to $1.1 billion, an increase of $41.3 million, or 4.0%, from 1995. Net interest spread on a tax-equivalent basis declined 13 basis points to 3.47% for the year, compared to 3.60% earned in 1995. Net interest margin declined to 4.21% for 1996 compared to 4.28% in 1995. Both declines resulted as yields on interest-earning assets declined faster than the costs paid on interest-bearing liabilities, reflecting an increasingly competitive market for loans and deposits. Non-interest income, including securities gains, amounted to $260.0 million in 1996 compared to $235.3 million in the prior year, an increase of $24.8 million, or 10.5%. Service charges on deposit accounts amounted to $106.0 million in 1996, an increase of $12.2 million, or 13.0%. Service and loan fee income increased $6.8 million, or 18.0%, to $44.6 million in 1996. Trust income of $39.5 million increased $4.1 million, or 11.6%, over the prior year. Other income amounted to $66.1 million, an increase of $6.4 million, or 10.8%, compared to the prior year. For the year ended December 31, 1996, securities gains were $3.9 million, a decrease of $4.7 million from 1995. Excluding non-recurring items, non-interest expenses decreased $11.6 million, or 1.6%, compared to 1995 as a result of merger savings and a reduction in deposit insurance premiums. Salaries expense totaled $267.9 million in 1996, a decrease of $5.1 million, or 1.9%, compared to 1995, due in part to a reduced work force. Pension and other employee benefits expense totaled $87.7 million for the year ended December 31, 1996, and was $4.3 million, or 4.6%, less than 1995. Net occupancy expenses increased to $77.2 million for 1996 compared to $75.7 million for 1995. Furniture and equipment expenses amounted to $69.7 million, an increase of $4.2 million, or 6.4%, from $65.6 million in 1995. Communications expense totaled $33.3 million in 1996, an increase of $4.0 million, or 13.5%, compared to 1995. This increase was due in part to additional expenses associated with the upgrading of communication equipment and lines to support the branch automation network, other system improvements and an ATM network purchased in late 1995. Other expenses were $158.0 million in 1996, a decrease of $12.0 million, or 7.1% from 1995. This decrease was due in part to an $18.5 million decline in deposit premiums, as a result of rate reductions in BIF and SAIF premiums. This decline was offset by a $6.5 million increase in miscellaneous operating expenses. Federal and state income tax expenses for 1996 were $150.0 million compared to $167.0 million in 1995. The decrease was primarily due to lower pre-tax income, the reduction in valuation reserves and tax planning. 30 33 ================================================================================ Recent Accounting Pronouncements ================================================================================ In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. SFAS No. 125 was effective for transfers occurring after December 31, 1996, and was applied prospectively. Subsequently, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125," which deferred until January 1, 1998, the implementation of certain aspects of the original statement that addressed secured borrowings and collateral transactions. The adoption of SFAS No. 127 is not expected to have a material effect on the future financial condition or results of operations. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes the standards for the reporting of total comprehensive income in a full set of general-purpose financial statements. The Statement defines total comprehensive income as all changes in equity during a period from transactions and other events and circumstances from nonowner sources. Other comprehensive income would include revenues, expenses, gains and losses that, under generally accepted accounting principles are included in comprehensive income but excluded from net income, such as foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on available-for-sale securities. SFAS No. 130 is effective for both interim and annual periods beginning after December 15, 1997. Comparative financial statements for earlier periods are required to reflect the provisions of this Statement. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards and disclosure requirements for the way companies report information about operating segments, including related product information. Operating segments are defined based upon the way management organizes segments for making operating decisions and evaluating performance. Information such as segment net earnings, appropriate revenues and expense items and certain balance sheet items are required to be presented, and such amounts are required to be reconciled to the company's combined financial information. SFAS No. 131 is effective for financial statements issued for annual periods ending after December 15, 1998 and interim periods beginning in 1999. In February 1998, the FASBissued SFASNo. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement standardizes the disclosure requirements for pensions and other postretirements benefits by requiring additional information that will facilitate financial analysis, and eliminating certain disclosures that are considered no longer useful. SFAS No. 132 supersedes the disclosures requirements in SFAS Nos. 87, 88, and 106. This Statement is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required unless the information is not readily available. Year 2000 ================================================================================ 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. Additionally, the Year 2000 is not just a computer issue; it involves communications systems, building systems, environmental systems and office equipment. Year 2000 readiness can be affected to the extent that other entities such as bank customers and suppliers are unsuccessful in addressing this issue. The Year 2000 issue affects virtually all organizations. Summit Bancorp began taking a proactive stance regarding this issue in 1995. A task force has been assembled, composed of two project teams - a Technology Team and an Operations Team that report to a Year 2000 Program Management Office. Management expects to have substantially all of the system and application changes completed by the end of 1998 and believes that its level of preparedness is appropriate. The cost for the millennium conversion is estimated to be $23 million. This estimate includes internal and external personnel costs for all aspects of the program as well as purchasing or leasing certain hardware and software. The cost of the project and the expected completion dates are based on management's best estimates. Reaching Higher -- Looking Ahead ================================================================================ This report contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader to understand anticipated future financial performance. These forward-looking statements involve certain risks, uncertainties, estimates and assumptions made by management. One of Summit Bancorp's primary objectives is to achieve balanced asset and revenue growth, and at the same time expand market presence and diversify the line of financial products. However, it is recognized that objectives, no matter how focused, are subject to factors beyond the control of Summit Bancorp which can impede the ability to achieve these goals. Factors that may cause actual results to differ from estimated results expressed or implied include, but are not limited to, the interest rate environment and the overall economy, the ability of customers to repay their obligations, the adequacy of the allowance for loan losses, the progress of integrating acquired financial institutions, competition and technological changes. Although management has taken certain steps to mitigate any negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and have an adverse affect on profitability. 31 34
AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES Summit Bancorp and Subsidiaries ===================================================================================================== (Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1997 - ----------------------------------------------------------------------------------------------------- Average Average Balance Interest Rate - ----------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .................................. $ 73.2 $ 4.1 5.58% Interest-bearing deposits with banks .................... 13.5 0.7 5.45 Trading account securities .............................. 34.0 2.5 7.39 Securities available for sale: U.S. Government and Federal agencies .................. 3,219.5 208.9 6.49 States and political subdivisions ..................... 18.1 0.8 4.28 Other securities ...................................... 558.1 35.4 6.34 - ----------------------------------------------------------------------------------------------------- Total securities available for sale ................. 3,795.7 245.1 6.46 - ----------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .................. 3,514.8 228.3 6.49 States and political subdivisions ..................... 206.9 18.9 9.15 Other securities ...................................... 1,131.7 68.2 6.02 - ----------------------------------------------------------------------------------------------------- Total securities held to maturity ................... 4,853.4 315.4 6.50 - ----------------------------------------------------------------------------------------------------- Loans: Commercial ............................................ 5,685.1 484.3 8.52 Commercial mortgage ................................... 2,788.7 244.3 8.76 Residential mortgage .................................. 5,925.0 439.9 7.42 Consumer .............................................. 4,053.1 342.8 8.46 - ----------------------------------------------------------------------------------------------------- Total loans ......................................... 18,451.9 1,511.3 8.19 - ----------------------------------------------------------------------------------------------------- Total interest-earning assets ....................... 27,221.7 2,079.1 7.64 - ----------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 1,035.8 Allowance for loan losses ................................. (299.2) Other assets .............................................. 924.3 - ----------------------------------------------------------------------------------------------------- Total Assets .............................................. $ 28,882.6 ===================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ........................................ $ 9,633.0 253.0 2.63 Time deposits ........................................... 7,323.0 380.8 5.20 Commercial certificates of deposit $100,000 and over .... 891.9 48.2 5.41 - ----------------------------------------------------------------------------------------------------- Total interest-bearing deposits ..................... 17,847.9 682.0 3.82 - ----------------------------------------------------------------------------------------------------- Other borrowed funds .................................... 3,186.0 175.2 5.50 Long-term debt .......................................... 887.2 62.4 7.03 - ----------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .................. 21,921.1 919.6 4.20 - ----------------------------------------------------------------------------------------------------- Demand deposits ........................................... 4,131.4 Other liabilities ......................................... 343.2 Shareholders' equity ...................................... 2,486.9 - ----------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ................ $ 28,882.6 ===================================================================================================== Net interest income (tax-equivalent basis) ................ 1,159.5 3.44% Tax-equivalent basis adjustment ........................... (14.4) - ----------------------------------------------------------------------------------------------------- Net interest income ....................................... $ 1,145.1 ===================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) .................................. 4.26% ===================================================================================================== (Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1996 - -------------------------------------------------------------------------------------------------------- Average Average Balance Interest Rate - -------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .................................. $ 78.2 $ 5.4 6.95% Interest-bearing deposits with banks .................... 14.4 0.8 5.72 Trading account securities .............................. 27.4 1.5 5.44 Securities available for sale: U.S. Government and Federal agencies .................. 2,050.8 130.4 6.36 States and political subdivisions ..................... 6.4 0.3 3.77 Other securities ...................................... 567.7 35.7 6.29 - -------------------------------------------------------------------------------------------------------- Total securities available for sale ................. 2,624.9 166.4 6.34 - -------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .................. 3,850.8 248.7 6.46 States and political subdivisions ..................... 266.3 24.0 9.01 Other securities ...................................... 1,448.1 86.7 5.98 - -------------------------------------------------------------------------------------------------------- Total securities held to maturity ................... 5,565.2 359.4 6.46 - -------------------------------------------------------------------------------------------------------- Loans: Commercial ............................................ 5,298.9 442.8 8.36 Commercial mortgage ................................... 2,652.2 230.9 8.71 Residential mortgage .................................. 5,651.0 421.6 7.46 Consumer .............................................. 3,463.7 293.2 8.47 - -------------------------------------------------------------------------------------------------------- Total loans ......................................... 17,065.8 1,388.5 8.14 - -------------------------------------------------------------------------------------------------------- Total interest-earning assets ....................... 25,375.9 1,922.0 7.57 - -------------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 1,284.4 Allowance for loan losses ................................. (298.3) Other assets .............................................. 867.5 - -------------------------------------------------------------------------------------------------------- Total Assets .............................................. $ 27,229.5 ======================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ........................................ $ 9,245.6 236.6 2.56 Time deposits ........................................... 7,294.3 374.5 5.13 Commercial certificates of deposit $100,000 and over .... 892.0 47.9 5.37 - -------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ..................... 17,431.9 659.0 3.78 - -------------------------------------------------------------------------------------------------------- Other borrowed funds .................................... 2,947.0 155.5 5.28 Long-term debt .......................................... 430.3 39.2 9.10 - -------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .................. 20,809.2 853.7 4.10 - -------------------------------------------------------------------------------------------------------- Demand deposits ........................................... 3,856.7 Other liabilities ......................................... 351.4 Shareholders' equity ...................................... 2,212.2 - -------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ................ $ 27,229.5 ======================================================================================================== Net interest income (tax-equivalent basis) ................ 1,068.3 3.47% Tax-equivalent basis adjustment ........................... (15.0) - -------------------------------------------------------------------------------------------------------- Net interest income ....................................... $ 1,053.3 ======================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) .................................. 4.21% ======================================================================================================== (Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1995 - -------------------------------------------------------------------------------------------------------- Average Average Balance Interest Rate - -------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .................................. $ 191.9 $ 11.5 5.97% Interest-bearing deposits with banks .................... 11.1 0.6 5.81 Trading account securities .............................. 34.8 2.1 5.89 Securities available for sale: U.S. Government and Federal agencies .................. 868.3 52.8 6.08 States and political subdivisions ..................... 9.3 0.6 6.89 Other securities ...................................... 282.3 16.2 5.74 - -------------------------------------------------------------------------------------------------------- Total securities available for sale ................. 1,159.9 69.6 6.00 - -------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .................. 4,712.1 314.1 6.67 States and political subdivisions ..................... 333.8 31.8 9.55 Other securities ...................................... 1,955.7 117.2 5.99 - -------------------------------------------------------------------------------------------------------- Total securities held to maturity ................... 7,001.6 463.1 6.61 - -------------------------------------------------------------------------------------------------------- Loans: Commercial ............................................ 5,490.4 474.8 8.65 Commercial mortgage ................................... 2,232.3 200.2 8.97 Residential mortgage .................................. 4,805.2 363.4 7.56 Consumer .............................................. 3,040.6 263.9 8.68 - -------------------------------------------------------------------------------------------------------- Total loans ......................................... 15,568.5 1,302.3 8.36 - -------------------------------------------------------------------------------------------------------- Total interest-earning assets ....................... 23,967.8 1,849.2 7.72 - -------------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 1,146.1 Allowance for loan losses ................................. (316.0) Other assets .............................................. 964.8 - -------------------------------------------------------------------------------------------------------- Total Assets .............................................. $ 25,762.7 ======================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ........................................ $ 9,092.4 240.8 2.65 Time deposits ........................................... 6,967.6 350.9 5.04 Commercial certificates of deposit $100,000 and over .... 635.0 38.6 6.08 - -------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ..................... 16,695.0 630.3 3.78 - -------------------------------------------------------------------------------------------------------- Other borrowed funds .................................... 2,730.9 153.7 5.63 Long-term debt .......................................... 507.0 38.2 7.53 - -------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .................. 19,932.9 822.2 4.12 - -------------------------------------------------------------------------------------------------------- Demand deposits ........................................... 3,482.2 Other liabilities ......................................... 381.9 Shareholders' equity ...................................... 1,965.7 - -------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ................ $ 25,762.7 ======================================================================================================== Net interest income (tax-equivalent basis) ................ 1,027.0 3.60% Tax-equivalent basis adjustment ........................... (17.3) - -------------------------------------------------------------------------------------------------------- Net interest income ....................................... $ 1,009.7 ======================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) .................................. 4.28% ======================================================================================================== (Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1994 - -------------------------------------------------------------------------------------------------------- Average Average Balance Interest Rate - -------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .................................. $ 206.9 $ 8.0 3.88% Interest-bearing deposits with banks .................... 16.9 0.6 3.72 Trading account securities .............................. 28.9 0.9 2.94 Securities available for sale: U.S. Government and Federal agencies .................. 533.9 31.6 5.92 States and political subdivisions ..................... 536.2 30.6 5.70 Other securities ...................................... 532.3 27.6 5.19 - -------------------------------------------------------------------------------------------------------- Total securities available for sale ................. 1,602.4 89.8 5.60 - -------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .................. 4,192.9 262.2 6.25 States and political subdivisions ..................... 392.9 38.9 9.91 Other securities ...................................... 1,896.4 106.1 5.60 - -------------------------------------------------------------------------------------------------------- Total securities held to maturity ................... 6,482.2 407.2 6.28 - -------------------------------------------------------------------------------------------------------- Loans: Commercial ............................................ 5,318.6 405.5 7.62 Commercial mortgage ................................... 2,299.3 189.8 8.25 Residential mortgage .................................. 3,773.8 269.2 7.13 Consumer .............................................. 2,728.7 220.7 8.09 - -------------------------------------------------------------------------------------------------------- Total loans ......................................... 14,120.4 1,085.2 7.69 - -------------------------------------------------------------------------------------------------------- Total interest-earning assets ....................... 22,457.7 1,591.7 7.09 - -------------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 1,190.1 Allowance for loan losses ................................. (362.6) Other assets .............................................. 989.2 - -------------------------------------------------------------------------------------------------------- Total Assets .............................................. $ 24,274.4 ======================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ........................................ $ 9,578.1 213.9 2.23 Time deposits ........................................... 5,736.6 231.2 4.03 Commercial certificates of deposit $100,000 and over .... 460.1 18.9 4.10 - -------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ..................... 15,774.8 464.0 2.94 - -------------------------------------------------------------------------------------------------------- Other borrowed funds .................................... 2,436.7 99.9 4.10 Long-term debt .......................................... 501.8 35.8 7.14 - -------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .................. 18,713.3 599.7 3.20 - -------------------------------------------------------------------------------------------------------- Demand deposits ........................................... 3,374.7 Other liabilities ......................................... 418.8 Shareholders' equity ...................................... 1,767.6 - -------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ................ $ 24,274.4 ======================================================================================================== Net interest income (tax-equivalent basis) ................ 992.0 3.89% Tax-equivalent basis adjustment ........................... (19.4) - -------------------------------------------------------------------------------------------------------- Net interest income ....................................... $ 972.6 ======================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) .................................. 4.42% ======================================================================================================== (Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1993 - -------------------------------------------------------------------------------------------------------- Average Average Balance Interest Rate - -------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .................................. $ 316.2 $ 10.2 3.23% Interest-bearing deposits with banks .................... 22.8 0.7 3.06 Trading account securities .............................. 32.7 1.5 4.44 Securities available for sale: U.S. Government and Federal agencies .................. 440.2 19.4 4.41 States and political subdivisions ..................... 272.0 14.6 5.39 Other securities ...................................... 464.2 21.5 4.62 - -------------------------------------------------------------------------------------------------------- Total securities available for sale ................. 1,176.4 55.5 4.72 - -------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .................. 