<PAGE>
As filed with the Securities and Exchange Commission on February 7, 1995
Registration No. 33-86150
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 3
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
(609) 751-9000
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
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C. Edward Jordan, Jr.
Executive Vice President
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
(609) 751-9000
(Address, including zip code,
and telephone number, including
area code, of agent for service)
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Copies to:
Lawrence R. Wiseman, Esquire Howard L. Shecter, Esquire
Blank, Rome, Comisky & McCauley Morgan, Lewis & Bockius
1200 Four Penn Center Plaza 2000 One Logan Square
Philadelphia, Pennsylvania 19103 Philadelphia, Pennsylvania 19103
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Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement
becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. / /
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or
until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 19, 1995
1,500,000 Shares
COMMERCE BANCORP, INC.
LOGO
Common Stock
(par value $1.5625 per share)
The Common Stock of Commerce Bancorp, Inc. (the "Company") is listed on
the Nasdaq National Market ("NNM") under the symbol "COBA". On
January 19, 1995, the last sale price of the Common Stock
as reported on the NNM was $17.50. See "Common
Stock and Dividend Information."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company (1)
-------- ------------- ------------
PER SHARE .............. $ $ $
TOTAL (2) .............. $ $ $
(1) Before deduction of expenses payable by the Company estimated at
$ .
(2) The Company has granted to the Underwriters an option exercisable for
30 days from the date of this Prospectus to purchase a maximum of
225,000 additional shares to cover over-allotments of shares. If the
option is exercised in full, the total Price to Public will be
$ , Underwriting Discounts and Commissions will be $ , and
Proceeds to Company will be $ .
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The shares are offered by the several Underwriters when, as and if
issued by the Company, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is
expected that the shares will be ready for delivery on or about ,
1995.
CS First Boston Wheat First Butcher Singer
The date of this Prospectus is , 1995.
<PAGE>
AVAILABLE INFORMATION
As permitted by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), this Prospectus omits certain
information contained in the Registration Statement of which this
Prospectus is a part. For such information, reference is made to the
Registration Statement and the exhibits thereto. See "ADDITIONAL
INFORMATION." Statements made in this Prospectus as to the contents of
any contract, agreement or other document are not necessarily complete;
with respect to each such contract, agreement or other document filed as
an exhibit to the Registration Statement or incorporated by reference
therein, reference is made to such contract, agreement or other document
for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; and at the Commission's New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048;
and Chicago Regional Office, Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621; and copies of such material
can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates. The Common Stock of the
Company is listed on the NNM, and such reports, proxy statements and other
information can also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and portions of documents filed by the Company
with the Commission are hereby incorporated by reference into this
Prospectus and made a part hereof: (i) the Annual Report on Form 10-K for
the year ended December 31, 1993; and (ii) the Quarterly Reports on Form
10-Q for the quarters ended March 31, 1994, June 30, 1994 and September
30, 1994.
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Common Stock offered
hereby shall be deemed to be incorporated by reference in this Prospectus
and to be part of this Prospectus from the date of filing of such
documents. Any statement contained herein or in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed to constitute a part of this Prospectus, except as so
modified or superseded.
The Company hereby undertakes to provide without charge to each
person, including any beneficial owner to whom a copy of this Prospectus
has been delivered, upon written or oral request of such person, a copy of
any or all of the information that has been incorporated by reference in
this Prospectus (not including exhibits to such information unless such
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exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Written or oral requests for such
copies should be directed to Commerce Bancorp, Inc., 1701 Route 70 East,
Cherry Hill, New Jersey 08034-5400, Attention: C. Edward Jordan, Jr.,
Executive Vice President; (609)751-9000.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET
- NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN
UNDERWRITERS (AND SELLING GROUP MEMBERS) AND THEIR RESPECTIVE AFFILIATES
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ STOCK MARKET - NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A
UNDER THE EXCHANGE ACT. (SEE "UNDERWRITING") DURING THIS OFFERING,
CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION
MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF
OTHERS IN THE COMPANY'S COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10b-6, 10b-7, AND 10b-8 UNDER THE EXCHANGE ACT.
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(ADD MAP HERE)
Under the caption "Commerce Bancorp, Inc. -- Branch Network" is a map of
the Company's branch network identifying the Company's "existing" and "coming"
branch locations in Southeastern Pennsylvania and Southern New Jersey.
See "The Company -- Commerce, NJ, Commerce, PA and Commerce Shore" for
a list of the Company's branch offices.
4
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PROSPECTUS SUMMARY
The information set forth below is qualified in its entirety by the
detailed information and financial statements and notes thereto
incorporated by reference and appearing elsewhere in this Prospectus.
References to the "Company" in this Prospectus shall, unless the context
requires otherwise, include the Company and its consolidated subsidiaries.
The Company
Commerce Bancorp, Inc. (the "Company") is a multi-bank holding
company headquartered in Cherry Hill, New Jersey which operates three
nationally chartered bank subsidiaries: Commerce Bank, N.A. ("Commerce
NJ"), Cherry Hill, New Jersey, Commerce Bank/Pennsylvania, N.A.
("Commerce PA"), Philadelphia, Pennsylvania and Commerce Bank/Shore,
N.A. ("Commerce Shore"), Forked River, New Jersey. These three bank
subsidiaries have 37 retail branch offices in Southern New Jersey and 7
retail branch offices in Metropolitan Philadelphia. As of September 30,
1994, the Company had total assets of approximately $2.2 billion, total
deposits of approximately $1.8 billion and total stockholders' equity of
approximately $109.5 million. At September 30, 1994 average deposits per
branch office (excluding branches open less than one year) were
approximately $45.3 million.
The Company provides a full range of retail and commercial banking
services for consumers and small and mid-sized companies. Lending services
are focused on commercial real estate, commercial and consumer loans to
local borrowers. The Company's lending and investment activities are
funded principally by retail deposits gathered through its retail branch
office network.
The Company has focused its strategy for growth primarily on the
further development of its community-based retail banking network. The
objective of this corporate strategy is to build earnings growth potential
for the future as the retail branch office network matures. The Company's
branch concept uses a prototype or standardized branch office building,
convenient locations and active marketing, all designed to attract retail
deposits. Using this prototype branch concept, the Company plans to open
approximately ten new branch offices in each of the next five years,
exclusive of acquisitions. It has been the Company's experience that each
newly opened branch office incurs operating losses during the first ten to
twelve months of operations and becomes profitable thereafter. The Company
is not currently involved in any negotiations to make any material
acquisitions.
The Company's retail approach to banking emphasizes a combination of
long-term customer relationships, quick responses to customer needs,
active marketing, convenient locations, free checking for customers
maintaining certain minimum balances and extended hours of operation. The
Company's retail approach to banking has produced low cost deposits and
has resulted in a high concentration of demand and savings deposits due to
convenience and service rather than rate. As of September 30, 1994, 73.6%
of the Company's total deposits represented demand and savings deposits,
while 26.4% represented time deposits. For the nine months ended September
30, 1994, the average interest rate paid on total deposits was 2.29%. For
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the five-year period ended December 31, 1993, the Company's deposits have
grown at an average annual rate of 23% per year.
See "Special Considerations", "Supervision and Regulation" and
"Managements Discussion and Analysis of Financial Condition and Results
of Operations - Investment Securities" for information on the Company's
Community Reinvestment Act ratings for two of its banks and the Company's
investment portfolio.
The Offering
Common Stock Offered........... 1,500,000 shares of common stock, par
value $1.5625 per share
Common Stock Issued After the
Offering ...................... 10,370,476 shares(1)
Estimated Net Proceeds to the
Company........................ $ . See "Use of Proceeds."
Use of Proceeds ............... For general corporate purposes, includ-
ing providing additional equity capital
to the Company's bank subsidiaries to
support the Company's branch expansion
growth strategy
NNM Symbol .................... COBA
Cash Dividends ................ Cash dividends are currently paid quar-
terly on the Common Stock at the annual
rate of $0.62 per share
Stock Dividends ............... Stock dividends are currently paid annu-
ally on the Common Stock at the rate of
5%
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(1) Includes 79,054 shares of Common Stock held in treasury. Does not
include 558,820 shares of Common Stock issuable upon the conversion of
the Series C ESOP Cumulative Convertible Preferred Stock. See
"Description of Capital Stock."
All information contained in this Prospectus has been adjusted to
reflect Common Stock dividends declared through December 31, 1994. Except
as otherwise noted, all information contained in this Prospectus assumes
the Underwriters' over-allotment option is not exercised.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information as of
December 31, 1989, 1990, 1991, 1992 and 1993 and for the years then ended
has been derived from the Consolidated Financial Statements of the
Company. The selected consolidated financial information as of and for the
nine months ended September 30, 1993 and 1994 is derived from the
unaudited Condensed Consolidated Financial Statements of the Company,
which, in management's opinion, include all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of
the information set forth therein. The results of operations for the nine
months ended September 30, 1994 are not necessarily indicative of the
results that may be expected for the full year. The information set forth
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below should be read in conjunction with the "Financial Statements" and
notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appear elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As of or for the
Nine Months Ended As of or for the
September 30, Years Ended December 31,
--------------------- --------------------------------------------------------------
1994 1993 1993(7) 1992 1991 1990 1989
---- ---- ------- ---- ---- ---- ----
(In thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income............... $ 108,566 $ 81,773 $ 113,991 $ 91,881 $ 81,452 $ 75,938 $ 68,430
Interest expense.............. 41,563 31,913 44,266 40,382 43,027 39,893 36,156
Net interest income........... 67,003 49,860 69,725 51,499 38,425 36,045 32,274
Provision for loan losses..... 3,160 4,671 5,981 6,286 5,541 5,095 1,385
Non-interest income........... 13,274 12,722 17,344 12,129 14,073 9,230 6,983
Non-interest expense ......... 52,861 41,435 57,873 42,889 38,933 34,841 30,022
Income before income taxes ... 24,256 16,476 23,215 14,453 8,024 5,339 7,850
Net income(1) ................ 15,442 10,460 14,615 10,017 6,027 4,344 6,501
Balance Sheet Data:
Total assets ................. $2,238,217 $1,95 1,844 $2,032,556 $1,425,707 $1,057,754 $934,343 $785,646
Loans (net) .................. 753,966 665,563 691,339 602,129 569,381 547,289 512,800
Securities available for sale
(2)......................... 126,640 308,513 164,620 309,894 - - -
Securities held for investment 1,157,473 740,213 926,115 293,201 343,146 186,583 140,456
Federal funds sold............ 5,550 56,400 10,000 50,550 16,750 80,300 44,375
Deposits...................... 1,772,221 1,719,614 $1,744,915 1,335,618 987,053 866,940 724,037
Long-term debt (3)............ 28,385 28,954 28,954 6,520 7,034 7,500 0
Stockholders' equity.......... 109,522 95,999 99,176 81,916 58,170 54,262 55,873
Per Share Data:
Net income-primary............ $1.76 $1.24 $1.72 $1.31 $0.82 $0.52 $1.20
Net income-fully diluted...... 1.59 1.15 1.59 1.25 N/A N/A 1.18
Cash dividends ............... 0.43 0.33 0.45 0.38 0.36 0.70 0.62
Book value-primary(4)......... 12.22 10.64 11.02 9.53 8.42 7.78 8.08
Book value-fully diluted(5)... 11.27 10.13 10.51 9.21 8.44 7.88 8.84
Average Shares Outstanding:
Primary ..................... 8,269 7,457 7,574 6,421 5,427 5,374 4,582
Fully diluted................ 9,662 9,016 9,081 7,998 N/A N/A 5,531
</TABLE>
7
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SELECTED CONSOLIDATED FINANCIAL INFORMATION, continued
<TABLE>
<CAPTION>
As of or for the
Nine Months Ended As of or for the
September 30, Years Ended December 31,
------------------ -------------------------------------------
1994 1993 1993(7) 1992 1991 1990 1989
----- ---- ------- ---- ---- ---- ----
(In thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Ratios:
Performance:
Return on average assets...... 0.93% 0.85% 0.84% 0.78% 0.61% 0.52% 0.90%
Return on average common
stockholders' equity........ 21.06 17.58 17.49 15.01 10.58 6.43 18.11
Net interest margin (6)....... 4.39 4.48 4.40 4.46 4.41 5.04 5.34
Non-interest expense to
average assets.............. 3.17 3.36 3.31 3.35 3.95 4.18 4.15
Liquidity and Capital:
Average loans to average
deposits ................... 41.99 % 43.51 % 42.52 % 50.06 % 61.57 % 71.48 % 68.45 %
Common dividend payout ratio . 24.43 26.61 26.05 29.32 44.24 134.56 51.90
Average equity to average
assets...................... 4.68 5.12 5.06 5.44 5.55 6.75 5.90
Stockholders' equity to total
assets...................... 4.89 4.92 4.88 5.75 5.50 5.81 7.11
Risk based capital:
Tier 1 ..................... 9.94% 9.14% 9.16% 9.66% 7.76% 7.88% 9.30%
Total capital............... 13.17 12.54 12.44 10.75 9.05 8.94 10.00
Leverage capital ratio ....... 4.67 4.91 4.53 5.53 5.08 5.46 N/A
Asset Quality:
Net charge-offs to average
loans outstanding........... 0.33% 0.93% 0.88% 1.06% 0.58% 0.41% 0.10%
Non-performing loans to total
year-end loans (8) ......... 1.40 1.37 1.22 2.67 2.72 2.59 0.74
Non-performing assets to total
year-end assets (8) ........ 1.06 1.46 1.32 2.26 2.26 1.88 0.53
Allowance for loan losses to
total year-end loans ....... 1.48 1.48 1.43 1.45 1.54 1.20 0.73
Allowance for loan losses to
non-performing loans (8) ... 105.81 108.22 117.37 54.20 56.53 46.33 98.57
</TABLE>
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(1) In 1991, net income included a $810,000 gain on the sale of the
merchant credit card operations. Net income includes investment
securities gains of $641,000 and $2.5 million for the nine month
periods ended September 30, 1994 and 1993, respectively, $3.0 million
for 1993, $249,000 for 1992, $3.3 million for 1991, $552,000 for 1990
and $537,000 for 1989.
(2) See Note 1 of the Company's Notes to Consolidated Financial Statements
which appear elsewhere herein.
(3) Includes the Company's guarantee of the debt obligation of its
Employee Stock Ownership Plan.
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(4) Primary book value per share has been calculated by dividing total
stockholders' equity (less the net proceeds received by the Company
from the issuance of the Series C ESOP Cumulative Convertible
Preferred Stock) by the shares of Common Stock outstanding as of the
end of a period.
(5) Fully diluted book value per share has been calculated by dividing
total stockholders' equity by the number of shares outstanding on a
fully diluted basis as of the end of a period. Shares on a fully
diluted basis assumes the Series C ESOP Cumulative Preferred Stock is
converted to common stock.
(6) Yields on tax-exempt obligations have been computed on a fully tax
equivalent basis assuming a federal income tax rate of approximately
35%.
(7) For the impact of acquisitions, See Note 2 of the Company's Notes to
Consolidated Financial Statements which appear elsewhere in this
Prospectus.
(8) Non-performing loans and non-performing assets exclude loans past due
90 days or more and still accruing interest. See "Managements
Discussion and Analysis of Financial Condition and Results of
Operations - Non-performing Loans and Assets"
9
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THE COMPANY
Commerce Bancorp, Inc. (the "Company") is a multi-bank holding
company headquartered in Cherry Hill, New Jersey, whose three nationally
chartered bank subsidiaries have 37 retail branch offices in Southern New
Jersey and 7 retail branch offices in Metropolitan Philadelphia. On
September 30, 1994, the Company had total assets of approximately $2.2
billion, total deposits of approximately $1.8 billion and total
stockholders' equity of approximately $109.5 million. The deposits of the
Company's bank subsidiaries are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). Average
deposits per branch at September 30, 1994 (excluding branches open less
than one year) were approximately $45.3 million.
The Company, through its subsidiaries, provides a full range of retail
and commercial services to individuals and businesses. These services
include free checking accounts for customers maintaining certain minimum
balances, savings programs, money market accounts, negotiable orders of
withdrawal ("NOW") accounts, certificates of deposit, safe deposit
facilities, consumer loan programs, home equity and Visa Gold(Tm) card
revolving lines of credit, overdraft checking, automated teller facilities
and expanded banking hours. Lending services include commercial,
residential, construction, real estate, term and installment loans.
Corporate trust services are offered by Commerce NJ.
The Company has focused its strategy for growth primarily on the
further development of its community-based retail banking network. The
objective of this corporate strategy is to build earnings growth potential
for the future as the retail branch office network matures. The Company's
branch concept uses a prototype or standardized branch office building,
convenient locations and active marketing, all designed to attract retail
deposits. Using this prototype branch concept, the Company plans to open
approximately ten new branch offices in each of the next five years,
exclusive of acquisitions. It has been the Company's experience that each
newly opened branch office incurs operating losses during the first ten to
twelve months of operations and becomes profitable thereafter.
The Company's retail approach to banking emphasizes a combination of
long-term customer relationships, quick responses to customer needs,
active marketing, convenient locations, free checking for customers
maintaining certain minimum balances and extended hours of operation. The
Company's retail approach to banking has produced low cost deposits and
has resulted in a high concentration of demand and savings deposits due to
convenience and service rather than rate. As of September 30, 1994, 73.6%
of the Company's total deposits represented demand and savings deposits,
while 26.4% represented time deposits. For the nine months ended September
30, 1994, the average interest rate paid on total deposits was 2.29%.
The Company's lending and investing activities are funded principally
by deposits gathered through its retail branch offices. These retail and
commercial banking services are provided by the Company primarily to
consumers and small and mid-sized companies within its market area.
Lending services are focused on commercial real estate, commercial and
consumer lending to local borrowers. The Company attempts to establish a
total borrowing relationship which may typically include a commercial real
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estate loan, a business line of credit for working capital needs, a
mortgage loan for the borrower's primary and/or secondary residence,
consumer loans for specific purposes and a revolving personal credit line.
The Company's commercial loan portfolio consists of loans to a
diversified group of businesses and includes lines of credit for seasonal
or short-term working capital needs and term loans with maturities of five
years or less for equipment and capital purchases. Residential lending
consists primarily of traditional one-to-four family residential home
financings which, after origination by the Company, are generally sold in
the secondary market. Construction lending consists primarily of
residential tract construction projects all within the Company's market
area. Real estate loans are generally secured by first mortgages on the
property supported by current appraisals and are generally limited to 80%
of appraised value. Commercial real estate credit decisions are primarily
based upon the ability of the property's cash flow to meet debt service
requirements. Most commercial loans bear the personal guarantees of the
principals involved. The Company's installment loan portfolio consists
primarily of personal loans, home equity loans and lines, cash reserve
checking accounts and Visa Gold(Tm) card accounts.
The Company's principal activities as a holding company consist of
owning and supervising its wholly-owned subsidiary banks, Commerce NJ,
Commerce PA and Commerce Shore. The Company derives substantially all of
its income through its subsidiary banks. Neither the Company nor its
subsidiary banks are engaged in non-banking activities. The Company
establishes policies and coordinates the financial resources of its bank
subsidiaries. The Company provides and performs technical, advisory and
auditing services for its bank subsidiaries, coordinates their general
policies and activities and participates in their major business
decisions. The day-to-day affairs of the Company's subsidiary banks are
managed by their respective officers and directors.
The Company, a New Jersey business corporation, which was incorporated
on December 9, 1982, became a registered bank holding company under the
Bank Holding Company Act of 1956 ("Holding Company Act") on June 30,
1983, by acquiring Commerce NJ. Commerce PA was acquired by the Company on
January 2, 1987. Commerce Shore was acquired by the Company on December
31, 1988.
The Company's principal executive offices are located at Commerce
Atrium, 1701 Route 70 East, Cherry Hill, New Jersey, 08034-5400, and its
telephone number is (609) 751-9000.
Commerce NJ
Commerce NJ provides retail and commercial banking services through 32
retail branch offices in Camden, Burlington, Gloucester, Atlantic and Cape
May Counties in Southern New Jersey. It currently has six offices in
Cherry Hill, three offices in Washington Township, two offices each in
Marlton, Medford and Moorestown and one office each in Atco, Bellmawr,
Berlin, Brigantine, Glassboro, Gloucester Township, Haddonfield, Marmora,
Mt. Holly, Northfield, Ocean City, Sicklerville, Somers Point, Voorhees,
West Deptford, Williamstown and Woodbury.
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In addition to providing retail and commercial banking services,
Commerce NJ also offers trust services primarily focusing on corporate
trust activities, particularly as bond trustee, paying agent, registrar,
and tender agent for municipal bond offerings.
Commerce NJ is currently negotiating to acquire Cypress Securities,
Inc. a municipal bond underwriter and investment banking company. Vernon
W. Hill II, the Chairman, President and Chief Executive Officer of the
Company, is the principal shareholder of Cypress Securities, Inc.
As of September 30, 1994, Commerce NJ had total assets of $1.8
billion, total deposits of $1.4 billion and total stockholders' equity of
$96.4 million.
Commerce PA
Commerce PA provides retail and commercial banking services through
seven retail branch offices in Philadelphia, Chester, Delaware and
Montgomery Counties in Southeastern Pennsylvania. It currently has one
office in Center City Philadelphia and one office each in the Philadelphia
suburbs of Devon, Haverford, Newtown Square, Springfield, Wayne and
Whitpain.
As of September 30, 1994, Commerce PA had total assets of $193.6
million, total deposits of $176.8 million and total stockholders' equity
of $11.8 million.
Commerce Shore
Commerce Shore provides retail and commercial banking services through
five retail branch offices in Ocean County, New Jersey. It currently has
two offices in Forked River and one office each in Barnegat, Long Beach
Island and Manahawkin.
As of September 30, 1994, Commerce Shore had total assets of $215.5
million, total deposits of $202.6 million and total stockholders' equity
of $12.6 million.
Other Activities
As part of the Commerce network, the Company has investments in
Commerce Bank/Harrisburg, Camp Hill, Pennsylvania (15.9% on a
fully-diluted basis) and Independence Bancorp, Inc., Ramsey, New Jersey
(12.6% on a fully-diluted basis), and provides certain marketing and
support services to each.
Competition
The Company's service area is characterized by intense competition in
all aspects and areas of its business from commercial banks, savings and
loan associations, mutual savings banks and other financial institutions.
Other competitors, including credit unions, consumer finance companies,
factors, insurance companies and money market mutual funds, compete with
certain lending and deposit gathering services offered by the Company.
Many competitors have substantially greater financial resources and larger
lending limits and larger branch systems than those of the Company.
12
<PAGE>
The Company believes that it is able to compete on a substantially
equal basis with larger financial institutions because it offers longer
hours of operation than those offered by most of its competitors, free
checking accounts for customers maintaining certain minimum balances and
competitive interest rates on savings and time accounts with low minimum
deposit requirements.
The Company seeks to provide personalized services through
management's knowledge and awareness of its market area, customers and
borrowers. The Company believes this knowledge and awareness provides a
business advantage in serving the retail depositors and the small and
mid-sized commercial borrowers that comprise the Company's customer base.
SPECIAL CONSIDERATIONS
In evaluating the Company and its business, prospective investors
should consider the following in addition to the other information
contained in this Prospectus.
Community Reinvestment Act Ratings
During 1994, both Commerce NJ and Commerce PA received "needs to
improve" ratings from the Office of the Comptroller of the Currency
("OCC") under the Community Reinvestment Act ("CRA"). An institution's
CRA rating is considered by regulators in determining whether to grant
charters, branches and other deposit facilities, relocations, mergers,
consolidations and acquisitions. Performance less than satisfactory may be
the basis for denying an application. Since the banks' receipt of the
"needs to improve" ratings seven branch applications have been approved
by the OCC of which five were opened in 1994 and the balance of which are
scheduled to open in 1995. Continued "needs to improve" ratings could
have an effect upon the ability of either bank to expand in the future.
The Company's current plans call for the opening of approximately ten new
branch offices in each of the next five years. The Company has taken steps
to improve each bank's performance under the CRA. The OCC is currently
performing a regularly scheduled consumer compliance and CRA examination
of each bank. See "Supervision and Regulation."
Market Value of Securities in Held to Maturity Portfolio
The "held to maturity" portion of the Company's investment portfolio
consists almost entirely of U.S. Government agency mortgage-backed
obligations which carry fixed coupons, the rates of which do not change
over the life of the securities. These securities have little, if any
credit risk since they are backed by the full faith and credit of the U.S.
Government (GNMAs) or their principal and interest payments are guaranteed
by an agency of the U.S. Government (FHLMCs and FNMAs). As a result of an
increase in general interest rates over the past year, the market value of
this portion of the Company's investment portfolio has declined and as of
November 30, 1994 the "held to maturity" portion of the Company's
investment portfolio had gross pre-tax unrealized losses of $109.6 million
($68.0 million after taxes). Since the Company has the intent and ability
to hold these securities until maturity, in accordance with Statement of
Financial Accounting Standards No. 115, the Company is not required to
record the gross pre-tax unrealized losses on its held to maturity
portfolio. These unrealized losses will have no impact on the Company's
future liquidity, financial condition, results of operations or capital
ratios. The unrealized losses on the Company's held to maturity portfolio
13
<PAGE>
are an indication that the yield and interest income on its portfolio are
less than the yield and interest income that could be realized if the
entire portfolio was reinvested into investment securities at current
market rates. The average life of the investment portfolio increased from
7.3 years as of September 30, 1994 to 7.8 years as of November 30, 1994.
Further increases in interest rates are not expected to materially change
the rate of prepayments or materially extend the average life of the
investment portfolio. See "Managements Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the
Company's balance sheet management.
