The Summit Bancorporation
The Summit Bancorporation
Total Assets: $5.5 billion
Stock Exchanges: NASDAQ
SICs: 6712 Bank Holding Companies; 6022 State
The Summit Bancorporation is the holding company for Summit Bank, New Jersey’s fourth largest bank. Through this subsidiary, the company oversees over 90 banking offices in 11 northern New Jersey counties, while also operating two affiliates—The Summit Mortgage Company and Beechwood Insurance Agency, Inc. Regarded as a forerunner in the area of fixed rate annuities and an innovator in the areas of customer service and market management, Summit Bancorporation aggressively sought to expand its market share in the mid-1990s.
Summit Bank began its long, successful history with an unsolicited piece of advice. A May 5, 1885 edition of The Summit Record stated, “The gentlemen of Summit, New Jersey would do a good thing for the town by forming a stock company and starting a bank.” With this appeal in mind, William Halls, Jr., John N. May, Sr., Joseph Palmer, G. Dillingham, and E.A. Chapman incorporated The Summit Bank on January 1, 1891, opening its doors on January 19, 1892. William Z. Larned served as its first president from 1891 to 1896, with “capital paid in $50,000 and surplus and profits of $94,000” and a staff consisting of “one cashier, several full-time employees, and the bank directors meeting once every week.” The city of Summit prospered, as did its bank, which moved into a larger facility in 1896, opening on May 2, 1899 with $384,482 in assets. The new bank featured 300 safe deposit boxes and six upstairs office rooms.
In 1909, the bank was reorganized as The Summit Trust Company, reflecting its intention to begin providing loan services to its customers. The first loan officer was named four years later, and, in 1926, the bank officially established a trust department.
Summit weathered the Great Depression, even managing to renovate its original building by adding on the rear of the building, erecting a new facade, and refurbishing the interior for a total cost of $175,000. In 1933, Summit Bank became a member of the Federal Reserve Bank System.
Summit remained a modest, one-bank operation until 1953, when it established its first branch office in New Providence. Another milestone in its history came in 1964, when Summit Trust merged with the Elizabethport Banking Company, becoming known as The Summit and Elizabeth Trust Company (SETCO). The combined operation boasted a total of six branch offices serving the New Jersey communities of Summit, New Providence, Berkeley Heights, and Elizabeth. In 1974 a bank holding corporation, Summit Bancorporation, was formed, with headquarters in Chatham, New Jersey, to oversee the operations of SETCO.
During the 1980s, New Jersey’s strong economy made it one of the top banking areas in the country. In 1984, the bank reverted back to The Summit Trust Company name, as business thrived. Economic recession and a collapse in the New Jersey real estate market, however, led to unfavorable banking conditions in the late 1980s and by 1990 most major New Jersey banks were suffering from sharply declining asset quality, which was eroding capital ratios and earnings. In fact, in 1990 Summit reported a $12.8 million loss for the year.
Nevertheless, the following year Summit returned to profitability, reporting earnings of $21.2 million, and in March 1992 it announced plans to go public, issuing 2.3 million shares of common stock on the Nasdaq stock market. In 1993, Summit Bancorporation’s commercial banking subsidiary reclaimed the name given to the original company, Summit Bank.
By the mid-1990s, Summit had hit its stride, with several acquisitions intended to expand its market and increase its earnings. Setting a goal of doubling its asset size in three to five years, Summit earned $11.3 million during the first quarter of 1994, a 14 percent increase over the same period the year before.
In February 1994, Summit purchased Crestmont Financial Corporation in a transaction valued at $91 million and geared toward increasing Summit’s market share, competitive position, and retail franchise. In April of the same year Summit acquired Lancaster Financial Ltd. for 500,000 Summit common shares, a deal valued at $9.8 million. Purchase of this Parsippany-based mortgage company was viewed by many analysts as a good move in the long-term, because it would allow Summit Mortgages to expand its presence in New Jersey to include Bergen, Essex, Hunterdon, Middlesex, Morris, Passaic, and Union counties.