4,030.6 277.7 6.89 States and political subdivisions ..................... 416.7 43.8 10.51 Other securities ...................................... 971.8 55.6 5.72 - -------------------------------------------------------------------------------------------------------- Total securities held to maturity ................... 5,419.1 377.1 6.96 - -------------------------------------------------------------------------------------------------------- Loans: Commercial ............................................ 5,135.6 362.1 7.05 Commercial mortgage ................................... 2,338.4 189.7 8.11 Residential mortgage .................................. 3,226.4 261.8 8.12 Consumer .............................................. 2,604.0 215.2 8.26 - -------------------------------------------------------------------------------------------------------- Total loans ......................................... 13,304.4 1,028.8 7.73 - -------------------------------------------------------------------------------------------------------- Total interest-earning assets ....................... 20,271.6 1,473.8 7.27 - -------------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 1,111.0 Allowance for loan losses ................................. (368.1) Other assets .............................................. 914.1 - -------------------------------------------------------------------------------------------------------- Total Assets .............................................. $ 21,928.6 ======================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ........................................ $ 8,917.2 211.9 2.38 Time deposits ........................................... 6,119.2 266.4 4.35 Commercial certificates of deposit $100,000 and over .... 324.5 9.4 2.89 - -------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ..................... 15,360.9 487.7 3.17 - -------------------------------------------------------------------------------------------------------- Other borrowed funds .................................... 1,184.1 41.7 3.52 Long-term debt .......................................... 395.0 29.5 7.47 - -------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .................. 16,940.0 558.9 3.30 - -------------------------------------------------------------------------------------------------------- Demand deposits ........................................... 3,071.1 Other liabilities ......................................... 292.1 Shareholders' equity ...................................... 1,625.4 - -------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ................ $ 21,928.6 ======================================================================================================== Net interest income (tax-equivalent basis) ................ 914.9 3.97% Tax-equivalent basis adjustment ........................... (21.2) - -------------------------------------------------------------------------------------------------------- Net interest income ....................................... $ 893.7 ======================================================================================================== Net interest income as a percent of interest-earning assets (tax-equivalent basis) .................................. 4.51% ======================================================================================================== (Tax-equivalent basis, dollars in millions, not covered by independent auditors' report) 1992 - ------------------------------------------------------------------------------------------------------- Average Average Balance Interest Rate - ------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Federal funds sold and securities purchased under agreements to resell .................................. $ 366.0 $ 15.0 4.11% Interest-bearing deposits with banks .................... 41.7 1.9 4.50 Trading account securities .............................. 23.8 1.5 6.26 Securities available for sale: U.S. Government and Federal agencies .................. 197.4 17.1 8.66 States and political subdivisions ..................... -- -- -- Other securities ...................................... 6.3 0.5 7.75 - ------------------------------------------------------------------------------------------------------- Total securities available for sale ................. 203.7 17.6 8.63 - ------------------------------------------------------------------------------------------------------- Securities held to maturity: U.S. Government and Federal agencies .................. 4,521.7 341.4 7.55 States and political subdivisions ..................... 510.4 52.5 10.28 Other securities ...................................... 509.4 33.7 6.63 - ------------------------------------------------------------------------------------------------------- Total securities held to maturity ................... 5,541.5 427.6 7.72 - ------------------------------------------------------------------------------------------------------- Loans: Commercial ............................................ 5,345.6 388.4 7.27 Commercial mortgage ................................... 2,265.6 199.3 8.80 Residential mortgage .................................. 3,253.4 298.6 9.18 Consumer .............................................. 2,598.3 230.9 8.89 - ------------------------------------------------------------------------------------------------------- Total loans ......................................... 13,462.9 1,117.2 8.30 - ------------------------------------------------------------------------------------------------------- Total interest-earning assets ....................... 19,639.6 1,580.8 8.05 - ------------------------------------------------------------------------------------------------------- Cash and due from banks ................................... 1,007.5 Allowance for loan losses ................................. (405.8) Other assets .............................................. 942.7 - ------------------------------------------------------------------------------------------------------- Total Assets .............................................. $ 21,184.0 ======================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits ........................................ $ 7,941.0 259.0 3.26 Time deposits ........................................... 6,765.5 369.8 5.47 Commercial certificates of deposit $100,000 and over .... 517.0 20.2 3.91 - ------------------------------------------------------------------------------------------------------- Total interest-bearing deposits ..................... 15,223.5 649.0 4.26 - ------------------------------------------------------------------------------------------------------- Other borrowed funds .................................... 1,261.0 48.7 3.86 Long-term debt .......................................... 311.9 27.7 8.87 - ------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities .................. 16,796.4 725.4 4.32 - ------------------------------------------------------------------------------------------------------- Demand deposits ........................................... 2,711.2 Other liabilities ......................................... 248.4 Shareholders' equity ...................................... 1,428.0 - ------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ................ $ 21,184.0 ======================================================================================================= Net interest income (tax-equivalent basis) ................ 855.4 3.73% Tax-equivalent basis adjustment ........................... (23.2) - ------------------------------------------------------------------------------------------------------- Net interest income ....................................... $ 832.2 ======================================================================================================= Net interest income as a percent of interest-earning assets (tax-equivalent basis) .................................. 4.36% =======================================================================================================
Notes: Average loan balances and rates include non-accruing loans. The tax-equivalent basis adjustment was computed based on a Federal income tax rate of 35% for 1997 1993 and 34% for 1992. 32 & 33 35 CONSOLIDATED BALANCE SHEETS Summit Bancorp and Subsidiaries ================================================================================ (In thousands) December 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- ASSETS Cash and due from banks ........................ $1,173,118 $1,327,507 Federal funds sold and securities purchased under agreements to resell ................... 4,460 114,789 Interest-bearing deposits with banks ........... 14,072 24,825 Securities: Trading account securities ................... 35,216 26,376 Securities available for sale ................ 5,074,896 2,872,051 Securities held to maturity (fair value of $4,151,582 in 1997 and $5,321,724 in 1996) . 4,157,543 5,422,093 - -------------------------------------------------------------------------------- Total securities ......................... 9,267,655 8,320,520 - -------------------------------------------------------------------------------- Loans .......................................... 18,888,366 17,386,059 Less: Allowance for loan losses ............. 296,494 280,611 - -------------------------------------------------------------------------------- Net loans 18,591,872 17,105,448 - -------------------------------------------------------------------------------- Premises and equipment ......................... 244,913 244,193 Goodwill and other intangibles ................. 188,620 172,452 Accrued interest receivable .................... 175,170 169,236 Due from customers on acceptances .............. 15,814 15,671 Other assets ................................... 288,478 272,630 - -------------------------------------------------------------------------------- Total Assets $29,964,172 $27,767,271 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing demand deposits ......... $4,530,690 $4,080,316 Interest-bearing deposits: Savings and time deposits .................. 16,914,485 16,812,682 Commercial certificates of deposit $100,000 and over ........................ 884,261 736,533 - -------------------------------------------------------------------------------- Total deposits 22,329,436 21,629,531 - -------------------------------------------------------------------------------- Other borrowed funds ........................... 3,597,078 2,806,367 Accrued expenses and other liabilities ......... 290,197 272,968 Accrued interest payable ....................... 71,602 56,103 Bank acceptances outstanding ................... 15,814 15,671 Long-term debt ................................. 1,047,625 695,793 - -------------------------------------------------------------------------------- Total liabilities 27,351,752 25,476,433 - -------------------------------------------------------------------------------- Commitments and contingencies Shareholders' equity: Common stock par value $.80: Authorized 390,000 shares; issued and outstanding 176,590 in 1997 and 168,296 in 1996 .......................... 141,272 134,637 Surplus ...................................... 987,281 918,411 Retained earnings ............................ 1,467,193 1,237,892 Employee stock ownership plan obligation ..... (4,201) (5,816) Net unrealized gain on securities, net of tax 20,875 5,714 - -------------------------------------------------------------------------------- Total shareholders' equity 2,612,420 2,290,838 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $29,964,172 $27,767,271 ================================================================================ See accompanying Notes to Consolidated Financial Statements. 34 36
CONSOLIDATED STATEMENTS OF INCOME Summit Bancorp and Subsidiaries ===================================================================================== (In thousands, except per share data) Years ended December 31, - ------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------- INTEREST INCOME Loans ....................................... $1,505,840 $1,383,150 $1,297,168 Securities: Trading account securities ................ 2,438 1,481 1,981 Securities available for sale ............. 243,103 164,953 68,074 Securities held to maturity ............... 308,508 351,150 452,605 - ------------------------------------------------------------------------------------- Total securities ...................... 554,049 517,584 522,660 Federal funds sold and securities purchased under agreements to resell ................ 4,084 5,441 11,459 Deposits with banks ......................... 733 821 647 - ------------------------------------------------------------------------------------- Total interest income 2,064,706 1,906,996 1,831,934 - ------------------------------------------------------------------------------------- INTEREST EXPENSE Savings and time deposits ................... 633,774 611,142 591,716 Commercial certificates of deposit $100,000 and over ......................... 48,245 47,892 38,587 Other borrowed funds and long-term debt ..... 237,598 194,673 191,929 - ------------------------------------------------------------------------------------- Total interest expense 919,617 853,707 822,232 - ------------------------------------------------------------------------------------- Net interest income ................... 1,145,089 1,053,289 1,009,702 Provision for loan losses ................... 59,100 64,034 72,090 - ------------------------------------------------------------------------------------- Net interest income after provision for loan losses ..................... 1,085,989 989,255 937,612 - ------------------------------------------------------------------------------------- NON-INTEREST INCOME Service charges on deposit accounts ......... 114,569 105,967 93,814 Service and loan fee income ................. 52,205 44,577 37,770 Trust income ................................ 48,488 39,540 35,418 Securities gains ............................ 5,637 3,862 8,595 Other ....................................... 80,986 66,096 59,655 - ------------------------------------------------------------------------------------- Total non-interest income 301,885 260,042 235,252 - ------------------------------------------------------------------------------------- NON-INTEREST EXPENSES Salaries .................................... 290,515 267,854 272,910 Pension and other employee benefits ......... 93,711 87,718 91,971 Occupancy, net .............................. 72,074 77,242 75,689 Furniture and equipment ..................... 78,259 69,732 65,561 Communications .............................. 35,214 33,292 29,324 Savings Association Insurance Fund assessment -- 11,059 -- Restructuring charges ....................... 83,000 110,700 -- Other ....................................... 163,918 157,994 170,004 - ------------------------------------------------------------------------------------- Total non-interest expenses 816,691 815,591 705,459 - ------------------------------------------------------------------------------------- Income before taxes ................... 571,183 433,706 467,405 Federal and state income taxes .............. 200,218 150,031 166,993 - ------------------------------------------------------------------------------------- Net Income $370,965 $283,675 $300,412 ===================================================================================== Net Income per Common Share: Basic ..................................... $2.12 $1.69 $1.89 Diluted ................................... 2.09 1.67 1.87 =====================================================================================
See accompanying Notes to Consolidated Financial Statements. 35 37
CONSOLIDATED STATEMENTS OF CASH FLOWS Summit Bancorp and Subsidiaries ==================================================================================================== (In thousands) Years ended December 31, - ---------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income ............................................ $ 370,965 $ 283,675 $ 300,412 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses and other real estate owned 60,738 66,516 78,206 Depreciation, amortization, and accretion, net ...... 76,353 36,212 50,711 Restructuring charges ............................... 83,000 110,700 -- Deferred income tax ................................. (23,318) 14,383 27,861 Gains on sales of trading account securities and securities available for sale ................. (4,054) (4,339) (9,890) Gains on sales of mortgages held for sale ........... (7,516) (2,995) (4,996) Gains on the sales of other real estate owned ....... (4,663) (4,242) (6,167) Proceeds from sales of other real estate owned ...... 34,258 36,177 38,110 Proceeds from sales of mortgages held for sale ...... 451,656 484,591 173,039 Originations of mortgages held for sale ............. (485,452) (479,467) (204,805) Net (increase) decrease in trading account securities (10,423) 16,066 (5,800) Net decrease (increase) in accrued interest receivable and other assets ....................... 46,752 (28,288) 44,457 Net (decrease) increase in accrued interest payable, accrued expenses and other liabilities ............................. (107,854) (117,587) 1,359 - ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 480,442 411,402 482,497 - ---------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of securities held to maturity .............. (714,874) (849,873) (888,095) Purchases of securities available for sale ............ (3,070,103) (978,013) (281,346) Proceeds from maturities of securities held to maturity .................................... 1,197,368 1,174,445 1,096,206 Proceeds from maturities of securities available for sale .................................. 1,005,560 505,112 223,510 Proceeds from sales of securities available for sale .................................. 825,870 198,645 512,665 Net decrease (increase) in Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks ................................. 169,630 57.407 (84,175) Purchase acquisitions ................................. -- -- (36,273) Net increase in loans ................................. (775,555) (405,951) (1,118,670) Purchases of premises and equipment, net .............. (39,566) (12,374) (27,313) - ---------------------------------------------------------------------------------------------------- Net cash used in investing activities (1,401,670) (310,602) (603,491) - ---------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net (decrease) increase in deposits ................... (150,175) (519,648) 702,531 Net increase (decrease) in short-term borrowings ...... 666,336 300,069 (363,478) Principal payments on long-term debt, net ............. (101,436) (34,009) (195,591) Proceeds from issuance of long-term debt, net of related expenses ............................. 441,300 300,200 106,425 Dividends paid ........................................ (167,663) (149,489) (106,956) Proceeds from issuance of common stock under dividend reinvestment and other stock plans ................................... 44,040 30,701 33,313 Purchase of common stock for acquisitions ............. (21,859) (92,268) -- Redemptions of preferred stock ........................ -- (42,620) (5,984) - ---------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 710,543 (207,064) 170,260 - ---------------------------------------------------------------------------------------------------- (Decrease) increase in cash and due from banks ........ (210,685) (106,264) 49,266 Beginning cash balance of acquired entities ........... 56,296 29,797 100,202 Cash and due from banks, beginning of year ............ 1,327,507 1,403,974 1,254,506 - ---------------------------------------------------------------------------------------------------- Cash and due from banks, end of year $1,173,118 $1,327,507 $1,403,974 ==================================================================================================== SUPPLEMENTAL DISCLOSURE Cash paid: Interest payments ................................... $ 905,933 $ 850,313 $ 810,956 Income tax payments ................................. 211,163 146,657 131,090 Noncash investing activities: Net transfer of securities held to maturity to securities available for sale .................. 805,854 -- 1,397,526 Net transfer of loans to other real estate owned .... 20,485 25,725 42,498 ====================================================================================================
See accompanying Notes to Consolidated Financial Statements. 36 38
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Summit Bancorp and Subsidiaries ==================================================================================================================================== (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Net Total Preferred Common Retained ESOP Unrealized Shareholders' Stock Stock Surplus Earnings Obligation Gain (Loss) Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994 ....................... $50,008 $123,769 $767,188 $ 904,988 $(7,800) $(24,708) $1,813,445 Net income ..................................... -- -- -- 300,412 -- -- 300,412 Cash dividend declared: Preferred stock .............................. -- -- -- (2,700) -- -- (2,700) Common stock ................................. -- -- -- (109,480) -- -- (109,480) Common stock issued: In conjunction with an acquisition (2,922 shares) ............................. -- 2,338 65,848 -- -- -- 68,186 Dividend reinvestment and other stock plans (1,341 shares) ....................... -- 1,073 24,684 -- -- -- 25,757 Exercise of stock options, net (1,060 shares) ......................... -- 848 6,708 -- -- -- 7,556 Redemption of Series C preferred stock (296 shares) ................................. (7,388) -- -- 1,404 -- -- (5,984) ESOP debt repayment ............................ -- -- -- -- 908 -- 908 Change in unrealized gain (loss) on securities, net of tax ....................... -- -- -- -- -- 32,008 32,008 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 42,620 128,028 864,428 1,094,624 (6,892) 7,300 2,130,108 - ------------------------------------------------------------------------------------------------------------------------------------ Beginning balance of immaterial pooled acquisitions (6,530 shares) .................. -- 5,224 29,612 14,054 -- (567) 48,323 Net income ..................................... -- -- -- 283,675 -- -- 283,675 Cash dividend declared: Preferred stock .............................. -- -- -- (2,544) -- -- (2,544) Common stock ................................. -- -- -- (151,917) -- -- (151,917) Common stock issued: Dividend reinvestment and other stock plans (424 shares) ......................... -- 339 10,204 -- -- -- 10,543 Exercise of stock options, net (1,367 shares) ............................. -- 1,094 19,064 -- -- -- 20,158 Purchase of common stock at cost (3,555 shares) ............................... -- (2,844) (89,424) -- -- -- (92,268) Reissuance of common stock in conjunction with an acquisition (3,495 shares) ........... -- 2,796 84,527 -- -- -- 87,323 Redemption of Series B preferred stock (600 shares) and Series C preferred stock (504 shares) ........................... (42,620) -- -- -- -- -- (42,620) ESOP debt repayment ............................ -- -- -- -- 1,076 -- 1,076 Change in unrealized gain (loss) on securities, net of tax ....................... -- -- -- -- -- (1,019) (1,019) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 -- 134,637 918,411 1,237,892 (5,816) 5,714 2,290,838 - ------------------------------------------------------------------------------------------------------------------------------------ Beginning balance of immaterial pooled acquisitions (6,047 shares) .................. -- 4,837 34,705 25,562 -- (278) 64,826 Adjustment for the pooling of a company with different fiscal year end ............... -- (158) (4,771) 9,288 539 1,832 6,730 Net income ..................................... -- -- -- 370,965 -- -- 370,965 Cash dividend declared on common stock ......... -- -- -- (176,514 -- -- (176,514) Common stock issued: Dividend reinvestment and other stock plans (174 shares) ............................... -- 140 5,405 -- -- -- 5,545 Exercise of stock options, net (2,270 shares) -- 1,816 36,679 -- -- -- 38,495 Purchase and reissuance of common stock in conjunction with acquisitions (495 shares) ... -- -- (3,148) -- -- -- (3,148) ESOP debt repayment ............................ -- -- -- -- 1,076 -- 1,076 Change in unrealized gain (loss) on securities, net of tax ....................... -- -- -- -- -- 13,607 13,607 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1997 $ -- $141,272 $987,281 $1,467,193 $(4,201) $ 20,875 $2,612,420 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements 37 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summit Bancorp and Subsidiaries ================================================================================ Note 1 Summary of Significant Accounting Policies ================================================================================ The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles and prevailing industry standards. The following is a description of the significant accounting policies used in the preparation of the Consolidated Financial Statements. Business Summit Bancorp (the Company) is a bank holding company registered under the Bank Holding Company Act of 1956. Through its bank and non-bank subsidiaries, a full range of financial services are provided to its customers in a competitive environment. Summit Bancorp is regulated by various Federal and state agencies and is subject to periodic examinations by those regulatory authorities. On March 1, 1996, UJB Financial Corp. completed its acquisition of The Summit Bancorporation, and the Company changed its name to Summit Bancorp. Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of Summit Bancorp after elimination of all significant intercompany accounts and transactions. Certain prior period amounts have been reclassified to conform to the financial statement presentation of 1997. The reclassifications have no effect on shareholders' equity or net income as previously reported. Prior period financial statements have been restated to include the accounts and results of operations for all material acquisitions accounted for as pooling-of-interests combinations. For acquisitions using the purchase method of accounting, results of operations are included from the dates of acquisition. The assets and liabilities of companies acquired under the purchase method of accounting have been adjusted to estimated fair values at the date of acquisition; the resulting net discount or premium is being accreted or amortized into non-interest expense over the estimated remaining lives of the related assets and liabilities. In the preparation of financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. On August 20, 1997, the Board of Directors of the Company approved a three-for-two common stock split payable on September 24, 1997. All share data has been retroactively adjusted to reflect the common stock split. Securities Securities are classified into one of three categories: trading account, held to maturity, and available for sale. Securities that are purchased specifically for short-term appreciation with the intent of selling in the near future are classified as trading account securities. Trading account securities are carried at fair value with realized and unrealized gains and losses reported in non-interest income. Debt securities purchased with the intent and ability to hold until maturity are classified as securities held to maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts. All other securities, including equity securities, are classified as securities available for sale. Securities available for sale may be sold prior to maturity in response to changes in interest rates, changes in prepayment risk, for asset/liability management purposes, or other factors. These securities are carried at fair value; with unrealized gains and losses, including the effect of hedges, reported net of tax, as a separate component of shareholders' equity. Realized gains and losses, which are generally computed by the specific identification method, are reported in non-interest income. Loans Loans are generally carried at the principal amount outstanding, net of unearned discounts and deferred loan origination fees and costs. Interest income on loans is accrued and credited to interest income as earned. Loan origination fees and certain direct loan origination costs are deferred and amortized over the estimated life of the loan in interest income as an adjustment to the yield. Other loan fees are recognized as earned and are included in non-interest income. Residential mortgage loans that are serviced for others are not included in the Consolidated Financial Statements. Fees earned for servicing loans are reported as non-interest income primarily when the related loan payments are collected. Loan servicing costs are charged to non-interest expense as incurred. Loans held for sale consist of residential mortgages and are carried at the lower of cost or market using the aggregate method. Gains and losses on loans sold are included in non-interest income. Non-Performing Loans Non-performing loans consist of commercial and industrial, construction and development, and commercial mortgage loans for which the accrual of interest has been discontinued. These loans are classified as non-performing and are considered impaired when they are 90 days or more past due as to principal or interest or where reasonable doubt exists as to timely collectibility. 38 40 ================================================================================ At the time a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed against interest income. Interest income on non-accrual loans is generally credited to income on a cash basis; however, if ultimate collectibility of principal is in doubt, interest collections are applied as principal reductions. A loan is transferred back to accrual status when it is contractually current and its future collectibility is expected. Smaller balance loans such as consumer loans and residential mortgages, which are collectively evaluated, are specifically excluded from the population of non-performing loans. Interest accruals on consumer and residential mortgages cease at 90 days, at which time previously accrued interest is reversed. Generally, consumer loans which are not secured by real estate are charged off when they are 120 days past due. All other loans are charged off when deemed uncollectible. The impairment of a non-performing loan is measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the underlying value of collateral for collateral dependent loans. The impaired loan's carrying value in excess of the expected cash flows or collateral value is specifically reserved or is charged to the allowance for loans losses. Allowance for Loan Losses The allowance for loan losses is a valuation reserve available for losses incurred or expected on extensions of credit. Credit losses arise primarily from the loan portfolio, but may also be derived from other credit-related sources including commitments to extend credit, guarantees, and standby letters of credit. Additions are made to the allowance through periodic provisions which are charged to expense. Principal losses are charged to the allowance when incurred or when a determination is made that a loss is expected. Subsequent recoveries, if any, are credited to the allowance. The adequacy of the allowance for loan losses is determined through a quarterly review of outstanding loans and commitments to extend credit. The impact of economic conditions on the creditworthiness of borrowers is considered, as well as loan loss experience, changes in the composition and volume of the loan portfolio, and management's assessment of the risks inherent in the loan portfolio. These and other factors are used in assessing the overall adequacy of the allowance for loan losses and the resulting provision for loan losses. Premises and Equipment Premises, furniture, and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method. Premises, furniture, and equipment are depreciated over the estimated useful life of the assets or terms of the leases, as applicable. Estimated useful lives are ten to forty years for premises and three to ten years for furniture and equipment. Maintenance and repairs are charged to non-interest expenses as incurred, while renewals and major improvements are capitalized. Upon disposition, premises, furniture, and equipment are removed from the property accounts at their carrying amount with the resulting gain or loss credited or charged to non-interest income. Other Real Estate Owned (OREO) OREO is carried at the lower of cost or fair value, less estimated cost to sell. When a property is acquired, the excess of the carrying amount over fair value, if any, is charged to the allowance for loan losses. An allowance for OREO has been established, through charges to OREO expense, to maintain properties at the lower of cost or fair value less estimated cost to sell. Operating results of OREO, including rental income, operating expenses, and gains and losses realized from the sale of properties owned, are included in non-interest expenses. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. The amortization of goodwill is on a straight-line basis over the estimated periods to be benefited, ranging from ten to twenty-five years, and is included in non-interest expenses. Other intangible assets primarily consist of core deposit intangibles which represent the intangible value of depositor relationships assumed in purchase acquisitions. The amortization of these intangibles is on an accelerated basis over their estimated periods of benefit, ranging from five to ten years, and is included in non-interest expenses. Mortgage Servicing Rights Mortgage servicing rights are generally recorded when purchased or originated mortgage loans are sold, with servicing rights retained. The cost of each mortgage loan is allocated between the mortgage servicing right and the loan (without the servicing right) based on their relative fair values. Mortgage servicing rights, which are classified in other assets, are amortized over the estimated net servicing life and are evaluated on a quarterly basis for impairment based on their fair value. The fair value is estimated using the present value of expected future cash flows along with numerous assumptions including servicing income, cost of servicing, discount rates, prepayment anticipations, and default rates. Impairment adjustments, if any, are recognized through the use of a valuation allowance. Derivative Financial Instruments Off-balance-sheet financial derivatives are used as part of the overall asset/liability management process. These instruments are used to manage risk related to changes in interest rates. At December 31, 1997, the portfolio of derivative financial instruments consisted of interest rate swaps, caps, and floors. Interest rate swaps are agreements with counterparties to exchange periodic interest payments calculated on a notional principal amount and are accounted for under the accrual method. To qualify for accounting under the accrual method, the swaps must be designated to interest-bearing assets or liabilities and must modify their interest rate characteristics over the term of the agreement or the term of the designated instrument, whichever is shorter. The net periodic interest payments or receipts arising from these instruments are recognized in interest income or interest expense as yield adjustments to the designated asset or liability. 39 41 ================================================================================ Interest rate caps and floors are agreements in which, for an up-front premium and on predetermined future dates, the counterparties agree to pay an interest amount based on the movement of specified market interest rates either above or below a predetermined level. The payments, if applicable, are derived from the measured rate variance multiplied by the contractual notional volume. To qualify for accrual accounting, interest rate caps and floors must be designated to interest-bearing assets or liabilities and must modify their interest rate characteristics over the term of the agreement or the designated instrument, whichever is shorter. Costs of interest rate caps and floors are deferred and amortized in interest income or interest expense as adjustments to the yield of the designated instrument. Unamortized costs are included in other assets. Payments received on these caps and floors are recognized under the accrual method as adjustments to interest income or interest expense of the designated instruments. If derivatives are terminated, realized gains and losses on these instruments are deferred and amortized in interest income and interest expense as yield adjustments to the designated assets or liabilities over the shorter of the remaining life of the agreement or the designated assets or liabilities. If the designated asset or liability related to a derivative matures, or is sold, extinguished, or terminated, the amount of the previously unrecognized gain or loss is recognized at that time in earnings. Stock-Based Compensation Stock-based compensation is accounted for under the intrinsic value based method as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Included in the Notes to Consolidated Financial Statements are pro forma disclosures required by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which assumes the fair value based method of accounting had been adopted. Retirement Plans Several formal non-contributory retirement plans exist which cover substantially all full-time employees. Annual contributions are made to the plans in amounts at least equal to the minimum regulatory requirements and no greater than the maximum amount that can be deducted for Federal income tax purposes. The costs associated with these benefits are accrued based on actuarial assumptions and included in non-interest expenses. Restructuring Charges Restructuring charges are recorded in conjunction with acquisitions accounted for as poolings of interest and the integration of the acquired entities operations into Summit Bancorp. These charges include only identified direct and incremental costs associated with these acquisitions. Items included in restructuring charges include the following: personnel expenses which include severance pay and benefits for terminated employees, including external placement costs; real estate expenses which result from the costs incurred when branches and other operations facilities are consolidated, including lease-termination costs, write-downs of owned properties and leasehold improvements and other facility-related costs; professional fees, which include costs for investment banking, accounting, and legal fees; and charges for data processing which include costs associated with the disposal or write-off of duplicate or non-usable software or hardware systems. Additional charges may include costs incurred for account conversions, communications and other merger costs. Income Taxes The amount provided for Federal income taxes is based on income reported for consolidated financial statement purposes, after elimination of Federal tax-exempt income which is derived primarily from securities of states and political subdivisions and certain commercial and mortgage loans. The amount provided for state income taxes is based on income reported by each subsidiary on a stand alone basis. Deferred Federal and state tax assets and liabilities are recognized for the expected future tax consequences of existing differences between financial statement and tax bases of existing assets and liabilities, as well as for operating losses. A consolidated Federal income tax return is filed with the amount of income tax expense or benefit computed and allocated to each subsidiary on a separate return basis. Net Income per Common Share Summit Bancorp adopted SFAS No. 128, "Earnings per Share," on December 31, 1997. SFAS No. 128 establishes the new standard for computation and presentation of net income per common share. Under the new requirements both basic and diluted net income per common share are presented. All prior period net income per common share data has been restated. Basic net income per common share is calculated by dividing net income, less the dividends on preferred stocks, if any, by the weighted average common shares outstanding during the period. Diluted net income per common share is computed similar 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. 40 42 Note 2 Acquisitions and Restructuring Charges ================================================================================ Acquisitions On August 1, 1997, Summit Bancorp completed its acquisition of Collective Bancorp, Inc. (Collective), which operated 82 branches. This transaction was accounted for as a pooling of interests, and all financial information has been restated. Prior to the combination, Collective's fiscal year ended on June 30. In recording the transaction, Collective's 1996 and prior fiscal years were combined with Summit Bancorp's calendar years. In 1997, Collective adopted Summit's reporting period, and a $6.7 million adjustment was made to shareholders' equity as of January 1, 1997, to include Collective's results of operations for the six months ended December 31, 1996. Separate results of operations of the entities for the two years prior to acquisition were as follows:
(In millions) 1996 1995 - -------------------------------------------------------------------------------- Net Interest Income: Summit Bancorp ............................. $ 911.5 $ 869.2 Collective Bancorp, Inc. ................... 141.8 140.5 - -------------------------------------------------------------------------------- $1,053.3 $1,009.7 ================================================================================ Net Income Summit Bancorp ............................. $ 229.2 $ 242.9 Collective Bancorp, Inc. ................... 54.5 57.5 - -------------------------------------------------------------------------------- $ 283.7 $ 300.4 ================================================================================
On March 1, 1997, Summit Bancorp completed its acquisition of B.M.J. Financial Corp. (B.M.J.), which operated 21 banking offices. This transaction was accounted for as a pooling of interests, however, it was not considered material to Summit Bancorp's Consolidated Financial Statements, and as a result, it was recorded as an adjustment to shareholders' equity on January 1, 1997. On December 12, 1997, Summit Bancorp acquired Corporate Dynamics, an employee benefits consulting firm, and Philadelphia Benefits Corp., a group health insurance agency, with the issuance of 495 thousand shares of common stock. This acquisition was accounted for as a purchase, and Corporate Dynamics' and Philadelphia Benefits Corp.'s results of operations have been included since acquisition date. The cost in excess of the fair value of net assets acquired resulted in goodwill of $18.9 million. A summary of completed bank acquisitions for the past three years is provided below.
- -------------------------------------------------------------------------------------------------------------------------------- Summary of Completed Bank Acquisitions Goodwill & Common Intangibles Cash Shares Method of (In millions) Date Assets Loans Deposits Recorded Paid Issued Accounting - -------------------------------------------------------------------------------------------------------------------------------- 1997 Collective Bancorp, Inc. ..................... Aug. 1 $5,478.6 $2,910.6 $3,472.5 $ -- $ -- 27.3 Pooling B.M.J. Financial Corp. ....................... March 1 676.0 449.0 552.0 -- -- 6.0 Pooling 1996 Central Jersey Financial Corporation ......... Dec. 7 446.6 200.5 376.8 42.4 -- 3.5 Purchase Continental Bancorporation* .................. Oct. 1 161.3 61.4 129.5 16.9 25.7 -- Purchase The Summit Bancorporation .................... March 1 5,654.1 3,562.2 4,693.7 -- -- 51.1 Pooling The Flemington National Bank and Trust Company Feb. 23 285.9 190.6 257.5 -- -- 2.0 Pooling Garden State Bancshares, Inc.** .............. Jan. 16 311.8 208.8 281.8 -- -- 4.5 Pooling 1995 Bancorp New Jersey, Inc. ..................... July 11 504.5 290.4 450.0 71.6 36.3 2.9 Purchase =================================================================================================================================
* Amounts included in the August 1, 1997, Collective Bancorp. Inc. acquisition. ** Amounts included in the March 1, 1996, The Summit Bancorporation acquisition. Restructuring Charges During 1997, Summit Bancorp recorded restructuring charges of $83.0 million, or $.31 per share after tax, for merger-related expenses associated with the Collective and B.M.J. acquisitions. Restructuring charges amounted to $56.5 million for Collective and $26.5 million for B.M.J. Charges recorded for personnel, real estate, and professional fee expenses amounted to $26.2 million, $18.5 million and $13.6 million, respectively. Expenses for data processing were $16.0 million and the remaining $8.7 million was for account conversions, communications, and other merger costs. Approximately $27.4 million of the restructuring charge payments and $.3 million of write-offs have been realized through December 31, 1997. It is anticipated that the remainder of the restructuring charges will be incurred following the merger of Collective Bank into Summit Bank in March 1998. During 1996, Summit Bancorp recorded restructuring charges of $110.7 million, or $.42 per share after tax, for merger-related expenses associated with The Summit Bancorporation, The Flemington National Bank and Trust Company (Flemington), Garden State Bancshares, Inc. (Garden State), and a supermarket branch initiative. The Summit Bancorporation acquisition accounted for $89.0 million of the 1996 restructuring charges. Charges recorded for personnel, real estate, and professional fee expenses amounted to $35.0 million, $26.0 million, and $12.0 million, respectively. Expenses for data processing were $8.0 million and the remaining $8.0 million was for account conversions, communications, and other merger costs. The restructuring charges also included $4.3 million for the Flemington acquisition and $7.9 million for the Garden State acquisition. The types of costs incurred for these acquisitions were similar to those of the other acquisitions described above. The 1996 restructuring charges have substantially all been paid during 1996 and 1997. Funding for cash expenditures related to restructuring charges has and will be paid out of operations. Liquidity has not been significantly impacted by these cash outlays. 41 43 Note 3 Securities ================================================================================ The following table provides the major components of investment securities at amortized cost and fair value.
1997 1996 ---------------------------------------------- ----------------------- Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized (In thousands) Cost Gains Losses Value Cost Gains - ------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Government and Federal agencies $4,419,632 $ 24,330 $ 12,893 $4,431,069 $2,282,025 $ 11,791 States and political subdivisions .. 11,087 34 -- 11,121 12,908 1 Other securities: Mortgage-backed ................. 295,067 1,536 783 295,820 317,434 1,232 Other debt ...................... 41,706 721 2,524 39,903 30,197 923 Marketable equities, net ........ 272,068 24,928 13 296,983 218,121 15,186 - ------------------------------------------------------------------------------------------------------------- Total Other securities 608,841 27,185 3,320 632,706 565,752 17,341 - ------------------------------------------------------------------------------------------------------------- $5,039,560 $ 51,549 $ 16,213 $5,074,896 $2,860,685 $ 29,133 ============================================================================================================= Securities Held to Maturity: U.S. Government and Federal agencies $3,022,413 $ 15,523 $ 23,174 $3,014,762 $2,345,444 $ 8,187 States and political subdivisions .. 180,715 8,597 72 189,240 227,526 9,713 Other securities: Mortgage-backed ................. 895,177 930 8,260 887,847 2,717,237 1,766 Other debt ...................... 59,238 529 34 59,733 131,886 1,133 - ------------------------------------------------------------------------------------------------------------- Total Other securities 954,415 1,459 8,294 947,580 2,849,123 2,899 - ------------------------------------------------------------------------------------------------------------- $4,157,543 $ 25,579 $ 31,540 $4,151,582 $5,422,093 $ 20,799 ============================================================================================================= 1996 1995 ---------------------- ---------- Gross Unrealized Fair Carrying Losses Value Value - ------------------------------------------------------------------------ Securities Available for Sale: U.S. Government and Federal agencies $ 16,388 $2,277,428 $1,979,832 States and political subdivisions .. 3 12,906 -- Other securities: Mortgage-backed ................. 997 317,669 348,733 Other debt ...................... 4 31,116 43,452 Marketable equities, net ........ 375 232,932 173,072 - ------------------------------------------------------------------------ Total Other securities 1,376 581,717 565,257 - ------------------------------------------------------------------------ $ 17,767 $2,872,051 $2,545,089 ======================================================================== Securities Held to Maturity: U.S. Government and Federal agencies $ 42,089 $2,311,542 $1,980,081 States and political subdivisions .. 119 237,120 283,848 Other securities: Mortgage-backed ................. 78,560 2,640,443 3,065,854 Other debt ...................... 400 132,619 110,131 - ------------------------------------------------------------------------ Total Other securities 78,960 2,773,062 3,175,985 - ------------------------------------------------------------------------ $ 121,168 $5,321,724 $5,439,914 ========================================================================
Included in interest on securities held to maturity and securities available for sale is tax exempt income on certain state and municipal securities which amounted to $13.3 million, $16.6 million, and $22.3 million for 1997, 1996, and 1995, respectively. Gross realized gains on securities available for sale amounted to $8.3 million, $9.3 million, and $24.5 million, while gross realized losses amounted to $2.4 million, $3.9 million, and $16.4 million for the years 1997, 1996, and 1995, respectively. These amounts are included in non-interest income as securities gains in the Consolidated Statements of Income. Also included in securities gains are gains and losses realized from the early redemption of securities. The carrying value of investment securities pledged to secure public funds and securities sold under agreements to repurchase, as well as for other purposes required by law, was $4.2 billion at December 31, 1997. Securities held to maturity and securities available for sale included high-risk mortgage-backed securities as defined by the Federal Financial Institutions Examination Council. High-risk mortgage-backed securities are those securities that experience significant price and expected life sensitivity to changes in interest rates. At December 31, 1997, these securities had an amortized cost of $618.4 million and a fair value of $616.1 million. The table below provides the remaining contractual yields of debt securities within the investment portfolios. The carrying value of securities at December 31, 1997, is distributed by contractual maturity. Mortgage-backed securities and other securities which may have principal prepayment provisions are distributed based on contractual maturity adjusted for historical prepayments. These prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution.