RECENT DEVELOPMENTS
On January 17, 1995, the Company publicly released unaudited
consolidated condensed financial information as of and for the fiscal year
ended December 31, 1994. The following table sets forth certain
consolidated condensed financial information with respect to the Company:
<TABLE>
<CAPTION>
Year Ended
December 31
-------------------------------------
(In thousands, except per share data)
1994 1993
---- ----
<S> <C> <C>
Income Statement Data:
Net interest income................................. $ 90,534 $ 69,725
Non-interest income................................. 17,534 17,344
---------- ----------
108,068 87,069
Net income.......................................... 20,377 14,615
Per Share Data(1):
Net income - primary................................ $ 2.28 $ 1.72
Net income - fully-diluted.......................... 2.10 1.59
Book value - primary................................ 12.46 11.02
Book value - fully-diluted.......................... 11.53 10.51
Balance Sheet Data (Period End):
Total assets........................................ $2,291,290 $2,032,556
Loans (net)......................................... 789,916 691,339
Total deposits...................................... 1,834,572 1,744,915
Stockholders' equity................................ 111,873 99,176
Selected Ratios:
Total non-performing assets as a percentage of total
period-end assets(2).............................. 0.97% 1.32%
Allowance for loan losses as a percentage of total
period-end loans.................................. 1.50 1.43
Net charge-offs as a percentage of average loans
outstanding....................................... 0.29 0.88
Risk-based capital ratios:
Tier I............................................ 9.90 9.16
Total capital..................................... 13.06 12.44
Leverage Capital Ratio.............................. 4.87 4.53
</TABLE>
14
<PAGE>
----------
(1) All per share data has been adjusted to reflect the 5% common stock
dividend payable January 17, 1995 to stockholders of record on January
2, 1995.
(2) Non-performing assets exclude loans past due 90 days or more and still
accruing interest. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Non-performing Loans
and Assets".
Net income for the fourth quarter of 1994 was $4.9 million, up
$800,000 or 19% over 1993 fourth quarter net income of $4.2 million. On a
per share basis, fully diluted net income for the fourth quarter of 1994
was $.51 per share, up $.07 per share or 16% over fourth quarter 1993 net
income of $.44 per share. Non-performing assets and loans past due 90 days
or more were $22.6 million at December 31, 1994 as compared to $27.1
million at December 31, 1993. The increases in interest rates in the
fourth quarter of 1994 are not expected to materially affect the Company's
results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Interest Rate Sensitivity
and Liquidity" for a discussion of the effect of the movement of interest
rates on the Company's net interest income.
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$ . The Company intends to use the proceeds to provide additional equity
capital to its banking subsidiaries to support the Company's branch
expansion growth strategy and for general corporate purposes. The
approximate cost of opening a new branch office is $1.3 million (inclusive
of land, building, and furniture and fixtures). The Company does not
presently intend to use any of the proceeds from the Offering to repay any
of its current indebtedness. Pending such uses, the net proceeds will be
used to make short-term investments.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of September 30, 1994 and (ii) as adjusted to give effect
to the sale by the Company of the Common Stock offered hereby assuming the
Underwriters' over-allotment option is not exercised.
15
<PAGE>
<TABLE>
<CAPTION>
As
Actual Adjusted
------- --------
(In Thousands)
<S> <C> <C>
Long-Term Debt:
Obligation to Employee Stock Ownership Plan........................... $ 5,385 $ 5,385
83/8% Subordinated Notes due 2003..................................... 23,000 23,000
-------- -------
Total Long-Term Debt ............................................... 28,385 28,385
-------- -------
Stockholders' Equity:
Preferred Stock, 5,000,000 shares authorized:
Series C ESOP Cumulative Convertible Preferred, $1.00 stated value,
417,000 shares authorized, issued and outstanding (liquidating
preferred: $18.00 per share totalling $7,506,000) ................ 7,506 7,506
Common Stock, par value $1.5625; authorized 20,000,000 shares,
8,870,476 shares issued and 10,370,476 shares issued, as adjusted
(1)................................................................. 13,204
Capital in excess of par or stated value.............................. 79,682
Retained earnings..................................................... 15,778
-------- -------
116,170
Less commitment to ESOP............................................... 5,385 5,385
Less treasury stock, at cost (79,054 shares) ......................... 1,263 1,263
-------- -------
Total Stockholders' Equity ......................................... 109,522
-------- -------
Total Capitalization................................................ $137,907 $
======== =======
Capital Ratios:
Stockholders' Equity to Total Assets.................................. 4.89%
Tier I Capital to Average Assets (Leverage)........................... 4.67
Tier I Capital to Risk-Adjusted Assets................................ 9.94
Total Capital to Risk-Adjusted Assets................................. 13.17
</TABLE>
----------
(1) If the Underwriters' over-allotment option is exercised in full, the
number of shares of Common Stock issued will be increased by 225,000,
the Common Stock will be increased by $ , and the amount of Capital
in excess of par or stated value will be increased by $ .
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company analyzes the major elements of its
consolidated balance sheets and statements of income. This section should
be read in conjunction with the Company's consolidated financial
statements and accompanying notes and other detailed information
incorporated by reference or appearing elsewhere in this Prospectus.
Overview
Net income for the first nine months of 1994 was $15.4 million, an
increase of $4.9 million, or 47% over the $10.5 million recorded in the
first nine months of 1993. This increase was due to a significant increase
in net interest income, as well as reduced loan loss provisions and an
increase in non-interest income which offset increased overhead expenses.
At September 30, 1994, the Company had total assets of $2.2 billion, total
loans of $765.3 million, and total investment securities of $1.3 billion.
During the first nine months of 1994, investment securities increased
$193.4 million and the loan portfolio increased $63.9 million from
December 31, 1993. At September 30, 1994, total deposits aggregated $1.8
billion, up $27.3 million from year-end 1993. Short term borrowings
increased $189.4 million during the nine months ended September 30, 1994.
The loan to deposit ratio as of September 30, 1994 was 43.2% as compared
to 42.7% as of December 31, 1993.
1993 was marked by an improved economy in the Company's operating
region and the Company posted significant increases in deposits, assets
and net income. Although loan growth improved in 1993, new deposit funds
were primarily directed to the investment securities portfolio and
short-term money market instruments. At year-end 1993, total assets were
$2.0 billion, of which $701.4 million, or 35% were in loans and $1.1
billion, or 55% were in investment securities and short-term money market
instruments. During 1993, investment securities and short-term money
market instruments increased $447.1 million while loans increased $90.4
million. Deposits increased $409.3 million, or 31%, of which $254.9
million were the result of acquisition activities.
Average Balances and Net Interest Income
For the first nine months of 1994, average interest earning assets
totaled $2.0 billion, an increase of $447.6 million, or 28%, over year-end
1993. This increase resulted primarily from the increase in the average
balance of investment securities, which rose $391.6 million, and the
increase in the average balance of loans, which rose $82.6 million. The
growth was funded by deposit growth of $154.9 million and the use of
wholesale funding sources which increased by $230.9 million. Yields on
investment securities are typically lower than loan yields due to factors
such as increased liquidity and reduced credit risk. Since the Company's
investment portfolio is comprised of fixed rate U.S. Government agency
mortgage-backed securities, these securities tend to be more interest rate
sensitive than the Company's loan portfolio, which has a higher
composition of floating rate instruments. The Company's investment
portfolio yielded 6.28% during the first nine months of 1994. The average
interest rate on the Company's repurchase agreements was 4.04% during this
same period. The increased use of wholesale funding sources and the
reinvestment of the proceeds in higher yielding U.S. Government agency
mortgage-backed securities had a beneficial effect on net interest income
17
<PAGE>
in 1994. The recent rise in general market interest rates will result in a
decrease of this benefit during 1995.
The tax equivalent yield on interest earning assets for the nine
months ended September 30, 1994 was 7.11%, a decrease of 7 basis points
from 7.18% in 1993. Investment securities purchased in the lower interest
rate environment in late 1993 and the first quarter of 1994 contributed to
this small decline.
During 1993, average interest earning assets totaled $1.6 billion, an
increase of $425.2 million, or 36% over 1992. Most of the rise in interest
earning assets occurred in the investment portfolio as a result of
increased deposit volume, the use of securities sold under agreements to
repurchase, and modest loan growth. The tax equivalent yield on interest
earning assets was 7.18%, a decrease of 74 basis points from 7.92% in
1992. This decline resulted primarily from the significant decline in
interest rates during the year which caused an acceleration in the rate of
prepayments in the Company's mortgage-backed securities investment
portfolio, which resulted in a decrease in the portfolio yield.
The following table sets forth balance sheet items on a daily average
basis for the years ended December 31, 1993, 1992 and 1991 and for the
nine months ended September 30, 1994 and presents the daily average
interest rates earned on assets and the daily average interest rates paid
on liabilities for such periods.
18
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
--------------------------------- --------------------------------------------------------------------
1994 1993 1992 1991
--------------------------------- -------------------------------- --------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment
securities
Taxable ...... $1,274,279 $ 60,044 6.28% $ 879,864 $ 55,925 6.36% $ 488,751 $35,855 7.34%
Tax-exempt ... 964 78 10.77 3,758 372 9.90 7,769 725 9.33
---------- -------- ------ ---------- -------- ---- ---------- ------- -----
Total investment
securities ..... 1,275,243 60,122 6.29 883,622 56,297 6.37 496,520 36,580 7.37
Federal funds sold 25,089 687 3.65 51,718 1,524 2.95 71,310 2,421 3.40
Loans
Mortgage and
construction ... 435,058 28,844 8.84 380,222 34,432 9.06 360,702 32,485 9.01
Commercial ... 124,850 7,995 8.54 129,687 9,565 7.38 112,078 9,264 8.27
Consumer ..... 171,261 10,498 8.17 139,237 11,744 8.43 117,422 10,711 9.12
Tax-exempt ... 9,239 688 9.92 8,626 861 9.98 9,874 1,010 10.23
---------- -------- ------ ---------- -------- ---- ---------- ------- -----
Total loans ...... 740,408 48,025 8.65 657,772 56,602 8.61 600,076 53,470 8.91
Total earning
assets......... $2,040,740 $108,834 7.11% $1,593,112 $114,423 7.18% $1,167,906 $92,471 7.92%
========== ======== ====== ========== ======== ==== ========== ======= =====
Sources of Funds
Interest-bearing
liabilities
Regular
savings .... $ 513,322 $ 8,883 2.31% $ 446,013 $ 12,091 2.71% $ 340,454 $12,957 3.81%
N.O.W.
accounts ... 311,045 4,174 1.79 260,177 5,375 2.07 186,889 5,525 2.96
Money market
plus ....... 156,554 2,789 2.38 121,666 3,114 2.56 121,225 3,943 3.25
Time deposits. 387,158 11,793 4.06 327,270 14,702 4.49 253,870 13,801 5.44
Public funds . 94,982 2,661 3.74 152,994 5,054 3.30 105,787 4,156 3.93
---------- -------- ----- ---------- -------- ---- ---------- ------- -----
Total deposits ... 1,463,061 30,300 2.76 1,308,120 40,336 3.08 1,008,225 40,382 4.01
Repurchase
agreements . 321,386 9,744 4.04 90,442 3,000 3.32 - - -
Long-term debt 23,000 1,519 8.80 10,712 930 8.68 - - -
Total deposits and
interest-bearing
liabilities .... 1,807,447 41,563 3.07 1,409,274 44,266 3.14 1,008,225 40,382 4.01
Non-interest-bearing
funds (net) .... 233,293 - - 183,838 - - 159,681 - -
---------- -------- ----- ---------- ------- ----- ---------- ------- -----
</TABLE>
Years Ended December 31,
---------------------------------
1991
---------------------------------
Average Average
Balance Interest Rate
-------- -------- -------
(Dollars in Thousands)
Earning Assets:
Investment
securities
Taxable ...... $264,117 $22,231 8.42%
Tax-exempt ... 7,420 882 11.89
-------- ------- -----
Total investment
securities ..... 271,537 23,113 8.51
Federal funds sold 51,534 2,931 5.69
Loans
Mortgage and
construction ... 337,449 33,171 9.83
Commercial ... 111,453 10,642 9.55
Consumer ..... 103,115 10,932 10.60
Tax-exempt ... 12,944 1,459 11.27
-------- ------- -----
Total loans ...... 564,961 56,204 9.95
Total earning
assets......... $888,032 $82,248 9.26%
======== ======= =====
Sources of Funds
Interest-bearing
liabilities
Regular
savings .... $213,053 $11,260 5.29%
N.O.W.
accounts ... 141,656 6,318 4.46
Money market
plus ....... 112,097 5,470 4.88
Time deposits. 255,808 17,634 6.89
Public funds . 38,362 2,345 6.11
-------- ------- -----
Total deposits ... 760,976 43,027 5.65
Repurchase
agreements . - - -
Long-term debt - - -
Total deposits and
interest-bearing
liabilities .... 760,976 43,027 5.65
Non-interest-bearing
funds (net) .... 127,056 - -
-------- ------- -----
19
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
--------------------------------- --------------------------------------------------------------------
1994 1993 1992 1991
--------------------------------- -------------------------------- --------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total sources to
fund
earning assets . $2,040,740 41,563 2.72 $1,593,112 44,266 2.78 $1,167,906 $40,382 3.46
Net interest
income and
margin tax
equivalent
basis (3) ...... 67,271 4.39 70,157 4.40 52,089 4.46
Tax-exempt
adjustment ..... 268 432 590
------- ------- ------
Net interest
income and
margin......... $67,003 4.37% $69,725 4.38% $51,499 4.41%
======= ==== ======= ==== =======
Other Balances:
Cash and due from
banks.......... $ 91,374 $ 76,422 $ 59,723
Other assets ..... 103,135 88,612 61,859
Total assets ..... 2,224,108 1,747,989 1,280,097
Demand deposits
(non-interest
bearing) ....... 300,118 238,972 190,499
Other liabilities. 12,533 11,237 11,793
Stockholders'
equity......... 104,008 88,506 69,580
</TABLE>
Years Ended December 31,
---------------------------------
1991
---------------------------------
Average Average
Balance Interest Rate
-------- -------- -------
(Dollars in Thousands)
Total sources to
fund
earning assets . $888,032 43,027 4.85
Net interest
income and
margin tax
equivalent
basis (3) ...... 39,221 4.41
Tax-exempt
adjustment ..... 796
-------
Net interest
income and
margin......... $38,425 4.32%
======= ====
Other Balances:
Cash and due from
banks.......... $ 55,476
Other assets ..... 51,211
Total assets ..... 986,867
Demand deposits
(non-interest
bearing) ....... 156,665
Other liabilities. 14,457
Stockholders'
equity......... 54,769
----------
Notes - Weighted average yields on tax-exempt obligations have been
computed on a tax equivalent basis assuming a federal tax rate of
approximately 35% for all periods presented.
- Non-accrual loans have been included in the average loan balance.
- Investment securities includes investments available for sale.
- Mortgage and construction loans include mortgage loans held for
sale.
20
<PAGE>
Net Interest Income and Net Interest Margin
Net interest income on a tax-equivalent basis (which adjusts for the
tax-exempt status of income earned on certain loans and investments to
express such income as if it were taxable) for the first nine months of
1994 was $67.3 million, up $17.1 million, or 34%, from $50.2 million for
the first nine months of 1993. The improvement in net interest income was
mainly due to volume increases in the investment portfolio. For the nine
month period ended September 30, 1994, investment securities increased by
$193.4 million from $1.1 billion to $1.3 billion.
For the first nine months of 1994, the tax-equivalent yield on
interest earning assets was 7.11%, a decline of 22 basis points from 7.33%
during the first nine months of 1993. Total funding costs decreased 13
basis points from 2.85% to 2.72% during the period. The decline in yield
on interest earning assets from 1993 to 1994 was due primarily to
investment securities purchased in the lower interest rate environment in
late 1993 and the first quarter of 1994. The decline in total funding
costs during that period was due primarily to lower costs of deposits and
an increase in non-interest bearing funds.
Net interest margin on a tax-equivalent basis for the nine months
ended September 30, 1994 and 1993 was 4.39% and 4.48%, respectively.
Net interest income on a tax-equivalent basis for 1993 was $70.2
million, an increase of $18.1 million, or 35%, over 1992.
During 1993, interest income on a tax-equivalent basis increased to
$114.4 million from $92.5 million in 1992, or 24%. This increase was
entirely related to volume increases in investment securities and more
than offset the lower interest rates prevalent during 1993.
Interest expense for 1993 rose $3.9 million to $44.3 million, from
$40.4 million in 1992, or 10%. This increase was attributable to increased
deposit volume which overshadowed the significant decline in interest
rates during the year. The cost of interest-bearing liabilities was 2.78%,
a decline of 68 basis points from 3.46% for the prior year.
Net interest margin on a tax-equivalent basis was 4.40% for 1993, a
decline of six basis points from 1992.
The following table presents the major factors that contributed to the
changes in net interest income for the years ended December 31, 1993 and
1992 and for the nine months ended September 30, 1994, as compared to the
respective previous periods.
21
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1994 vs. 1993 1993 vs. 1992 1992 vs. 1991
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1) Due to Changes in (1)
----------------------------- ---------------------------- -----------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------- ---- ----- ------ ---- ----- ------ ---- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments:
Taxable................. $22,552 $(1,581) $20,971 $24,860 $(4,790) $20,070 $16,479 $ (2,854) $13,625
Tax-exempt.............. (271) 40 (231) (397) 44 (353) 33 (190) (157)
Federal funds sold...... (890) 314 (576) (577) (320) (897) 671 (1,181) (510)
Interest on loans:
Mortgage and
construction.......... 3,633 3 3,636 1,768 179 1,947 2,094 (2,781) (687)
Commercial.............. 291 652 943 1,299 (998) 301 52 (1,430) (1,378)
Consumer................ 2,160 (208) 1,952 1,840 (807) 1,033 1,305 (1,526) (221)
Tax-exempt.............. 33 7 40 (125) (24) (149) (314) (135) (449)
------- ------- ------- ------- ------- ------- ------- -------- -------
Total interest income..... 27,508 (773) 26,735 28,668 (6,716) 21,952 20,320 (10,097) 10,223
------- ------- ------- ------- ------- ------- ------- -------- -------
Interest expense:
Regular savings......... 1,397 (1,791) (394) 2,862 (3,728) (866) 4,849 (3,152) 1,697
N.O.W. accounts......... 866 (781) 85 1,514 (1,664) (150) 1,337 (2,130) (793)
Money market plus....... 706 (214) 492 11 (840) (829) 297 (1,824) (1,527)
Time deposits........... 2,560 (1,166) 1,394 3,297 (2,396) 901 (105) (3,728) (3,833)
Public funds............ (1,734) 481 (1,253) 1,559 (661) 898 2,649 (838) 1,811
Repurchase agreements... 7,895 336 8,231 3,000 - 3,000 - - -
Long-term debt.......... 1,085 10 1,095 930 - 930 - - -
------- ------- ------- ------- ------- ------- ------- -------- -------
Total interest expense.... 12,775 (3,125) 9,650 13,173 (9,289) 3,884 9,027 (11,672) (2,645)
------- ------- ------- ------- ------- ------- ------- -------- -------
Net increase.............. $14,733 $ 2,352 $17,085 $15,495 $ 2,573 $18,068 $11,293 $ 1,575 $12,868
======= ======= ======= ======= ======= ======= ======= ======== =======
</TABLE>
----------
(1) Changes due to both volume and rate have been allocated to volume or
rate changes in proportion to the absolute dollar amounts of the
change in each.
Non-Interest Income
For the nine months ended September 30, 1994, non-interest income
increased $522 thousand as compared to the same nine month period in 1993.
Increased deposit charges and service fees, which increased $1.7 million
due to transaction volumes, offset a significant decrease in net
investment securities gains. The 1994 gain of $641 thousand was from the
sale of equity securities. 1993 gains of $2.5 million resulted from the
sale of debt securities from the Company's available for sale portfolio.
For 1993, non-interest income totaled $17.3 million, an increase of
$5.2 million or 43% from $12.1 million in 1992. Included in non-interest
income in 1993 and 1992 were investment securities gains of $3.0 million
22
<PAGE>
and $249 thousand, respectively. Excluding these gains, non-interest
income would have increased $2.5 million or 21% compared to 1992.
Deposit charges and service fees increased $2.2 million, or 22%, to
$12.1 million in 1993. This increase was spread among various types of
personal and business demand deposit accounts and was attributable to the
significant increase in the number of accounts and in increased deposit
account transaction volume.
Other operating income rose $346 thousand, or 17%, to $2.3 million.
Net investment securities gains of $3.0 million were recognized in 1993
compared to net gains of $249 thousand in 1992.
Non-Interest Expenses
One key measure used to monitor progress in controlling overhead
expenses is the ratio of non-interest expenses to average assets. For the
first nine months of 1994, this ratio equaled 3.17% versus 3.36% for the
comparable 1993 period. This ratio equalled 3.31% and 3.35% in 1993 and
1992, respectively. Another productivity measure is the operating
efficiency ratio. The operating efficiency ratio (non-interest expenses,
less other real estate expenses, divided by net interest income plus
non-interest income excluding non-recurring gains) was 63.55% for the
first nine months of 1994 as compared to 63.67% for the first nine months
of 1993. This ratio was 64.11% and 64.53% for the years 1993 and 1992,
respectively.
For the nine months ended September 30, 1994, non-interest expense
increased by $11.4 million, or 28% over the first nine months of 1993.
Contributing to this increase was branch activity, including the
acquisitions of four branch offices in July 1993 and the three branch
offices of The Coastal Bank in September 1993, and the opening of new
branches. As a result of the addition of these offices, staff, facilities,
and related expenses rose accordingly. Salaries and benefits increased
$3.4 million and $1.4 million, respectively, due to the increase in the
number of full-time equivalent (FTE) employees caused primarily by the
branch expansions over the past year. Occupancy, furniture and equipment,
and office expenses increased $1.5 million, $1.8 million, and $1.4
million, respectively, over the first nine months of 1993 due to expenses
associated with the increased number of branch facilities.
Audit and regulatory fees and assessments for the first nine months of
1994 increased $750 thousand over the comparable 1993 period due to
increased deposits and associated Federal deposit insurance premiums on
such deposits. Marketing expense increased $541 thousand due to expanded
branch facilities and the related new markets. Other real estate expenses
for the first nine months of 1994 decreased by $901 thousand over the
comparable 1993 period consistent with the decrease in the other real
estate portfolio. Other non-interest expenses totaled $6.7 million for the
first nine months of 1994, an increase of $1.5 million over 1993. Higher
loan expenses, amortization of intangible assets, legal fees, travel and
entertainment expenses, and banking service charges all contributed to
this increase.
23
<PAGE>
Non-interest expenses totaled $57.9 million for 1993, an increase of
$15.0 million, or 35% over 1992. Contributing to this increase were the
acquisitions of four branch offices of Anchor Savings Bank, FSB in July
1993 and the three branch offices of The Coastal Bank in September 1993.
As a result of the addition of these offices plus two other new branch
offices, staff, facilities and related expenses rose accordingly.
Salary expenses of $18.7 million for 1993 were $4.8 million or 34%
higher than 1992. This increase was mainly a result of the 32% increase in
the number of FTE employees from 771 at year-end 1992 to 1,017 at year-end
1993. The increase in the number of FTE employees was primarily the result
of the branch expansion activities including acquisitions during 1993.
Employee benefits for 1993 totaled $4.9 million, an increase of $1.1
million or 30% over 1992. This increase was mainly due to increased
medical insurance costs, payroll taxes, and other benefits for the
increased level of FTE employees.
Occupancy expenses totaled $5.9 million for 1993, an increase of $694
thousand, or 13% compared to the prior year. This increase was due to the
increased branch facilities, depreciation and maintenance costs.
Furniture and equipment expenses of $6.3 million for 1993 were $1.4
million or 28% higher than 1992. This increase was due to increased
depreciation expense relating to increased capital expenditures associated
with refurbishing and equipping of acquired facilities and the ongoing
refurbishment of existing offices.
Office expenses of $4.7 million in 1993 were $1.2 million or 36%
greater than the prior year. This increase was primarily due to increased
telecommunications, stationery and supplies and other office expenses
related to the expanded facilities.
Audit and regulatory fees and assessments totaled $4.0 million for
1993, an increase of $1.1 million or 37% over 1992. This increase was
primarily due to increased federal deposit insurance premiums on a larger
volume of deposits. Although the rates on federal deposit insurance
premiums have increased significantly from $.083 per $100 of deposits in
1989 to $.23 per $100 of deposits at the end of 1993, the increase in
federal deposit insurance premiums in 1993 was unaffected by rate
adjustments.
Marketing expense totaled $1.8 million for 1993, an increase of $714
thousand or 67% over 1992. This increase was due to costs associated with
the opening of new and acquired facilities, special promotional
activities, and direct marketing campaigns undertaken in 1993.
Other real estate expenses totaled $3.9 million for 1993, an increase
of $2.0 million over 1992. This increase was attributable to expenses
related to a higher level of other real estate owned and loans categorized
as in-substance foreclosures.
Other non-interest expenses totaled $7.6 million for 1993, an increase
of $2.0 million or 36% from 1992. This increase was the result of higher
24
<PAGE>
provisions for non-credit-related losses, increased legal fees and
business travel and entertainment expenses.
Income Taxes
The provision for federal and state income taxes for 1993 was $8.6
million compared to $4.4 million for 1992 and $2.0 million in 1991.
The increase in 1993 total tax expense was primarily the result of an
increase in the federal corporate tax rate to 35%, a significant increase
in operating income and a reduction in tax-exempt income. As tax-exempt
income decreases with an increase in operating income the effect is an
increase in the tax provision and effective tax rate. The effective tax
rate was 37.1% in 1993, 30.7% in 1992, and 24.9% in 1991.
Net Income
Net income for the first nine months of 1994 was $15.4 million, an
increase of $4.9 million, or 47% over the $10.5 million recorded in the
first nine months of 1993. This increase was due to a significant increase
in net interest income, as well as reduced loan loss provisions and an
increase in non-interest income which offset increased overhead expenses.
On a per share basis, fully-diluted net income for the first nine months
of 1994 was $1.59 per common share compared to $1.15 per common share for
the respective 1993 period.
Net income for 1993 was $14.6 million, an increase of $4.6 million, or
46% over the $10.0 million recorded for 1992. This increase was
accomplished by a substantial improvement in net interest income despite
modest loan growth and lower interest rates which negatively affected
margins.