In mid-June 1995, Summit added another buy-out to its growing list, announcing that it had agreed to acquire Garden State BancShares, Inc. of Jackson, New Jersey, in an exchange of stock valued at $67 million, an acquisition that added clout to Summit’s presence in Ocean County, New Jersey, moving it from a fifth position with an eight percent deposit share, to a strong number two position with about a 12 percent share.
Not all of Summit’s acquisition attempts were successful. In September 1994, Summit announced that it would purchase Bankers Corporation of Perth Amboy, New Jersey, in a stock swap valued at $270 million. The deal was considered quite a coup because it would have given a hefty boost to Summit’s market share ranking in Middlesex County—its only real opportunity to snag a sizable slice of deposits in that affluent area. This in turn would have made Summit a much more attractive candidate for acquisition.
But less than a month later, Summit and Bankers Corporation announced that they had broken off talks concerning a merger, a revelation that left many analysts baffled. The collapse of the deal was blamed on the premature disclosure of a letter of intent, leaked to traders and resulting in an upsurge in Bankers’ stock price. Other analysts speculated that Bankers Corporation felt that their stock was undervalued and decided they could get a better offer elsewhere. Although terminated amicably, this failed merger was a significant setback to Summit in its quest to double its size.
During this time, Robert G. Cox was named to succeed Thomas D. Sayles, Jr. as chief executive officer at Summit. Sayles, who had been CEO at Summit Bancorp for 23 years, had groomed Cox for the position in a carefully developed plan of succession. Cox had joined Summit in 1973 as vice-president responsible for the mortgage department. In 1980, he was named president of Summit Bank, and in 1983 he was named its chief executive. Four years later, he became president and chief operating officer of the holding company. Sayles, who continued on as chairman at the $4.3 billion holding company and as a member of its executive committee, decided to take an early retirement at age 62, in part because he felt that new developments in the world of high finance, such as the increasing use of computer technology, required a younger and more technololgically savvy exective. This congenial and well thought-out passing of the baton was in all probability instrumental in Summit’s future success.
Cox’s succession ushered in a new era in Summit’s history. In addition to focusing on continued growth, Cox looked to expand into uncharted territories, including the fixed-rate annuities market. After watching more and more of its customers withdrawing deposits to buy annuities from local brokers, Summit began selling fixed annuities in 1988, later expanding into mutual funds and variable annuities.
One of the bank’s primary reasons for entering the market was for the management fees. Working in conjunction with money managers at Western National Life Company, its annuity underwriter, Summit was able to examine credit quality, durations, and other issues that went into choosing annuity investments, while at the same time improving services by lowering commissions and allowing customers to cash out earlier with fewer penalties. In April 1995, American Banker reported that the sales volume of fixed rate annuities had nearly doubled, from $18 million in 1992, to $35 million in 1994. Fixed Rate annuities made up over 35 percent of Summit’s total investment sales.
In May 1995, Summit introduced its proprietary fixed annuity, aimed at increasing the bank’s share of management fees and boosting its reputation in this area—a bold move that few other banks had emulated. In designing Summit’s annuity, Jack D. Cussen, Summit Bancorp’s executive vice-president, said he “approached it like a consumer,” incorporating features such as a shorter surrender period that allowed investors to increase the rate of return twice during the life of the product in order to take advantage of any shifts in interest rates, according to the April 26, 1995 issue of American Banker.
Entrance into the fixed-annuity market was just one way Summit strove to gain a competitive edge. Cox kept an eye on acquiring smaller competitors, initiating in 1994 one of New Jersey’s biggest deals, the $91 million purchase of $1 billion-asset Crestmont Financial Corp. This purchase was instrumental in enabling Summit to continue to meet its growth goals.