- -------------------------------------------------------------------------------------------------- Within After one year After five years one year through five years through ten years - -------------------------------------------------------------------------------------------------- (In thousands) Amount Yield Amount Yield Amount Yield - -------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Government and Federal agencies $ 91,678 5.52% $ 677,942 6.03% $ 344,770 6.52% States and political subdivisions .. 10,841 4.19 -- -- 280 9.50 Other securities: Mortgage-backed ................. -- -- 89,875 6.76 91,320 6.63 Other debt ...................... -- -- 1,164 7.00 -- -- Marketable equities, net ........ 296,983 -- -- -- -- -- - -------------------------------------------------------------------------------------------------- Total Other securities 296,983 -- 91,039 6.76 91,320 6.63 - -------------------------------------------------------------------------------------------------- $ 399,502 5.38%* $ 768,981 6.12% $ 436,370 6.54% ================================================================================================== Securities Held to Maturity: U.S. Government and Federal agencies $ 38,542 5.46% $ 391,622 6.35% $ 311,481 6.34% States and political subdivisions .. 27,107 5.91 111,336 6.19 21,121 6.07 Other securities: Mortgage-backed ................. 124,045 6.77 640,676 6.19 1,837 6.86 Other debt ...................... 4,383 6.59 14,353 7.09 18,684 8.02 - -------------------------------------------------------------------------------------------------- Total Other securities 128,428 6.76 655,029 6.21 20,521 7.92 - -------------------------------------------------------------------------------------------------- $ 196,077 6.39% $1,157,987 6.26% $ 353,123 6.42% ================================================================================================== - -------------------------------------------------------------------- After Total ten years Carrying - -------------------------------------------------------------------- Amount Yield Value - -------------------------------------------------------------------- Securities Available for Sale: U.S. Government and Federal agencies $3,316,679 6.69% $4,431,069 States and political subdivisions .. -- -- 11,121 Other securities: Mortgage-backed ................. 114,625 6.63 295,820 Other debt ...................... 38,739 6.90 39,903 Marketable equities, net ........ -- -- 296,983 - -------------------------------------------------------------------- Total Other securities ....... 153,364 6.70 632,706 - -------------------------------------------------------------------- $3,470,043 6.69% $5,074,896 ==================================================================== Securities Held to Maturity: U.S. Government and Federal agencies $2,280,768 6.59% $3,022,413 States and political subdivisions .. 21,151 5.78 180,715 Other securities: Mortgage-backed ................. 128,619 7.06 895,177 Other debt ...................... 21,818 6.42 59,238 - -------------------------------------------------------------------- Total Other securities 150,437 6.97 954,415 - -------------------------------------------------------------------- $2,452,356 6.61% $4,157,543 ====================================================================
* Yield excludes equity securities. 42 44 ================================================================================ Note 4 Loans ================================================================================ The composition of the loan portfolio, net of unearned discount and deferred loan origination fees and costs, at December 31 was as follows:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Commercial and industrial .................. $ 5,884,240 $ 4,904,732 Construction and development ............... 369,500 316,207 - -------------------------------------------------------------------------------- Total commercial loans .................. 6,253,740 5,220,939 Commercial mortgage ........................ 2,703,793 2,624,427 Residential mortgage ....................... 5,671,200 5,904,490 - -------------------------------------------------------------------------------- Total mortgage loans .................... 8,374,993 8,528,917 Home equity ................................ 2,734,582 2,339,266 Automobile ................................. 1,075,487 893,703 Other consumer ............................. 449,564 403,234 - -------------------------------------------------------------------------------- Total consumer loans 4,259,633 3,636,203 - -------------------------------------------------------------------------------- $18,888,366 $17,386,059 ================================================================================
The Company's credit policy emphasizes diversification of risk among industries and borrowers. Concentrations of credit risk, whether on or off the balance sheet, exist in relation to certain groups of customers or counterparties. A group concentration arises when a number of customers or counterparties have similar economic characteristics that would compromise their ability to meet contractual obligations or be similarly affected by changes in economic or other conditions. Summit Bancorp does not have a exposure to any individual customer, counterparty, or group concentration. The Company's business is concentrated in New Jersey and eastern Pennsylvania. A significant portion of the total loan portfolio is secured by real estate or other collateral located in these states. This concentration is mitigated by the diversification of the loan portfolio among commercial, construction, commercial mortgage, and consumer loans. The commercial and industrial loan portfolio represents approximately 31% of the entire loan portfolio and has no concentration greater than 10% to any specific industry. At December 31, 1997, the ten largest commercial and commercial mortgage loans have outstanding balances of $419.6 million and unexercised commitments of $70.7 million. Included in the commercial and commercial mortgage loan portfolios are loans where the accrual of interest has been discontinued. These non-performing loans were $85.1 million and $139.1 million at December 31, 1997 and 1996, respectively. These loans will return to accrual status only if they become contractually current and future collectibility of amounts due are reasonably assured. The average balance of non-performing loans for 1997 and 1996 was $104.1 million and $181.7 respectively. The amount of cash basis interest income that was received on these loans was $2.5 million in 1997 and $3.3 million in 1996. Transactions in the allowance for loan losses were as follows:
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Balance, January 1 ...................... $280,611 $293,160 $323,336 Acquisition adjustments, net ......... 9,994 8,492 6,131 Provision charged to expense ......... 59,100 64,034 72,090 - -------------------------------------------------------------------------------- 349,705 365,686 401,557 - -------------------------------------------------------------------------------- Charge offs .......................... 86,675 108,306 130,492 Recoveries ........................... 33,464 23,231 22,095 - -------------------------------------------------------------------------------- Net charge offs ......................... 53,211 85,075 108,397 - -------------------------------------------------------------------------------- Balance, December 31 $296,494 $280,611 $293,160 ================================================================================
The allocation of the allowance for loan losses at December 31 was as follows:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Allowance allocated to non-performing loans .......... $ 20,021 $ 25,575 Allowance allocated to performing loans .............. 109,647 121,812 Unallocated allowance ................................ 166,826 133,224 - -------------------------------------------------------------------------------- $296,494 $280,611 ================================================================================
Included in residential mortgage loans are mortgage loans held for sale, which approximated $75.7 million at December 31, 1997, and $50.0 million at December 31, 1996. These loans are accounted for at the lower of aggregate cost or market value. Note 5 Premises and Equipment ================================================================================ The major components of premises and equipment at December 31 were as follows:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Land ................................................... $ 32,680 $ 33,935 Premises and leasehold improvements .................... 302,982 290,616 Furniture and equipment ................................ 248,578 231,737 - -------------------------------------------------------------------------------- 584,240 556,288 Less accumulated depreciation and amortization ......... 339,327 312,095 - -------------------------------------------------------------------------------- $244,913 $244,193 ================================================================================
Amounts charged to non-interest expenses for depreciation and amortization amounted to $36.2 million in 1997, $33.3 million in 1996, and $33.4 million in 1995. Note 6 Other Assets ================================================================================ The major components of other assets at December 31 were as follows:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Deferred tax assets, net ....................... $124,420 $110,478 Prepaid expenses ............................... 50,789 29,300 Other real estate owned, net ................... 14,248 26,406 Mortgage servicing rights, net ................. 7,908 7,238 Other .......................................... 91,113 99,208 - -------------------------------------------------------------------------------- $288,478 $272,630 ================================================================================
43 45 ================================================================================ Note 7 Deposits ================================================================================ The following is an expected maturity distribution of savings and time deposits at December 31:
(In thousands) 1997 - -------------------------------------------------------------------------------- Due in one year or less ................................... $14,885,258 Due between one and two years ............................. 1,435,677 Due between two and three years ........................... 334,794 Due between three and four years .......................... 89,925 Due between four and five years ........................... 145,541 Due over five years ....................................... 23,290 - -------------------------------------------------------------------------------- $16,914,485 ================================================================================
As of December 31, 1997, there were $1.5 billion of time deposits greater than $100,000, of which $884.3 million are classified as commercial certificates of deposit. At year-end 1997 and 1996, there were $20.7 million and $36.3 million, respectively, of overdraft deposit relationships classified as loans. The total amount of public funds held on deposit as of December 31, 1997, was $1.2 billion, for which $196.7 million of securities were pledged as collateral. Note 8 Other Borrowed Funds ================================================================================ Other borrowed funds at December 31 consisted of the following:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase ..... $2,689,434 $2,262,796 Federal funds purchased ............................ 655,425 199,950 Treasury tax and loan .............................. 137,819 130,348 Commercial paper ................................... 39,799 40,476 Federal Home Loan Bank advances .................... -- 90,000 Other .............................................. 74,601 82,797 - -------------------------------------------------------------------------------- $3,597,078 $2,806,367 ================================================================================
Lines of credit at the Parent Corporation are available to support commercial paper borrowings and for general corporate purposes. Interest on these lines of credit approximate the prime lending rate at the time of borrowing. Unused lines amounted to $36.0 million at December 31, 1997. Note 9 Commitments and Contingencies ================================================================================ Non-interest expenses include rentals for premises and equipment of $62.6 million in 1997, $55.2 million in 1996 and $52.2 million in 1995, after a reduction for sublease rentals of $3.6 million, $3.7 million and $4.4 million in each of the respective years. At December 31, 1997, Summit Bancorp was obligated under a number of non-cancelable leases for premises and equipment, many of which provide for increased rentals based upon increases in real estate taxes and the cost of living index. These leases, most of which have renewal provisions, are principally non-financing leases. Minimum rentals under the terms of these leases for the years 1998 through 2002 are $32.0 million, $28.8 million, $25.5 million, $23.3 million and $20.7 million, respectively. Minimum rentals due after 2003 are $134.4 million. Summit Bancorp and its subsidiaries are, from time to time, defendants in legal proceedings relating to the conduct of their businesses. In the best judgment of management, based upon consultation with counsel, the consolidated financial position of Summit Bancorp and its subsidiaries will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments. Note 10 Long-Term Debt ================================================================================ Long-term debt at December 31 consisted of the following:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- FHLB borrowings, 4.00% to 8.45%, due 1998 through 2016 ............................ $ 640,710 $ 426,442 8.625% Subordinated notes due December 10, 2002* ............................... 175,000 175,000 8.40% Capital Trust Pass-through Securities due March 15, 2027* ................... 150,000 -- 6.75% Subordinated notes due June 15, 2003 ......... 49,564 49,485 7.95% Senior notes due August 25, 2003* ............ 20,000 20,000 Collateralized mortgage obligations ................ 8,150 10,391 ESOP Debt due June 30, 2005* ....................... 3,750 4,500 ESOP Debt due September 30, 1998* .................. 451 1,316 7.75% Sinking fund debentures* ..................... -- 8,659 - -------------------------------------------------------------------------------- $1,047,625 $ 695,793 ================================================================================
* Indicates Parent Corporation obligation. The banking subsidiaries of Summit Bancorp are members of the Federal Home Loan Banks (FHLB) and have access to term financing from the FHLB having a maturity of up to 30 years. The FHLB borrowings had original maturities greater than one year and are secured by securities and residential mortgages under a blanket collateral agreement. The 8.625% subordinated notes were issued in 1992 and are unsecured. Interest is payable semi-annually on June 10 and December 10 of each year. The subordinated notes are not subject to redemption prior to maturity. As of December 31, 1997, $140.0 million of this debt qualifies as Tier II capital. On March 20, 1997, Summit Capital Trust I (Trust), a statutory business trust, and a wholly owned subsidiary of Summit Bancorp, issued $150.0 million of 8.40% Capital Trust Pass-through Securities to investors (Capital Securities) and $4.6 million of 8.40% Common Securities to Summit Bancorp (Common Securities), both due March 15, 2027 (collectively, Trust Securities). The Capital Securities have a preference over the Common Securities with respect to liquidation and other distributions and qualify as Tier I capital. Proceeds from the issuance of the Trust Securities were immediately used by the Trust to purchase $154.6 million of 8.40% Junior Subordinated Deferrable Interest Debentures due March 15, 2027, of Summit Bancorp (Subordinated Debentures), said Subordinated Debentures constituting the sole assets of the Trust. The Subordinated Debentures are redeemable in whole or in part prior to maturity after March 15, 2007, at premiums which decline annually through the date of maturity. The Trust is obligated to distribute all proceeds of a redemption, whether voluntary or upon maturity, to holders of 44 46 ================================================================================ Trust Securities. Summit Bancorp's obligations with respect to the Capital Securities and the Subordinated Debentures, when taken together, provide a full and unconditional guarantee on a subordinated basis by Summit Bancorp of the Trust's obligations to pay amounts when due on the Capital Securities. Summit Bank issued $50 million in 6.75% subordinated notes in 1993. Unamortized discount on the subordinated notes was $436 thousand and $515 thousand at December 1997 and 1996, respectively, resulting in an effective interest rate of 7.00%. Interest is payable semiannually on June 15 and December 15 of each year. The 6.75% subordinated notes are not subject to redemption prior to maturity. This debt qualifies as Tier II capital. The 7.95% ten-year maturity private placement senior notes were issued in 1993 with interest payable quarterly. Summit Bancorp has the option to prepay the notes, subject to certain prepayment provisions. The collateralized mortgage obligations are secured by investments in mortgage-backed securities having carrying values of $9.2 million and $11.6 million at December 31, 1997, and 1996, respectively. These mortgage-backed securities have interest rates ranging from 7.27% to 9.15%. A trustee holds the collateral certificates, collects all principal and interest payments thereon, and disburses all funds to the noteholders. In November 1991, the Employee Stock Ownership Plan (ESOP) borrowed $4.1 million maturing September 30, 1998. In June 1993, the ESOP extended an additional $5.0 million line maturing June 30, 2005. The interest rate on both borrowings is the lesser of 265 basis points over the Federal Funds effective rate or 25 basis points over the Company's prime rate. Principal amounts due on long-term debt for the years 1998 through 2002 are $246.2 million, $156.2 million, $84.5 million, $81.5 million and $186.7 million, respectively. Note 11 Net Income per Common Share ================================================================================ The following table summarizes the computation of basic and diluted net income per common share for each of the three years ended December 31:
(In thousands, except per share data) 1997 1996 1995 - -------------------------------------------------------------------------------- Net income .............................. $370,965 $283,675 $300,412 Less: Preferred dividends ............... -- 2,544 2,700 - -------------------------------------------------------------------------------- Net income available to common shareholders $370,965 $281,131 $297,712 ================================================================================ Weighted-average common shares outstanding ........................... 175,128 166,673 157,244 Plus: Common stock equivalents .......... 2,331 2,115 2,005 - -------------------------------------------------------------------------------- Diluted weighted-average common shares outstanding 177,459 168,788 159,249 ================================================================================ Net income per common share: Basic ................................. $ 2.12 $ 1.69 $ 1.89 Diluted ............................... 2.09 1.67 1.87 ================================================================================
At December 31, 1996, there were 236,925 stock options outstanding excluded from the computation of common stock equivalents because the options' exercise price was greater than the average market value of the common shares. Note 12 Shareholders' Equity ================================================================================ There were 6.0 million shares of preferred stock authorized as of December 31, 1997, and 1996, with no shares issued. All previously outstanding Series B and C preferred stocks were redeemed and retired, in whole, at their stated value on December 15, 1996. On April 18, 1997, the shareholders voted in favor of increasing the authorized number of common shares from 130 million to 260 million. The authorized number of shares has been adjusted to 390 million as a result of the September 24, 1997, three-for-two common stock split and the par value of the stock was reduced to $.80 per share from $1.20 per share. The following table summarizes common stock reserved, available, issued and outstanding, and authorized as of December 31, 1997:
Number (In thousands) of Shares - -------------------------------------------------------------------------------- Unissued and reserved ...................................... 7,115 Unissued and available ..................................... 206,295 Issued and outstanding ..................................... 176,590 - -------------------------------------------------------------------------------- Total shares authorized .................................. 390,000 ================================================================================
The total shares unissued and reserved represent the amount of shares registered with the Securities and Exchange Commission under current registration statements. During 1997 and 1996, 2.4 million and 1.8 million shares of common stock were issued, respectively, for the Dividend Reinvestment, Savings Incentive and other stock option plans. A Shareholder Rights plan exists which is designed to ensure fair and equal treatment for all shareholders in the event of any proposal to acquire Summit Bancorp. The terms of the Plan provide that each share of common stock also represents one "right." Each right will entitle the holder to buy 1/150 of a share of a new series of preferred stock, Series R, upon the occurrence of certain events. In addition, upon the occurrence of certain other events, holders of the rights will be entitled to purchase either shares of this new preferred stock or shares in an "acquiring person" at half their fair market value as determined under the plan. Summit Bancorp has committed to make future contributions to service the debt of the ESOP. As a result, the obligation is recognized as a liability in long-term debt, and is offset by a corresponding reduction in shareholders' equity. Both are reduced as the ESOP makes principal payments on the debt. 45 47 Note 13 Benefit Plans ================================================================================ Summit Bancorp has several trusteed non-contributory defined benefit retirement plans covering substantially all of its employees. The benefits are based on years of service and the employees' final average compensation. The funding policy is to contribute annually an amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed for service to date, but also for those expected to be earned in the future. The following table sets forth the qualified plan's funding status and amounts recognized in the Consolidated Financial Statements at December 31:
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Accumulated benefit obligation, including vested benefits of $206,488 in 1997, $176,338 in 1996, and $172,135 in 1995 .................... $(221,681) $(188,580) $(184,262) ================================================================================ Projected benefit obligation for services rendered to date ........................ $(268,689) $(239,892) $(230,626) Plan assets at fair value .................. 299,702 250,289 219,119 - -------------------------------------------------------------------------------- Plan assets over (under) projected benefit obligation ...................... 31,013 10,397 (11,507) Unrecognized transition asset .............. (2,713) (5,293) (7,758) Unrecognized prior service cost ............ (2,840) 327 354 Unrecognized net (gain) loss from past experience, which is different from that assumed, and effect of change in assumptions .......................... (6,556) 5,097 14,650 - -------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 18,904 $ 10,528 $ (4,261) ================================================================================ Net pension expense components: Service cost ............................ $ 10,876 $ 11,226 $ 9,482 Interest cost ........................... 19,293 17,862 16,315 Actual return on plan assets ............ (43,698) (27,203) (41,635) Net deferral and amortization ........... 19,073 6,129 22,337 - -------------------------------------------------------------------------------- Net pension expense $ 5,544 $ 8,014 $ 6,499 ================================================================================
The plan's assets were principally invested in equities and fixed income instruments. The weighted average discount rate for the plan was 7.5% in 1997, 1996 and 1995. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5.0% in 1997, 1996 and 1995. The expected long-term rate of return on plan assets was 9.0% in 1997, 1996 and 1995. Collective did not have a retirement plan, but maintained an ESOP covering all eligible employees. The ESOP allocated 117 thousand, 126 thousand and 160 thousand shares to employees during 1997, 1996 and 1995, respectively. At December 31, 1997, there were 304 thousand unallocated shares, of which 94 thousand shares were subject to Statement of Position 76-3 and 210 thousand shares were subject to Statement of Position 93-6. At December 31, 1997, the total ESOP debt outstanding was $4.2 million. Summit Bancorp also maintains non-qualified supplemental retirement plans for officers of the Company. The plans, which are unfunded, provide benefits in excess of that permitted to be paid by the pension plan under provisions of the tax law. The plan's costs were $3.2 million for 1997, $2.8 million for 1996, and $3.2 million for 1995. At December 31, 1997, the projected benefit obligation amounted to $18.2 million and the accrued liability amounted to $14.7 million. In addition to pension benefits, certain health care and life insurance benefits are made available to retired employees. The cost of such benefits is accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive benefits. The following table sets forth the net periodic postretirement benefit cost and accumulated postretirement benefit obligation at December 31:
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO) .......................... $(27,104) $(29,921) $(36,160) Fair value of assets ....................... -- -- -- - -------------------------------------------------------------------------------- Projected benefit obligation funded status ..................................... (27,104) (29,921) (36,160) Unrecognized transition obligation ......... 15,082 16,087 20,983 Unrecognized prior service cost ............ (755) (619) 634 Unrecognized loss .......................... (5,267) (3,347) (2,695) - -------------------------------------------------------------------------------- Accrued APBO $(18,044) $(17,800) $(17,238) ================================================================================ Net postretirement benefit cost components: Service cost ............................... $ 303 $ 422 $ 482 Interest cost .............................. 1,997 2,191 2,670 Amortization benefit cost .................. 802 829 1,161 - -------------------------------------------------------------------------------- Net postretirement benefit cost $ 3,102 $ 3,442 $ 4,313 ================================================================================
For measurement purposes, the cost of medical benefits was projected to increase at a rate of 11.0% in 1997, 12.0% in 1996, and 13.0% in 1995 and thereafter decreasing linearly to 6% over five years. Increasing the assumed health care cost trend by one percent in each year would increase the accumulated postretirement benefit obligation as of January 1, 1997, by $1.4 million and the aggregate of the service and interest components of net periodic postretirement benefit cost for the year ended December 31, 1997, by $102 thousand. The present value of the accumulated benefit obligation assumed a discount rate of 7.5% in 1997, 1996 and 1995. The rate of increase used in future compensation levels was 5.0% in 1997, 1996 and 1995. Various incentive plans have been established with the intention of providing added incentive to middle and senior management to increase the profits of the Company. The amount of the awards are subject to limits as set forth in the plans. Accruals for the plans amounted to $11.7 million, $9.8 million and $10.1 million in 1997, 1996 and 1995, respectively. There is a Savings Incentive Plan which covers employees with one or more years of service. The plan permits eligible employees to make contributions to the plan of up to 5% of their base compensation with additional contributions of up to 10% of their base compensation. Under the current plan, the employer matches 100% of the first 3% and 50% of the next 3% of employee contributions. Matching contributions to the Plan amounted to $7.0 million, $5.6 million and $4.2 million in 1997, 1996 and 1995, respectively. 46 48 Note 14 Stock-Based Compensation ================================================================================ At December 31, 1997, Summit Bancorp had two types of stock award programs, the Long-Term Performance Stock Programs and Stock Option Programs. Summit Bancorp applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation. Restricted stock awards and performance stock awards are issued under The Long-Term Performance Stock Program to reward executives and to retain them by distributing stock over a period of time. The nonvested stock awards granted were 258 thousand shares in 1997, 201 thousand shares in 1996 and 153 thousand in 1995. The fair market value per share of these grants was $29.91 in 1997, $24.64 in 1996 and $23.82 in 1995. These shares vest over several years and are recognized as compensation to the employee. The compensation cost charged to non-interest expense for the nonvested stock awards was $3.4 million, $2.1 million and $3.3 million for 1997, 1996 and 1995, respectively. In 1996 compensation cost of $2.1 million was recognized in the restructuring charge due to accelerated vesting. The Stock Option Programs are designed with a broad scope to align the interests of a large number of employees with shareholder interests. These options are intended to be either incentive stock options or non-qualified options. Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable starting one year after the date of grant and generally expire ten years from the date of grant. Upon exercise of these options, proceeds received in excess of par value of the shares are credited to surplus. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995 respectively: dividend yield of 3.29%, 3.60% and 4.30%; expected volatility rate of 23%, 25% and 28%; risk-free interest rates of 6.42%, 5.40% and 7.80%; and expected lives of 5 years. The weighted-average fair value at grant-date for the options awarded during 1997, 1996 and 1995 were $3.79, $5.10 and $3.90, respectively. Under APB Opinion No. 25, compensation cost for the stock options is not recognized because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Had compensation expense been recorded for stock options granted as determined under SFAS No. 123, net income would have been reduced by $3.7 million in 1997, $3.6 million in 1996 and $3.0 million in 1995, impacting per share net income by $.02 for each respective year. The following is a summary of the status of the Stock Options Programs and changes during the past three years:
Weighted-Avg. (Shares in thousands) Shares Exercise Price - -------------------------------------------------------------------------------- Outstanding, December 31, 1994 .................... 7,031 $11.18 Granted and acquired .............................. 1,898 12.11 Exercised ......................................... 1,834 7.67 Forfeited ......................................... 43 15.98 Expired ........................................... 9 12.12 - -------------------------------------------------------------------------------- Outstanding, December 31, 1995 (5,278 exercisable shares at a weighted-avg. exercise price of $12.01) 7,043 12.31 - -------------------------------------------------------------------------------- Granted and acquired .............................. 1,208 23.68 Exercised ......................................... 1,537 11.58 Forfeited ......................................... 24 23.66 Expired ........................................... 17 15.75 - -------------------------------------------------------------------------------- Outstanding, December 31, 1996 (5,121 exercisable shares at a weighted-avg. exercise price of $12.92) 6,673 14.49 - -------------------------------------------------------------------------------- Granted and acquired .............................. 1,983 27.31 Exercised ......................................... 2,621 13.58 Forfeited ......................................... 103 26.53 Expired ........................................... 9 19.44 - -------------------------------------------------------------------------------- Outstanding, December 31, 1997 (4,311 exercisable shares at a weighted-avg. exercise price of $15.00) 5,923 $18.97 ================================================================================
The following table summarizes information about stock options at December 31, 1997:
(Shares in thousands) - --------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable ----------------------------------------------- --------------------------- Weighted-Avg. Range of Options Remaining Weighted-Avg. Options Weighted-Avg. Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - --------------------------------------------------------------------------------------------------- $ 2.37 to $ 9.97 876 2.8 years $ 6.93 876 $ 6.93 10.10 to 12.58 530 4.1 10.83 530 10.83 13.24 to 14.90 636 5.1 14.04 636 14.04 15.18 to 16.71 1,369 5.8 16.42 1,369 16.42 17.38 to 26.02 900 8.0 23.83 900 23.83 29.42 to 38.79 1,612 9.0 29.58 -- -- - --------------------------------------------------------------------------------------------------- $ 2.37 to $38.79 5,923 6.4 years $18.97 4,311 $15.00 ===================================================================================================
47 49 ================================================================================ Note 15 Other Income and Other Expenses ================================================================================ Other income consisted of the following:
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Automated teller access fees ........... $ 14,877 $ 12,129 $ 5,226 International fees ..................... 11,963 10,912 10,288 Insurance and annuity income ........... 11,474 8,788 5,653 Gain on sale of assets/deposits ........ 11,157 2,825 2,979 Brokerage fees ......................... 9,401 9,099 8,631 Trading account (losses) gains ......... (1,583) 477 1,295 Other .................................. 23,697 21,866 25,583 - -------------------------------------------------------------------------------- $ 80,986 $ 66,096 $ 59,655 ================================================================================
Other expenses consisted of the following:
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Legal and professional fees ............. $ 30,605 $ 30,488 $ 29,841 Advertising and public relations ........ 22,718 16,274 17,300 Amortization of goodwill and other intangibles ..................... 19,273 15,724 13,158 Printing, stationery and supplies ....... 8,758 9,583 8,402 Deposit insurance premiums .............. 5,678 9,865 28,396 Year 2000 conversion .................... 4,015 -- -- Other real estate owned ................. 1,764 3,623 6,956 Other ................................... 71,107 72,437 65,951 - -------------------------------------------------------------------------------- $163,918 $157,994 $170,004 ================================================================================
Note 16 Income Taxes ================================================================================
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Current provisions: Federal ........................... $ 208,080 $ 116,850 $ 113,740 State ............................. 15,456 18,798 25,392 - -------------------------------------------------------------------------------- 223,536 135,648 139,132 Deferred (benefit) provision: Federal ........................... (19,121) 13,129 23,757 State ............................. (4,197) 1,254 4,104 - -------------------------------------------------------------------------------- (23,318) 14,383 27,861 - -------------------------------------------------------------------------------- Provision for income taxes $ 200,218 $ 150,031 $ 166,993 ================================================================================
A summary of the differences between the actual income tax provision and the amounts computed by applying the statutory Federal income tax rate to income is as follows:
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Federal tax at statutory rate ........... $ 199,914 $ 151,797 $ 163,592 Increase (decrease) in taxes resulting from: Tax-exempt interest income ............ (7,865) (8,571) (14,099) State taxes, net of Federal tax effect 7,318 13,034 19,172 Other, net ............................ 851 (6,229) (1,672) - -------------------------------------------------------------------------------- $ 200,218 $ 150,031 $ 166,993 ================================================================================
The significant Federal and state temporary differences, which comprise the deferred tax assets and liabilities presented at December 31, are as follows:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Deferred tax assets: Provision for loan losses .................... $ 114,433 $ 102,551 Provision for other real estate owned ........ 1,020 4,625 Restructuring charges ........................ 22,550 10,325 Other ........................................ 39,387 39,053 - -------------------------------------------------------------------------------- 177,390 156,554 Deferred tax liabilities: Leasing operations ........................... (32,982) (30,420) Net unrealized gain on securities ............ (11,629) (2,253) Other ........................................ (8,359) (13,403) - -------------------------------------------------------------------------------- (52,970) (46,076) - -------------------------------------------------------------------------------- Net deferred tax asset $ 124,420 $ 110,478 ================================================================================
Included in deferred tax assets "Other" is a valuation allowance which has been established against certain Federal and state temporary differences. The valuation allowance was $7.0 million at December 31, 1997, and $8.5 million at December 31, 1996. At December 31, 1997, there was a deferred state tax asset of $3.2 million resulting from operating loss carryforwards. This asset was reserved by the valuation allowance. Management believes, based upon current facts, that more likely than not there will be sufficient taxable income in future years to realize the deferred tax assets. However, there can be no assurance about the level of future earnings. Included in shareholders' equity are income tax benefits attributable to vested stock awards and the exercise of non-qualified stock options of $14.4 million, $4.6 million, and $1.4 million for the years ended December 31, 1997, 1996 and 1995, respectively. 48 50 Note 17 Off-Balance-Sheet Financial Instruments ================================================================================ In the ordinary course of business, Summit Bancorp and its subsidiaries enter into a variety of financial instruments that are recorded off the balance sheet. This reporting is considered appropriate where either the exchange of the underlying asset or liability has not yet occurred or the notional amounts are used solely as a means to determine the cash flows to be exchanged. These off-balance-sheet financial instruments are primarily divided into two categories: credit-related financial instruments and derivative financial instruments. Credit-related financial instruments are principally customer-related, while derivative financial instruments are acquired primarily for asset/liability management purposes. The following table summarizes the notional amount of off-balance-sheet financial instruments at December 31:
(In thousands) 1997 1996 - -------------------------------------------------------------------------------- Credit-related instruments: Commitments to extend credit ............. $7,490,740 $5,304,219 Standby letters of credit ................ 339,158 302,825 Commercial letters of credit ............. 250,945 94,961 Derivative instruments: Interest rate swaps ...................... 433,167 386,314 Interest rate floors ..................... 430,000 430,000 Interest rate caps ....................... 717,869 73,326 Foreign exchange contracts ............... 52,241 33,259 ================================================================================
Credit-Related Financial Instruments Commitments to extend credit are legally binding agreements to lend to a customer provided all established contractual conditions are met. These commitments generally have fixed expiration dates and usually require the payment of a fee. Summit Bancorp did not issue long-term, fixed-rate loan commitments that can be locked in during the commitment period. Standby letters of credit are conditional guarantees issued to ensure the performance of a customer to a third party and are generally terminated through the fulfillment of a specific condition or through the lapse of time. Commercial letters of credit are conditional commitments, generally less than 180 days, issued to guarantee payment by a customer to a third party upon proof of an international trade shipment. The short-term nature of these instruments limits their credit risk. Fees received from credit-related financial instruments are recognized over the terms of the contracts and are generally included in other non-interest income. The credit risk associated with these financial instruments is essentially the same as that involved in extending loans to customers and is incorporated in the assessment of the adequacy of the allowance for loan losses. Credit risk is managed by limiting the total amount of arrangements outstanding and by applying normal credit policies. Many of the commitments to extend credit are expected to expire without being drawn upon and, therefore, the amounts do not necessarily represent future cash flow requirements. Derivative Financial Instruments Activities involving derivative financial instruments are primarily attributed to asset/liability risk management efforts aimed at stabilizing net interest income through periods of changing interest rates. These financial instruments were acquired to hedge interest rate risk on certain interest-earning assets and interest-bearing liabilities. Interest rate swaps are contractual agreements between two parties to exchange interest payments at particular intervals, computed on different terms, on a specified notional amount. The notional amounts represent the base on which interest due each counterparty is calculated and do not represent the potential for gains or losses associated with the market risk or credit risk of such transactions. Under the terms of the interest rate swaps at December 31, 1997, there were $83.2 million of contracts to receive fixed payments of 5.60% with an expected maturity of February 1999 and an average payout based on three-month LIBOR. Additionally, there were $350.0 million of interest rate swaps to receive payments at the effective Federal funds rate and make fixed payments averaging 5.68% with an expected average maturity of September 1998. Interest rate caps and floors are agreements in which, for an upfront premium and on predetermined future dates, the counterparties agree to pay an interest amount based on the movement of specified market interest rates either above or below a strike rate. The payments, if applicable, are derived from the measured rate differential multiplied by the contractual notional volume. The interest rate floors were purchased primarily to hedge adjustable rate LIBOR-based assets. The interest rate caps were purchased primarily to hedge short-term liability positions being managed as part of the Collective acquisition. Additionally, a portion of the interest rate caps were purchased to accommodate customers who desire interest rate protection on variable rate loans. These derivative transactions have resulted in decreases of $1.0 million, $2.0 million and $9.8 million in net interest income during 1997, 1996, and 1995, respectively. Credit-related losses can occur in the event of non-performance by the counterparties to the derivative financial instruments. The credit risk that results from interest rate swaps, interest rate floors, and interest rate caps is represented by the fair value of contracts that have a positive value at the reporting date. At December 31, 1997, the total amount of credit risk was $7.0 million; however, this amount can increase or decrease if interest rates change. To minimize the risk of credit losses, Summit Bancorp monitors the credit standing of the counterparties and only transacts with those that have credit ratings of AA or better. Summit Bancorp enters into contracts to purchase or sell foreign currency to be delivered at a future date to facilitate customer transactions. The notional amount represents the outstanding contracts at year end. 49 51 Note 18 Fair Value of Financial Instruments ================================================================================ The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced liquidation. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information. Because no quoted market price exists for a significant portion of these financial instruments, the fair values of such financial instruments are derived based on the amount and timing of future cash flows, estimated discount rates, as well as management's best judgment with respect to current economic conditions. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. The fair value information provided is indicative of the estimated fair values of those financial instruments and should not be interpreted as an estimate of the value of Summit Bancorp taken as a whole. The disclosures do not address the value of recognized and unrecognized non-financial assets and liabilities or the value of future anticipated business. The following methods and assumptions were used to estimate the fair values of significant financial instruments at December 31, 1997 and 1996. Financial Assets Cash, short-term investments and customer acceptances have relatively short maturities or no defined maturities, but are payable on demand, with little or no credit risk. The carrying values reported in the Consolidated Balance Sheets approximate fair value. Trading account securities and securities available for sale are reported at their respective fair values in the Consolidated Balance Sheets. These values were based on quoted market prices. The fair values of securities held to maturity were also based upon quoted market prices. The fair value of loans is estimated using a combination of techniques including discounted estimated future cash flows and, where available, quoted market prices of similar instruments. The loan portfolios are segmented based upon loan type, credit quality, and repricing characteristics. The fair values of most fixed-rate loans are estimated using discounted cash flow models taking into consideration current rates that would be offered to borrowers with similar credit risk for loans with similar remaining terms. The fair values of variable rate loans are estimated by reducing their carrying values by their corresponding general and specific credit reserves. Non-performing loans are primarily valued based upon the net realizable value of each loan's underlying collateral. Financial Liabilities The estimated fair values of demand and savings deposits are equal to the amounts recognized in the Consolidated Balance Sheets. These amounts do not recognize the fair value of core deposit intangibles, which represent the value of a core deposit base with an expected duration. The fair values for medium- to long-term deposit liabilities are calculated by discounting estimated future cash flows using current rates offered for deposits of similar remaining maturities. The fair values for borrowed funds are calculated by discounting estimated future cash flows using current rates offered for borrowings of similar remaining maturities. Due to the short maturities of bank acceptances, their carrying value approximates fair value. The fair value of long-term debt is based upon quoted market prices. For long-term debt issuances where quoted market prices are not available, the fair values are determined using discounted cash flow analyses. The estimated fair values of accrued interest receivable and accrued interest payable are considered to be equal to the amounts recognized in the Consolidated Balance Sheets. Off-Balance-Sheet Instruments The estimated fair values of derivative financial instruments are based upon quoted market prices, without consideration of the market values related to the hedged on-balance-sheet financial instruments. For commitments to extend credit and letters of credit, the fair values would approximate fees currently charged to enter into similar agreements. The following table presents the carrying values and fair values of financial instruments at December 31:
(In millions) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------------------------------------------------------ Financial assets: Cash and short term investments ........................................ $ 1,191.7 $ 1,191.7 $ 1,467.1 $ 1,467.1 Trading account securities ............................ 35.2 35.2 26.4 26.4 Securities available for sale ......................... 5,074.9 5,074.9 2,872.1 2,872.1 Securities held to maturity ........................... 4,157.5 4,151.6 5,422.1 5,321.7 Loans, net ............................................ 18,591.9 18,916.7 17,105.4 17,370.0 Accrued interest receivable ........................... 175.2 175.2 169.2 169.2 Due from customers on acceptances ........................................ 15.8 15.8 15.7 15.7 Financial liabilities: Deposits .............................................. $22,329.4 $22,340.8 $21,629.5 $21,667.0 Other borrowed funds .................................. 3,597.1 3,610.5 2,806.4 2,810.6 Long-term debt ........................................ 1,047.6 1,076.8 695.8 710.1 Accrued interest payable .............................. 71.6 71.6 56.1 56.1 Bank acceptances outstanding .......................... 15.8 15.8 15.7 15.7 Off-balance-sheet instruments: Interest rate swaps ................................... NA $ (.7) NA $ (1.3) Interest rate floors and caps ......................... NA 7.0 NA 15.3 Loan commitments ...................................... NA (35.9) NA (26.9) Standby letters of credit ............................. NA (2.4) NA (2.0) Commercial letters of credit .......................... NA (.3) NA (.1) ============================================================================================================
NA - Not applicable. 50 52 Note 19 Regulatory Matters ================================================================================ Cash and Due From Banks The subsidiary banks are required to maintain reserve balances based principally upon transaction type deposits. These reserves are in the form of vault cash and non-interest bearing balances with a Federal Reserve Bank. The average amount of required reserves amounted to $508.5 million and $674.8 million in 1997 and 1996, respectively. Loans to Affiliates Summit Bancorp's subsidiary banks are restricted, with certain limited exceptions, by the Federal Reserve Act, from extending credit to affiliated companies, including the Parent Corporation. Each subsidiary bank is also subject to collateral security requirements for any loans or extensions of credit permitted by exception. Further, a subsidiary bank may only engage in most transactions with other subsidiaries if terms and conditions are at least as favorable to the bank as those prevailing for transactions with unaffiliated companies. Such secured loans and other regulated transactions are limited in amount to each of its affiliates, including the Parent Corporation. The limitation is 10% of the bank's capital stock and defined surplus per affiliate, and 20% in aggregate to all of its affiliates. At December 31, 1997, the Parent Corporation had available credit from its subsidiary banks of approximately $234.5 million. Subsidiary Dividends Certain bank regulatory limitations exist on the availability of subsidiary bank undistributed net assets for the payment of dividends to the Parent Corporation without prior approval of bank regulatory authorities. The Federal Reserve Act, which affects both Summit Bank NJ and Summit Bank PA, restricts the payment of dividends in any calendar year to the net profit of the current year combined with retained net profits of the preceding two years. In addition to these statutory restrictions, the subsidiary banks are required to maintain adequate levels of capital. At December 31, 1997, the total undistributed net assets of the subsidiary banks were $2.3 billion, of which $224.3 million was available, under the most restrictive limitations, for the payment of dividends to the Parent Corporation. Capital Requirements Summit Bancorp is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have an adverse material impact on Summit Bancorp. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Bancorp must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Summit Bancorp's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weighting and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Bancorp and its subsidiary banks to maintain amounts and ratios (set forth in the table below) of Tier I leverage to average assets and of Tier I and Total risk-based capital to risk-weighted assets. At December 31, 1997, Summit Bancorp and its banking subsidiaries were well capitalized under the regulatory framework for prompt and corrective action. To be well capitalized, Tier I leverage, Tier I risk-based capital and Total risk-based capital must equal or exceed the well capitalized ratios set forth in the table below. There are no conditions or events that management believes have changed Summit Bancorp's or its subsidiary banks' well capitalized rating. - -------------------------------------------------------------------------------- Capital Ratios for Summit Bancorp and Subsidiary Banks
(In thousands) As of December 31, Minimum Statutory ------------------- Required Well Capital as of Minimum 1997 1996 Capital Capitalized December 31, 1997 Capital - -------------------------------------------------------------------------------------------------------------------- Tier I Leverage Summit Bancorp ........ 8.76% 7.73% ) $2,556,905 $1,167,143 Summit Bank NJ* ....... 7.29 6.92 } 4.00% 5.00% 1,912,377 1,049,506 Summit Bank PA ........ 8.03 7.97 ) 223,333 111,227 Tier I Risk-Based Capital Summit Bancorp ........ 12.64% 11.68% ) $2,556,905 $ 809,166 Summit Bank NJ* ....... 10.65 10.70 } 4.00% 6.00% 1,912,377 718,423 Summit Bank PA ........ 10.10 10.65 ) 223,333 88,414 Total Risk-Based Capital Summit Bancorp ........ 14.83% 14.17% ) $2,999,928 $1,618,693 Summit Bank NJ* ....... 12.50 12.73 } 8.00% 10.00% 2,245,316 1,436,847 Summit Bank PA ........ 11.87 12.60 ) 262,273 176,827 ====================================================================================================================
* Includes the pro-forma capital ratios of Summit Bank NJ and Collective Bank, which are scheduled to merge in March 1998. 51 53 Note 20 Parent Corporation Information ================================================================================ (In thousands) Condensed Balance Sheets
December 31, - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Assets Cash and due from banks .......................... $ 2,958 $ 19,612 Securities purchased under agreements to resell ...................................... 419,148 136,585 Interest-bearing deposits with banks ............. 5,000 5,000 Securities available for sale .................... 41,627 34,861 Investment in subsidiaries ....................... 2,351,698 2,172,624 Due from subsidiaries ............................ 246,186 237,250 Premises and equipment, net ...................... 943 1,094 Other assets ..................................... 36,829 18,446 - -------------------------------------------------------------------------------- Total Assets $3,104,389 $2,625,472 ================================================================================ Liabilities and Shareholders' Equity Accrued expenses and other liabilities ........... $ 98,329 $ 84,683 Commercial paper ................................. 39,799 40,476 Long-term debt ................................... 353,841 209,475 - -------------------------------------------------------------------------------- Total liabilities .............................. 491,969 334,634 Total shareholders' equity ....................... 2,612,420 2,290,838 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $3,104,389 $2,625,472 ================================================================================
Condensed Statements of Income
Years ended December 31, - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Operating Income Dividends from subsidiaries .............. $ 333,597 $ 237,003 $ 140,010 Management fees from subsidiaries ........ 34,689 34,090 32,761 Interest from subsidiaries ............... 30,964 22,063 22,925 Securities gains ......................... 5,458 5,831 18,829 Other interest ........................... 1,009 1,119 102 Other .................................... -- 616 2,564 - -------------------------------------------------------------------------------- Total operating income 405,717 300,722 217,191 - -------------------------------------------------------------------------------- Operating Expenses Service charges by subsidiaries .......... 39,269 37,055 33,144 Interest ................................. 30,073 19,726 20,412 Salaries and employee benefits ........... 8,783 5,265 4,266 Other .................................... 2,837 1,718 867 - -------------------------------------------------------------------------------- Total operating expenses 80,962 63,764 58,689 - -------------------------------------------------------------------------------- Income before taxes and equity in undistributed net income of subsidiaries ........................ 324,755 236,958 158,502 Federal and state income taxes (benefits) (4,695) (7,061) 5,012 - -------------------------------------------------------------------------------- 329,450 244,019 153,490 Equity in undistributed net income of subsidiaries ........................ 41,515 39,656 146,922 - -------------------------------------------------------------------------------- Net Income $ 370,965 $ 283,675 $ 300,412 ================================================================================
Condensed Statements of Cash Flows
Years ended December 31, - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Operating Activities Net income .............................. $ 370,965 $ 283,675 $ 300,412 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...... 151 150 3 Increase in other assets ........... (19,240) (3,928) (60) (Decrease) increase in accrued expenses and other liabilities ... (2,427) 19,299 11,821 Equity in undistributed net income of subsidiaries ........... (41,515) (39,656) (146,922) Securities gains ................... (5,458) (5,831) (18,829) - -------------------------------------------------------------------------------- Net cash provided by operating activities 302,476 253,709 146,425 - -------------------------------------------------------------------------------- Investing Activities Proceeds from sales of securities available for sale .................... 13,911 27,434 28,332 Net (increase) decrease in securities purchased under agreements to resell .. (282,563) 54,665 3,376 Purchase of securities available for sale (8,186) (17,826) -- Payments received on advances to subsidiaries .......................... 205,510 451,776 180,278 Advances to subsidiaries ................ (214,446) (507,884) (204,588) Purchase acquisitions ................... -- -- (36,273) Purchases of premises and equipment, net ................................... -- (744) -- Capital contributions to subsidiaries ... (35,455) (1,500) (10,310) - -------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (321,229) 5,921 (39,185) - -------------------------------------------------------------------------------- Financing Activities Net (decrease) increase in commercial paper ................................. (677) 1,973 (3,708) Proceeds from issuance of long-term debt .................................. 154,640 -- -- Principal payments on long-term debt .... (8,659) (690) (15,689) Dividends paid .......................... (167,663) (149,489) (106,956) Repurchase of common stock .............. (21,859) (92,268) -- Proceeds from issuance of common stock, net ............................ 44,040 30,701 33,313 Redemption of preferred stock ........... -- (42,620) (5,984) - -------------------------------------------------------------------------------- Net cash used in financing activities (178) (252,393) (99,024) - -------------------------------------------------------------------------------- (Decrease) increase in cash and due from banks ............................ (18,931) 7,237 8,216 Cash and due from banks at beginning of year ..................... 19,612 12,302 4,086 Beginning cash balance of acquired entities .............................. 2,277 73 -- - -------------------------------------------------------------------------------- Cash and due from banks at end of year $ 2,958 $ 19,612 $ 12,302 ================================================================================
52 54 MANAGEMENT'S REPORT ================================================================================ Summit Bancorp and its subsidiaries are responsible for the preparation, integrity, and fair presentation of the audited consolidated financial statements and notes contained on pages 34 through 52 in this report. The statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on management's estimates and judgments. Other financial information presented throughout the annual report is prepared on a basis consistent with these financial statements. The consolidated financial statements of Summit Bancorp have been audited by KPMG Peat Marwick LLP, independent auditors, whose selection has been ratified by the shareholders. Their audit was made in accordance with generally accepted auditing standards and considered the internal control structure to the extent deemed necessary to support their independent auditors' report appearing herein. Summit Bancorp is responsible for establishing and maintaining an internal control structure to provide reasonable assurance that the financial statements are presented in conformity with generally accepted accounting principles. There are inherent limitations in the effectiveness of any internal control structure, no matter how well designed, including the possibility of human error, the circumvention or overriding of controls, and the consideration of cost in relation to the benefit of the control. Accordingly, even an effective internal control structure can provide only reasonable assurance with respect to financial statement preparation. Furthermore, because of changes in conditions, the effectiveness of an internal control structure may vary over time. To monitor compliance, Summit Bancorp maintains an internal audit program. This program includes a review for compliance with written policies and procedures and a review of the adequacy and effectiveness of internal controls. The Audit Committee of the Board of Directors of Summit Bancorp, composed entirely of outside directors, meets periodically with the independent auditors, management and internal auditors to review the work of each and ensure that each is properly discharging its responsibilities. The independent auditors and internal auditors have full and free access to the Committee to discuss the results of their audit work, their evaluation of internal controls, and the quality of financial reporting. INDEPENDENT AUDITORS' REPORT ================================================================================ The Shareholders and Board of Directors Summit Bancorp: We have audited the accompanying consolidated balance sheets of Summit Bancorp and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Summit Bancorp and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Short Hills, New Jersey January 20, 1998 53 55
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA Summit Bancorp and Subsidiaries ========================================================================================================================= (Not covered by independent auditors' report.) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (in thousands) Interest income ............................................................ $ 2,064,706 $ 1,906,996 $ 1,831,934 Interest expense ........................................................... 919,617 853,707 822,232 - ------------------------------------------------------------------------------------------------------------------------- Net interest income ...................................................... 1,145,089 1,053,289 1,009,702 Provision for loan losses .................................................. 59,100 64,034 72,090 - ------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ...................... 1,085,989 989,255 937,612 Non-interest income ........................................................ 301,885 260,042 235,252 Non-interest expenses ...................................................... 733,691 693,832 705,459 Non-recurring charges ...................................................... 83,000 121,759 -- - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ........................................ 571,183 433,706 467,405 Federal and state income taxes ............................................. 200,218 150,031 166,993 - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle 370,965 283,675 300,412 Cumulative effect of a change in accounting principle ...................... -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 370,965 $ 283,675 $ 300,412 - ------------------------------------------------------------------------------------------------------------------------- Net Income per Common Share: Before non-recurring items: Basic .................................................................... $ 2.43 $ 2.15 $ 1.89 Diluted .................................................................. 2.39 2.12 1.87 After non-recurring items: Basic .................................................................... 2.12 1.69 1.89 Diluted .................................................................. 2.09 1.67 1.87 ========================================================================================================================= COMMON SHARE DATA & OPERATING RATIOS Cash dividends declared .................................................... $ 1.02 $ 0.90 $ 0.79 Book value at year end ..................................................... 14.79 13.61 13.04 Market value at year end ................................................... 52.88 29.17 23.75 Common stock dividend payout ratio ......................................... 48.11% 53.25% 41.80% Average common shares outstanding (basic, in thousands) .................... 175,128 166,673 157,244 Before non-recurring items: Return on average assets ................................................. 1.47% 1.32% 1.17% Return on average common equity .......................................... 17.08 16.48 15.49 After non-recurring items: Return on average assets ................................................. 1.28 1.04 1.17 Return on average common equity .......................................... 14.92 12.95 15.49 Net interest margin ........................................................ 4.26 4.21 4.28 Efficiency ratio ........................................................... 50.28 52.11 55.72 ========================================================================================================================= BALANCE SHEET DATA (at year end, in thousands) Assets ..................................................................... $29,964,172 $27,767,271 $26,647,452 Deposits ................................................................... 