Fully-diluted net income per share of common stock for 1993 was $1.59
compared to $1.25 per common share for 1992.
Return on Average Equity and Average Assets
Two industry measures of the performance by a banking institution are
its return on average assets and return on average equity. Return on
average assets ("ROA") measures net income in relation to total average
assets and indicates a Company's ability to employ its resources
profitably. Return on average equity ("ROE") is determined by dividing
annual net income by average stockholders' equity and indicates how
effectively a company can generate net income on the capital invested by
its stockholders.
ROA and ROE for the first nine months of 1994 were 0.93% and 19.80%,
respectively, compared to 0.85% and 16.54% for the first nine months of
1993. For 1993, the Company's ROA was 0.84%, compared to 0.78% in 1992.
For 1993, the Company's ROE was 16.51% compared to 14.40% for 1992.
25
<PAGE>
Loan Portfolio
The following table summarizes the loan portfolio of the Company by
type of loan as of December 31, for each of the years 1993 through 1989
and as of September 30, 1994.
<TABLE>
<CAPTION>
September 30, December 31,
------------- ----------------------------------------------------
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate:
Owner-occupied ............. $152,414 $157,452 $146,739 $127,398 $119,919 $ -
Other....................... 170,933 136,819 117,743 107,178 97,608 -
Taxable..................... - - - - - 180,984
Tax-exempt.................. - - - - - 16,227
Construction................ 52,826 45,926 39,555 41,280 51,933 59,599
-------- -------- -------- -------- -------- --------
376,173 340,197 304,037 275,856 269,460 256,810
Commercial:
Term ....................... 85,007 91,336 86,666 79,972 75,509 73,611
Line of credit.............. 33,934 36,928 26,837 32,327 33,051 27,967
Demand...................... 275 404 1,075 2,510 2,862 1,994
-------- -------- -------- -------- -------- --------
119,216 128,668 114,578 114,809 111,422 103,572
Consumer:
Mortgages (1-4 family
residential) ............. 79,132 71,583 67,454 77,285 76,560 77,841
Installment................. 97,950 74,684 54,541 45,162 39,817 31,460
Home equity................. 86,362 78,619 63,537 56,704 50,077 41,581
Credit lines................ 6,461 7,611 6,821 8,464 6,589 5,323
-------- -------- -------- -------- -------- --------
269,905 232,497 192,353 187,615 173,043 156,205
-------- -------- -------- -------- -------- --------
Total loans................... $765,294 $701,362 $610,968 $578,280 $553,925 $516,587
======== ======== ======== ======== ======== ========
Annual growth rate............ 12.15% 14.80% 5.65% 4.40% 7.23% 28.44%
</TABLE>
For loans originated in 1994, the average construction loan was
approximately $532,000, the average commercial real estate loan (excluding
construction loans) was approximately $382,000 and the average commercial
loan was approximately $81,000.
The Company manages risk associated with its loan portfolio through
diversification, underwriting policies and procedures which are reviewed
and updated on at least an annual basis, and ongoing loan monitoring
efforts. The commercial real estate portfolio includes owner-occupied
(owner occupies greater than 50% of the property), other commercial real
estate, and construction loans. Owner-occupied and other commercial real
estate loans have five year calls, and generally bear the personal
guarantees of the principals involved. Construction loans are primarily
used for residential single family properties. Financing is provided
against firm agreements of sale, with speculative construction limited to
one sample per project. The commercial loan portfolio is comprised
primarily of amortizing loans to small businesses in the Southern New
Jersey/Southeastern Pennsylvania market area. These loans are generally 25
secured by business assets, personal guarantees, and/or personal assets of
the borrower. The consumer loan portfolio is comprised primarily of loans
26
<PAGE>
secured by first and second mortgage liens on residential real estate.
Such loans comprised approximately 88% of consumer loans at September 30,
1994.
The maturity ranges of the loan portfolio and the amount of loans with
predetermined interest rates and floating rates in each maturity range, as
of September 30, 1994, are summarized in the following table.
<TABLE>
<CAPTION>
September 30, 1994
------------------------------------------------------
Due in One Due in One to Due in Over
Year or Less Five Years Five Years Total
------------ ------------- ----------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate:
Commercial ............................. $ 56,280 $251,034 $ 16,033 $323,347
Construction ........................... 35,973 16,219 634 52,826
-------- -------- -------- --------
92,253 267,253 16,667 376,173
Commercial:
Term ................................... 29,215 50,357 5,435 85,007
Line of credit.......................... 31,793 2,141 - 33,934
Demand ................................. 275 - - 275
-------- -------- ------- --------
61,283 52,498 5,435 119,216
Consumer:
Mortgages (1-4 family residential)...... 5,943 22,210 50,979 79,132
Installment............................. 16,506 40,528 40,916 97,950
Home equity ............................ 3,758 21,869 60,735 86,362
Credit lines............................ 2,132 4,329 - 6,461
-------- -------- -------- --------
28,339 88,936 152,630 269,905
-------- -------- -------- --------
Total loans .............................. $181,875 $408,687 $174,732 $765,294
======== ======== ======== ========
Interest rates:
Predetermined .......................... $ 49,202 $170,630 $135,504 $355,336
Floating................................ 132,673 238,057 39,228 409,958
-------- -------- -------- --------
Total loans .............................. $181,875 $408,687 $174,732 $765,294
======== ======== ======== ========
</TABLE>
During the first nine months of 1994, loans increased $63.9 million
from $701.4 million to $765.3 million. At September 30, 1994, loans
represented 43% of total deposits and 34% of total assets. The increase in
the loan portfolio was due primarily to loans secured by one to four
family residential properties (including home equity loans) and loans
secured by commercial real estate properties.
During 1993, loans increased $90.4 million, or 15% from $611.0 million
to $701.4 million. The increase was attributable to the stabilization of
local economic conditions and real estate market values. The Company has
traditionally been an active provider of commercial real estate loans to
27
<PAGE>
credit worthy local borrowers, with such loans secured by properties
within the Company's primary trade area. These loans generally bear the
personal guarantees of the principals involved. At December 31, 1993,
$157.5 million, or 54%, of commercial real estate loans (other than
construction) were secured by owner-occupied properties.
Commercial real estate construction loans increased $6.4 million to
$45.9 million in 1993, reflecting an improved economy. At December 31,
1993, construction loans for one to four family residential dwellings
totaled $4.0 million and construction loans secured by commercial
properties amounted to $16.5 million. The balance of $25.4 million was for
land development, of which $24.9 million was residential. As of December
31, 1993, there were no concentrations of loans to any one type of
industry exceeding 10% of total loans nor were there any loans classified
as highly leveraged transactions.
Non-Performing Loans and Assets
Total non-performing assets (includes non-performing loans and other
real estate and excludes loans past due 90 days or more and still accruing
interest) at September 30, 1994 were $23.9 million, or 1.06% of total
assets compared to $26.9 million or 1.32% of total assets at December 31,
1993.
Total non-performing loans (includes non-accrual loans and
restructured loans and excludes loans past due 90 days or more and still
accruing interest) at September 30, 1994 were $10.7 million or 1.40% of
total loans compared to $8.5 million or 1.22% of total loans at December
31, 1993. The Company generally places a loan on non-accrual status and
ceases accruing interest when loan payment performance is deemed
unsatisfactory. Generally loans past due 90 days are placed on non-accrual
status, unless the loan is both well secured and in the process of
collection. At September 30, 1994, loans past due 90 days or more and
still accruing interest amounted to $199 thousand compared to $272
thousand at December 31, 1993. Additional loans considered potential
problem loans by the Company's internal loan review department totaling
$6.6 million at September 30, 1994 and $7.7 million at December 31, 1993
have been evaluated as to risk exposure in determining the adequacy of the
allowance for loan losses.
Other real estate (ORE) at September 30, 1994 totaled $13.2 million
compared to $18.3 million at December 31, 1993. The ORE total of $13.2
million at September 30, 1994 includes $7.2 million, involving 28 parcels
of real estate, which the Company actually owns. These properties have
been written down to the lower of cost or fair value less disposition
costs. The remaining portion of ORE relates to in-substance foreclosures
which totaled $6.0 million at September 30, 1994. In-substance foreclosure
is an accounting treatment for troubled real estate loans where collateral
is considered to be effectively foreclosed or where the borrower has
little or no equity in the collateral, sources of repayment depend on the
operation or sale of the collateral, and the borrower has abandoned
control of the collateral. In some cases, the borrower may retain control
of the collateral, but because of financial weakness or economic prospects
of the collateral, it is unlikely that the borrower will rebuild equity in
the collateral. When the Company identifies a property as in-substance
28
<PAGE>
foreclosure, a current appraisal is obtained. Differences between the fair
market value and carrying value, if any, are charged to the reserve for
loan losses. Lengthy delays in obtaining title and possession of many of
the properties involved as in-substance foreclosures are common and have
hindered the Company's efforts to expeditiously dispose of problem assets.
With improved local economic conditions and stabilization in local
real estate values, the Company's loan portfolio quality showed
improvement in 1993. Non-performing assets at December 31, 1993 were $26.9
million or 1.32% of total assets, compared to $32.4 million or 2.26% of
total assets at December 31, 1992.
Total non-performing loans at December 31, 1993 were $8.5 million
compared to $16.3 million a year ago. At December 31, 1993, loans past due
90 days or more and still accruing interest amounted to $272 thousand,
down from $1.2 million at December 31, 1992. Additionally, loans
considered as potential problem loans ($7.7 million at December 31, 1993
and $7.9 million at December 31, 1992) by the Company's internal loan
review department have been evaluated as to risk exposure in determining
the adequacy of the allowance for loan losses.
Other real estate (ORE) at December 31, 1993 totaled $18.3 million,
compared to $16.1 million at December 31, 1992. The ORE total of $18.3
million includes $4.5 million, involving 25 parcels of real estate, which
the Company actually owns.
The remaining $13.8 million of ORE at December 31, 1993 related to
in-substance foreclosures. Of the $13.8 million in in-substance
foreclosures, two parcels of real estate securing two separate loans to
one borrowing interest totaled $3.1 million and one parcel of real estate
securing one residential tract loan totaled $3.4 million. The remaining
$7.3 million of in-substance foreclosures involved 24 borrowers and 30
parcels of real estate. At December 31, 1993, $9.2 million or 34% of
non-performing assets were concentrated in loans to four separate
borrowers and their related interests, compared to a concentration of
$11.4 million or 35% of non-performing assets at December 31, 1992.
During periods when real estate market values are declining, the
Company updates appraisals on loans secured by real estate, particularly
those categorized as non-performing loans and potential problem loans. In
those instances where updated appraisals reflect reduced collateral
values, an evaluation of the borrowers' overall financial condition is
made to determine the need, if any, for possible writedowns, appropriate
additions to the allowance for loan losses, or treatment as in-substance
foreclosures.
The following summary presents information regarding non-performing
loans and assets and loans past due 90 days or more and still accruing
interest as of December 31, 1993 through 1989 and as of September 30,
1994.
29
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------- -----------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans (1):
Commercial............ $ 1,810 $ 2,348 $ 5,943 $ 3,669 $ 3,211 $ 906
Consumer.............. 1,629 1,676 1,678 1,778 498 109
Real estate
Construction ....... 922 866 1,666 3,555 2,282 -
Mortgage............ 5,908 3,482 7,022 6,674 8,045 2,448
-------- -------- -------- ------- ------- -------
Total non-accrual loans. 10,269 8,372 16,309 15,676 14,036 3,463
-------- -------- -------- ------- ------- -------
Restructured loans (1):
Commercial............ 157 84 - 37 84 97
Consumer.............. - - - - - -
Real estate
Construction........ - - - - - -
Mortgage ........... 280 84 - - 203 282
-------- -------- -------- ------- ------- -------
Total restructured loans 437 168 - 37 287 379
-------- -------- -------- ------- ------- -------
Total non-performing
loans................. 10,706 8,540 16,309 15,713 14,323 3,842
-------- -------- -------- ------- ------- -------
Other real estate ...... 13,170 18,325 16,102 8,326 3,373 322
-------- -------- -------- ------- ------- -------
Total non-performing
assets ............... $23,876 $26,865 $32,411 $24,039 $17,696 $4,164
======== ======== ======== ======= ======= =======
Non-performing assets as
a percent of total
assets................ 1.06% 1.32% 2.26% 2.26% 1.88% 0.53%
Non-performing assets
and loans past due 90
days or more and still
accruing interest as a
percent of total
assets................ 1.07 1.33 2.34 2.33 2.04 0.58
Loans past due 90 days
or more and still
accruing interest..... $199 $272 $1,202 $787 $1,508 $443
</TABLE>
----------
(1) Interest income of approximately $895,000, $639,000, $1,580,000,
$1,939,000 and $1,948,000 would have been recorded for the nine months
ended September 30, 1994 and in 1993, 1992, 1991 and 1990,
respectively, on non-performing loans in accordance with their
original terms. Actual interest recorded on these loans amounted to
30
<PAGE>
$209,000 for the nine months ended September 30, 1994, $270,000 in
1993, $513,000 in 1992, $370,000 in 1991 and $878,000 in 1990. In
1989, the difference between the interest income contractually due on
non-performing loans and the interest actually recorded was
immaterial.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges
to earnings in the form of a provision for loan losses. Management has
established a loan loss reserve which it believes is adequate for
estimated losses in its loan portfolio. Based on an evaluation of the loan
portfolio, management presents a quarterly review of the loan loss reserve
to the Board of Directors, indicating any changes in the reserve since the
last review and any recommendations as to adjustments in the reserve. In
making its evaluation, management considers the results of recent
regulatory examinations, the effects on the loan portfolio of current
economic indicators and their probable impact on borrowers, the amount of
charge-offs for the period, the amount of non-performing loans and related
collateral security, the evaluation of its loan portfolio by the internal
loan review department and the annual examination of the Company's
financial statements by its independent auditors. Charge-offs occur when
loans are deemed to be uncollectible.
For the first nine months of 1994, net loan chargeoffs totaled $1.9
million or 0.33% of average loans outstanding during the period, compared
to $4.5 million or 0.93% of average loans outstanding for the comparable
1993 period. During the first nine months of 1994, the Company recorded
provisions of $3.2 million to the allowance for loan losses compared to
$4.7 million for the comparable 1993 period. At September 30, 1994, the
allowance totaled $11.3 million or 1.48% of total loans and provided
coverage for 106% of non-performing loans.
During 1993, net charge-offs amounted to $5.8 million, or .88% of
average loans outstanding for the year, compared to $6.3 million or 1.06%
of average loans outstanding for 1992. During 1993, the Company recorded
provisions of $6.0 million to the allowance for loan losses compared to
$6.3 million for 1992. At December 31, 1993, the allowance aggregated
$10.0 million or 1.43% of total loans and provided coverage of 117% of
non-performing loans.
The following table presents, for the periods indicated, an analysis
of the allowance for loan losses and other related data.
31
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------- ----------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- ------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period ..... $10,023 $ 8,839 $ 8,899 $ 6,636 $ 3,787 $2,851
Provisions charged to operating
expenses ......................... 3,160 5,981 6,286 5,541 5,095 1,385
-------- -------- ------- -------- -------- -------
Total ............................. 13,183 14,820 15,185 12,177 8,882 4,236
Recoveries of loans previously
charged-off:
Commercial ....................... 71 213 102 129 107 117
Consumer.......................... 93 295 69 69 67 45
Real estate ...................... 1 112 42 3 6 13
-------- -------- ------- -------- -------- -------
Total recoveries.................... 165 620 213 201 180 175
-------- -------- ------- -------- -------- -------
Loans charged-off:
Commercial ....................... (1,285) (4,337) (1,997) (2,034) (1,124) (442)
Consumer.......................... (383) (1,113) (788) (683) (434) (149)
Real estate ...................... (352) (967) (3,774) (762) (868) (33)
-------- -------- ------- -------- -------- -------
Total charged-off................... (2,020) (6,417) (6,559) (3,479) (2,426) (624)
-------- -------- ------- -------- -------- -------
Net charge-offs..................... (1,855) (5,797) (6,346) (3,278) (2,246) (449)
-------- -------- ------- -------- -------- -------
Allowance for loan losses acquired
bank ............................. - 1,000 - - - -
-------- -------- ------- -------- -------- -------
Balance at end of period............ $11,328 $10,023 $ 8,839 $ 8,899 $ 6,636 $3,787
======== ======== ======= ======== ======== =======
Net charge-offs as a percentage of
average loans outstanding......... 0.33% 0.88% 1.06% 0.58% 0.41% 0.10%
Allowance for loan losses as a
percentage of year-end loans ..... 1.48% 1.43% 1.45% 1.54% 1.20% 0.73%
</TABLE>
Allocation of the Allowance for Loan Losses
The following table details the allocation of the allowance for loan
losses to the various categories. The allocation is made for analytical
purposes and it is not necessarily indicative of the categories in which
future loan losses may occur. The total allowance is available to absorb
losses from any segment of loans.
32
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------------------- ------------------- ------------------- -------------------- --------------------
% of % of % of % of % of
Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans
------ ----------- ------ ----------- ------ ----------- ------- ----------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial ... $ 2,008 18% $2,532 18% $2,470 20% $ 1,770 20% $ 937 20%
Consumer ..... 1,983 33 1,373 33 1,507 32 853 31 902 30
Real Estate... 6,032 49 4,934 49 4,922 48 4,013 49 1,948 50
------- --- ------ --- ------ --- ------ --- ------ ---
$10,023 100% $8,839 100% $8,899 100% $6,636 100% $3,787 100%
======= === ====== === ====== === ====== ==== ======= ===
</TABLE>
Investment Securities
The following table summarizes the book value of securities available
for sale and securities held for investment by the Company as of the dates
shown.
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------------
1994 1993 1992 1991
------------ -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale ...... $ 126,640 $164,620 $309,894 $ -
========== ======== ======== =======
U.S. Government agency
mortgage-backed obligations ...... $1,131,320 $912,467 $269,479 $313,113
Obligations of state and political
subdivisions ..................... 404 1,871 5,720 8,723
Corporate securities................ - - 2,297 3,006
Collateralized mortgage obligations. 2,702 5,083 10,588 16,275
Other............................... 23,047 6,694 5,117 2,029
---------- -------- --------- --------
Securities held for investment...... $1,157,473 $926,115 $293,201 $343,146
========== ======== ========= ========
</TABLE>
Consistent with accounting and regulatory pronouncements, the Company
has segregated a portion of its investment portfolio as securities
available for sale. The balance of the investment portfolio is categorized
as securities held to maturity. Investment securities are classified as
available for sale if they might be sold in response to changes in
interest rates, prepayment risk, the Company's income tax position, the
need to increase regulatory capital, liquidity needs or other similar
factors. These securities are carried at the lower of cost or market.
33
<PAGE>
Investment securities are classified as held to maturity when the Company
has the intent and ability to hold those securities to maturity.
The Company's available for sale portfolio reflects those investment
securities that have the highest level of prepayment risk within the
investment portfolio. The Company's prepayment risk increased during 1992
and 1993 when historically low interest rates resulted in increased
prepayments. As a result of the Company's concerns regarding its level of
prepayment risk, the Company reclassified a portion of its held to
maturity portfolio during the third quarter of 1993. Investment securities
were reclassified if they had coupons of 8% or higher, an original
maturity of thirty years and were acquired prior to May 1, 1993. In
addition, all equity securities owned by the Company are classified as
available for sale. All other investment securities are classified as held
to maturity since the Company has the intent and ability to hold those
securities until maturity.
The Company's investment portfolio, which includes both the available
for sale and held to maturity portfolios, consists almost entirely of U.S.
Government agency mortgage-backed obligations. These securities have
little, if any credit risk since they are either backed by the full faith
and credit of the U.S. Government (GNMAs) or their principal and interest
payments are guaranteed by an agency of the U.S. Government (FHLMCs and
FNMAs). These investment securities carry fixed coupons whose rate does
not change over the life of the securities. Since most securities are
purchased at premiums or discounts, their yield will change depending on
any change in the estimated rate of prepayments. The Company amortizes
premiums and accretes discounts over the estimated average life of the
securities. Changes in the estimated average life of the investment
portfolio will lengthen or shorten the period in which the premium or
discount must be amortized or accreted, thus affecting the Company's
investment yields.
At September 30, 1994, the average life of the investment portfolio
was approximately 7.3 years compared to approximately 4.2 years at
December 31, 1993. The lengthening in the average life of the investment
portfolio was primarily due to the decreased rate of prepayments caused by
the rise in general interest rates during 1994. The Company's investment
portfolio did not contain any "high-risk" securities or derivatives as
of September 30, 1994 or December 31, 1993.
The Company accounts for its investment portfolio in accordance with
accounting and regulatory pronouncements, including Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"). Accordingly, the net unrealized
losses in the available for sale portfolio at September 30, 1994 of $2.8
million (net of taxes of $1.6 million) were recorded as an adjustment to
stockholders' equity as of September 30, 1994. SFAS 115 mandates that
investment securities classified as held to maturity be carried at
amortized cost. In accordance with SFAS 115, the Company has not recorded
the gross pre-tax unrealized losses on its held to maturity portfolio,
which amounted to $92.3 million as of September 30, 1994.
General interest rates have continued to climb subsequent to September
30, 1994. These rate increases have caused a further decline in the market
34
<PAGE>
values of the available for sale and held to maturity portfolios. As of
November 30, 1994, the unrealized losses in the Company's available for
sale portfolio amounted to $4.0 million (net of taxes of $2.2 million) and
the gross pre-tax unrealized losses in the Company's held to maturity
portfolio amounted to $109.6 million ($68.0 million after taxes). Since
the Company has the intent and ability to hold the securities in its held
to maturity portfolio until maturity, this unrealized loss will have no
impact on its future liquidity, financial condition, results of
operations, or capital ratios. The unrealized losses on the Company's held
to maturity portfolio are an indication that the yield and interest income
on its portfolio are less than the yield and interest income that could be
realized if the entire portfolio was reinvested into investment securities
at current market rates. The average life of the investment portfolio
increased from 7.3 years as of September 30, 1994 to 7.8 years as of
November 30, 1994. Further increases in interest rates are not expected to
materially change the rate of prepayments or materially extend the average
life of the investment portfolio.
During the first nine months of 1994, new funds (primarily from
wholesale sources) were used to increase the Company's securities held to
maturity portfolio. For the nine month period, securities available for
sale declined $38.0 million from $164.6 million to $126.6 million due
primarily to prepayments. Securities held to maturity increased $231.4
million from $926.1 million to $1.2 billion. Total securities increased
$193.4 million from $1.1 billion to $1.3 billion.
For the nine months ended September 30, 1994, the yield on the
investment portfolio was 6.29%, a decrease of 8 basis points from 6.37% in
fiscal 1993. The purchase of investment securities in the lower interest
rate environment in late 1993 and the first quarter of 1994 contributed to
the decrease. The increase in interest rates in the second and third
quarters of 1994 slowed the rate of prepayments on the mortgage-backed
securities portfolio and resulted in increased yields during the latter
portion of the nine months ended September 30, 1994. At September 30,
1994, the yield on the investment portfolio was 6.65% as compared to 6.25%
at September 30, 1993.
Total investment securities averaged $883.6 million for 1993, an
increase of $387.1 million or 78% over the 1992 average. The growth in the
investment portfolio was entirely in U.S. Government agency
mortgage-backed obligations which comprised essentially all of the
Company's $1.1 billion investment portfolio at December 31, 1993.
The 1993 yield on the investment portfolio was 6.37%, down 100 basis
points from 1992, reflecting the lower interest rate environment. The
lower interest rate environment caused an acceleration in the rate of
prepayments on the mortgage-backed securities portfolio. The acceleration
in prepayments decreased the average life of those securities held in the
portfolio during 1993 and was partially responsible for the resultant
decrease in the portfolio yield. The average life of the investment
portfolio was approximately 4.2 years at December 31, 1993, compared to
approximately 3.5 years at December 31, 1992. The average life of the
total portfolio increased in spite of the decrease in the average life
from accelerated prepayments as new mortgage-backed investment securities
purchased during the year were made at longer projected average lives.
35
<PAGE>
The contractual maturity distribution and weighted average yield of
the held to maturity segment of the Company's investment portfolio at
September 30, 1994, are summarized in the following table. Weighted
average yield is calculated by dividing income within each maturity range
by the outstanding amount of the related investment and has been tax
effected on tax-exempt obligations.
<TABLE>
<CAPTION>
September 30, 1994
-------------------------------------------------------------------------------------------------------
Due Under 1 Year Due 1-5 Years Due 5-10 Years Due over 10 Years Total
---------------- ---------------- ---------------- ------------------ -------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ------ ------ ----- ------ ----- ------ ------ ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agency mortgage-
backed
obligations..... $ 2 13.71% $19,544 6.60% $19,081 6.76% $1,092,693 6.81% $1,131,320 6.80%
State and
municipal bonds. 143 11.87 200 12.27 61 11.09 - - 404 11.85
Collateralized
mortgage
obligations .... - - - - - - 2,702 9.49 2,702 9.49
Other securities.. 7,832 2.37 10 5.52 995 9.50 14,210 5.94 23,047 4.88
------ ------- ------- ------ ------- ------ ---------- ---- ---------- -----
$7,977 2.54% $19,754 6.66% $20,137 6.92% $1,109,605 6.80% $1,157,473 6.77%
====== ======= ======= ====== ======= ====== ========== ===== ========== =====
</TABLE>
Deposits
Total average deposits for the nine months ended September 30, 1994
were $1.8 billion, up $216.1 million, or 14% over total average deposits
for 1993. Deposit growth during the first nine months of 1994 was largely
from the public sector.
For the first nine months of 1994, the total deposit cost was 2.29% as
compared to 2.61% for 1993. The decrease resulted from lower funding costs
of the Company's core deposit base due to market interest rates.