In addition to pursuing acquisitions, Cox hoped to establish a “retail store culture” in all of Summit’s branches and at the executive level. Cox, described by analysts as “forward looking,” brought in consultants to teach employees how to become better salespeople. With a new focus on cultivating customer relationships, Cox searched for better ways to handle customers at the branch level and to improve efficiency. Shunning high-pressure sales tactics, employees relied instead on internal and customer referrals.
Cox also looked to address the bank’s efficiency ratio (the ratio of a bank’s expenses, excepting interest, divided by its gross assets or net income), which had reached an undesirable high of 69 percent in 1991. Consolidation and other cuts in costs had brought Summit’s cost efficiency ratio back down to 63 percent in 1994, but that still wasn’t where Cox wanted it. Along this line, Cox and his executives established the “Vision 56” program, a restructuring plan that had the goal of reaching an efficiency ratio of 56 percent by 1996.
As part of this program, Cox also created three new business lines. The Retail Banking Group would oversee the branch delivery system, residential mortgage lending provided by The Summit Mortgage Company, consumer credit, sales of deposit products such as mutual funds, annuities and life insurance, as well as a full range of financial services for local businesses. The Commercial Banking Group served Summit Bank’s corporate customers and provided credit products and other services, including trade finance and cash management services, and specialized lending for construction, commercial real estate and mortgage banking companies. Finally, The Private Banking and Asset Management Group would provide a broad range of investment credit and asset management services to high net worth and high income individuals and professionals. Asset management services were made available to businesses seeking corporate and employee benefit plans.
By the mid-1990s Summit had a large deposit share in some of New Jersey’s fastest growing counties, and had the seventh largest market share in New Jersey, with 91 offices in 11 counties. This made it a highly desirable takeover target. In early February of 1995, Cox was evasive when asked about rumors of takeover and analysts predicted that the bank would remain independent in the short run.
But six months later, Summit announced its merger with UJB Financial Corp., a New Jersey-based financial services company with $15.9 billion in assets. The new corporation would operate under the Summit Bancorp name, and would report some $22 billion in assets, deposits of $17.6 billion, and shareholders equity of $1.7 million, creating New Jersey’s second largest bank.
In a September 1995 press release, Cox said of the merger: “Summit has built an impressive retail franchise in New Jersey, while UJB Financial has scored successes by developing niche businesses, such as lending to health care professionals and hospitals and has a strong asset based lending activity. This transaction greatly enhances our business development strategies. We are forming a strategic partnership that rewards shareholders and offers customers a broader array of products and services.”
Summit’s second quarterly report for 1995 indicated record earnings of $17.9 million, representing a 33 percent increase over the $13.5 million earned in the second quarter of 1994, and reflecting the bank’s continued improvement in the areas of operating efficiencies and asset quality. Consistent with its increase in productivity, Summit introduced its “Managing Local Markets” initiative during the first quarter of 1995. Market managers received training to design a marketing program that took advantage of unique demographics through the use of market segmentation and household profitability data.
In a survey conducted by Princeton’s Research Strategies Corporation, 523 business leaders in Northern New Jersey were asked to rate eight factors in terms of their importance in evaluating banks and the quality of service received from them. Among regional or community banks Summit received the highest rating. It ranked first in every category from the quality of services offered to its role as a good corporate citizen. Moreover, following its strategic alliance with UJB, Summit Bancorp looked forward to continuing this reputation for good service as well as to exploring opportunities for increased revenues and greater shareholder value in the decade to come.
Kapiloff, Howard, “Summit Aims to Survive in Dog-Eat-Dog N.J.,” American Banker, February 3, 1995.
Kaplan, Daniel, “Leak Sank Summit Merger, Bankers Savings Exec Says,” American Banker, October 13, 1994.
Mehlman, William, “Summit Bancorporation,” The Insiders’ Chronicle, March 20, 1989.
Plasencia, William, “Summit, Thriving Among Giants, Aims Even Higher,” American Banker, April 26, 1995.
Talley, Karen. “Summit Bancorp to Take Unusual Step of Helping to Manage Fixed Annuity,” American Banker, March 1, 1995.
—Lynda D. Schrecengost