22,329,436 21,629,531 21,232,926 Loans ...................................................................... 18,888,366 17,386,059 16,413,222 Shareholders' equity ....................................................... 2,612,420 2,290,838 2,130,108 Long-term debt ............................................................. 1,047,625 695,793 431,754 Allowance for loan losses .................................................. 296,494 280,611 293,160 ========================================================================================================================= LOAN QUALITY RATIOS & CAPITAL RATIOS Allowance for loan losses to year-end loans ................................ 1.57% 1.61% 1.79% Net charge offs to average loans ........................................... 0.29 0.50 0.70 Non-performing loans to year-end loans ..................................... 0.45 0.80 1.18 Total equity to assets ..................................................... 8.72 8.25 7.99 Tier I capital to average assets (leverage) ................................ 8.76 7.73 7.63 Tier I capital to risk-adjusted assets ..................................... 12.64 11.68 11.32 Total capital to risk-adjusted assets ...................................... 14.83 14.17 13.87 ========================================================================================================================= OTHER DATA (at year end) Number of banking offices .................................................. 426 423 433 Number of employees (full-time equivalent) ................................. 8,566 8,402 8,593 ========================================================================================================================= CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA Summit Bancorp and Subsidiaries ========================================================================================================================= (Not covered by independent auditors' report.) 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (in thousands) Interest income ............................................................ $ 1,572,370 $ 1,452,643 $ 1,557,627 Interest expense ........................................................... 599,732 558,889 725,422 - ------------------------------------------------------------------------------------------------------------------------- Net interest income ...................................................... 972,638 893,754 832,205 Provision for loan losses .................................................. 94,347 115,902 167,006 - ------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ...................... 878,291 777,852 665,199 Non-interest income ........................................................ 217,726 224,187 222,826 Non-interest expenses ...................................................... 709,400 734,756 709,352 Non-recurring charges ...................................................... 48,955 21,500 -- - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ........................................ 337,662 245,783 178,673 Federal and state income taxes ............................................. 122,014 74,861 56,002 - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle 215,648 170,922 122,671 Cumulative effect of a change in accounting principle ...................... (1,731) 11,761 -- - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 213,917 $ 182,683 $ 122,671 - ------------------------------------------------------------------------------------------------------------------------- Net Income per Common Share: Before non-recurring items: Basic .................................................................... $ 1.60 $ 1.21 $ 0.84 Diluted .................................................................. 1.59 1.19 0.83 After non-recurring items: Basic .................................................................... 1.37 1.19 0.84 Diluted .................................................................. 1.36 1.17 0.83 ========================================================================================================================= COMMON SHARE DATA & OPERATING RATIOS Cash dividends declared .................................................... $ 0.63 $ 0.46 $ 0.40 Book value at year end ..................................................... 11.40 10.80 9.99 Market value at year end ................................................... 16.09 16.00 16.17 Common stock dividend payout ratio ......................................... 45.99% 38.66% 47.62% Average common shares outstanding (basic, in thousands) .................... 153,698 151,080 141,859 Before non-recurring items: Return on average assets ................................................. 1.03% 0.85% 0.58% Return on average common equity .......................................... 14.35 11.63 8.68 After non-recurring items: Return on average assets ................................................. 0.88 0.83 0.58 Return on average common equity .......................................... 12.28 11.41 8.68 Net interest margin ........................................................ 4.42 4.51 4.36 Efficiency ratio ........................................................... 57.07 60.91 62.91 ========================================================================================================================= BALANCE SHEET DATA (at year end, in thousands) Assets ..................................................................... $25,484,073 $22,605,545 $21,703,789 Deposits ................................................................... 19,981,071 18,956,204 18,576,238 Loans ...................................................................... 15,048,579 13,552,381 13,325,622 Shareholders' equity ....................................................... 1,813,445 1,691,108 1,548,832 Long-term debt ............................................................. 552,736 492,052 389,267 Allowance for loan losses .................................................. 323,336 361,319 378,793 ========================================================================================================================= LOAN QUALITY RATIOS & CAPITAL RATIOS Allowance for loan losses to year-end loans ................................ 2.15% 2.67% 2.84% Net charge offs to average loans ........................................... 0.69 1.12 1.35 Non-performing loans to year-end loans ..................................... 1.38 2.44 3.45 Total equity to assets ..................................................... 7.12 7.48 7.14 Tier I capital to average assets (leverage) ................................ 7.13 7.50 6.98 Tier I capital to risk-adjusted assets ..................................... 10.51 10.90 10.13 Total capital to risk-adjusted assets ...................................... 13.10 13.73 12.70 ========================================================================================================================= OTHER DATA (at year end) Number of banking offices .................................................. 439 435 419 Number of employees (full-time equivalent) ................................. 8,800 9,049 8,986 ========================================================================================================================= CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA Summit Bancorp and Subsidiaries ========================================================================================================================= (Not covered by independent auditors' report.) 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (in thousands) Interest income ............................................................ $ 1,795,491 $ 1,918,257 $ 1,856,435 Interest expense ........................................................... 1,051,193 1,204,203 1,151,157 - ------------------------------------------------------------------------------------------------------------------------- Net interest income ...................................................... 744,298 714,054 705,278 Provision for loan losses .................................................. 193,825 337,011 98,446 - ------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ...................... 550,473 377,043 606,832 Non-interest income ........................................................ 184,930 210,922 203,921 Non-interest expenses ...................................................... 647,456 618,572 575,478 Non-recurring charges ...................................................... -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ........................................ 87,947 (30,607) 235,275 Federal and state income taxes ............................................. 23,613 (16,101) 70,527 - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle 64,334 (14,506) 164,748 Cumulative effect of a change in accounting principle ...................... -- -- (10,730) - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 64,334 $ (14,506) $ 154,018 - ------------------------------------------------------------------------------------------------------------------------- Net Income per Common Share: Before non-recurring items: Basic .................................................................... $ 0.46 $ (0.14) $ 1.28 Diluted .................................................................. 0.46 (0.14) 1.27 After non-recurring items: Basic .................................................................... 0.46 (0.14) 1.19 Diluted .................................................................. 0.46 (0.14) 1.19 ========================================================================================================================= COMMON SHARE DATA & OPERATING RATIOS Cash dividends declared .................................................... $ 0.40 $ 0.68 $ 0.74 Book value at year end ..................................................... 9.52 9.38 10.09 Market value at year end ................................................... 9.75 4.75 12.59 Common stock dividend payout ratio ......................................... 86.96% NA 62.18% Average common shares outstanding (basic, in thousands) .................... 132,059 130,103 124,667 Before non-recurring items: Return on average assets ................................................. 0.31% (0.07)% 0.86% Return on average common equity .......................................... 4.90 (1.35) 12.56 After non-recurring items: Return on average assets ................................................. 0.31 (0.07) 0.81 Return on average common equity .......................................... 4.90 (1.35) 11.72 Net interest margin ........................................................ 3.96 3.90 4.19 Efficiency ratio ........................................................... 65.29 61.79 61.68 ========================================================================================================================= BALANCE SHEET DATA (at year end, in thousands) Assets ..................................................................... $21,141,670 $20,484,690 $20,186,099 Deposits ................................................................... 17,766,920 16,599,532 15,441,669 Loans ...................................................................... 13,620,423 13,787,122 13,956,994 Shareholders' equity ....................................................... 1,317,495 1,277,819 1,359,933 Long-term debt ............................................................. 271,062 395,432 450,541 Allowance for loan losses .................................................. 393,246 361,423 185,441 ========================================================================================================================= LOAN QUALITY RATIOS & CAPITAL RATIOS Allowance for loan losses to year-end loans ................................ 2.89% 2.62% 1.33% Net charge offs to average loans ........................................... 1.19 1.14 0.47 Non-performing loans to year-end loans ..................................... 4.30 4.33 1.93 Total equity to assets ..................................................... 6.23 6.24 6.74 Tier I capital to average assets (leverage) ................................ 6.03 5.89 6.68 Tier I capital to risk-adjusted assets ..................................... 8.82 8.44 NA Total capital to risk-adjusted assets ...................................... 10.31 10.07 NA ========================================================================================================================= OTHER DATA (at year end) Number of banking offices .................................................. 417 413 402 Number of employees (full-time equivalent) ................................. 9,216 9,173 9,173 ========================================================================================================================= CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA Summit Bancorp and Subsidiaries ========================================================================================================== (Not covered by independent auditors' report.) 1988 1987 - ---------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (in thousands) Interest income ............................................................ $ 1,563,822 $ 1,343,005 Interest expense ........................................................... 915,814 752,791 - ---------------------------------------------------------------------------------------------------------- Net interest income ...................................................... 648,008 590,214 Provision for loan losses .................................................. 50,349 41,446 - ---------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ...................... 597,659 548,768 Non-interest income ........................................................ 165,336 171,626 Non-interest expenses ...................................................... 519,259 476,447 Non-recurring charges ...................................................... -- -- - ---------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ........................................ 243,736 243,947 Federal and state income taxes ............................................. 67,290 71,454 - ---------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle 176,446 172,493 Cumulative effect of a change in accounting principle ...................... -- -- - ---------------------------------------------------------------------------------------------------------- Net income (loss) $ 176,446 $ 172,493 - ---------------------------------------------------------------------------------------------------------- Net Income per Common Share: Before non-recurring items: Basic .................................................................... $ 1.38 $ 1.36 Diluted .................................................................. 1.37 1.35 After non-recurring items: Basic .................................................................... 1.38 1.36 Diluted .................................................................. 1.37 1.35 ========================================================================================================== COMMON SHARE DATA & OPERATING RATIOS Cash dividends declared .................................................... $ 0.67 $ 0.61 Book value at year end ..................................................... 9.43 8.80 Market value at year end ................................................... 13.83 14.83 Common stock dividend payout ratio ......................................... 48.55% 44.85% Average common shares outstanding (basic, in thousands) .................... 123,014 121,502 Before non-recurring items: Return on average assets ................................................. 1.01% 1.11% Return on average common equity .......................................... 15.07 16.51 After non-recurring items: Return on average assets ................................................. 1.01 1.11 Return on average common equity .......................................... 15.07 16.51 Net interest margin ........................................................ 4.26 4.48 Efficiency ratio ........................................................... 60.86 58.88 ========================================================================================================== BALANCE SHEET DATA (at year end, in thousands) Assets ..................................................................... $18,555,497 $16,827,149 Deposits ................................................................... 14,710,661 12,968,074 Loans ...................................................................... 12,637,375 11,060,654 Shareholders' equity ....................................................... 1,267,943 1,178,848 Long-term debt ............................................................. 503,250 431,284 Allowance for loan losses .................................................. 144,359 127,959 ========================================================================================================== LOAN QUALITY RATIOS & CAPITAL RATIOS Allowance for loan losses to year-end loans ................................ 1.14% 1.16% Net charge offs to average loans ........................................... 0.29 0.23 Non-performing loans to year-end loans ..................................... 1.09 0.68 Total equity to assets ..................................................... 6.83 7.01 Tier I capital to average assets (leverage) ................................ 6.80 6.95 Tier I capital to risk-adjusted assets ..................................... NA NA Total capital to risk-adjusted assets ...................................... NA NA ========================================================================================================== OTHER DATA (at year end) Number of banking offices .................................................. 393 380 Number of employees (full-time equivalent) ................................. 9,154 8,845 ==========================================================================================================
NA - Not applicable. 54 & 55 56
UNAUDITED QUARTERLY FINANCIAL DATA Summit Bancorp and Subsidiaries ============================================================================================ (In thousands, except per share data) 1997 - -------------------------------------------------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 - -------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Interest income ............................ $ 529,060 $ 517,501 $ 516,831 $ 501,314 Interest expense ........................... 238,583 229,719 230,016 221,299 - -------------------------------------------------------------------------------------------------------- Net interest income .................... 290,477 287,782 286,815 280,015 Provision for loan losses .................. 14,000 14,500 15,090 15,510 - -------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ........... 276,477 273,282 271,725 264,505 Non-interest income ........................ 86,785 74,172 71,528 69,400 Non-interest expenses ...................... 191,130 180,786 181,333 180,442 Non-recurring charges ...................... -- 56,500 -- 26,500 - -------------------------------------------------------------------------------------------------------- Income before income taxes ............. 172,132 110,168 161,920 126,963 Federal and state income taxes ............. 59,919 38,956 56,862 44,481 - -------------------------------------------------------------------------------------------------------- Net income $ 112,213 $ 71,212 $ 105,058 $ 82,482 - -------------------------------------------------------------------------------------------------------- Net Income per Common Share: Before non-recurring items: Basic ............................... $ 0.64 $ 0.62 $ 0.60 $ 0.57 Diluted ............................. 0.63 0.61 0.59 0.56 After non-recurring items: Basic ............................... 0.64 0.41 0.60 0.47 Diluted ............................. 0.63 0.40 0.59 0.47 ======================================================================================================== COMMON SHARE DATA Cash dividends declared .................... $ 0.27 $ 0.27 $ 0.24 $ 0.24 Book value at quarter end .................. 14.79 14.33 14.17 13.71 Market value at quarter end ................ 52.88 44.00 33.42 29.17 Common stock dividend payout ............... 42.19% 43.55% 40.00% 42.11% Average common shares outstanding: Basic .................................. 175,816 175,396 174,905 174,377 Diluted ................................ 178,126 177,864 177,123 176,706 ======================================================================================================== OPERATING RATIOS Before non-recurring items: Return on average assets ............... 1.51% 1.50% 1.46% 1.41% Return on average common equity ........ 17.34 17.02 17.16 16.77 Efficiency ratio ........................... 50.74 49.64 50.03 50.70 After non-recurring items: Return on average assets ............... 1.51 0.98 1.46 1.17 Return on average common equity ........ 17.34 11.19 17.16 13.95 ======================================================================================================== BALANCE SHEET DATA Assets ..................................... $29,964,172 $29,091,106 $29,224,687 $28,907,850 Deposits ................................... 22,329,436 21,938,028 22,167,140 22,330,582 Loans ...................................... 18,888,366 18,630,663 18,597,663 18,376,154 Shareholders' equity ....................... 2,612,420 2,517,439 2,484,062 2,398,015 Long-term debt ............................. 1,047,625 1,001,617 910,766 835,744 Allowance for loan losses .................. 296,494 294,114 294,066 290,471 ======================================================================================================== TAX-EQUIVALENT YIELDS AND RATES Interest-earning assets .................... 7.62% 7.63% 7.66% 7.64% Interest-bearing liabilities ............... 4.27 4.20 4.19 4.12 Net interest spread ........................ 3.35 3.43 3.47 3.52 Net interest margin ........................ 4.21 4.26 4.28 4.29 ======================================================================================================== LOAN QUALITY RATIOS & CAPITAL RATIOS Allowance for loan losses to quarter-end loans ................... 1.57% 1.58% 1.58% 1.58% Net charge offs to average loans ........... 0.25 0.31 0.25 0.35 Non-performing loans to quarter end loans ...................... 0.45 0.48 0.59 0.68 Total equity to assets ..................... 8.72 8.65 8.50 8.30 Tier I capital to avg. assets (leverage) ... 8.76 8.72 8.54 8.41 Tier I capital to risk-adjusted assets ..... 12.64 12.73 12.63 12.41 Total capital to risk-adjusted assets ...... 14.83 15.13 15.04 14.84 ======================================================================================================== UNAUDITED QUARTERLY FINANCIAL DATA Summit Bancorp and Subsidiaries ======================================================================================================== (In thousands, except per share data) 1996 - -------------------------------------------------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 - -------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Interest income ............................ $ 480,406 $ 474,969 $ 474,931 $ 476,690 Interest expense ........................... 214,588 209,824 212,302 216,993 - -------------------------------------------------------------------------------------------------------- Net interest income .................... 265,818 265,145 262,629 259,697 Provision for loan losses .................. 16,435 15,910 15,903 15,786 - -------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses ........... 249,383 249,235 246,726 243,911 Non-interest income ........................ 68,519 63,815 65,996 61,712 Non-interest expenses ...................... 172,132 166,866 176,543 178,291 Non-recurring charges ...................... -- 11,059 -- 110,700 - -------------------------------------------------------------------------------------------------------- Income before income taxes ............. 145,770 135,125 136,179 16,632 Federal and state income taxes ............. 49,039 47,624 47,694 5,674 - -------------------------------------------------------------------------------------------------------- Net income $ 96,731 $ 87,501 $ 88,485 $ 10,958 - -------------------------------------------------------------------------------------------------------- Net Income per Common Share: Before non-recurring items: Basic ............................... $ 0.58 $ 0.56 $ 0.53 $ 0.48 Diluted ............................. 0.57 0.56 0.52 0.47 After non-recurring items: Basic ............................... 0.58 0.52 0.53 0.06 Diluted ............................. 0.57 0.52 0.52 0.06 ======================================================================================================== COMMON SHARE DATA Cash dividends declared .................... $ 0.24 $ 0.24 $ 0.21 $ 0.21 Book value at quarter end .................. 13.61 13.05 12.89 12.61 Market value at quarter end ................ 29.17 26.50 23.42 24.67 Common stock dividend payout ............... 41.38% 42.86% 39.62% 43.75% Average common shares outstanding: Basic .................................. 165,628 166,908 167,423 166,743 Diluted ................................ 167,790 168,938 169,471 168,964 ======================================================================================================== OPERATING RATIOS Before non-recurring items: Return on average assets ............... 1.41% 1.38% 1.30% 1.20% Return on average common equity ........ 17.24 17.20 16.52 14.92 Efficiency ratio ........................... 51.78 49.91 52.69 54.11 After non-recurring items: Return on average assets ............... 1.41 1.29 1.30 0.16 Return on average common equity ........ 17.24 15.96 16.52 1.92 ======================================================================================================== BALANCE SHEET DATA Assets ..................................... $27,767,271 $27,405,016 $27,344,440 $27,283,200 Deposits ................................... 21,629,531 21,453,638 21,387,587 21,279,147 Loans ...................................... 17,386,059 17,277,746 17,204,620 16,989,945 Shareholders' equity ....................... 2,290,838 2,194,300 2,207,476 2,154,427 Long-term debt ............................. 695,793 397,862 399,217 405,228 Allowance for loan losses .................. 280,611 284,223 289,247 294,165 ======================================================================================================== TAX-EQUIVALENT YIELDS AND RATES Interest-earning assets .................... 7.56% 7.54% 7.57% 7.63% Interest-bearing liabilities ............... 4.12 4.06 4.08 4.16 Net interest spread ........................ 3.44 3.48 3.49 3.47 Net interest margin ........................ 4.21 4.23 4.21 4.19 ======================================================================================================== LOAN QUALITY RATIOS & CAPITAL RATIOS Allowance for loan losses to quarter-end loans ................... 1.61% 1.65% 1.68% 1.73% Net charge offs to average loans ........... 0.51 0.48 0.49 0.50 Non-performing loans to quarter end loans ...................... 0.80 0.97 1.05 1.15 Total equity to assets ..................... 8.25 8.01 8.07 7.90 Tier I capital to avg. assets (leverage) ... 7.73 7.57 7.72 7.48 Tier I capital to risk-adjusted assets ..... 11.68 11.30 11.37 11.17 Total capital to risk-adjusted assets ...... 14.17 13.84 13.90 13.68 ========================================================================================================
56 57 CORPORATE DIRECTORY Summit Bancorp and Subsidiaries ================================================================================ Summit Bancorp 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 Corporate Management Chairman and Chief Executive Officer T. Joseph Semrod President Robert G. Cox Vice Chairmen John G. Collins John R. Howell Senior Executive Vice Presidents John R. Haggerty Sabry J. Mackoul Stephen H. Paneyko Executive Vice Presidents Larry L. Betsinger Alfred M. D'Augusta John R. Feeney William J. Healy Virginia Ibarra Dorinda Jenkins-Glover Joseph A. Micali, Jr. Richard F. Ober, Jr. Dennis Porterfield Alan N. Posencheg George J. Soltys, Jr. Edmund C. Weiss, Jr. Senior Vice Presidents Susan U. Bredehoft Kerry K. Calaiaro Barry S. Duerk Peter J. Gindin Faith P. Goldstein Robert A. Gunther James J. Kreig Katherine Piell Paul V. Stahlin Robert Steinberg Timothy S. Tracey Dennis A. Williams Board of Directors S. Rodgers Benjamin Chairman and Chief Executive Officer Flemington Fur Company Robert L. Boyle Representative William H. Hintelmann Firm James C. Brady, Jr. Partner Mill House Associates, L.P. John G. Collins Vice Chairman Summit Bancorp Robert G. Cox President Summit Bancorp T.J. Dermot Dunphy Chairman and Chief Executive Officer Sealed Air Corporation Anne Evans Estabrook Owner Elberon Development Co. Elinor J. Ferdon Volunteer Professional National President Girl Scouts of U.S.A. Thomas H. Hamilton Chairman and Chief Executive Officer Collective Bank Fred G. Harvey Vice President E&E Corporation John R. Howell Vice Chairman Summit Bancorp Francis J. Mertz President Fairleigh Dickinson University George L. Miles, Jr., CPA President and Chief Executive Officer WQED Pittsburgh William R. Miller Former Senior Vice President Lenox China, Inc. Henry S. Patterson II Former President E'town Corporation T. Joseph Semrod Chairman and Chief Executive Officer Summit Bancorp Raymond Silverstein, CPA Consultant Alloy, Silverstein, Shapiro, Adams, Mulford & Co., P.C. Orin R. Smith Chairman and Chief Executive Officer Engelhard Corporation Joseph M. Tabak President and Chief Executive Officer JPC Enterprises, Inc. Douglas G. Watson President and Chief Executive Officer Novartis Corporation Summit Bank 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 Senior Management Chairman and Chief Executive Officer T. Joseph Semrod President Robert G. Cox Vice Chairman John G. Collins Senior Executive Vice Presidents John R. Haggerty Sabry J. Mackoul Stephen H. Paneyko Executive Vice Presidents Anthony J. Allora Alfred M. D'Augusta Robert Eberhardt, Jr. Gerald L. Facciani John R. Feeney Peter D. Halstead William J. Healy Virginia Ibarra Dorinda Jenkins-Glover James S. Little Stewart E. McClure, Jr. H. Richard Minette Richard F. Ober, Jr. Robert J. Peters Dennis Porterfield Christophe-Pierre Terlizzi Timothy S. Tracey William J. Wolverton Regional Presidents Stephen T. Emr J. Michael Feeks Michael J. Giacobello Laura Gilardini Kevin Gillen Senior Vice Presidents John P. Babcock John D. Battaglia Bette A. Bauer Donald W. Blum Marion Brady Susan U. Bredehoft Peter J. Brehm Arthur J. Brown Thomas B. Butler Jennifer Calenda Richard O. Carmichael Paul J. Cavaliere Stephen Chaberski Carol R. Coles J. Michael Cunnane Jack Cussen James F. Deutsch Margaret L. Domber Barry S. Duerk Kermit Dyke Anne Ferguson James N. Ferrier Thomas M. Finn Walter Horsting Hilton M. Jervey 57 58 CORPORATE DIRECTORY (continued) Summit Bancorp and Subsidiaries ================================================================================ Raymond Kirschner Jeffrey J. Kraft James B. Kurdek Christopher Lahoda Peter Lillard George B. Littlejohn Michael J. Maiorino, Jr. Charles A. Maraziti Simone Marino Stephen Mauger Richard J. Morbee Kathleen Muldoon George L. Nichols Douglas Oliver N. Lee Parks William C. Pasko Patricia Patriarca Ronald Phillips Peter C. Platt Edward E. Poor IV Bindigana Ramaprasad Richard D. Rein Mary Reither Garrett W. Roberts Irwin Schwartz Thomas P. Smyth Alfred J. Soles Paul V. Stahlin Frank J. Stanziola J. Page Stiger, Jr. Mark Stoll Margaret Stone Francis P. Testa Paul A. Towers Roger M. Tully Harold W. Ullmann Joseph Verbaro, Jr. Thomas M. Wick Arty C. Zulawski Senior Regional Managers Michael Alicea Barbara Baldino Thomas J. D'Angelo Walter Fillmore Barbara Oldt Jorge Rojas Daniel Slocum Gregory M. Smith Maurice J. Spagnoletti Mary White-Przybyla Board of Directors Bjorn Ahlstrom Robert L. Boyle James C. Brady, Jr. Barry D. Brown John G. Collins Robert G. Cox T.J. Dermot Dunphy Anne Evans Estabrook Elinor J. Ferdon Samuel Gerstein, Esq. Richard H. Goldberger Robert S. Hekemian Thomas C. Jamieson, Jr., Esq. Vincent P. Langone Francis J. Mertz George L. Miles, Jr., CPA Bertram B. Miller Henry S. Patterson II T. Joseph Semrod Raymond Silverstein, CPA Orin R. Smith Sylvester L. Sullivan Joseph M. Tabak Robert A. Woodruff, Sr. Summit Bank One Bethlehem Plaza Bethlehem, Pennsylvania 18018 610-865-8411 Senior Management Chairman, President and Chief Executive Officer John R. Howell Regional President Fredric B. Cort Senior Vice Presidents Philip D. Beck Michael L. Brown Thomas L. Burns Donald H. McCarty Francis P. Testa Senior Regional Managers Benjamin F. Gilbert Gary F. Lamont Elizabeth Wilson Board of Directors Charles J. Bufalino, Esq. Walter J. Dealtrey Ronald D. Ertley Alfred M. Giannangeli Henry A. Giuliani, Esq. Allan L. Goodman John R. Haggerty Fred G. Harvey John R. Howell William L. Morse, Jr. Donald M. Pachence Richard H. Penske Robert J. Tunnessen John W. Woltjen Summit Service Corporation 55 Challenger Road Ridgefield Park, New Jersey 07660 201-296-3000 Senior Management Chairman of the Board John G. Collins President and Chief Executive Officer Alan N. Posencheg Executive Vice Presidents Larry L. Betsinger Joseph A. Micali, Jr. Senior Vice Presidents Hubert P. Clarke Elaine Fettig Louise Germinario Frank J. Litterio Ray W. Mead Santiago Patino Eugene E. Schwarzenbek John J. Smith Summit Discount Brokerage Co. 305 Route 17 South P.O. Box 929 Paramus, New Jersey 07652 201-262-8400 1-800-631-1635 Senior Management Chairman and Chief Executive Officer Jack Cussen President and Chief Operating Officer Joseph J. McCaffrey Executive Vice President Jack R. Ader Senior Vice Presidents Gerard Hallman Loretta Kane Summit Venture Capital, Inc. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543 609-987-3200 President and Chief Executive Officer Stephen H. Paneyko Summit Commercial/ Gibraltar Corp. 546 Fifth Avenue New York, New York 10036 212-997-3350 Senior Management Chairman of the Board Robert J. Peters President and Chief Executive Officer Irwin Schwartz Executive Vice President Harvey Friedman Senior Vice President Robert A. Schnitzer Design: Bloch Graulich Whelan Inc. / New York 58 59 Summit Bancorp and Subsidiaries Shareholder and Corporate Information Headquarters Summit Bancorp 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 (609) 987-3200 www.summitbank.com Annual Shareholders Meeting Friday, April 7, 1998 at 10 a.m. Hyatt Regency Princeton Route 1 and Alexander Road Princeton, New Jersey Common Stock Data Common stock is traded on the New York Stock Exchange under the symbol SUB. Daily stock quotes: The New York Times -- SumtBc The Wall Street Journal -- SummitBcp Dividend Reinvestment and Stock Purchase Plan Stockholders may have quarterly dividends automatically reinvested in additional shares without service charges. Optional cash payments, up to $25,000 per quarter, toward the purchase of shares are permitted. Plan prospectus and enrollment card: First Chicago Trust Company of New York, (201) 324-0498. Transfer and Dividend Paying Agent/Registrar First Chicago Trust Company of New York P.O. Box 2500 Jersey City, New Jersey 070303-2500 (201) 324-0498 Co-Transfer Agent: Summit Bank Other Reports Copies of Form 10-K are available without charge. Write: Summit Bancorp Corporate Comptroller P.O. Box 2066 Princeton, New Jersey 08543-2066 Contacts Security analysts, portfolio managers and others seeking financial information: (609) 987-3226. News media: (609) 514-7872. Shareholder inquiries: (609) 987-3452. Stock records: First Chicago Trust Company of New York (201) 324-0498. Hours: Representatives 8:30 a.m. - 7 p.m. EST weekdays; Automated response 24 hours daily. [The following table was depicted as a line graph in the printed material.] Summit Bancorp Five-Year Cumulative Total Return
Year Summit Bancorp S&P 500 S&P Regional Banks - ---- -------------- ------- ------------------ 1993 101.77 110.04 106.02 1994 106.02 111.49 100.18 1995 160.97 153.33 157.75 1996 204.87 188.51 215.50 1997 382.02 251.39 324.16
Quarterly Common Stock Price and Dividend Information
1997 1996 ------------------------------------ ------------------------------------- Dividends Dividends High Low Close Declared High Low Close Declared - ------------------------------------------------------------------------------------------ 4th Quarter $53.38 $38.38 $52.88 $.27 $30.08 $26.33 $29.17 $.24 3rd Quarter 45.31 33.58 44.00 .27 27.42 21.75 26.50 .24 2nd Quarter 35.08 28.58 33.42 .24 26.33 22.67 23.42 .21 1st Quarter 33.33 28.50 29.17 .24 26.75 22.92 24.67 .21 ==========================================================================================
59 60 SUMMIT Bancorp [LOGO] 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit (21) SUMMIT BANCORP. SUBSIDIARY STRUCTURE AS OF MARCH 20, 1998
NAME INCORP./(AUTH) - ---- -------------- Summit Bancorp. New Jersey Asset Management Corp. New Jersey First Valley Corporation Pennsylvania FirstVal Properties, Inc. Pennsylvania Summit Bank Pennsylvania Ninth North-Val, Inc. Pennsylvania Eighth North-Val, Inc. Pennsylvania Sixth North-Val, Inc. Pennsylvania Summit Discount Brokerage Co. Pennsylvania(NJ)(NY) UJB Financial Service Corp.(DBA Summit Service Corp.)(19.4%) New Jersey India, Inc. Delaware(NJ) Summit Bank New Jersey 34 West - Rte. 22/523 Corporation New Jersey Beechwood Insurance Agency, Inc. New Jersey Collective Financial Services, Inc. New Jersey Collective Mortgage Services, Inc. (DBA Harbor Mortgage Company) Delaware Colts Neck Orchard Construction Service Corporation New Jersey Continental Investment Corporation New Jersey Corporate Dynamics New Jersey(PA) Flemington National Investment Co. New Jersey Glen Ridge Business Corporation New Jersey GLP, Inc. New Jersey GS Holdings (NJ), Inc. Delaware GS Holdings (NJ), Inc. New Jersey Hopkinson Corp. New Jersey MJD Asset Corporation New Jersey New Jersey Affiliated Financial Services, Inc. New Jersey One Main Properties - Atlantic Highlands, Inc. New Jersey One Main Properties - Berkeley Heights, Inc. New Jersey One Main Properties - Millburn, Inc. New Jersey Palisade Financial Services, Inc. New Jersey Palservco, Inc. New Jersey Philadelphia Benefits Corporation Pennsylvania(NJ) Pipco-On-The-Hudson, Inc. New Jersey Alternative Financial Group, Inc. New Jersey Alternative Financial Group, Inc. Pennsylvania NewPip Properties Co., Ltd. New Jersey Pipco Parsippany, Inc. New Jersey Pipco/Spring Hill, Inc. New Jersey Pipco/TM8, Inc. New Jersey PipHyde Park, Limited New York PipQuarryCo, Inc. New Jersey
1 2
NAME INCORP./(AUTH) - ---- -------------- [Summit Bancorp. (cont.)] [Summit Bank (cont.)] Pro Five, Inc. New Jersey SJK Asset Corporation New Jersey Securitization Subsidiary I, Inc. New Jersey Pro One, Inc. New Jersey Rockof Corp. New York CTC Investment Co. Delaware STC Investment Holding Company New Jersey S.A.R. Realty Holding Corporation New Jersey Sethmark Holding Corp. New York Sethmark Capital Corporation New York Smithcrest Realty, Inc. New Jersey Somerset Investment Company, Inc. New Jersey Summit International Trade Finance Corp. New Jersey UJB Trade Finance (HK), Limited Hong Kong Summit Leasing Corporation New Jersey(several) Summit Mortgage Banking Services, Inc. New Jersey(NY) The Old Reliable Corporation, Inc. New Jersey UJB Financial Service Corporation (DBA Summit Service Corp.)(80.6%) New Jersey United Jersey Hackensack Investment Corporation New Jersey Ver Valen, Inc. New Jersey Summit Capital Trust I Delaware Summit Commercial Corp. New Jersey(MD) Summit Commercial/Gibraltar Corp. New York Summit Credit Life Insurance Company Arizona Summit Financial Payment Systems, Inc. New Jersey Summit Corporate Secretary, Inc. New Jersey Summit Venture Capital, Inc. New Jersey The Summit Mortgage Company, Inc. New Jersey(NY) United Jersey Financial Corp. New Jersey
Note: Summit Bancorp. holds 9.2% of the issued and outstanding shares of the Class A Common Stock of NYCE Corporation. Note: NewGib Corp. is an unorganized (w/o shareholder) New York business corporation shelved until such time as it is needed. 2 EX-23.A 9 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit (23)A. INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors Summit Bancorp: We consent to incorporation by reference in registration statement no. 33-13930 on Form S-8, registration statement no. 33-36209 on Form S-8, registration no. 33-38172 on Form S-8, registration statement no. 33-53870 on Form S-3, registration statement no. 33-58152 on Form S-3, registration statement no. 33-62972 on Form S-8, registration statement no. 33-54667 on Form S-8, registration statement no. 33-61353 on Form S-8, registration statement no. 333-02625 on Form S-8, registration statement no. 333-24159 on Form S-8 and registration statement no. 333-35075 on Form S-8 of Summit Bancorp of our report dated January 20, 1998, relating to the consolidated balance sheets of Summit Bancorp and subsidiaries as of December 31, 1997, and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 which report is incorporated by reference in the December 31, 1997 Annual Report on Form 10-K of Summit Bancorp. /s/ KPMG PEAT MARWICK LLP ------------------------- KPMG Peat Marwick LLP Short Hills, New Jersey March 27, 1998 EX-27.1 10 FINANCIAL DATA SCHEDULE - DECEMBER 31, 1997
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1997 10-K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1997 DEC-31-1997 1,173,118 14,072 4,460 35,216 5,074,896 4,157,543 4,151,582 18,888,366 296,494 29,964,172 22,329,436 3,597,078 377,613 1,047,625 0 0 141,272 2,471,148 29,964,172 1,505,840 554,049 4,817 2,064,706 682,019 919,617 1,145,089 59,100 5,637 816,691 571,183 370,965 0 0 370,965 2.12 2.09 4.26 85,090 48,609 0 12,533 290,605 86,675 33,464 296,494 129,668 0 166,826
EX-27.2 11 FINANCIAL DATA SCHEDULE - SEPTEMBER 30, 1997
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1000 9-MOS DEC-31-1997 SEP-30-1997 1,117,347 4,309 14,359 29,808 4,596,923 4,078,729 4,061,421 18,630,663 294,114 29,091,106 21,938,028 3,256,136 377,886 1,001,617 0 0 140,588 2,376,851 29,091,106 1,121,321 410,226 4,099 1,535,646 508,614 681,034 854,612 45,100 3,471 625,561 399,051 258,752 0 0 258,752 1.48 1.46 4.28 88,957 67,496 0 19,174 290,605 64,846 23,255 294,114 138,581 0 155,533
EX-27.3 12 FINANCIAL DATA SCHEDULE - JUNE 30, 1997
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1000 6-MOS DEC-31-1997 JUN-30-1997 1,153,517 6,879 143,497 43,407 3,513,390 5,138,227 5,072,035 18,597,663 294,066 29,224,687 22,167,140 3,332,234 330,485 910,766 0 0 140,291 2,343,771 29,224,687 741,321 273,836 2,988 1,018,145 338,221 451,315 566,830 30,600 2,206 388,275 288,883 187,540 0 0 187,540 1.07 1.06 4.28 110,177 71,510 0 18,745 290,605 42,782 15,643 294,066 147,366 0 146,700
EX-27.4 13 FINANCIAL DATA SCHEDULE - MARCH 31, 1997
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1000 3-MOS DEC-31-1997 MAR-31-1997 1,034,857 13,457 243,395 33,806 3,366,770 5,196,227 5,015,456 18,376,154 290,471 28,907,850 22,330,582 2,948,117 395,392 835,744 0 0 139,925 2,258,090 28,907,850 365,230 134,658 1,426 501,314 168,314 221,299 280,015 15,510 1,431 206,942 126,963 82,482 0 0 82,482 0.47 0.47 4.29 125,583 76,429 0 7,502 290,605 21,658 6,014 290,471 156,350 0 134,121
EX-27.5 14 FINANCIAL DATA SCHEDULE - DECEMBER 31, 1996
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1000 12-MOS DEC-31-1996 DEC-31-1996 1,327,507 24,825 114,789 26,376 2,872,051 5,422,093 5,321,724 17,386,059 280,611 27,767,271 21,629,531 2,806,367 344,742 695,793 0 0 134,637 2,156,201 27,767,271 1,383,150 517,584 6,262 1,906,996 659,034 853,707 1,053,289 64,034 3,862 815,591 433,706 283,675 0 0 283,675 1.69 1.67 4.21 139,131 79,013 0 11,048 299,502 108,306 23,231 280,611 147,387 0 133,224
EX-27.6 15 FINANCIAL DATA SCHEDULE - SEPTEMBER 30, 1996
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1,000 9-MOS DEC-31-1996 SEP-30-1996 1,407,284 9,136 4,052 20,049 2,643,827 5,492,568 5,369,211 17,277,746 284,223 27,405,016 21,453,638 3,013,320 345,896 397,862 0 42,620 134,527 2,017,153 27,405,016 1,034,325 387,998 4,267 1,426,590 494,484 639,119 787,471 47,599 1,268 643,459 287,936 186,944 0 0 186,944 1.11 1.10 4.21 167,466 85,090 0 20,631 299,502 80,340 17,462 284,223 156,377 0 127,846
EX-27.7 16 FINANCIAL DATA SCHEDULE - JUNE 30, 1996
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1,000 6-MOS DEC-31-1996 JUN-30-1996 1,368,091 21,269 86,198 16,271 2,550,083 5,485,108 5,380,832 17,204,620 289,247 27,344,440 21,387,587 2,966,396 383,764 399,217 0 42,620 134,334 2,030,522 27,344,440 686,311 262,329 2,981 951,621 330,852 429,295 522,326 31,689 1,505 465,534 152,811 99,443 0 0 99,443 0.59 0.58 4.20 181,243 13,321 0 11,272 299,502 53,455 11,511 289,247 208,045 0 81,202
EX-27.8 17 FINANCIAL DATA SCHEDULE - MARCH 31, 1996
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1,000 3-MOS DEC-31-1996 MAR-31-1996 1,178,126 36,338 45,662 49,755 2,611,210 5,757,611 5,657,124 16,989,945 294,165 27,283,200 21,279,147 3,012,594 431,804 405,228 0 42,620 133,947 1,977,860 27,283,200 342,145 132,958 1,587 476,690 167,420 216,993 259,697 15,786 235 288,991 16,632 10,958 0 0 10,958 0.06 0.06 4.19 195,681 6,009 0 23,620 299,502 25,890 4,767 294,165 212,467 0 81,698
EX-27.9 18 FINANCIAL DATA SCHEDULE - DECEMBER 31, 1995
9 SUMMIT BANCORP. ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," ON DECEMBER 31, 1997. SFAS NO. 128 ESTABLISHES THE NEW STANDARD FOR COMPUTATION AND PRESENTATION OF NET INCOME PER COMMON SHARE. UNDER THE NEW REQUIREMENTS BOTH BASIC (PRESENTED IN THE (EPS-PRIMARY) TAG) AND DILUTED NET INCOME PER COMMON SHARE ARE PRESENTED AND HAVE BEEN RESTATED IN ACCORDANCE WITH SFAS NO. 128. 1000 12-MOS DEC-31-1995 DEC-31-1995 1,403,974 18,329 165,367 41,965 2,545,089 5,439,914 5,362,441 16,413,222 293,160 26,647,452 21,232,926 2,491,184 361,480 431,754 0 42,620 128,028 1,959,460 26,647,452 1,297,168 522,660 12,106 1,831,934 630,303 822,232 1,009,702 72,090 8,595 705,459 467,405 300,412 0 0 300,412 1.89 1.87 4.28 193,561 60,463 199 18,708 329,467 130,492 22,095 293,160 207,302 0 85,858
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