Total deposits averaged $1.6 billion for 1993, an increase of $348.4
million or 29% above the 1992 average. The growth in 1993 included the
acquisition of $254.9 million of deposits in the third quarter. See Note 2
of the Company's Notes to Consolidated Financial Statements which appear
elsewhere in this Prospectus. The Company remains a deposit-driven
financial institution with emphasis on core deposit accumulation and
retention as a basis for sound growth and profitability. Core deposits
consist of all deposits other than certificates of deposit, retail and
public, in excess of $100 thousand. Of the $409.3 million increase in
total deposits at year end 1993, $396.3 million or 97% were in the various
core deposit categories. The average balance of non-interest bearing
demand deposits was $239.0 million, a $48.5 million or 25% increase of the
36
<PAGE>
average balance for 1992. The average total balance of passbook and
statement savings accounts increased $105.6 million, or 31% compared to
the prior year. The average balance of interest-bearing demand accounts
(money market and NOW accounts) for 1993 was $381.8 million, a $73.7
million or 24% increase over the average balance for the prior year. The
average balance of time deposits for 1993 was $480.3 million or 34%
greater than the average balance for 1992.
During 1993, the cost of funds of all deposit categories declined as a
result of the significantly lower level of interest rates. The cost of all
interest-bearing liabilities declined 87 basis points from 4.01% to 3.14%
and the total cost of funds (which includes non-interest-bearing
liabilities) declined 68 basis points from 3.46% to 2.78%.
The Company believes that its record of sustaining core deposit growth
is reflective of the Company's retail approach to banking which emphasizes
a combination of free checking accounts (subject to a small minimum
balance requirement) convenient branch locations, extended hours of
operation, quality service, and active marketing.
The average balances and weighted average rates of deposits for each
of the years 1993, 1992 and 1991 and for the third quarter of 1994 are
presented below.
<TABLE>
<CAPTION>
Nine Months Ended Years Ended December 31,
September 30,
--------------------- ---------------------------------------------------------------------
1994 1993 1992 1991
--------------------- ---------------------- --------------------- --------------------
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
--------- --------- -------- --------- -------- ------- ------- -------
Demand Deposits: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing.... $ 300,118 - % $ 238,972 - % $ 190,499 - % $156,665 - %
Interest bearing
(money market and
N.O.W. accounts) ... 467,600 1.99 381,843 2.22 308,114 3.07 253,753 4.65
Savings deposits........ 513,322 2.31 446,013 2.71 340,454 3.81 213,053 5.29
Time deposits .......... 482,140 4.00 480,264 4.11 359,657 4.99 294,170 6.79
---------- ---- ---------- ---- ---------- ---- -------- ----
Total deposits.......... $1,763,180 $1,547,092 $1,198,724 $917,641
========== ========== ========== ========
</TABLE>
The remaining maturity of certificates of deposit for $100,000 or more
as of December 31, 1993, 1992 and 1991 and as of September 30, 1994, is
presented below.
37
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------------
1994 1993 1992 1991
----------- --------- -------- --------
(Dollars in Thousands)
Maturity
<S> <C> <C> <C> <C>
3 months or less ....... $ 92,788 $125,430 $103,053 $36,440
3 to 6 months........... 24,458 6,754 11,402 7,996
6 to 12 months ......... 4,270 4,762 9,448 5,939
Over 12 months ......... 676 600 667 363
-------- --------- -------- --------
Total ................. $122,192 $137,546 $124,570 $50,738
======== ========= ======== ========
</TABLE>
Interest Rate Sensitivity and Liquidity
An interest rate sensitive asset or liability is one that, within a
defined time period, either matures or experiences an interest rate change
in line with general market interest rates. The management of interest
rate risk is performed by analyzing the maturity and repricing
relationships between interest-earning assets and interest-bearing
liabilities at specific points in time ("GAP"). Interest rate
sensitivity reflects the potential effect on net interest income of a
movement in interest rates.
A company is considered to be liability sensitive, or having a
negative GAP, when the amount of its interest-bearing liabilities maturing
or repricing within a given period exceeds the amount of its
interest-bearing assets also maturing or repricing within that time
period. However, assets and liabilities with similar repricing
characteristics may not reprice at the same time or to the same degree. As
a result, the Company's GAP does not necessarily predict the impact of
changes in general levels of interest rates on net interest income.
The following table illustrates the GAP position of the Company as of
September 30, 1994.
38
<PAGE>
<TABLE>
<CAPTION>
September 30, 1994
------------------------------------------------------------
91-180 181-365 1-5 Beyond
1-90 Days Days Days Years 5 Years Total
--------- -------- ------- ------ --------- --------
(Dollars in Millions)
Rate Sensitive:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets ..........
Loans .......................... $ 410 $ 12 $ 22 $ 169 $ 143 $ 756
Investment securities........... 29 21 42 287 905 1,284
Federal funds sold.............. 6 - - - - 6
------- ------ ------ ------ ----- ------
Total interest-earning assets .... 445 33 64 456 1,048 2,046
------- ------ ------ ------ ----- ------
Interest-bearing liabilities
Deposits
Transaction accounts.......... 594 - - - 396 990
Time.......................... 181 85 85 98 19 468
Other borrowed money............ 324 - - - - 324
Long-term debt.................. - - - - 23 23
------- ------ ------ ------ ----- ------
Total interest-bearing liabilities . 1,099 85 85 98 438 1,805
------- ------ ------ ------ ----- ------
Period GAP ......................... (654) (52) (21) 358 610 $ 241
------- ------ ------ ------ ----- ------
Cumulative GAP...................... $ (654) $(706) $(727) $(369) $ 241
======= ====== ====== ====== ======
</TABLE>
Management believes that the simulation of net interest income in
different interest rate environments provides a more meaningful measure of
interest rate risk. Income simulation analysis captures not only the
potential of all assets and liabilities to mature or reprice, but also the
probability that they will do so. Income simulation also attends to the
relative interest rate sensitivities of these items, and projects their
behavior over an extended period of time. Finally, income simulation
permits management to assess the probable effects on the balance sheet not
only of changes in interest rates, but also of proposed strategies for
responding to them.
The Company's income simulation model analyzes interest rate
sensitivity by projecting net interest income over the next twelve months
in a flat rate scenario. The flat rate model projects growth in the
Company's deposit base and its loan portfolio. The flat rate model also
projects the mix of accounts within the loan portfolio and deposit base.
In addition to projecting the mix of accounts within the loan portfolio
and deposit base, the Company must also make certain assumptions regarding
the movement of the rates on its assets and liabilities, especially its
deposit rates. Based on historical data prior to 1994, the Company
determined that the interest rates on its transaction accounts moved at
approximately 60% of the movement in the federal funds rate (one of the
base rates against which the Company measures the movement of its deposit
39
<PAGE>
rates). Therefore, the Company has historically included 60% of its
transaction accounts in the 1-90 day category within its GAP table.
The Company's deposit rates are influenced by the deposit rates paid
by its local competition. The Company's continuing ability to attract core
deposits and the lack of competitive pressures to increase the deposit
rates allowed the Company to maintain lower deposit rates throughout 1994.
During 1994, the interest rates on transaction accounts moved at less than
5% of the movement in the federal funds rate. The Company is unable to
determine whether the relationships that existed in 1994 will continue. As
a result, the more conservative longer-term historical trends rather than
the 1994 trends have been utilized. The Company's projections include 60%
of its transaction accounts in the 1-90 day category and the balance in
the Beyond 5 Years category. The Company continues to monitor these
relationships.
The Company projects net interest income in a rising rate scenario of
300 basis points over a twelve month period as well as a 100 basis point
decline during this same period. The Company then determines its interest
rate sensitivity by calculating the difference in net interest income in
the rising and declining scenarios versus the flat rate scenario. The
Company's Asset Liability Committee ("ALCO") has determined that in the
current economic environment, a 10% decrease in net interest income over a
one year period is an acceptable level of interest rate risk.
Based on its interest rate sensitivity analysis prepared as of
November 30, 1994, it is projected that net interest income would be
reduced by approximately 7.5%, as a result of a 300 basis point increase
in general market interest rates. A 100 basis point decline in general
market interest rates would not have a material effect on projected net
interest income.
The income simulation model estimates the interest rate sensitivity of
the entire balance sheet. As hereinafter discussed, since the fourth
quarter of 1993 the Company has increased its short-term borrowings which
consists primarily of securities under agreement to repurchase. The
proceeds were initially invested in the Company's investment portfolio.
The cash flow from the investment portfolio as well as all other sources
available to the Company was then redirected to fund the Company's loan
portfolio growth. During the nine months ended September 30, 1994, the
average rate on the Company's repurchase agreements was 4.04%. The average
interest rate on the Company's earning assets was 7.11%. Recent rises in
short-term interest rates have increased the cost of the repurchase
agreements.
Utilization of repurchase agreements is part of the Company's overall
balance sheet management. The effect of the increased cost of the
repurchase agreements has been reduced by the increase in the investment
portfolio yield, as a result of decreased prepayments, and the increase in
the loan yield, caused by increases to the prime interest rate.
The effect of the decrease in net interest income as a result of
rising interest rates is also expected to be reduced by the increase in
net interest income resulting from an increase in the Company's core
deposit base. For the five-year period ended December 31, 1993, the
40
<PAGE>
Company's deposits have grown at an average annual rate of 23% per year.
The Company expects that continued core deposit growth will result in
additional net interest income that will also decrease the impact from the
increase in the repurchase agreement rate. In the event the model
indicates an unacceptable level or risk, the Company could undertake a
number of actions that would reduce this risk, including the sale of a
portion of its available for sale portfolio, the use of risk management
strategies such as interst rate swaps, or the extension of the maturities
of its short-term borrowings.
Liquidity involves the Company's ability to raise funds to support
asset growth or reduce assets to meet deposit withdrawals and other
borrowing needs, to maintain reserve requirements and to otherwise operate
the Company on an ongoing basis. The Company's liquidity needs are
primarily met by growth in core deposits, its cash and federal funds sold
position, cash flow from its amortizing investment and loan portfolios as
well as the increased use of securities sold under agreement to
repurchase. The Company expects deposits generated by branch expansion to
have a positive impact on its liquidity position in 1995. For the nine
months ended September 30, 1994, the Company had net cash from operating
activities of $60.8 million, net cash used by investing activities of
$285.6 million, and net cash provided by financing activities of $213.9
million. Repayments in the investment portfolio were used to fund growth
in the loan portfolio and were also reinvested in securities held for
investment. The purchase of securities held for investment was also funded
by growth in deposits, increased borrowings by securities sold under
agreement to repurchase, and proceeds from the sale of mortgages held for
sale. The $906 thousand cash flow deficit from operating activities in
1993 resulted primarily from a $113.6 million use of cash for the
origination of mortgages held for sale. This was a temporary situation
caused by a backlog of sales due to the high level of mortgage refinancing
in the fourth quarter of 1993. The remaining mortgages were sold in the
first quarter of 1994. The $2.3 million cash flow deficit from operating
activities in 1992 resulted primarily from an $8.0 million increase in
assets acquired in foreclosure.
Short-Term Borrowings
Short-term borrowings consist primarily of securities sold under
agreement to repurchase. These borrowings were used as an additional
source of funding for the investment portfolio and to fund loan growth
during the first nine months of 1994. At September 30, 1994, short-term
borrowings aggregated $324.4 million and had an average rate of 4.81%. As
of December 31, 1993, the securities sold under agreement to repurchase
amounted to $135.0 million and had an average rate of 3.44%.
Long-Term Debt
A $23 million public offering of capital-qualifying 8.375%
subordinated debt was completed in July 1993. Proceeds from this debt
offering were earmarked for general corporate purposes, including
additional capitalization of existing banking subsidiaries and possible
acquisitions.
41
<PAGE>
Stockholders' Equity and Dividends
At September 30, 1994, stockholders' equity totaled $109.5 million or
4.89% of total assets compared to $99.2 million or 4.88% of total assets
at December 31, 1993.
At December 31, 1993, stockholders' equity totaled $99.2 million, up
$17.3 million or 21% over stockholders' equity of $81.9 million at
December 31, 1992. This increase was primarily due to a significant
improvement in earnings for the year. Stockholders' equity as a percent of
total assets at December 31, 1993 and December 31, 1992 was 4.88% and
5.75%, respectively.
Effective December 31, 1992, risk-based capital standards issued by
bank regulatory authorities in the United States were fully implemented.
These capital standards attempt to relate a banking company's capital to
the risk profile of its assets and provide the basis for which all banking
companies and banks are evaluated in terms of capital adequacy. The
risk-based capital standards require all banks to have Tier 1 capital of
at least 4% and total capital, including Tier 1 capital, of at least 8% of
risk-adjusted assets. Tier 1 capital includes common stockholders' equity
and qualifying perpetual preferred stock together with related surpluses
and retained earnings. Total capital may be comprised of limited life
preferred stock, qualifying subordinated debt instruments, and the reserve
for possible loan losses.
Banking regulators have also issued leverage ratio requirements. The
leverage ratio requirement is measured as the ratio of Tier 1 capital to
adjusted average assets. The risk-based capital and leverage requirements
replaced the primary capital and total capital guidelines used previously.
The table below provides a comparison of the Company's risk-based capital
ratios and leverage ratio to the minimum regulatory requirements for the
periods indicated.
<TABLE>
<CAPTION>
Minimum Regulatory
September 30, December 31, Requirements
------------- ----------------- -------------------
1994 1993 1992 1993 1992
------------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Risk-Based Capital Ratios:
Tier 1 ........................... 9.94% 9.16% 9.66% 4.00% 4.00%
Total. ........................... 13.17 12.44 10.75 8.00 8.00
Leverage capital.................... 4.67 4.53 5.53 3.00-5.00 3.00-5.00
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which became law in December of 1991 and required each
federal Banking agency including the Board of Governors of the Federal
Reserve System ("FRB"), to revise its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities,
as well as reflect the actual performance and expected risk of loss on
multi-family mortgages. This law also requires each federal Banking
agency, including the FRB, to specify, by regulation, the levels at which
an insured institution would be considered "well capitalized,"
42
<PAGE>
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." At September 30,
1994, each of its banking subsidiaries met the regulatory definition of a
"well capitalized" financial institution, i.e., a leverage capital ratio
exceeding 5%, and a Tier 1 risk-based capital ratio exceeding 6%, and a
total risk-based capital ratio exceeding 10%. The Company's consolidated
capital levels at September 30, 1994 meets the regulatory definition of
"adequately capitalized".
Results of Operations - 1992 Versus 1991
Earnings for 1992 were $10.0 million compared to $6.0 million in 1991.
Earnings per common share was $1.25 for 1992 compared to earnings of $.82
for the prior year.
Net interest income on a tax-equivalent basis for 1992 amounted to
$52.1 million, an increase of $12.9 million, or 33% over 1991.
Interest income on a tax-equivalent basis increased $10.3 million or
13% to $92.5 million in 1992. This increase was entirely related to volume
increases in investment securities which more than offset the effect of
lower interest rates prevalent during 1992. The loss of income on loans
carried in non-accrual status affected interest income for 1992. Interest
expense for 1992 declined $2.6 million to $40.4 million from $43.0 million
in 1991. This 6% decrease was attributable to lower interest rates which
offset the significant volume increases in deposits during 1992.
The provision for loan losses was $6.3 million in 1992 compared to
$5.5 million in the prior year. The increase in the provision for loan
losses was associated with the increase in non-performing loans, the
weakened real estate sector, and the continuing recessionary economy.
Non-interest income for 1992 totaled $12.1 million, a decrease of $2.0
million or 14% from $14.1 million in 1991. Included in non-interest income
for 1991 were investment securities and equity securities transactions and
a gain from the sale of the Company's merchant credit operations.
Excluding these items, non-interest income would have increased $1.9
million or 19% compared to 1991. A comparison to the prior year of the
non-interest income categories follows below.
Deposit charges and service fees increased $1.7 million, or 21%, to
$9.9 million in 1992. This increase was spread among various types of
personal and business demand accounts and was attributable to the
significant increase in the number of accounts and in increased deposit
account transaction volume.
Other operating income rose $206 thousand, or 12%, to $2.0 million in
1992. Net investment securities gains of $249 thousand were recognized in
1992 compared to net gains of $3.3 million in 1991. Securities sales for
1992 were limited to equity issues.
Non-interest expenses totalled $42.9 million for 1992, an increase of
$4.0 million, or 10% over 1991. This modest increase was accomplished
despite a deposit increase of $348.5 million and reflects management's
continued efforts to efficiently leverage the Company's overhead expense
43
<PAGE>
base. Progress toward this objective would have been more evident except
for expenses related to a higher level of non-performing assets. A
comparison to the prior year of the non-interest expense categories is
described below.
Salary expenses of $13.9 million for 1992 were $737 thousand or 6%
higher than 1991. This increase was mainly a result of additional staffing
in the loan department areas.
Employee benefits for 1992 totalled $3.8 million, an increase of $345
thousand or 10% over 1991. This increase was mainly due to increased
medical insurance costs, payroll taxes, and other employee benefits.
Occupancy expenses amounted to $5.3 million for 1992, an increase of
$486 thousand or 10% compared to 1991. This increase was due to added
facilities and related rent, utilities and maintenance costs.
Furniture and equipment expenses of $4.9 million for 1992 were $543
thousand or 12% higher than 1991. This increase was due to increased costs
of maintenance and repairs, and depreciation.
Office expenses of $3.4 million were $117 thousand or 4% greater than
1991. This increase was due to increased costs of stationery, supplies and
telecommunications.
Audit and regulatory fees and assessments totalled $3.0 million for
1992, an increase of $730 thousand or 33% over 1991. This increase was
primarily due to increased federal deposit insurance premiums.
Marketing expense amounted to $1.1 million for 1992, an increase of
$71 thousand or 7% over 1991.
Other real estate expenses including provisions totaled $2.0 million
for 1992, an almost threefold increase over the $754 thousand in 1991.
This increase was attributable to expenses related to a higher level of
other real estate and loans categorized as in-substance foreclosures.
Other non-interest expenses totaled $5.6 million for 1992, a decline
of $310 thousand or 5% from 1991. This decline was the result of lower
provisions for miscellaneous non-credit-related losses.
44
<PAGE>
MANAGEMENT
Directors and Executive Officers
The executive officers of the Company and its banking subsidiaries and
the directors of the Company, as of September 30, 1994, are set forth
below.
Position with the Company, Commerce NJ,
Commerce PA, and Commerce Shore;
Name Age Principal Occupation
------ --- ------------------------------------------
Vernon W. Hill, II 49 Chairman and President of the Company since
1982; Chairman and/or President of Commerce NJ
since 1973; Chairman of Commerce PA from June
1984 to June 1986 and from January 1987 to
present; Chairman of Commerce Shore since
1989.
C. Edward Jordan, Jr. 51 Executive Vice President and Director of the
Company since 1982; Executive Vice President
and Director of Commerce NJ since 1974.
Peter M. Musumeci, Jr. 44 Executive Vice President and Senior Credit
Officer since 1986 and Treasurer and Assistant
Secretary since 1984 of the Company; Executive
Vice President of Commerce NJ since 1986;
Director of Commerce PA since 1987 and
Commerce Shore since 1989.
Robert D. Falese, Jr. 47 Executive Vice President and Senior Loan
Officer of Commerce NJ since 1992. From 1990
to 1992, Mr. Falese was President and Chief
Executive Officer of Sterling Bank, Mount
Laurel, New Jersey. Prior thereto, Mr. Falese
was an Executive Vice President and Senior
Lending Officer at the Fidelity Bank,
Philadelphia, Pennsylvania for more than five
years.
David Wojcik 41 Senior Vice President of the Company since
1988. Prior thereto, Mr. Wojcik was a Senior
Bank Examiner with the OCC for more than five
years.
Dennis M. DiFlorio 40 Senior Vice President of Commerce NJ since
1988. Prior thereto, Mr. DiFlorio was Division
Manager at Mellon Bank (East), Philadelphia,
Pennsylvania for more than five years.
45
<PAGE>
Position with the Company, Commerce NJ,
Commerce PA, and Commerce Shore;
Name Age Principal Occupation
---- --- ------------------------------------------
Robert C. Beck 59 Secretary and Director of the Company since
1982; Secretary and Director of Commerce NJ
since 1973. Mr. Beck has been a partner in the
law firm of Parker, McCay & Criscuolo,
Marlton, New Jersey since 1987.
David Baird, IV 57 Director of the Company and Commerce NJ since
1988. Mr. Baird has been President of
Haddonfield Lumber Company, Inc., Cherry Hill,
New Jersey since 1962.
Jack R Bershad 64 Director of the Company and Commerce NJ since
1987 and Commerce PA since 1984. Mr. Bershad
has been a partner in the law firm of Blank,
Rome, Comisky & McCauley, Philadelphia,
Pennsylvania and Cherry Hill, New Jersey,
since 1964 and its Chairman since 1990.
Morton N. Kerr 63 Director of the Company since 1982 and
Commerce NJ since 1973. Mr. Kerr has been
President of Markeim-Chalmers, Inc., Realtors,
Camden and Marlton, New Jersey, since 1965.
Steven M. Lewis 44 Director of the Company and Commerce NJ since
1988 and Commerce PA since 1984. Mr. Lewis has
been President of U.S. Restaurants, Inc., Blue
Bell, Pennsylvania since 1985.
Daniel J. Ragone 67 Director of the Company since 1982 and
Commerce NJ since 1981. Mr. Ragone has been
Chairman of the Board and President of Raible,
Lacatena & Beppel, C.P.A., Haddonfield, New
Jersey, or its predecessor firms, since 1960.
Joseph T. Tarquini, Jr. 58 Director of the Company since 1982 and
Commerce NJ since 1973. Mr. Tarquini has been
President of The Tarquini Organization,
A.I.A., Camden, New Jersey, since 1980.
Stock Ownership
As of September 30, 1994, all directors and executive officers of the
Company, as a group, beneficially owned 1,398,727 shares of Common Stock
(including 415,429 shares of Common Stock issuable upon the exercise of
stock options granted to directors and executive officers of the Company
under the Company's Stock Option Plans) and 5,911 shares of the Company's
Series C ESOP Cumulative Convertible Preferred Stock, which are currently
convertible into approximately 7,921 shares of Common Stock. "Beneficial
Ownership" has been determined in accordance with the definition of
"beneficial ownership" set forth in the regulations of the Securities
and Exchange Commission and, accordingly, may include securities owned by
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or for, among others, the wife and/or minor children of the individual and
any other relative who has the same residence as such individual as well
as other securities as to which the individual has or shares voting or
investment power or has the right to acquire under outstanding stock
options within 60 days after September 30, 1994.
COMMON STOCK AND DIVIDEND INFORMATION
The Company's common stock is listed on the Nasdaq National Market
("NNM") under the symbol "COBA". The quarterly market price ranges and
dividends declared per common share for each of the last three years are
shown in the table below. On January 19, 1995, the last sale price of the
Common Stock as reported on the NNM was $17.50. The prices and dividends
per share have been adjusted to reflect common stock dividends of 5% with
record dates of January 2, 1995, January 31, 1994, February 5, 1993 and
January 31, 1992. As of September 30, 1994, there were approximately 3,700
holders of record of the Company's Common Stock.
Cash
Sales Prices Dividends
--------------- ----------
High Low Per Share
------ ------ ---------
1994 Quarter Ended
March 31............................ $16.42 $14.06 $.1361
June 30 ............................. 18.58 14.77 .1429
September 30 ........................ 22.63 17.86 .1548
December 31.......................... 20.47 16.42 .1548
1993 Quarter Ended
March 31 ........................... 15.42 12.31 .1079
June 30 ............................. 15.88 14.06 .1133
September 30 ........................ 16.09 14.06 .1133
December 31 ......................... 16.09 14.06 .1133
1992 Quarter Ended
March 31 ........................... 12.31 8.02 .0925
June 30 ............................. 11.88 8.64 .0971
September 30 ........................ 11.88 9.17 .0971
December 31 ......................... 13.39 10.58 .0971
The Company has historically paid cash dividends on its Common Stock
and currently intends to continue to pay such dividends on a quarterly
basis in the foreseeable future. However, because the ability to pay
dividends depends upon a number of factors, including those stated below,
there can be no assurance that dividends will be paid in the future.
Commerce NJ, Commerce PA and Commerce Shore, as national banks, are
subject to certain limitations on the amount of cash dividends that they
can pay. As of September 30, 1994, Commerce NJ had approximately $21.7
million legally available for the payment of dividends, Commerce Shore has
approximately $3.3 million legally available for the payment of dividends,
and Commerce PA had approximately $2.2 million available for the payment
of dividends.
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Subject to such preferences, limitations and relative rights as may be
fixed for any series of preferred stock that may be issued, including the
Series C ESOP Cumulative Convertible Preferred Stock of the Company which
is presently outstanding, the holders of Common Stock are entitled to
receive dividends, when, as and if declared by the Board of Directors of
the Company out of funds legally available therefor. See "Description of
Capital Stock."
The Company offers a Dividend Reinvestment and Stock Purchase Plan by
which dividends on the Company's Common Stock and optional cash payments
of up to $5,000 per quarter may be invested in Common Stock at a 3%
discount to the market price and without payment of brokerage commissions.
DESCRIPTION OF CAPITAL STOCK
The following statements are summaries of certain provisions of the
Company's capital stock and are qualified in their entirety by reference
to the complete text of the Company's Restated Certificate of
Incorporation (the "Restated Certificate"), copies of which are
incorporated by reference as exhibits to the Registration Statement of
which this Prospectus is a part.
Under the Company's Restated Certificate, the Company is authorized to
issue 20,000,000 shares of Common Stock, par value $1.5625 per share, and
5,000,000 shares of Preferred Stock, without par value. As of September
30, 1994, there were 8,870,476 shares of the Company's Common Stock issued
and 417,000 shares of Series C ESOP Cumulative Convertible Preferred Stock
issued.
Under the Company's Restated Certificate, the Board of Directors is
authorized, without further shareholder action, to provide for the
issuance of the preferred stock in one or more series, with such
designations, number of shares, relative rights, preferences and
limitations as shall be set forth in resolutions providing for the
issuance thereof adopted by the Board of Directors.
Common Stock
Voting Rights. Holders of Common Stock are entitled to one vote for
each share held and have no cumulative voting rights.
Dividends. Subject to such preferences, limitations and relative
rights as may be fixed for any series of preferred stock that may be
issued, including the Series C ESOP Cumulative Convertible Preferred
Stock, holders of Common Stock are entitled to receive such
dividends,when, as and if declared by the Board of Directors out of funds
legally available therefor.
Under the New Jersey Business Corporation Act, the Company may pay
dividends only if the payment thereof would allow the Company to pay its
debts as they become due in the usual course of business and the Company's
total assets would not be less than its total liabilities.
Cash available for dividend distribution to the holders of the
Company's Common Stock and preferred stocks, including the presently
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outstanding shares of Series C ESOP Cumulative Convertible Preferred
Stock, must initially come from dividends paid to the Company by Commerce,
NJ, Commerce PA and Commerce Shore. Accordingly, restrictions on Commerce
NJ's, Commerce PA's and Commerce Shore's cash dividend payments directly
affect the payment of cash dividends by the Company. See "Common Stock
and Dividend Information."
Liquidation. In the event of liquidation, after payment of or
provision for all debts and liabilities and subject to the rights of any
series of preferred stock which may be outstanding, including Series C
ESOP Cumulative Convertible Preferred Stock, the holders of Common Stock
would share pro rata in all assets distributable to shareholders in
respect of shares held by them.
Preemptive Rights. Holders of Common Stock have no preemptive rights.
Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock is The Bank of New York.
Series C ESOP Cumulative Convertible Preferred Stock
The Series C ESOP Cumulative Convertible Preferred Stock is only
issuable to a trustee acting on behalf of a Company employee benefit plan,
and in the event any shares are transferred, they are automatically
converted into Common Stock as provided in the conversion provisions. The
Series C ESOP Cumulative Convertible Preferred Stock ranks senior to the
Common Stock as to the payment of dividends and the liquidation of the
Company. Holders of Series C ESOP Cumulative Convertible Preferred Stock
are entitled to one vote for each full share of Common Stock into which it
is convertible on the record date for such vote and have no cumulative
voting rights. Except as otherwise required by law, the holders of Series
C Cumulative Convertible Preferred Stock shall vote together with the
holders of Common Stock and not as a separate class. Holders of Series C
ESOP Cumulative Convertible Preferred Stock are entitled to cumulative
dividends accruing from the date of issue when, as and if declared by the
Board of Directors out of funds legally available therefore at the annual
rate of $1.35 per share. In the event of any liquidation, dissolution or
winding up of the affairs of the Company, whether voluntary or otherwise,
after payment or provision for payment of the debts and other liabilities
of the Company, the holders of the Series C ESOP Cumulative Convertible
Preferred Stock are entitled to receive, out of the assets of the Company
legally available for distribution to its shareholders, the amount of
$18.00 in cash for each share of Series C ESOP Cumulative Convertible
Preferred Stock, plus an amount equal to all dividends accrued and unpaid
on each such share up to the date fixed for distribution, before any
distribution may be made to the holders of the Common Stock or any other
class of capital stock ranking junior to the Series C ESOP Cumulative
Convertible Preferred Stock as to dividends or other distributions. The
Series C ESOP Cumulative Convertible Preferred Stock is redeemable in
whole or in part, at the option of the Company, at $18.97 per share
beginning January 15, 1994 hereafter declining to $18.00 per share on or
after January 15, 1999 plus in each case any accumulated and unpaid
dividends to the date fixed for redemption. Any time prior to redemption,
shares of Series C ESOP Cumulative Convertible Preferred Stock are
convertible at the option of the holders thereof into Common Stock at the
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current conversion rate of 1.3401 shares of the Common Stock for each
share of Series C ESOP Cumulative Convertible Preferred Stock. The
conversion rate is subject to adjustment in certain events.
"Anti-Takeover" Provisions and Management Implications
The Restated Certificate requires the affirmative vote of the holders
of at least 80% of the outstanding capital stock of the Company entitled
to vote thereon in order to permit the consummation of any of the
following transactions: (i) any merger or consolidation of the Company
with or into any other corporation; or (ii) any sale, lease, exchange or
other disposition of all of the assets of the Company to or with any other
corporation, person or other entity. The 80% voting requirement would not,
however, apply to any transaction approved by the Board of Directors of
the Company prior to the consummation thereof. The Restated Certificate
also provides for the issuance of up to 5,000,000 shares of preferred
stock, the rights, preferences and limitations of which may be determined
by the Board of Directors of the Company.
The provisions in the Restated Certificate relating to the 80% voting
requirements and issuance of preferred stock may have the effect not only
of discouraging tender offers or other stock acquisitions but also of
deterring existing stockholders from making management changes. Issuance
of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to secure a majority of outstanding voting
stock. Similarly, absent the 80% voting requirement provision relating to
mergers and dispositions of assets, the transactions described above could
be consummated upon the favorable vote of the holders of a majority of the
votes cast by holders of shares entitled to vote thereon.
These provisions may enhance the possibility that a potential bidder
for control of the Company will be required to act through arms-length
negotiation with respect to such major transactions as a merger,
consolidation or purchase of substantially all of the assets of the
Company. Such provisions may also have the effect of discouraging tender
offers or other stock acquisitions, giving management of the Company power
to reject certain transactions which might be desired by the owners of a
majority of the Company's voting securities. These provisions could also
be deemed to benefit incumbent management to the extent they deter such
offers by persons who would wish to make changes in management or exercise
control over management. The Board of Directors of the Company does not
presently know of a third party that plans to make an offer to acquire the
Company through a tender offer, merger or purchase of substantially all
the assets of the Company.
SUPERVISION AND REGULATION
The Company
The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended ("Holding Company Act"), and is
therefore subject to regulation by the Board of Governors of the Federal
Reserve System ("FRB").
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Under the Holding Company Act, the Company is required to secure the
prior approval of the FRB before it can merge or consolidate with any
other bank holding company or acquire all or substantially all of the
assets of any bank or acquire direct or indirect ownership or control of
any voting shares of any bank that is not already majority owned by it, if
after such acquisition it would directly or indirectly own or control more
than 5% of the voting shares of such bank. The Holding Company Act
currently also prohibits the acquisition, directly or indirectly, by the
Company of voting shares of, or interests in, or all or substantially all
of the assets of, any bank located outside the State of New Jersey in a
transaction requiring FRB approval unless an acquisition is specifically
authorized by the laws of the state in which such bank is located. See
"Recent Legislation."
The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any company engaged in non-banking
activities unless the FRB, by order or regulation, has found such
activities to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In making such a determination,
the FRB considers whether the performance of these activities by a bank
holding company can reasonably be expected to produce benefits to the
public which outweigh the possible adverse effects. The FRB has by
regulation determined that certain activities are closely related to
banking within the meaning of the Holding Company Act. These activities
include, among others, operating a mortgage, finance, credit card or
factoring company; performing certain data processing operations;
providing investment and financial advice; acting as an insurance agent
for certain types of credit-related insurance; leasing property on a
full-payout, non-operating basis; and certain stock brokerage and
investment advisory services.
In addition, under the Holding Company Act, the Company is required to
file periodic reports of its operations with, and is subject to
examination by, the FRB.
The Company is under the jurisdiction of the Securities and Exchange
Commission and various state securities commissions for matters relating
to the offering and sale of its securities and is subject to the
Securities and Exchange Commission's rules and regulations relating to
periodic reporting, reporting to shareholders, proxy solicitation and
insider trading.
The Company, as an affiliate of Commerce NJ, Commerce PA and Commerce
Shore within the meaning of the Federal Reserve Act, is subject to certain
restrictions under the Federal Reserve Act regarding, among other things,
extensions of credit to it by Commerce NJ, Commerce PA and Commerce Shore,
and the use of the stock or other securities of the Company as collateral
for loans by Commerce NJ, Commerce PA and Commerce Shore to any borrower.
Further, under the Federal Reserve Act and the FRB regulations, a bank
holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with extensions of credit or
provisions of property or services. These so-called "anti-tie-in
provisions" generally provide that a bank may not extend credit, lease or
sell property or furnish any service, or fix or vary the consideration for
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any of the foregoing, to a customer on the condition or requirement that
the customer provide some additional credit, property or service to (or
obtain the same from) the bank, the bank's holding company or any other
subsidiary of the bank's holding company, or on the condition or
requirement that the customer not obtain other credit, property or
services from a competitor of the bank, the bank's holding company or any
subsidiary of the bank's holding company.
New Jersey has enacted legislation (the "New Jersey Law") which
permits bank holding companies in New Jersey to acquire banks and bank
holding companies located outside the State of New Jersey. The New Jersey
Law also permits bank holding companies located in any state which has
legislation reciprocal with New Jersey to acquire control of banks and
bank holding companies located in New Jersey. The following states, among
others, have been determined by the New Jersey State Department of Banking
to have legislation reciprocal with New Jersey: New York, Pennsylvania and
Delaware. All interstate acquisitions involving New Jersey banks or bank
holding companies require the prior approval of the New Jersey Department
of Banking.
Pennsylvania law allows bank holding companies located outside the
Commonwealth of Pennsylvania to acquire Pennsylvania banks and bank
holding companies, if the state in which the acquiror is located grants
reciprocal acquisition rights to Pennsylvania bank holding companies. All
interstate acquisitions involving Pennsylvania banks or bank holding
companies require the prior approval of the Pennsylvania Department of
Banking.
Commerce NJ, Commerce PA and Commerce Shore
Commerce NJ, Commerce PA and Commerce Shore, as national banks, are
subject to the National Bank Act. Each is also subject to the supervision
of, and is regularly examined by, the Office of the Comptroller of the
Currency ("OCC") and is required to furnish quarterly reports to the
OCC. The approval of the OCC is required for the establishment of
additional branch offices by any national bank, subject to applicable
state law restrictions. Under present New Jersey law, Commerce NJ and
Commerce Shore would be permitted to operate offices at any location in
New Jersey which is approved by the OCC. Under present Pennsylvania law,
Commerce PA would be permitted to operate offices within any county in
Pennsylvania, subject to the prior approval of the OCC. Present law
generally forbids branching across state lines.
Under the Community Reinvestment Act, as amended ("CRA"), as
implemented by OCC regulations, a bank has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the
credit needs of its entire community, including low- and moderate-income
neighborhoods. CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with CRA. CRA
requires the OCC to assess an institution's record of meeting the credit
needs of its community and to take such record into account in its
evaluation of certain applications by such institution. The CRA requires
public disclosure of an institution's CRA rating and requires that the OCC
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provide a written evaluation of an institution's CRA performance utilizing
a four-tiered descriptive rating system. An institution's CRA rating is
considered in determining whether to grant charters, branches and other
deposit facilities, relocations, mergers, consolidations and acquisitions.
Performance less than satisfactory may be the basis for denying an
application. In addition, under applicable regulations a bank having a
less than satisfactory rating is not entitled to participate on the bid
list for RTC and FDIC offerings. In 1994, Commerce NJ and Commerce PA each
received a "needs to improve" rating, which is the rating immediately
below "satisfactory." Since the banks' receipt of the "needs to
improve" ratings seven branch applications have been approved by the OCC
of which five were opened in 1994 and the balance of which are scheduled
to open in 1995. Continued "needs to improve" ratings could have an
effect on the ability of either bank to expand in the future. The Company
has taken steps to improve each bank's performance under CRA including
strengthening its ongoing commitment to small business lending and
expanding its commitment to specialized lending to low and moderate income
areas within the Company's market areas. While the Company believes that
its efforts will be successful in raising each bank's CRA rating, there
can be no assurances that the Company's efforts will be successful and
that either rating will improve. The OCC is currently performing a
regularly scheduled Consumer Compliance and CRA examination of each bank.
Commerce NJ, Commerce PA and Commerce Shore are members of the FDIC
and members of the FRB and, therefore, are subject to additional
regulation by these agencies. Some of the aspects of the lending and
deposit business of Commerce NJ, Commerce PA and Commerce Shore which are
regulated by these agencies include personal lending, mortgage lending and
reserve requirements. The operations of Commerce NJ, Commerce PA and
Commerce Shore are also subject to numerous federal, state and local laws
and regulations which set forth specific restrictions and procedural
requirements with respect to interest rates on loans, the extension of
credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
Commerce NJ, Commerce PA and Commerce Shore are subject to certain
limitations on the amount of cash dividends that they can pay. See Note 17
of the Company's Notes to Consolidated Financial Statements which appears
elsewhere herein.
Recent Legislation
On September 29, 1994, the President signed into law the "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the
"Interstate Act"). Among other things, the Interstate Act permits bank
holding companies to acquire banks in any state one year after enactment.
Beginning June 1, 1997, a bank may merge with a bank in another state so
long as both states have not opted out of interstate branching between the
date of enactment of the Interstate Act and May 31, 1997. States may enact
laws opting out of interstate branching before June 1, 1997, subject to
certain conditions. States may also enact laws permitting interstate
merger transactions before June 1, 1997 and host states may impose
conditions on a branch resulting from an interstate merger transaction
that occurs before June 1, 1997, if the conditions do not discriminate
against out-of-state banks, are not preempted by Federal law and do not
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apply or require performance after May 31, 1997. Interstate acquisitions
and mergers would both be subject, in general, to certain concentration
limits and state entry rules relating to the age of the bank.
Under the Interstate Act, the Federal Deposit Insurance Act is amended
to permit the responsible Federal regulatory agency to approve the
acquisition of a branch of an insured bank by an out-of-state bank or bank
holding company without the acquisition of the entire bank or the
establishment of a "de novo" branch only if the law of the state in
which the branch is located permits out-of-state banks to acquire a branch
of a bank without acquiring the bank or permits out-of-state banks to
establish "de novo" branches.
On September 23, 1994, the President signed into law the "Riegle
Community Development and Regulatory Improvement Act of 1994" (the
"Development Act"). Among other things, the Development Act establishes
a $382 million fund (the "Fund") to promote economic development and
credit availability in underserved communities by providing financial and
technical assistance to community development financial institutions
("CDFI's).
CDFI's include banks, savings associations and bank holding companies
which have a primary mission of promoting community development.
Institutions receiving monies from the Fund will be required to provide
matching funds dollar for dollar. Under the Fund, a CDFI may receive up to
$5 million over a 3-year period, with affiliates in other states not
presently served eligible to receive up to an additional $3.75 million
over 3 years.
One third of the Fund will be used to finance the Bank Enterprise Act,
an existing (but previously unfunded) incentive program designed to
encourage depository institutions to increase funding in distressed
neighborhoods.
In addition to the above, the Development Act contains provisions
relating to, among others, small business capital formation, small
business loan securitization, consumer protection for "reverse
mortgages," paperwork reduction and reform of the national flood
insurance program.
The foregoing necessarily is a summary and general description of
certain provisions of each of the Interstate Act and the Development Act
and does not purport to be complete. Many of the provisions of each will
be implemented through the adoption of regulations by the various Federal
banking agencies. Moreover, many of the significant provisions of the
legislation have not yet become effective. As of the date hereof, the
Company is continuing to study the legislation and regulations relating to
the legislation but cannot yet assess its impact on the Company.
National Monetary Policy
In addition to being affected by general economic conditions, the
earnings and growth of the Company, Commerce NJ, Commerce PA and Commerce
Shore are affected by the policies of regulatory authorities, including
the OCC, the FRB and the FDIC. An important function of the FRB is to
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regulate the money supply and credit conditions. Among the instruments
used to implement these objectives are open market operations in U.S.
Government securities, setting the discount rate, and changes in reserve
requirements against bank deposits. These instruments are used in varying
combinations to influence overall growth and distribution of credit, bank
loans, investments and deposits, and their use may also affect interest
rates charged on loans or paid on deposits.
The monetary policies and regulations 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. The effects of
such policies upon the future business, earnings and growth of the
Company, Commerce NJ, Commerce PA and Commerce Shore cannot be predicted.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom CS First Boston
Corporation and Wheat, First Securities, Inc. are acting as
representatives (the "Representatives"), have severally but not jointly
agreed to purchase from the Company the following respective numbers of
shares of Common Stock:
Underwriters Number of Shares
------------ ----------------
CS First Boston Corporation ..
Wheat, First Securities, Inc.
----------
Total..................... 1,500,000
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common
Stock offered hereby (other than those shares covered by the
over-allotment option described below) if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to
purchase up to 225,000 additional shares of Common Stock at the initial
public offering price less the underwriting discounts and commissions, all
as set forth on the cover page of this Prospectus. The Underwriters may
exercise such option only to cover over-allotments in the sale of the
shares of Common Stock. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of
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Common Stock as it was obligated to purchase pursuant to the Underwriting
Agreement.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover page of this
Prospectus and through the Representatives to certain dealers at such
price less a concession of $ per share, and the Underwriters and such
dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
In connection with this offering, the Representatives and certain of
the Underwriters and selling group members (if any) and their respective
affiliates may engage in passive market making transactions in the Common
Stock on the NNM in accordance with Rule 10b-6A under the Exchange Act, as
amended, during a period before commencement of offers or sales of the
shares offered hereby. Under Rule 10b-6A, market makers in the Company's
Common Stock who are participating in the underwriting can continue to
make a market during the two day "cooling-off" period prior to the
commencement of the offering at a price no higher than the highest
independent bid. The passive market making transactions must comply with
applicable volume and price limits and be identified as such.
The Company, its directors and certain of its officers have agreed
(subject to certain limited exceptions) not to offer, sell, contract to
sell, pledge, or otherwise dispose of any shares, directly or indirectly,
or file with the Securities and Exchange Commission, a registration
statement under the Securities Act of 1933, as amended, relating to any
shares of the Company's Common Stock or any securities convertible into or
exercisable or exchangeable for any shares of the Company's Common Stock
or any rights to acquire Common Stock for a period of 120 days from the
date of this Prospectus, without the prior written consent of CS First
Boston Corporation which consent shall not be unreasonably withheld.
The Company has agreed in the Underwriting Agreement to indemnify the
several Underwriters against certain liabilities, including civil
liabilities which arise out of or are based upon any untrue statement or
alleged untrue statement of certain material facts contained in this
Prospectus or the omission or alleged omission to state herein a material
fact required to be stated herein or necessary to make the statements
herein not misleading and certain liabilities under the Securities Act or
to contribute to payments which the Underwriters may be required to make
in respect thereof.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities
in each province where trades of Common Stock are effected. Accordingly,
any resale of the Common Stock in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
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jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the
Common Stock.
Representations of Purchasers
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such
Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has
reviewed the text above under "Resale Restrictions".
Rights of Action and Enforcement
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a
result, Ontario purchasers must rely on other remedies that may be
available, including common law rights of action for damages or rescission
or rights of action under the civil liability provisions of the U.S.
federal securities laws.
All of the issuer's directors and officers, as well as, the experts
named herein may be located outside of Canada and, as a result, it may not
be possible for Ontario purchasers to effect service of process within
Canada upon the issuer or such persons. All or a substantial portion of
the assets of the issuer and such persons may be located outside of Canada
and, as a result, it may not be possible to satisfy a judgment against the
issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with
the British Columbia Securities Commission a report within ten days of the
sale of any Common Stock acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #88/5, a copy of which may be
obtained from the Company. Only one such report must be filed in respect
of Common Stock acquired on the same date and under the same prospectus
exemption.
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LEGAL MATTERS
An opinion will be delivered by Blank, Rome, Comisky & McCauley,
Philadelphia, Pennsylvania, to the effect that the shares of Common Stock
offered hereby will, when sold as contemplated in this Prospectus, be
validly issued, fully paid and non-assessable. Certain legal matters will
be passed upon for the Underwriters by Morgan, Lewis & Bockius,
Philadelphia, Pennsylvania. Jack R Bershad, a partner in Blank, Rome,
Comisky & McCauley, is a director of the Company, Commerce NJ and Commerce
PA. Mr. Bershad and certain other partners of Blank, Rome, Comisky &
McCauley are shareholders of the Company.
EXPERTS
The consolidated financial statements of Commerce Bancorp, Inc. at
December 31, 1993 and 1992, and for each of the three years in the period
ended December 31, 1993, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act of 1933 relating to the
Common Stock offered hereby. This Prospectus, which is part of said
Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in
Exhibits thereto. For further information concerning the Company and the
Common Stock offered hereby, reference is made to the Registra- tion
Statement and Exhibits. Copies of the Registration Statement, together
with Exhibits thereto, may be inspected without charge at the public
reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the Commission at
prescribed rates.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
Audited Annual Financial Statements:
<S> <C>
Report of Independent Auditors........................................................................ F-1
Consolidated Balance Sheets as of December 31, 1993 and 1992.......................................... F-2
Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991................ F-3
Consolidated Statement of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991............. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1993, 1992
and 1991............................................................................................ F-5
Notes to Consolidated Financial Statements............................................................ F-6
Unaudited Interim Financial Statements:
Consolidated Condensed Balance Sheet as of September 30, 1994......................................... F-23
Consolidated Condensed Statements of Income for the Nine Month Periods Ended September 30, 1994 and
1993................................................................................................ F-24
Consolidated Condensed Statements of Cash Flows for the Nine Month Periods Ended September 30, 1994
and 1993 ........................................................................................... F-25
Notes to Consolidated Condensed Financial Statements.................................................. F-26
</TABLE>
59
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
60
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Commerce Bancorp, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Commerce Bancorp, Inc. and Subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Commerce Bancorp, Inc. and Subsidiaries at December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 31, 1994
F-1
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
1993 1992
---------- ---------
<S> <C> <C>
ASSETS:
Cash and due from banks .............................................. $ 95,725 $ 86,833
Federal funds sold ................................................... 10,000 50,550
---------- ---------
Cash and cash equivalents .......................................... 105,725 137,383
Mortgages held for sale .............................................. 43,151 10,019
Securities available for sale (market value 1993, $166,111; 1992,
$311,085)........................................................... 164,620 309,894
Securities held for investment (market value 1993, $920,724; 1992,
$293,933)........................................................... 926,115 293,201
Loans ................................................................ 701,362 610,968
Less Allowance for loan losses ..................................... 10,023 8,839
---------- ---------
691,339 602,129
Bank premises and equipment, net...................................... 42,941 31,429
Other assets ......................................................... 58,665 41,652
---------- ---------
$2,032,556 $1,425,707
========== =========
LIABILITIES:
Deposits:
Demand:
Interest bearing ................................................. $ 452,028 $ 333,345
Non-interest bearing ............................................. 310,598 245,317
Savings ............................................................ 483,756 415,764
Time ............................................................... 498,533 341,192
---------- ----------
Total Deposits ................................................... 1,744,915 1,335,618
Securities sold under agreements to repurchase ....................... 135,000
Other liabilities .................................................... 24,511 1,653
Obligation to Employee Stock Ownership Plan (ESOP) ................... 5,954 6,520
Long-term debt ....................................................... 23,000
---------- ----------
1,933,380 1,343,791
STOCKHOLDERS' EQUITY:
Common stock 7,798,198 shares issued (7,245,082 shares in 1992) ...... 10,985 9,643
Preferred stock:
Series B, 675,000 shares authorized, 672,950 shares (674,200 in
1992) outstanding (liquidating preference: $20.00 per share
totalling $13,459 in 1993, $13,484 in 1992) ...................... 673 674
Series C, 417,000 shares authorized, issued and outstanding
(liquidating preference: $18.00 per share totalling $7,506) ...... 7,506 7,506
Capital in excess of par or stated value ........................... 73,821 63,404
Retained earnings .................................................. 13,203 8,101
---------- ----------
106,188 89,328
Less commitment to ESOP............................................... 5,954 6,520
Less treasury stock, at cost, 67,851 common shares in 1993 (57,098 in
1992) .............................................................. 1,058 892
---------- ----------
Total stockholders' equity ......................................... 99,176 81,916
---------- ----------
$2,032,556 $1,425,707
========== ==========
</TABLE>
See accompanying notes
F-2
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1993 1992 1991
-------- ------- -----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable ............................................................. $ 55,742 $52,461 $54,746
Tax-exempt........................................................... 559 666 963
Interest on investment securities:
Taxable.............................................................. 55,925 35,855 22,230
Tax-exempt .......................................................... 241 478 582
Interest on federal funds sold ....................................... 1,524 2,421 2,931
-------- ------- -------
Total interest income............................................... 113,991 91,881 81,452
======== ======= =======
INTEREST EXPENSE:
Interest on deposits:
Demand .............................................................. 8,490 8,728 10,859
Savings.............................................................. 12,091 13,696 12,189
Time ................................................................ 19,755 17,958 19,979
-------- ------- -------
Total interest on deposits.......................................... 40,336 40,382 43,027
Interest on securities sold under agreements to repurchase............ 3,000
Interest on long-term debt ........................................... 930
-------- ------- -------
Total interest expense.............................................. 44,266 40,382 43,027
-------- ------- -------
Net interest income................................................... 69,725 51,499 38,425
Provision for loan losses ............................................ 5,981 6,286 5,541
-------- ------- -------
Net interest income after provision for loan losses................... 63,744 45,213 32,884
-------- ------- -------
NON-INTEREST INCOME:
Deposit charges and service fees ..................................... 12,062 9,900 8,189
Other operating income................................................ 2,326 1,980 1,774
Gain on sale of merchant credit card operations....................... 810
Net investment securities gains ...................................... 2,956 4,243
Marketable equity securities gains (losses)........................... 249 (943)
-------- ------- -------
Total non-interest income........................................... 17,344 12,129 14,073
======== ======= =======
NON-INTEREST EXPENSE:
Salaries.............................................................. 18,697 13,916 13,179
Benefits ............................................................. 4,905 3,768 3,423
Occupancy............................................................. 5,949 5,255 4,769
Furniture and equipment .............................................. 6,292 4,920 4,377
Office................................................................ 4,669 3,425 3,308
Audit and regulatory fees and assessments............................. 4,040 2,953 2,223
Marketing ............................................................ 1,778 1,064 993
Other real estate (net)............................................... 3,944 1,991 754
Other................................................................. 7,599 5,597 5,907
-------- ------- -------
Total non-interest expense ......................................... 57,873 42,889 38,933
-------- ------- -------
Income before income taxes............................................ 23,215 14,453 8,024
Provision for federal and state income taxes.......................... 8,600 4,436 1,997
-------- ------- -------
Net income ........................................................... 14,615 10,017 6,027
Dividends on preferred stocks ........................................ 1,574 1,574 1,574
-------- ------- -------
Net income applicable to common stock................................. $ 13,041 $ 8,443 $ 4,453
======== ======= =======
Net income per common and common equivalent share:
Primary.............................................................. $ 1.72 $ 1.31 $ 0.82
======== ======= =======
Fully diluted........................................................ $ 1.59 $ 1.25
======== ======= =======
Weighted average common equivalent shares outstanding:
Primary.............................................................. 7,574 6,421 5,427
======== ======= =======
Fully diluted ....................................................... 9,081 7,998
======== ======= =======
</TABLE>
See accompanying notes
F-3
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1993 1992 1991
----------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................... $ 14,615 $ 10,017 $ 6,027
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provision for loan losses......................................... 5,981 6,286 5,541
Provision for depreciation, amortization, and accretion........... 15,135 7,519 4,550
Net realized investment securities gains.......................... (4,243)
Realized marketable equity securities (gains) losses.............. (249) 943
Gains on sales of securities available for sale................... (2,956)
Proceeds from sales of mortgages held for sale.................... 80,451
Originations of mortgages held for sale........................... (113,583)
Net loan chargeoffs............................................... (5,797) (6,346) (3,278)
Increase in other assets.......................................... (17,610) (15,688) (3,388)
Increase (decrease) in other liabilities.......................... 23,303 (3,416) 1,132
Deferred income tax benefit....................................... (445) (428) (1,276)
------------ --------- ---------
Net cash (used) provided by operating activities................. (906) (2,305) 6,008
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale.................. 325,146
Proceeds from the maturity of securities available for sale........... 69,411
Proceeds from the sale of investment securities....................... 158,070
Proceeds from the sale of marketable equity securities................ 339
Rollover of money market funds........................................ 355,160 59,375 127,492
Proceeds from the maturity of securities held for investment.......... 209,208 142,659 29,073
Purchase of securities held for investment............................ (1,453,427) (465,175) (467,580)
Net increase in loans................................................. (93,957) (42,707) (24,355)
Proceeds from sales of loans.......................................... 4,563
Purchase of premises and equipment ................................... (16,231) (4,191) (4,867)
----------- --------- ----------
Net cash used by investing activities.............................. (600,127) (309,700) (182,167)
FINANCING ACTIVITIES:
Net increase in demand and savings deposits........................... 172,510 277,298 123,188
Demand and savings deposits acquired.................................. 79,446
Net increase (decrease) in time deposits.............................. 28,864 71,267 (3,075)
Time deposits acquired................................................ 128,477
Net increase in securities under agreement to repurchase.............. 135,000
Proceeds from issuance of long-term debt.............................. 23,000
Issuance of common stock.............................................. 5,498 16,641
Dividends paid........................................................ (4,842) (3,902) (3,401)
Proceeds from issuance of common stock under dividend
reinvestment and other stock plans.................................. 1,397 622 16
Purchase of treasury stock............................................ (166) (146)
Other ................................................................ 191
----------- --------- ----------
Net cash provided by financing activities.......................... 569,375 361,780 116,728
----------- --------- ----------
(Decrease) increase in cash and cash equivalents...................... (31,658) 49,775 (59,431)
Cash and cash equivalents at beginning of year........................ 137,383 87,608 147,039
----------- --------- ----------
Cash and cash equivalents at end of year.............................. $ 105,725 $ 137,383 $ 87,608
=========== ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 42,994 $ 41,227 $ 43,309
Income taxes........................................................ 8,714 5,740 1,862
Other noncash activities:
Transfer of securities to securities available for sale............. $ 248,784 $ 293,201
Transfer of loans to mortgages held for sale........................ 10,019
</TABLE>
See accompanying notes
F-4
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Capital in
Excess of
Par or Commit-
Common Preferred Stated Retained ment Treasury
Stock Stock Value Earnings to ESOP Stock Total
------ --------- ---------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES at January 1, 1991 $6,168 $8,180 $45,735 $2,425 $(7,500) $(746) $54,262
Net income 6,027 6,027
5% common stock dividend and cash
paid in lieu of fractional shares
(194 shares)...................... 304 1,105 (1,414) (5)
Cash dividends, common stock ($0.36
per share)........................ (1,822) (1,822)
Common stock issued in connection
with incentive stock option plan
(3 shares)........................ 4 12 16
Cash dividends, preferred stock..... (1,574) (1,574)
Decrease in obligation to ESOP...... 466 466
Decrease in valuation allowance on
securities held for investment.... 800 800
------- ------ ------- -------- ------- ------ --------
BALANCES at December 31, 1991......... 6,476 8,180 46,852 4,442 (7,034) (746) 58,170
Net income.......................... 10,017 10,017
5% common stock dividend and cash
paid in lieu of fractional shares
(205 shares)...................... 320 2,136 (2,464) (8)
Cash dividends, common stock ($0.38
per share)........................ (2,320) (2,320)
Common stock issued in connection
with incentive stock option plan
(113 shares)...................... 152 470 (146) 476
Cash dividends, preferred stock..... (1,574) (1,574)
Decrease in obligation to ESOP...... 514 514
Common stock issued (1,997 shares).. 2,695 13,946 16,641
------- ------ ------- -------- ------- ------- -------
BALANCES at December 31, 1992......... 9,643 8,180 63,404 8,101 (6,520) (892) 81,916
Acquisition of Coastal (453 shares). 642 4,856 5,498
------- ------ ------- -------- ------- ------- -------
AS ADJUSTED BALANCE at January 1, 1993 10,285 8,180 68,260 8,101 (6,520) (892) 87,414
Net income.......................... 14,615 14,615
5% common stock dividend and cash
paid in lieu of fractional shares
(306 shares)...................... 478 4,193 (4,679) (8)
Cash dividends, common stock ($0.45
per share)........................ (3,260) (3,260)
Common stock issued in connection
with incentive stock option plan
(110 shares)...................... 168 702 (166) 704
Cash dividends, preferred stock..... (1,574) (1,574)
Decrease in obligation to ESOP...... 566 566
Conversion of Series B preferred
stock to common at 1.3401 for 1 (1
shares)........................... 1 (1) 0
Tax benefit from ESOP dividends..... 191 191
Proceeds from issuance of common
stock under dividend reinvestment
plan (37 shares).................. 53 475 528
------- ------ ------- -------- ------- ------- -------
BALANCES at December 31, 1993......... $10,985 $8,179 $73,821 $13,203 $(5,954) $(1,058) $99,176
======= ====== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes
F-5
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Commerce
Bancorp, Inc. (the Company) and its wholly-owned subsidiaries (Banks),
Commerce Bank, N.A. (Commerce NJ), Commerce Bank/Pennsylvania, N.A.
(Commerce PA) and Commerce Bank/Shore, N.A. (Commerce Shore). All material
intercompany transactions have been eliminated.
Investment Securities
Investment securities are classified as held for investment when the
Company has the intent and ability to hold those securities to maturity.
Securities held for investment are stated at cost and adjusted for
accretion of discounts and amortization of premiums.
Those securities that might be sold in response to changes in market
interest rates, prepayment risk, the Company's income tax position, the
need to increase regulatory capital, or similar other factors are
currently classified as available for sale as of December 31, 1993 and are
carried at the aggregate lower of cost or market. Gains and losses are
determined on the specific certificate method and are included in
non-interest income.
Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," (FAS 107) requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement
of the instrument. FAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and mortgages held for sale: The
carrying amounts reported approximate those assets' fair value.
F-6
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Investment securities: Fair values for investment securities are
based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for other loans receivable were estimated
using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality. Loans with significant collectibility concerns were
fair valued on a loan-by-loan basis utilizing a discounted cash flow
method. The carrying amount of accrued interest approximates its fair
value.
Off-balance sheet instruments: Off-balance sheet instruments of
the Company consist of letters of credit, loan commitments and
unfunded lines of credit. Fair values for the Company's off-balance
sheet instruments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest bearing and non-interest bearing checking, passbook
savings and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates of deposit to a schedule of aggregated expected monthly
maturities on time deposits.
Securities sold under agreements to repurchase: The carrying
amounts reported approximate fair value.
Long-term debt: Current quoted market prices were used to estimate
fair value.
Obligation to ESOP: The fair value of the guarantee of the ESOP
obligation is estimated using a discounted cash flow calculation that
applies interest rates currently being offered to obligations of a
similar maturity.
Loans
Loans are stated at principal amounts outstanding, net of deferred
loan origination fees and costs. Interest income on loans is accrued and
credited to interest income monthly as earned. Loan origination fees are
generally considered as adjustments of interest rate yields and are
F-7
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
amortized into interest income on loans over the terms of the related
loans.
Loans are placed on a non-accrual status and cease accruing interest
when loan payment performance is deemed unsatisfactory. However, all loans
past due 90 days are placed on non-accrual status, unless the loan is both
well secured and in the process of collection.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to
expense and reduced by loan charge-offs net of recoveries. Based upon
management's evaluation of the loan portfolio, the allowance is maintained
at a level considered adequate to absorb estimated inherent losses in the
Company's loan portfolio.
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated
depreciation. Depreciation and amortization is determined on the
straight-line method for financial reporting purposes, and accelerated
methods for income tax purposes.
Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan and in-substance
foreclosures are reported in other assets. In-substance foreclosures are
properties in which the borrower has little or no equity in the
collateral, where repayment of the loan is expected only from the
operation or sale of the collateral, and the borrower either effectively
abandons control of the property or the borrower has retained control of
the property but their ability to rebuild equity based on current
financial conditions is considered doubtful. Properties acquired by
foreclosure or deed in lieu of foreclosure and properties classified as
in-substance foreclosures are transferred to ORE and recorded at the lower
of cost or fair market value based on their appraised value at the date
actually or constructively received. Losses arising from the acquisition
of such property are charged against the allowance for loan losses.
Subsequent adjustments to the carrying values of ORE properties are
charged to operating expense. ORE is stated at the lower of cost or fair
value less disposition costs.
Intangible Assets
The excess of cost over fair value of net assets acquired (goodwill)
is included in other assets and is being amortized on a straight-line
basis over the period of expected benefit, which approximates 15 years.
Goodwill amounted to $3,893,000 and $4,061,000 at December 31, 1993 and
1992, respectively. Other intangible assets are amortized on a
F-8
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
straight-line basis over 10 to 15 year lives. Other intangibles amounted
to $4,278,000 and $1,440,000 at December 31, 1993 and 1992, respectively.
Earnings and Cash Dividends Per Share
Primary net income per common and common equivalent share is based on
the weighted average common shares and common share equivalents
outstanding during the period after retroactive recognition is given to
the earliest period presented for common stock dividends. Fully diluted
net income per share assumes conversion of preferred stocks and is not
presented for 1991 since the amount was anti-dilutive. All common stock
per share information has been adjusted for the 5% common stock dividends
declared on January 19, 1994 and December 13, 1994.
Income Taxes
The provision for income taxes is based on current taxable income.
When income and expenses are recognized in different periods for book
purposes, deferred taxes are provided.
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes" (FAS 109) superseding
FAS 96, the method of accounting the Company had previously adopted.
Similar to FAS 96, income tax expense is determined using a liability
method under FAS 109. Among other changes, FAS 109 changes the recognition
and measurement criteria for deferred tax assets included in FAS 96. The
Company adopted FAS 109 in 1993 and did not restate prior years' results.
This change has no material effect on the Company's accounting for income
taxes.
Restriction on Cash and Due From Banks
The Banks are required to maintain reserve balances with the Federal
Reserve Bank. The weighted average amounts of the reserve balances for
1993 and 1992 were approximately $24,573,000 and $18,330,000,
respectively.
Recent Accounting Statements
The Financial Accounting Standards Board recently issued Statement No.
114, "Accounting by Creditors for Impairment of a Loan (FAS 114)." The
new Statement, which is effective for financial statements issued for
fiscal years beginning after December 15, 1994, requires impaired loans be
measured at the present value of expected future cash flows by discounting
those cash flows generally at the loan's effective interest rate. The new
Statement also requires troubled debt restructuring involving a
modification of terms be remeasured on a discounted basis. The Company is
currently evaluating the impact that FAS 114 will have on the Company's
future results of operations and financial position. However, management
F-9
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
does not expect that this Statement will have a material impact on the
Company's results of operations or financial position.
The Financial Accounting Standards Board recently issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities
(FAS 115)." This new Statement, which is effective for financial
statements issued for fiscal years beginning after December 15, 1993,
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. Under the new Statement, debt and equity
securities classified as available for sale are required to be reported at
fair value with unrealized gains and losses, net of tax, reported in a
separate component of stockholders' equity. Presently, debt and equity
securities classified as available for sale are reported at the lower of
amortized cost or market. The Company will adopt the provisions of FAS 115
in the first quarter of 1994. The impact of adopting FAS 115 as of
December 31, 1993 would have been an increase to stockholders' equity of
$954,000 to reflect net unrealized gains on securities available for sale.
2. MERGERS AND ACQUISITIONS
On September 30, 1993, The Coastal Bank, Ocean City, New Jersey
(Coastal) was merged with and into Commerce, NJ. The Company issued
approximately 453,000 shares of common stock in exchange for all the
outstanding shares of Coastal common stock. The transaction was accounted
for as a pooling of interests. However, prior-period financial statements
have not been restated as the changes would be immaterial. Coastal had
total assets of $52,700,000 at the date of the merger.
On July 16, 1993, Commerce NJ purchased four branch offices from
Anchor Savings Bank, FSB (Anchor), with approximately $208,000,000 in
deposits. Additionally, Commerce NJ acquired approximately $500,000 in
loans, real estate and other real property associated with these offices.
In connection with the transaction, Commerce NJ recorded an intangible
asset of approximately $3,000,000.
3. INVESTMENT SECURITIES
A summary of the amortized cost and market value of securities
available for sale and securities held for investment (in thousands) at
December 31, 1993 and 1992 follows:
F-10
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
3. INVESTMENT SECURITIES -- (Continued)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------------
1993 1992
------------------------------------------------ -------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ------ -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
available for
sale............ $164,620 $1,917 $ (426) $166,111 $309,894 $2,398 $(1,207) $311,085
-------- ------ ------- -------- -------- ------ ------- ---------
U.S. Government
agency
mortgaged-backed
obligations..... $912,467 1,998 (7,581) $906,884 $269,479 $1,628 $(1,448) $269,659
Obligations of
state and
political
subdivisions.... 1,871 48 1,919 5,720 154 5,874
Corporate
securities...... 2,297 161 (8) 2,450
Collateralized
mortgage
obligations..... 5,083 144 5,227 10,588 245 10,833
Other............. 6,694 6,694 5,117 5,117
-------- ------ ------- -------- -------- ------ ------- ---------
Securities held
for investment.. $926,115 $2,190 $(7,581) $920,724 $293,201 $2,188 $(1,456) $293,933
-------- ------ ------- -------- -------- ------ ------- ---------
</TABLE>
Substantially all securities available for sale at December 31, 1993
and 1992 consist of U.S. Government agency mortgaged-backed obligations.
The amortized cost and estimated market value of securities held for
investment (in thousands) at December 31, 1993, by contractual maturity
are shown below. Expected maturities will differ from contractual
maturities because obligors have the right to repay obligations without
prepayment penalties.
F-11
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
3. INVESTMENT SECURITIES -- (Continued)
Amortized Market
Cost Value
--------- --------
Due in one year or less......................... $ 2,927 $ 2,947
Due after one year through five years........... 325 353
Due after five years through ten years.......... 1,059 1,059
Due after ten years ............................ 4,254 4,254
Mortgage-backed securities...................... 917,550 912,111
-------- --------
Securities held for investment.................. $926,115 $920,724
======== ========
There were no sales of securities held for investment during 1993.
Proceeds from the sale of securities available for sale during 1993 were
$325,146,000. Gross gains of $3,864,000 and gross losses of $907,000 were
realized on those sales. There were no sales of debt securities during
1992.
Proceeds from the sale of debt securities during 1991 were
$158,070,000. Gross gains of $4,463,000 and gross losses of $220,000 were
realized on those sales during 1991.
At December 31, 1993 and 1992, investment securities with a carrying
value of $315,810,000 and $130,790,000, respectively, were pledged to
secure deposits of public funds.
As of December 31, 1993, the Company had outstanding commitments of
$157,000,000 to purchase U.S. Government agency mortgage-backed
obligations.
F-12
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
4. LOANS
The following is a summary of loans outstanding (in thousands) at
December 31, 1993 and 1992:
December 31,
-------------------------
1993 1992
-------- --------
Commercial real estate:
Owner-occupied ....................... $157,452 $146,739
Other................................. 136,819 117,743
Construction.......................... 45,926 39,555
-------- --------
340,197 304,037
Commercial loans:
Term.................................. 91,336 86,666
Line of credit........................ 36,928 26,837
Demand ............................... 404 1,075
-------- --------
128,668 114,578
Consumer:
Mortgages (1-4 family residential).... 71,583 67,454
Installment .......................... 74,684 54,541
Home equity .......................... 78,619 63,537
Credit lines ......................... 7,611 6,821
-------- --------
232,497 192,353
-------- --------
$701,362 $610,968
======== ========
F-13
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
4. LOANS -- (Continued)
The carrying amounts and fair values of loans consisted of the
following at December 31, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1993 1992
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Commercial real estate................................ $294,271 $298,695 $264,482 $265,407
Construction.......................................... 45,926 46,677 39,555 39,569
-------- -------- -------- --------
340,197 345,372 304,037 304,976
Commercial loans:
Term................................................ 91,336 91,236 86,666 85,781
Line of credit...................................... 36,928 37,080 26,837 26,609
Demand.............................................. 404 416 1,075 1,064
-------- -------- -------- --------
128,668 128,732 114,578 113,454
Consumer:
Mortgages (1-4 family residential).................. 71,583 73,878 67,454 68,883
Installment......................................... 74,684 75,935 54,541 55,578
Home Equity ........................................ 78,619 79,033 63,537 63,398
Credit lines ....................................... 7,611 7,643 6,821 6,821
-------- -------- -------- --------
232,497 236,489 192,353 194,680
-------- -------- -------- --------
701,362 710,593 610,968 613,110
Allowance for loan losses............................. (10,023) (8,839)
-------- -------- -------- --------
$691,339 $710,593 $602,129 $613,110
======== ======== ======== ========
</TABLE>
At December 31, 1993 and 1992, loans of approximately $5,930,000 and
$6,119,000, respectively, were outstanding to certain of the Company's and
the Banks' directors and officers, and approximately $12,959,000 and
$8,657,000, respectively, of loans were outstanding from companies in
which certain of the Company's and the Banks' directors and officers are
associated, exclusive of loans to any such person and associated companies
which in aggregate did not exceed $60,000. The terms of these loans are
substantially the same as those prevailing at the time for comparable
unrelated transactions. A summary of the related party loans outstanding
at December 31, 1993 (in thousands) is as follows:
F-14
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
4. LOANS -- (Continued)
1993
-------
Balance, January 1.............................................. $14,776
New loans....................................................... 12,080
Loan payments .................................................. (7,295)
Other .......................................................... (673)
-------
Balance, December 31 ........................................... $18,888
=======
The Company engaged in certain activities with other entities which
are affiliated with directors of the Company. The Company received real
estate appraisal services from a company owned by a director of the
Company. Such real estate appraisal services amounted to $270,000 in 1993,
$326,000 in 1992 and $112,000 in 1991. The Company received legal services
from two law firms of which two directors of the Company are partners.
Such aggregate legal services amounted to $1,524,000 in 1993, $764,000 in
1992 and $450,000 in 1991.
Commerce NJ has a loan outstanding for $1,411,000, as of December 31,
1993, to an ESOP which is guaranteed by a bank holding company in which
the Chairman of the Board of the Company is a director. The Company owns
41,327 shares of Common Stock and 187,500 Common Stock Warrants. The
Company also owns 30,000 shares of Series A Cumulative Convertible
Preferred Stock and 30,000 Common Stock Purchase Rights included in the
Preferred Stock. The aggregate number of common equivalent shares
beneficially owned by the Company is 288,827 or 12.6% of the total
outstanding common equivalent shares.
F-15
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
5. ALLOWANCE FOR LOAN LOSSES
The following is an analysis of changes in the allowance for loan
losses (in thousands) for 1993, 1992 and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- --------
<S> <C> <C> <C>
Balance, January 1 ......................................... $ 8,839 $ 8,899 $ 6,636
Provision charged to operating expense...................... 5,981 6,286 5,541
Recoveries of loans previously charged off.................. 620 213 201
------- ------- -------
15,440 15,398 12,378
Loan charge-offs............................................ (6,417) (6,559) (3,479)
Allowance for loan losses, acquired bank.................... 1,000
------- ------- -------
Balance, December 31 ....................................... $10,023 $ 8,839 $ 8,899
======= ======= =======
</TABLE>
6. NONACCRUAL AND RESTRUCTURED LOANS AND OTHER REAL ESTATE
The total of non-performing loans (nonaccrual and restructured loans)
was $8,540,000 and $16,309,000 at December 31, 1993 and 1992,
respectively. Non-performing loans of $6,655,000, $12,116,000 and
$6,844,000, net of charge-offs of $1,316,000, $3,267,000 and $371,000 were
transferred to other real estate during 1993, 1992 and 1991, respectively.
Other real estate ($18,325,000 and $16,102,000 at December 31, 1993
and 1992, respectively) is included in other assets. Other real estate
included $13,838,000 and $13,360,000 of in-substance foreclosure property
at December 31, 1993 and 1992, respectively.
Interest income of approximately $639,000 and $1,580,000 would have
been recorded on non-performing loans in accordance with their original
terms in 1993 and 1992, respectively. Actual interest income recorded on
these loans amounted to $270,000 and $513,000, during 1993 and 1992,
respectively.
F-16
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
7. BANK PREMISES, EQUIPMENT AND LEASES
A summary of bank premises and equipment (in thousands) is as follows:
<TABLE>
<CAPTION>
December 31
------------------
1993 1992
------- -------
<S> <C> <C>
Land........................................................ $ 9,229 $ 5,426
Buildings................................................... 20,919 15,700
Leasehold improvements ..................................... 5,333 4,786
Furniture, fixtures and equipment .......................... 22,962 18,366
Leased property under capital leases ....................... 124 124
------- -------
58,567 44,402
Less accumulated depreciation and amortization.............. 15,626 12,973
------- -------
$42,941 $31,429
======= =======
</TABLE>
At December 31, 1993, Commerce NJ leased one of its branches under a
capital lease with an unrelated party. All other branch leases are
accounted for as operating leases with the related rental payments being
expensed ratably over the life of the lease.
The Company leases its headquarters building from a limited
partnership in which the Company is a 49% limited partner at December 31,
1993. The lease is accounted for as an operating lease with an annual rent
of $865,410. The lease expires in 1996 and is renewable for six additional
terms of five years each.
At December 31, 1993, the Company leased from related parties under
separate operating lease agreements the land on which it has constructed
five branch offices. The aggregate annual rental under these related party
leases was $200,000 in 1993 and 1992, and $196,000 in 1991. These leases
expire periodically through 2010 but are renewable through 2030. Aggregate
annual rentals escalate to $274,000 in 2004.
The Company leases land to a limited partnership partially comprised
of the directors of Commerce PA and Commerce NJ. The initial lease term is
25 years, with two successive 10-year options. As of December 31, 1993,
the future minimum lease payments to be received by the Company amount to
approximately $55,000 for each of the next four years and $652,000
thereafter for the remainder of the initial lease term. In accordance with
the provision of the land lease, the limited partnership constructed and
owns the office building located on the land. Commerce PA leases the
building as a branch facility through 2010.
F-17
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
7. BANK PREMISES, EQUIPMENT AND LEASES-- (Continued)
Total rent expense charged to operations under operating leases was
approximately $2,542,000 in 1993, $2,387,000 in 1992, and $2,240,000 in
1991.
The future minimum rental commitments, by year, under the
non-cancelable leases are as follows (in thousands) at December 31, 1993:
Capital Operating
------- ---------
1994.............................................. $ 12 $ 2,114
1995.............................................. 12 2,067
1996 ............................................. 12 2,033
1997 ............................................. 12 1,395
1998 ............................................. 12 1,420
Later years ...................................... 192 13,408
----- -------
Net minimum lease payments ....................... $ 252 $22,437
===== =======
Less amount representing interest................. (140)
------
Present value of net minimum lease payments ...... $ 112
=====
The Company obtained interior design services for $651,000, $191,000
and $315,000 in 1993, 1992 and 1991, respectively, from a business owned
by the spouse of the Chairman of the Board of the Company. Additionally,
the business received commissions of less than $265,000, $85,000 and
$50,000 in 1993, 1992 and 1991, respectively, on furniture purchases made
directly by the Company. In the opinion of management, the terms of such
purchases were substantially equivalent to those which would have been
obtained from unaffiliated parties for similar goods and services.
F-18
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
8. DEPOSITS
The carrying amounts and fair values of deposits consisted of the
following (in thousands) at December 31, 1993 and 1992, respectively. For
deposits with no defined maturities, FAS 107 defines fair value as the
amount payable on demand.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1993 1992
------------------------ ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Demand:
Interest-bearing.......................... $ 452,028 $ 452,028 $ 333,345 $ 333,345
Non-interest-bearing...................... 310,598 310,598 245,317 245,317
Savings................................... 483,756 483,756 415,764 415,764
Time...................................... 498,533 504,656 341,192 344,144
---------- ---------- ---------- ----------
Total deposits........................... $1,744,915 $1,751,038 $1,335,618 $1,338,540
========== ========== ========== ==========
</TABLE>
The aggregate amount of time certificates of deposits in denominations
of $100,000 or more was $137,546,000 and $124,570,000 at December 31, 1993
and 1992, respectively.
9. SHORT TERM BORROWINGS
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase represent borrowings
which range from one day to three months in maturity. The following table
represents information for securities sold under agreements to repurchase
(dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1993
-------------------
Average
Amount Rate
-------- -------
<S> <C> <C>
Securities sold under agreements to repurchase:............. $135,000 3.44%
Average amount outstanding................................ 90,422 3.32
Maximum month-end balance................................. 267,398
</TABLE>
As of December 31, 1993, the Company has a line of credit of $87,580,000
available from the Federal Home Loan Bank of New York.
F-19
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
9. SHORT TERM BORROWINGS -- (Continued)
Other Liabilities
As of December 31, 1993, other liabilities included $20,100,000 of
cash due to another depository institution.
10. LONG-TERM DEBT
On July 15, 1993, the Company issued $23,000,000 of 83/8% subordinated
notes due 2003. Interest on the debt is payable semiannually on January 15
and July 15 of each year. The notes may be redeemed in whole or in part at
the option of the Company after July 15, 2000 at a price from 102% to 100%
of the principal plus accrued interest, if any, to the date fixed for
redemption, subject to certain conditions. The notes qualify for total
risk-based capital for regulatory purposes, subject to certain
limitations.
The subordinated notes had a fair value of $23,575,000 as of December
31, 1993.
11. INCOME TAXES
Effective January 1, 1993, the Company changed its method of
accounting for income taxes to the liability method required by FAS 109,
"Accounting for Income Taxes" (see Note 1). As permitted under the new
rules, prior years' financial statements have not been restated and there
was no material cumulative effect.
At December 31, 1993, the Company has federal net operating loss
carryforwards of $600,000 for income tax purposes that expire in 2006.
Those carryforwards resulted from the Company's 1993 acquisition of
Coastal.
The provision for income taxes consists of the following (in
thousands):
1993 1992 1991
------ ------ ---------
Current:
Federal................................ $8,001 $4,768 $ 3,273
State.................................. 811 96
Deferred:
Federal................................ (212) (428) (1,276)
------ ------ -------
$8,600 $4,436 $ 1,997
====== ====== =======
F-20
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
11. INCOME TAXES -- (Continued)
The above provision includes income taxes related to securities gains of
$1,035,000, $85,000, and $1,122,000 for 1993, 1992, and 1991,
respectively. The provision for income taxes differs from the expected
statutory provision as follows:
1993 1992 1991
----- ----- -----
Expected provision at statutory rate:......... 35.0% 34.0% 34.0%
Difference resulting from:
Tax-exempt interest on loans................. (0.8) (1.4) (3.5)
Tax-exempt interest on securities............ (0.3) (1.1) (2.3)
Purchase accounting adjustments.............. 0.4 0.6 (0.7)
ESOP dividends............................... (1.3) (2.4)
Other........................................ 2.8 (0.1) (0.2)
---- ----- -----
37.1% 30.7% 24.9%
==== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The significant components of the Company's deferred tax liabilities
and assets as of December 31, 1993 and 1992 (in thousands) are as follows:
1993 1992
------- ------
Deferred tax assets:
Loan loss reserves ................... $3,861 $3,005
Other reserves ....................... 404 535
Investment valuations ................ 239 232
Interest income ...................... 196 214
Net operating losses.................. 180
Other ................................ 254 181
------ -----
Total deferred tax assets............. 5,134 4,167
====== =====
Deferred tax liabilities:
Depreciation ......................... 1,469 1,096
Intangibles .......................... 215 289
Other................................. 450 227
------ -----
Total deferred tax liabilities........ 2,134 1,612
------ -----
Net deferred tax assets................. $3,000 $2,555
====== ======
F-21
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
12. COMMITMENTS AND LETTERS OF CREDIT
In the normal course of business, there are various outstanding
commitments to extend credit, such as letters of credit, which are not
reflected in the accompanying financial statements. These arrangements
have credit risk essentially the same as that involved in extending loans
to customers and are subject to the Company's normal credit policies.
Collateral is obtained based on management's credit assessment of the
borrower. At December 31, 1993, the Banks had outstanding standby letters
of credit in the amount of $13,200,000. In addition, the Banks are
committed as of December 31, 1993 to advance $46,476,000 on construction
loans, $55,178,000 on home equity loans, and $42,724,000 on lines of
credit. All other commitments total approximately $53,721,000. The Company
anticipates no material losses as a result of these transactions.
The fair values for the Company's off-balance-sheet financial
instruments at December 31, 1993 are summarized below (in thousands):
Fair Value
of Asset (Liability)
--------------------
Commitments to extend credit ........... $(332)
Standby letters of credit .............. (132)
13. DIVIDENDS
On January 19, 1994, the Board of Directors declared a cash dividend
of $0.15 for each share of common stock outstanding and a 5% stock
dividend payable February 19, 1994 to stockholders of record on January
31, 1994. Payment of the stock dividend will result in the issuance of
347,918 additional common shares and cash of $10,300 in lieu of fractional
shares. On December 13, 1994 the Board of Directors declared another 5%
stock dividend payable January 17, 1995 to stockholders of record on
January 2, 1995. Payment of this stock dividend will result in the
issuance of approximately 419,645 additional common shares.
F-22
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
14. COMMON STOCK AND PREFERRED STOCKS
At December 31, 1993, the Company's common stock had a par value of
$1.5625. The Company had 20,000,000 shares authorized as of this date of
which 519,000 were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.
At December 31, 1993, the Company had 675,000 shares of Series B
Cumulative Convertible Preferred Stock authorized and 672,950 issued
(674,200 in 1992) without par value (stated value of $1.00 per share)
which is convertible at any time into common stock on a share-for-share
basis, after adjustment for common stock dividends and splits. The annual
dividend is $1.50 per share, payable quarterly. The Series B Preferred
Stock is redeemable at the option of the Company, under certain
circumstances, at redemption prices ranging from $20.20 to $20.00 per
share.
At December 31, 1993 the Company had 417,000 shares of Series C ESOP
Cumulative Convertible Preferred Stock authorized and issued without par
value, (stated value of $1.00 per share) which is convertible at any time
into the common stock on a share-for-share basis, after adjustment for
common stock dividends and splits. The annual dividend is $1.35 per share,
payable quarterly. The Series C ESOP Cumulative Convertible Preferred
Stock is redeemable at the option of the Company. These shares have been
issued to the Company's Employee Stock Ownership Plan (see Note 15).
F-23
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
15. BENEFIT PLANS
Incentive Stock Option Plan
The Company has an Incentive Stock Option Plan (the ISO Plan) for the
officers and employees of the Company and the Banks as well as a plan for
its non-employee directors. Information concerning options as of December
31, 1993, 1992, and 1991 is as follows:
December 31,
------------------------------
1993 1992 1991
------- ------- -------
Under option ........................... 935,362 600,429 628,180
Exercisable ............................ 579,894 432,802 344,902
Exercised during year .................. 109,745 112,627 3,453
Granted during year .................... 445,603 100,192 238,847
Canceled during year ................... 17,431 3,889 52,159
Price per share of shares under option and exercised during the year were
as follows:
Shares under option Shares exercised
------------------- ----------------
December 31, 1993............... $4.90 to $14.06 $4.90 to $12.44
December 31, 1992............... $3.66 to $12.44 $3.66 to $11.16
December 31, 1991............... $3.66 to $12.44 $3.66 to $5.97
All shares and per share prices for shares under option and exercised have
been adjusted for 5% common stock dividends declared on January 19, 1994
and December 13, 1994.
Employee Stock Ownership Plan
As of December 31, 1993, the Company maintains an Employee Stock
Ownership Plan (ESOP) for the benefit of its officers and employees who
meet age and service requirements. The ESOP held 417,000 shares of Series
C ESOP Cumulative Convertible Preferred Stock purchased at a price of
$18.00 per share. The Company guarantees a loan outstanding obtained by
the ESOP, which is payable on a 10-year amortization period with a balloon
payment due December 31, 1994. The preferred stock has been pledged as
security to the loan and pays an annual dividend of $1.35 per share, which
the ESOP applies to its obligations under the loan. Employer contributions
are determined at the discretion of the Board of Directors but will be
sufficient to enable the ESOP to discharge current obligations under the
loan. Minimum annual contributions by the Company to the Plan in
accordance with the annual contributions agreement between the Company and
the Plan are:
F-24
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
15. BENEFIT PLANS -- (Continued)
For Plan Year
------------------------------------------------------
1993 1994 1995
-------- -------- ----------
$566,069 $623,795 $5,330,304
The total contribution expense associated with the ESOP for 1993, 1992,
and 1991 was $617,000, $577,000, and $613,000, respectively.
FAS 107 requires the determination of the fair value of financial
guarantees. In accordance with the guidelines of FAS 107, the Company's
obligation to the ESOP of $5,954,000 had a fair value of $6,218,000.
Post-employment and Post-retirement Benefits
The Company offers no post-employment and post-retirement benefits.
16. QUARTERLY FINANCIAL DATA (unaudited)
The following represents summarized quarterly financial data of the
Company which, in the opinion of management, reflects adjustments
(comprising only normal recurring accruals) necessary for fair
presentation (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
December 31 September 30 June 30 March 31
----------- ------------ ------- --------
1993
----
<S> <C> <C> <C> <C>
Interest income....................................... $32,218 $29,277 $27,789 $24,707
Interest expense...................................... 12,353 11,669 10,660 9,584
Net interest income................................... 19,865 17,608 17,129 15,123
Provisions for loan losses............................ 1,310 1,378 1,810 1,483
Net investment securities gains....................... 491 1,346 618 501
Provision for federal and state income taxes.......... 2,584 2,246 2,062 1,708
Net income ........................................... 4,155 3,743 3,558 3,159
Net income applicable to common stock................. 3,762 3,349 3,165 2,765
Net income per common share:
Primary.............................................. $ 0.48 $ 0.45 $ 0.42 $ 0.37
Fully diluted........................................ 0.44 0.41 0.39 0.35
1992
----
Interest income....................................... $23,845 $24,036 $22,764 $21,236
Interest expense...................................... 9,914 9,900 10,386 10,182
Net interest income................................... 13,931 14,136 12,378 11,054
Provision for loan losses............................. 1,300 2,643 1,474 869
Provision for federal and state income taxes.......... 1,435 1,226 920 855
Net income ........................................... 3,049 2,713 2,147 2,108
Net income applicable to common stock................. 2,656 2,319 1,754 1,714
Net income per common share:
Primary.............................................. $ 0.36 $ 0.32 $ 0.32 $ 0.31
Fully diluted........................................ 0.34 0.31 0.30 0.30
</TABLE>
F-25
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
17. CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY AND OTHER MATTERS
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1992
-------- -------
Assets
<S> <C> <C>
Cash ................................................................... $ 7,470 $ 5,680
Securities available for sale .......................................... 2,538
Securities held for investment ......................................... 167 2,488
Investment in Banks .................................................... 108,959 75,884
Other assets ........................................................... 9,978 6,247
-------- -------
$129,112 $90,299
======== =======
Liabilities
Other liabilities ...................................................... $ 982 $ 1,863
Long-term debt ......................................................... 23,000
Obligations to Employee Stock Ownership Plan (ESOP)..................... 5,954 6,520
-------- -------
29,936 8,383
-------- -------
Stockholders' Equity
Common stock ........................................................... 10,985 9,643
Preferred stock:
Series B .............................................................. 673 674
Series C .............................................................. 7,506 7,506
Capital in excess of par or stated value ............................... 73,821 63,405
Retained earnings....................................................... 13,203 8,100
-------- ------
106,188 89,328
-------- -------
Less commitment to ESOP ................................................ 5,954 6,520
Less treasury stock .................................................... 1,058 892
-------- -------
Total stockholders' equity ............................................ 99,176 81,916
======== =======
$129,112 $90,299
======== =======
</TABLE>
F-26
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
17. CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY AND OTHER
MATTERS -- (Continued)
STATEMENTS OF INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1993 1992 1991
------- ------- ------
Income:
<S> <C> <C> <C>
Dividends from Banks................................................... $ 7,182 $ 3,372 $2,872
Interest income ....................................................... 256 411 307
Other.................................................................. 298 486 51
------- ------- ------
7,736 4,269 3,230
Expenses:
Interest expense ...................................................... 930
Operating expenses .................................................... 1,246 962 1,998
------- ------- ------
2,176 962 1,998
Income before federal income taxes and equity in undistributed income of
Banks................................................................. 5,560 3,307 1,232
Income tax expense (benefit)............................................ (489) 44 (688)
------- ------- ------
6,049 3,263 1,920
------- ------- ------
Equity in undistributed income of Banks................................. 8,566 6,754 4,107
------- ------- ------
Net income ............................................................. 14,615 10,017 6,027
Dividends on preferred stock ........................................... 1,574 1,574 1,574
------- ------- ------
Net income applicable to common stock................................... $13,041 $ 8,443 $4,453
======= ======= ======
</TABLE>
F-27
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
17. CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY AND OTHER
MATTERS -- (Continued)
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1993 1992 1991
-------------------------------
Operating activities:
<S> <C> <C> <C>
Net income ........................................................... $ 14,615 $ 10,017 $ 6,027
Adjustments to reconcile net income to net cash provided by operating
activities:
Undistributed income of Banks ...................................... (8,566) (6,754) (4,107)
(Increase) decrease in accrued interest receivable and other assets. (3,731) 1,104 2,217
(Decrease) increase in accounts payable and other
liabilities....................................................... (881) 1,321 71
--------- -------- -------
Net cash provided by operating activities........................ 1,437 5,688 4,208
Investing activities:
Investments in Banks.................................................. (24,509) (13,200) (1,150)
Proceeds from sale of equity securities............................... 339
Purchase of equity securities ........................................ (283) (245)
Other ................................................................ 66 (246) 440
-------- -------- ------
Net cash used by investing activities............................ (24,726) (13,352) (710)
Financing Activities:
Net proceeds from common stock offerings.............................. 16,641
Tax benefit from ESOP dividends ...................................... 191
Proceeds from issuance of common stock under dividend
reinvestment plan .................................................. 528
Cash dividends........................................................ (4,842) (3,902) (3,401)
Proceeds from exercise of stock options............................... 870 622 16
Purchase of treasury stock ........................................... (166) (146)
Proceeds from issuance of long-term debt.............................. 23,000
Equity of acquired bank............................................... 5,498
-------- ------- -------
Net cash provided (used) by financing activities................... 25,079 13,215 (3,385)
Increase in cash and cash equivalents .................................. 1,790 5,551 113
Cash and cash equivalents at beginning of year.......................... 5,680 129 16
-------- -------- -------
Cash and cash equivalents at end of year ............................... $ 7,470 $ 5,680 $ 129
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes............................. $ 7,852 $ 5,740 $ 1,862
-------- -------- -------
</TABLE>
Holders of common stock of the Company are entitled to receive
dividends when declared by the Board of Directors out of funds legally F-25
available. Under the New Jersey Business Corporation Act, the Company may
F-28
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991-- (Continued)
17. CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY AND OTHER
MATTERS -- (Continued)
pay dividends only if it is solvent and would not be rendered insolvent by
the dividend payment and only to the extent of surplus (the excess of the
net assets of the Company over its stated capital).
The approval of the Comptroller of the Currency is required for a
national bank to pay dividends if the total of all dividends declared in
any calendar year exceeds net profits (as defined) for that year combined
with its retained net profits for the preceding two calendar years. Under
this formula, Commerce NJ, Commerce PA, and Commerce Shore can declare
dividends in 1994 without approval of the Comptroller of the Currency of
approximately $10,250,000,$1,430,000 and $3,100,000, respectively, plus an
additional amount equal to each bank's net profit for 1994 up to the date
of any such dividend declaration.
The Federal Reserve Act requires the extension of credit by Commerce
NJ,Commerce PA, and Commerce Shore to certain affiliates, including
Commerce Bancorp, Inc. (parent), be secured by readily marketable
securities, that extension of credit to any one affiliate be limited to
10% of the capital and capital in excess of par or stated value, as
defined, and that extensions of credit to all such affiliates be limited
to 20% of capital and capital in excess of par or stated value. At
December 31, 1993 and 1992, the Company complies with these guidelines.
F-29
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30,
(dollars in thousands) 1994
---------------------- -------------
Assets
<S> <C>
Cash and due from banks....................................................................... $ 89,285
Federal funds sold ......................................................................... 5,550
----------
Cash and cash equivalents ................................................................ 94,835
Mortgages held for sale .................................................................... 1,153
Securities available for sale .............................................................. 126,640
Securities held to maturity:
U.S. Government and agency mortgage-backed obligations.................................... 1,131,320
Collateralized mortgage obligations....................................................... 2,702
Obligations of state and political subdivisions........................................... 404
Other securities ......................................................................... 23,047
----------
Total securities held to maturity (market value - $1,065,139)........................... 1,157,473
Loans ...................................................................................... 765,294
Less allowance for loan losses ........................................................... 11,328
----------
753,966
Bank premises and equipment, net ........................................................... 54,786
Other assets ............................................................................... 49,364
----------
$2,238,217
==========
Liabilities
Deposits:
Demand:
Interest-bearing.......................................................................... $ 484,949
Non-interest bearing ..................................................................... 314,834
Savings .................................................................................... 504,758
Time ....................................................................................... 467,680
----------
Total Deposits ......................................................................... 1,772,221
Other borrowed money.......................................................................... 324,417
Other liabilities ............................................................................ 3,672
Obligation to Employee Stock Ownership Plan (ESOP)............................................ 5,385
Long-term debt ............................................................................... 23,000
-----------
2,128,695
Stockholders' equity
Common stock 8,870,476 shares issued.......................................................... 13,204
Preferred stock:
Series C, 417,000 shares authorized, issued and outstanding (liquidating preference: $18.00
per share totaling $7,506)................................................................ 7,506
Capital in excess of par or stated value...................................................... 79,682
Retained earnings ............................................................................ 15,778
----------
116,170
Less commitment to ESOP ...................................................................... 5,385
Less treasury stock, at cost, 79,054 common .................................................. 1,263
----------
Total stockholders' equity ................................................................. 109,522
----------
$2,238,217
==========
</TABLE>
See accompanying notes
F-30
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(dollars in thousands, except per share amounts) September 30,
-------------------
1994 1993
-------- -------
Interest Income
<S> <C> <C>
Interest and fees on loans........................................................ $ 47,784 $41,233
Interest on investment securities ................................................ 60,095 39,277
Other interest ................................................................... 687 1,263
-------- -------
Total interest income .......................................................... 108,566 81,773
-------- -------
Interest expense
Interest on deposits:
Demand ......................................................................... 6,963 6,386
Savings ........................................................................ 8,883 9,277
Time ........................................................................... 14,454 14,313
-------- -------
Total interest on deposits ................................................... 30,300 29,976
Interest on other borrowed money ................................................. 9,744 1,513
Interest on long-term debt ....................................................... 1,519 424
-------- -------
Total interest expense ....................................................... 41,563 31,913
-------- -------
Net interest income .............................................................. 67,003 49,860
Provision for loan losses ........................................................ 3,160 4,671
-------- -------
Net interest income after provisions for loan losses.............................. 63,843 45,189
Non-interest income
Deposit charges and service fees ................................................. 10,282 8,569
Other operating income ........................................................... 2,351 1,688
Net investment securities gains .................................................. 641 2,465
-------- -------
Total non-interest income .................................................... 13,274 12,722
-------- -------
Non-interest expense
Salaries ......................................................................... 16,833 13,450
Benefits ......................................................................... 4,936 3,498
Occupancy ........................................................................ 5,835 4,309
Furniture and equipment .......................................................... 6,158 4,378
Office ........................................................................... 4,643 3,234
Audit and regulatory fees and assessments......................................... 3,662 2,912
Marketing ........................................................................ 1,801 1,260
Other real estate (net) .......................................................... 2,255 3,156
Other ............................................................................ 6,738 5,238
-------- -------
Total non-interest expenses .................................................. 52,861 41,435
-------- -------
Income before income taxes ....................................................... 24,256 16,476
Provision for federal and state income taxes ..................................... 8,814 6,016
-------- -------
Net income ....................................................................... 15,442 10,460
Dividends on preferred stock ..................................................... 927 1,181
-------- -------
Net income applicable to common stock ............................................ $ 14,515 $ 9,279
======== =======
Net income per common and common equivalent share:
Primary......................................................................... $ 1.76 $ 1.24
======== =======
Fully diluted................................................................... $ 1.59 $ 1.15
======== =======
Average common and common equivalent shares outstanding:
Primary......................................................................... 8,269 7,457
======== =======
Fully diluted .................................................................. 9,662 9,016
======== =======
Cash dividends declared, common stock .............................................. $ 0.43 $ 0.33
======== =======
</TABLE>
See accompanying notes
F-31
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(dollars in thousands) September 30,
---------------------- ------------------------
1994 1993
--------- -----------
Operating Activities
<S> <C> <C>
Net income........................................................................ $ 15,442 $ 10,460
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses ..................................................... 3,160 4,671
Provision for depreciation, amortization and accretion.......................... 13,200 8,626
Gains on sales of securities available for sale................................. (641) (2,465)
Proceeds from sales of mortgages held for sale.................................. 73,420 48,043
Originations of mortgages held for sale ........................................ (31,422) (50,294)
Net loan charge-offs ........................................................... (1,855) (4,491)
(Increase) decrease in other assets ............................................ 8,750 (14,698)
Increase (decrease) in other liabilities ....................................... (19,209) 2,374
--------- -----------
Net cash provided by operating activities..................................... 60,845 2,226
Investing activities
Proceeds from sales of securities available for sale.............................. 961 214,732
Proceeds from the maturity of securities available for sale....................... 31,545 48,023
Rollover of money market funds ................................................... 157,944 259,324
Proceeds from the maturity of securities held for investment...................... 114,688 123,774
Purchase of securities held for investment ....................................... (510,343) (1,093,791)
Net increase in loans ............................................................ (68,771) (67,324)
Proceeds from sales of loans ..................................................... 4,839 3,710
Purchases of premises and equipment .............................................. (16,482) (13,414)
--------- -----------
Net cash used by investing activities ........................................ (285,619) (524,966)
Financing activities
Net increase in demand and savings deposits ...................................... 58,159 165,832
Net increase (decrease) in time deposits ......................................... (30,853) 218,164
Net increase in other borrowed money ............................................. 189,417 103,250
Equity of acquired bank .......................................................... 5,498
Proceeds from the issuance of long-term debt ..................................... 23,000
Dividends paid ................................................................... (4,288) (3,577)
Proceeds from issuance of common stock under dividend reinvestment and other stock
plans........................................................................... 1,610 1,137
Purchase of treasury stock........................................................ (205) (145)
Other ............................................................................ 44 144
--------- -----------
Net cash provided by financing activities..................................... 213,884 513,303
Decrease in cash and cash equivalents ............................................ (10,890) (9,437)
Cash and cash equivalents at beginning of year.................................... 105,725 137,383
--------- -----------
Cash and cash equivalents at end of period ....................................... $ 94,835 $ 127,946
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest...................................................................... $ 40,216 $ 31,216
Income taxes ................................................................. 9,164 5,875
</TABLE>
See accompanying notes
F-32
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
A. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
The consolidated condensed financial statements included herein have
been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. These consolidated
condensed financial statements should be read in conjunction with the
audited financial statements and the notes thereto included elsewhere
herein. The results for the nine months ended September 30, 1994 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1994.
The consolidated condensed financial statements include the accounts of
the Company and all of its subsidiaries, including Commerce Bank, N.A.
(Commerce NJ), Commerce Bank/Pennsylvania, N.A., and Commerce
Bank/Shore, N.A. All material intercompany transactions have been
eliminated.
Certain amounts from 1993 have been reclassified to conform with 1994
presentation.
On September 30, 1993, The Coastal Bank, Ocean City, New Jersey
(Coastal) was merged with and into Commerce NJ. The Company issued
approximately 411,000 shares of common stock in exchange for all the
outstanding shares of Coastal common stock. The transaction was
accounted for as a pooling of interests. However, prior-period
financial statements have not been restated as the changes would be
immaterial. Coastal had total assets of $52.7 million at the date of
the merger.
On July 16, 1993, Commerce NJ purchased four branch offices from Anchor
Savings Bank, FSB (Anchor), with approximately $208.0 million in
deposits. Additionally, Commerce NJ acquired approximately $500,000 in
loans, real estate and other real property associated with these
offices. In connection with the transaction, Commerce NJ recorded an
intangible asset of approximately $3,000,000.
B. COMMITMENTS:
In the normal course of business, there are various outstanding
commitments to extend credit, such as letters of credit and unadvanced
loan commitments, which are not reflected in the accompanying
consolidated condensed financial statements. Management does not
anticipate any material losses as a result of these transactions.
F-33
<PAGE>
C. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) DEBT GUARANTEE:
The Company has guaranteed a debt obligation of its Employee Stock
Ownership Plan (ESOP) which originated at $7,500,000 and has been
reduced to $5,385,000 through principal reductions. Accordingly, the
loan amount is reflected in the Company's consolidated balance sheet as
a liability and an equal amount, representing deferred employee
benefits, has been recorded as a deduction from stockholders' equity.
The ESOP obtained the loan on January 31, 1990 to acquire a new class
of Company preferred stock (Series C) at a price of $18.00 per share.
The loan bears interest at 9.75% per annum and is based on a 10-year
amortization period with a balloon payment due December 1, 1994. In
October, 1994 the Company signed a commitment letter to refinance the
loan with a final maturity date of January 31, 2000. As the Company
makes annual contributions to the ESOP, these contributions plus
dividends from the Company's Series C preferred stock held by the ESOP,
will be used to repay the loan.
D. CHANGES IN ACCOUNTING PRINCIPLE:
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As of January 1, 1994, the
Company adopted the provisions of that standard for investments held as
of or acquired after that date. In accordance with Statement 115, prior
period financial statements have not been restated to reflect the
change in the accounting principle. The cumulative effect as of January
1, 1994 of adopting Statement 115 increased stockholders' equity by
$954,000 (net of adjustments to deferred income taxes of $537,000) to
reflect the net unrealized holding gains on securities previously
carried at amortized cost; there was no effect on net income as a
result of the adoption of Statement 115.
In the nine month period ended September 30, 1994 this net unrealized
holding gain decreased by $3,780,000 (net of adjustments to deferred
income taxes of $2,167,000) resulting in a net unrealized loss of
$2,826,000 at September 30, 1994.
E. RECENT ACCOUNTING STATEMENTS:
The Financial Accounting Standards Board recently issued Statements No.
114, "Accounting by Creditors for Impairment of a Loan" and No. 118
"Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosure." The new statements, which are effective for financial
statements issued for fiscal years beginning after December 15, 1994,
require impaired loans be measured at the present value of expected
future cash flows by discounting those cash flows generally at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. The new statements also require
troubled debt restructuring involving a modification of terms be
re-measured on a discounted basis. The Company is currently evaluating
the impact that Statements 114 and 118 will have on the Company's
future results of operations and financial position. However,
management does not expect that these statements will have a materially
adverse impact on future results of operations or financial position.
F-34
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited) -- (Continued)
F. REDEMPTION OF PREFERRED STOCK:
On July 1, 1994, the Company exercised its right to redeem all of its
Series B Cumulative Convertible Preferred Stock (Series B shares) on
August 19, 1994. The redemption price was $20.00 per share plus
dividends accrued to August 19, 1994. Series B shares were convertible
up until August 19, 1994 into the Company's Common Stock at a
conversion rate of 1.4071 shares of Common Stock for each Series B
share. Of the 672,950 Series B shares outstanding approximately 668,000
or 99% were converted. If these shares had been converted as of July 1
and January 1, 1994, respectively, primary earnings per common and
common equivalent share would have been $0.59 for the quarter ended
September 30, 1994, and $1.65 for the nine months ended September 30,
1994.
F-35
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
====================================================== ======================================================
No dealer, salesperson or other person has been 1,500,000 Shares
authorized to give any information or make any
representation not contained in this Prospectus and,
if given or made, such information or representation Commerce Bancorp, Inc.
must not be relied upon as having been authorized by
the Company or any Underwriter. This Prospectus does
not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby LOGO
in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create
any implication that the information herein is correct Common Stock
as of any time subsequent to the date hereof or that (par value $1.5625 per share)
there has been no change in the affairs of the Company
since such date.
----------
TABLE OF CONTENTS
Page
----
Available Information....................... 2
Incorporation of Certain Documents by
Reference ................................ 2
Prospectus Summary ......................... 4
Selected Consolidated Financial PROSPECTUS
Information............................... 5
The Company ................................ 7
Special Considerations...................... 9
Recent Developments......................... 10
Use of Proceeds ............................ 11
Capitalization ............................. 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 12
Management ................................. 30
Common Stock and Dividend
Information .............................. 31
Description of Capital Stock ............... 33
Supervision and Regulation ................. 35
Underwriting ............................... 38
Notice to Canadian Residents ............... 39 CS First Boston
Legal Matters .............................. 40
Experts .................................... 40 Wheat First Butcher Singer
Additional Information ..................... 40
Index to Financial Statements .............. 41
====================================================== ======================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the issuance and
distribution of the securities being registered hereby, other than
underwriting discounts and commissions, are itemized below.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission filing fee $ 14,775
National Association of Securities Dealers, Inc. filing fee............ $ 4,785
Accounting fees and expenses........................................... $ 80,000
Legal fees and expenses................................................ $100,000
Printing and engraving................................................. $ 70,000
Blue Sky fees and expenses (including legal fees)...................... $ 7,500
Transfer Agent and Registrar fees and expenses......................... $ 1,000
Miscellaneous.......................................................... $ 21,940
--------
TOTAL............................................................... $300,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 14A:3-5 of the New Jersey Business Corporation Act provides,
in substance, that New Jersey corporations shall have the power, under
specified circumstances, to indemnify their directors, officers, employees
and agents in connection with actions, suits or proceedings brought
against them or in the right of the corporation, by reason of the fact
that they were or are such directors, officers, employees or agents,
against expenses incurred in any such action, suit or proceeding.
Article VI of the Company's By-laws provides for indemnification to
the fullest extent permitted by Section 14A:3-5. Reference is made to the
By-laws of the Company filed as Exhibit 3.3 hereto.
Under Section 6 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and
officers of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. Reference is made to the
form of Underwriting Agreement filed as Exhibit 1.1 hereto.
II-1
<PAGE>
Item 16. Exhibits
Number Title
--------- -----
1.1 Form of Underwriting Agreement (proof of February 6,
1995) between the Company, CS First Boston Corporation
and Wheat, First Securities, Inc.
5.1 Opinion of Blank, Rome, Comisky & McCauley.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Blank, Rome, Comisky & McCauley
(included in Opinion filed as Exhibit 5.1).
(1) 24.1 Powers of Attorney of certain signatories (included
on signature pages).
----------
(1) Previously filed.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing, specified in the Underwriting Agreement,
shares in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense or any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and where
applicable, each filing of an employee benefit plan's annual report
II-2
<PAGE>
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered
therein, and the offering of such securities shall be deemed the initial
bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Cherry Hill, New Jersey, on
this 6 day of February, 1995.
COMMERCE BANCORP, INC.
By: /s/ VERNON W. HILL, II
--------------------------------------
VERNON W. HILL, II
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons, in the capacities indicated, on February 6, 1995.
SIGNATURE CAPACITY
--------- --------
/s/ Vernon W. Hill, II Chairman of the Board, President and
------------------------- Director (Principal ExecutiveOfficer)
VERNON W. HILL, II
/s/ C. Edward Jordan, Jr. Executive Vice President and Director
------------------------- (Principal Financial and Accounting Officer)
C. EDWARD JORDAN, JR.
* Secretary and Director
-------------------------
ROBERT C. BECK
* Director
-------------------------
DAVID BAIRD, IV
* Director
-------------------------
JACK R BERSHAD
Director
-------------------------
MORTON N. KERR
Director
-------------------------
STEVEN M. LEWIS
* Director
-------------------------
DANIEL J. RAGONE
Director
-------------------------
JOSEPH T. TARQUINI, JR.
*By /s/ C. Edward Jordan, Jr.
---------------------------
C. EDWARD JORDAN, JR.,
Attorney-in-Fact
II-4
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EXHIBIT INDEX
Number Title
------ -----
1.1 Form of Underwriting Agreement (proof of February 6, 1995)
between the Company, CS First Boston Corporation and
Wheat, First Securities, Inc.
5.1 Opinion of Blank, Rome, Comisky & McCauley.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Blank, Rome, Comisky & McCauley
(included in Opinion filed as Exhibit 5.1).
(1)24.1 Powers of Attorney of certain signatories (included on
signature pages).
----------
(1) Previously filed.
<PAGE>
1,500,000 Shares
COMMERCE BANCORP, INC.
Common Stock, Par Value $1.5625 Per Share
UNDERWRITING AGREEMENT
----------------------
, 1995
CS FIRST BOSTON CORPORATION
WHEAT, FIRST SECURITIES, INC.
As Representatives of the Several Underwriters,
c/o CS First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. Introductory. Commerce Bancorp, Inc., a Delaware corporation
("Company"), proposes to issue and sell 1,500,000 shares ("Firm Securities") of
its Common Stock, par value $1.5625 per share ("Securities"), and also proposes
to issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than 225,000 additional shares ("Optional Securities") of
its Securities as set forth below. The Firm Securities and the Optional
Securities are herein collectively called the "Offered Securities". The Company
hereby agrees with the several Underwriters named in Schedule A hereto
("Underwriters") as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 33-86150) relating to the
Offered Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If the Company does not propose to amend such
registration statement and if any post-effective amendment to such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent such amendment
has been declared effective by the Commission. For purposes of this
Agreement, "Effective Time" means (i) if the Company has advised the
Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or
the most recent post-effective amendment thereto (if any) filed prior to
the execution and delivery of this Agreement, was declared effective by the
Commission, or (ii) if the Company has advised the Representatives that it
proposes to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective amendment, as the
case may be, is declared effective by the Commission. "Effective Date"
<PAGE>
means the date of the Effective Time. Such registration statement, as
amended at the Effective Time, including all material incorporated by
reference therein and including all information (if any) deemed to be a
part of such registration statement as of the Effective Time pursuant to
Rule 430A(b) under the Act, is hereinafter referred to as the "Registration
Statement", and the form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with Rule
424(b) ("Rule 424(b)") under the Act or (if no such filing is required) as
included in the Registration Statement, including all material incorporated
by reference in such prospectus, is hereinafter referred to as the
"Prospectus".
(b) If the Effective Time is prior to the execution and delivery
of this Agreement: (i) on the Effective Date, the Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (ii) on the date of this Agreement, the Registration
Statement conforms, and at the time of filing of the Prospectus pursuant to
Rule 424(b), the Registration Statement and the Prospectus will conform, in
all respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time is subsequent to the
execution and delivery of this Agreement: on the Effective Date, the
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The two preceding sentences
do not apply to statements in or omissions from the Registration Statement
or Prospectus based upon written information furnished to the Company by
any Underwriter through the Representatives specifically for use therein,
it being understood and agreed that the only such information is that
described as such in Section 7(b).
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of New Jersey,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification and where the failure
to be so qualified could have a material adverse effect on the Company.
(d) Each subsidiary of the Company has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus; and each subsidiary of the Company is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification and where the failure to be so
qualified could have a material adverse effect on the Company; all of the
issued and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued and is fully paid and nonassessable
(except as provided for national banks under 12 U.S.C. 55); and the capital
stock of each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered Securities
will have been, validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect to the
Securities.
2
<PAGE>
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finder's fee or other like payment
in connection with this offering.
(g) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
(h) A notification for listing of additional shares on the Nasdaq
National Market ("NNM") has been filed with The National Association of
Securities Dealers, Inc.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of
their properties, or any agreement or instrument to which the Company or
any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company or any
such subsidiary is subject, or the charter or by-laws of the Company or any
such subsidiary, and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would individually or in the aggregate
materially affect the Company as a whole; and except as disclosed in the
Prospectus, the Company and its subsidiaries hold any leased real or
personal property under valid and enforceable leases with no exceptions
that would individually or in the aggregate materially affect the Company
as a whole.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them
and have not received any notice of proceedings relating to the revocation
or modification of any such certificate, authority or permit that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its subsidiaries
taken as a whole.
3
<PAGE>
(o) The Company and its subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole.
(p) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws,
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a material adverse effect on
the Company and its subsidiaries taken as a whole; and the Company is not
aware of any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a material adverse effect on the condition (financial
or other), business, prospects or results of operations of the Company and
its subsidiaries taken as a whole, or would materially and adversely affect
the ability of the Company to perform its obligations under this Agreement,
or which are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are threatened or, to
the Company's knowledge, contemplated.
(r) The financial statements included in the Registration
Statement and Prospectus present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company"
as defined in the Investment Company Act of 1940.
(u) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
4
<PAGE>
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives
for the accounts of the Underwriters, against payment of the purchase price by
certified or official bank check or checks in New York Clearing House (next day)
funds drawn to the order of Commerce Bancorp, Inc. at the office of CS First
Boston Corporation ("CS First Boston"), at 10:00 A.M., New York time, on ,
or at such other time not later than seven full business days thereafter as CS
First Boston and the Company determine, such time being herein referred to as
the "First Closing Date". The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CS First Boston requests and will be made available for checking
and packaging at the above office of CS First Boston at least 24 hours prior to
the First Closing Date.
In addition, upon written notice from CS First Boston given to the
Company from time to time not more than 30 calendar days subsequent to the date
of the Prospectus, the Underwriters may purchase all or less than all, of the
Optional Securities at the purchase price per Security to be paid for the Firm
Securities. The Company agrees to sell to the Underwriters the number of shares
of Optional Securities specified in such notice and the Underwriters agree,
severally and not jointly, to purchase such Optional Securities. Such Optional
Securities shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Securities set forth opposite such
Underwriter's name bears to the total number of shares of Firm Securities
(subject to adjustment by CS First Boston to eliminate fractions) and may be
purchased by the Underwriters only for the purpose of covering over-allotments
made in connection with the sale of the Firm Securities. No Optional Securities
shall be sold or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CS First Boston to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CS
First Boston but shall be not later than seven full business days after written
notice of election to purchase Optional Securities is given. The Company will
deliver the Optional Securities being purchased on each Optional Closing Date to
the Representatives for the accounts of the several Underwriters, against
payment of the purchase price therefor by certified or official bank check or
checks in New York Clearing House (next day) funds drawn to the order of
Commerce Bancorp, Inc., at the office of CS First Boston. The certificates for
the Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CS First
Boston requests upon reasonable notice prior to such Optional Closing Date and
will be made available for checking and packaging at the office of CS First
Boston at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time is prior to the execution and delivery
of this Agreement, the Company will file the Prospectus with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable and
if consented to by CS First Boston, subparagraph (4) of Rule 424(b)) not
later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifth business day
5
<PAGE>
after the Effective Date. The Company will advise CS First Boston promptly
of any such filing pursuant to Rule 424(b).
(b) The Company will advise CS First Boston promptly of any
proposal to amend or supplement the registration statement as filed or the
related prospectus or the Registration Statement or the Prospectus and will
not effect such amendment or supplementation without CS First Boston's
consent; and the Company will also advise CS First Boston promptly of the
effectiveness of the Registration Statement (if the Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of the Registration Statement or the
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of the Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as
soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CS First Boston of such event and will promptly prepare and file
with the Commission, at its own expense, an amendment or supplement which
will correct such statement or omission or an amendment which will effect
such compliance. Neither CS First Boston's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date which will satisfy the provisions
of Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes the Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of the
Registration Statement (three) of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as delivery of
a prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case as soon as available and in such quantities as CS First Boston
reasonably requests. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CS First Boston
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of 5 years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CS First Boston may reasonably request.
6
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(h) The Company will pay all expenses incident to the performance
of its obligations under this Agreement and will reimburse the Underwriters
(if and to the extent incurred by them) for any filing fees and other
expenses (including fees and disbursements of counsel) incurred by them in
connection with qualification of the Offered Securities for sale under
applicable state securities laws, for the filing fee of the National
Association of Securities Dealers, Inc. relating to the Offered Securities,
for any travel expenses of the Company's officers and employees and any
other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for
expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
(i) For a period of 120 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of CS First Boston,
except issuances of Securities pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof,
issuances of Securities pursuant to the exercise of such options or the
exercise of any other employee stock options outstanding on the date hereof
or issuances of Securities pursuant to the Company's dividend reinvestment
and stock purchase plan.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time is prior to the
execution and delivery of this Agreement, shall be on or prior to the date
of this Agreement or, if the Effective Time is subsequent to the execution
and delivery of this Agreement, shall be prior to the filing of the
amendment or post-effective amendment to the registration statement to be
filed shortly prior to the Effective Time), of Ernst & Young confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements examined by
them and included in the Registration Statement comply in form in
all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) on the basis of a reading of the latest available
interim financial statements of the Company, inquiries of
officials of the Company who have responsibility for financial
and accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
(A) the unaudited consolidated net interest income, net
non-interest income, net income and net income per share for
the nine-month periods ended September 30, 1994 included in
the Prospectus do not agree with the amounts set forth in
7
<PAGE>
the unaudited consolidated financial statements for those
same periods or were not determined on a basis substantially
consistent with that of the corresponding amounts in the
audited statements of income;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than five calendar days prior to the date of this
Agreement, there was any change in the capital stock, other
than as a result of issuances of capital stock pursuant to
the exercise of currently outstanding stock options or
purchases under the Company's dividend reinvestment plan and
stock purchase plan, or increase in short-term indebtedness
or long-term debt of the Company and its consolidated
subsidiaries or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in
consolidated net assets, as compared with amounts shown on
the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the
period of corresponding length ended the date of the latest
income statement included in the Prospectus, in consolidated
net interest income, or net non-interest income, or in the
total or per share amounts of consolidated income before
extraordinary items or net income; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statement (in each case
to the extent that such dollar amounts, percentages and other
financial information are derived from the general accounting
records of the Company and its subsidiaries subject to the
internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation)
with the results obtained from inquiries, a reading of such
general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results,
except as otherwise specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to the
execution and delivery of this Agreement, "Registration Statement" shall
mean the registration statement as proposed to be amended by the amendment
or post-effective amendment to be filed shortly prior to the Effective
Time, and "Prospectus" shall mean the prospectus included in the
Registration Statement. All financial statements and schedules included in
material incorporated by reference into the Prospectus shall be deemed
included in the Registration Statement for purposes of this subsection.
(b) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or such
later date as shall have been consented to by CS First Boston. If the
Effective Time is prior to the execution and delivery of this Agreement,
the Prospectus shall have been filed with the Commission in accordance with
the Rules and Regulations and Section 5(a) of this Agreement. Prior to such
Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company or
the Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
8
<PAGE>
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries as a whole which, in the reasonable judgment of a majority in
interest of the Underwriters including the Representatives, is material and
adverse and makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the Offered
Securities; (ii) any downgrading in the rating of any debt securities of
the Company by any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under surveillance or review
its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally on the New York
Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; (iv) any banking moratorium
declared by U.S. Federal, New York, New Jersey or Pennsylvania authorities;
or (v) any outbreak or escalation of major hostilities in which the United
States is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
reasonable judgment of a majority in interest of the Underwriters including
the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment
for the Offered Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Blank, Rome, Comisky & McCauley, counsel for the
Company, to the effect that:
(i) The Company, Commerce Bank, N.A., Commerce
Bank/Pennsylvania, N.A., Commerce Bank/Shore, N.A., Commerce Equities
Corporation and Shore Equities Corporation have each been duly
incorporated and are existing corporations in good standing under the
laws of their respective jurisdictions of incorporation, with
corporate power and authority to own properties and conduct business
as described in the Prospectus; and each of the Company, Commerce
Bank, N.A., Commerce Bank/Pennsylvania, N.A., Commerce Bank/Shore,
N.A., Commerce Equities Corporation and Shore Equities Corporation is
duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification
and where the failure to be so qualified would have a material adverse
effect on the Company and its subsidiaries as a whole;
(ii) The Offered Securities delivered on such Closing Date
and, to our knowledge, all other outstanding shares of the Common
Stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have
no preemptive rights with respect to the Securities;
(iii) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Act;
(iv) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940.
(v) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this
9
<PAGE>
Agreement in connection with the issuance or sale of the Offered
Securities by the Company, except such as have been obtained and made
under the Act and applicable state and foreign securities laws;
(vi) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the Company or any
of their properties, or any material agreement or instrument known to
us, to which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the
charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement;
(vii) The Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date
specified therein or was included in the Registration Statement (as
the case may be), and, to the best of the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under
the Act, and the Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
(viii) The descriptions in the Registration Statement and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents present a fair summary of such statutes,
legal and governmental proceedings and contracts and other documents;
and such counsel do not know of any legal or governmental proceedings
required to be described in the Registration Statement or Prospectus
which are not described as required or of any contracts or documents
of a character required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement
which are not described and filed as required; and
(ix) This Agreement has been duly authorized, executed and
delivered by the Company.
Counsel has participated in conferences with the officers and other
representatives of the Company, representatives of the independent certified
public accountants of the Company and representatives of the Underwriters at
which the contents of the Registration Statement and Prospectus and related
matters were discussed and although such counsel is not passing upon and does
not assume sole responsibility for the accuracy, completeness, or fairness of
the statements contained in the Registration Statement and Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which would lead such counsel to believe that the Registration Statement or any
amendment thereto, as, of its effective date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; it being understood that such counsel need
express no opinion as to the financial statements or other financial data
contained in the Registration Statement or the Prospectus.
10
<PAGE>
(e) The Representatives shall have received from Morgan, Lewis &
Bockius, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the validity of
the Offered Securities delivered on such Closing Date, the Registration
Statement, the Prospectus and other related matters as the Representatives may,
require, and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice-President and a principal financial
or accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that the
representations and warranties of the Company in this Agreement are true and
correct, that the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date, that no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission and that, subsequent to
the date of the most recent financial statements in the Prospectus, there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole except as set forth in or contemplated by the
Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of Ernst & Young which meets the requirements of subsection (a) of
this Section, except that the specified date referred to in such subsection will
be a date not more than five days prior to such Closing Date for the purposes of
this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CS First Boston may in its sole discretion waive on behalf of the
Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below and provided further,
that, with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, this indemnity shall
not inure to the benefit of any Underwriter on account of any loss, claim,
damage, liability or action arising from the sale of Securities to any person by
such Underwriter and that such loss, claim, damage, liability or action results
from the fact that such Underwriter failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person to the
extent that a prospectus was required to be delivered under the Act, and
(exclusive of material incorporated by reference) the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact in such preliminary prospectus was corrected in the
Prospectus, unless such failure resulted from the noncompliance by the Company
with this Agreement.
11
<PAGE>
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and the directors and officers (within the meaning of the
Act) of the Company who have executed the Registration Statement and controlling
persons against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Underwriters, the legend concerning
over-allotments, stabilizing and passive market making on the inside front cover
page, the concession and reallowance figures appearing in the paragraph under
the caption "Underwriting," and the information set forth under the caption
"Notice to Canadian Residents."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action. An indemnifying party shall not be
obligated to reimburse an indemnified party hereunder for any amount paid to
effect settlement of any action or claim unless such settlement shall have been
consented to in writing by the indemnifying party, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total underwriting
discounts and commissions received by the Underwriters. The relative fault shall
12
<PAGE>
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed the Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing date, CS First
Boston may make arrangements satisfactory to the Company for the purchase of
such Offered Securities by other persons, including any of the Underwriters, but
if no such arrangements are made by such Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Offered Securities that such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CS First Boston and the Company for the purchase of such Offered Securities by
other persons are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or the Company, except as provided in Section 9 (provided that if such default
occurs with respect to Optional Securities after the First Closing Date, this
Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
13
<PAGE>
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwrites for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o CS First Boston Corporation, Park Avenue Plaza, New
York, NY 10055, Attention: Investment Banking Department--Transactions Advisory
Group, or, if sent to the Company will be mailed, delivered or telegraphed and
confirmed to it at Commerce Bancorp, Inc., 1701 Route 70 East, Cherry Hill, NJ
08034-5400, Attention: C. Edward Jordan, Jr. with a mandatory copy to Blank,
Rome, Comisky & McCauley, Four Penn Center, Philadelphia, PA 19103, Attention:
Lawrence Wiseman, Esq.; provided, however, that any notice to an Underwriter
pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to
such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CS First Boston will
be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
14
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
COMMERCE BANCORP, INC.
By ______________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CS FIRST BOSTON CORPORATION
WHEAT, FIRST SECURITIES, INC.
Acting on behalf of themselves and as the Repre-
sentatives of the several Underwriters.
By CS FIRST BOSTON CORPORATION
By______________________________
[Insert title]
15
<PAGE>
SCHEDULE A
Number of
Firm Securities
---------------
Underwriter
-----------
CS First Boston Corporation. . . . . . . . . . . . . . . . . . . . . . . .
Wheat, First Securities, Inc.. . . . . . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . .
16
<PAGE>
BLANK, ROME, COMISKY & McCAULEY
COUNSELORS AT LAW
FOUR PENN CENTER PLAZA
PHILADELPHIA, PENNSYLVANIA 19103-2599
215-569-5500
TWX 710-670-1073-BLARCOM
FAX 215-569-5555
1620 POND ROAD, SUITE 200 1220 MARKET STREET, 8TH FLOOR
ALLENTOWN, PA 18104-2255 WILMINGTON, DE 19801-2535
610-395-1010 302-425-6400
1400 NORTH PROVIDENCE ROAD 1156 15TH STREET, NW, SUITE 550
MEDIA, PA 19063-2051 WASHINGTON, DC 20005-1704
610-891-7800 202-785-4100
210 LAKE DRIVE EAST 1401 FORUM WAY
CHERRY HILL, NJ 08002-1164 WEST PALM BEACH, FL 33401-2353
609-779-3600 407-686-8100
DIRECT DIAL NUMBER:
(215) 569-5500
February 6, 1995
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, NJ 08034-5400
RE: Commerce Bancorp, Inc.
Registration Statement on Form S-3
(Registration No. 33-86150)
----------------------------------
Gentlemen:
We have acted as counsel to Commerce Bancorp, Inc. (the "Company") in
connection with the preparation of the Registration Statement on Form S-3
(Registration No. 33-86150) ("Registration Statement") filed by the Company
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, relating to the offer and sale by the Company of up to
1,725,000 shares (including up to 225,000 shares of common stock to be
purchased at the option of the Underwriters to cover over-allotments, if any)
of its common stock, par value $1.5625 per share ("Common Stock"). This opinion
is furnished pursuant to the requirements of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the following documents:
(i) the Restated Certificate of Incorporation of the Company, as amended;
(ii) the Bylaws of the Company, as amended; (iii) resolutions adopted by the
Company's Board of Directors relating to the transactions contemplated by the
Registration Statement; and (iv) the Registration Statement. We have not
performed any independent investigation other than the document examination
described above. Our opinion is therefore qualified in all respects by the
scope of that document examination. We have assumed and relied on the truth,
completeness, authenticity and due authorization of all documents and records
examined and the genuineness of all signatures. This opinion is limited to the
laws of the State of New Jersey.
<PAGE>
Commerce Bancorp, Inc.
February 6, 1995
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
shares of Common Stock of the Company which are being offered and sold by the
Company pursuant to the Registration Statement, when issued and sold in the
manner and for the consideration contemplated by the Registration Statement,
will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement.
Sincerely,
/s/ Blank, Rome, Comisky & McCauley
------------------------------------------------
BLANK, ROME, COMISKY & McCAULEY
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated January 31, 1994, in the Registration Statement
(Form S-3 No. 33-86150) and related Prospectus of Commerce Bancorp, Inc.
for the registration of 1,725,000 shares of its common stock.
/s/ Ernst & Young LLP
----------------------------------
Philadelphia, Pennsylvania
February 6, 1995
