UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to __________________.
Commission File #0-12874
COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-243346
(State of other jurisdiction (I.R.S. Employee Identification Number)
of incorporation
or organization)
Commerce Atrium 08034-5400
1701 Route 70 East (Zip Code)
Cherry Hill, New Jersey
(Address of principal
executive offices
Registrant's telephone number, including area code: 609-751-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of voting stock held by non-affiliates of the
Registrant is $154,656,000.(1)
APPLICABLE ONLY TO CORPORATE ISUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Common Stock $1.5625 Par Value 10,570,977
Title of Class No. of Shares Outstanding as of 3/10/95
Series C ESOP Cumulative Convertible 417,000
Preferred Stock No. of Shares Outstanding as of 3/10/95
Title of Class
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate certain information by reference from the
Registrant's Annual Report to Shareholders for the fiscal year ended December
31, 1994 (the "Annual Report"). Part III incorporates certain information
by reference from the Registrant's Proxy Statement for the 1995 Annual Meeting
of Shareholders.
(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Registrant's Common Stock outstanding, reduced by the
amount of Common Stock held by officers, directors, and shareholders owning
in excess of 10% of the Registrant's Common Stock multiplied by the last
sale price for the Registrant's Common Stock on March 10, 1995. The
information provided shall in no way be construed as an admission that the
officer, director, or 10% shareholder in the Registrant may be deemed an
affiliate of the Registrant or that he is the beneficial owner of the
shares reported as being held by him, and any such inference is hereby
disclaimed. The information provided herein is included solely for the
recordkeeping purpose of the Securities and Exchange Commission.
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COMMERCE BANCORP, INC.
FORM 10-K CROSS-REFERENCE INDEX
The preceding Annual Report and Form 10-K incorporates into a single document
the requirements of the accounting profession and the Securities and Exchange
Commission. There has been no action by the Commission, however, to approve or
disapprove or pass upon the accuracy or adequacy of the Annual Report and Form
10-K.
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
(This item is omitted since no matters were submitted
for security vote during the fourth quarter of 1994.)
Part II
Item 5. Market for the Registrants Common Stock and Related
Stockholders Matters
Item 6. Selected Financial Data
Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Financial Data
Item 9. Disagreements on Accounting and Financial Disclosure
(This item is omitted since it is not applicable)
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Management Remuneration and Transactions
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
(The information required by the items in this part has been
omitted since it will be contained in thedefinitive proxy
statement to be filed pursuant toRegulation 14A.)
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) (3) - Exhibits:
3.1 Restated Certificate of Incorporation of the Company,
as amended.(I)
3.2 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, setting forth the preferences,
limitations and relative rights of the Company's Series C
ESOP Cumulative Convertible Preferred Stock. (I)
3.3 By-laws of the Company, as amended. (C)
4.1 Form of Trust Indenture, dated July 15, 1993, between the
Company and United Jersey Bank, with respect to the Company's
$23,000,000 8 3/8% Subordinated Notes due July 15, 2003. (I)
10.1 Ground lease, dated July 1, 1984, between Commerce NJ and
Group Four Equities, relating to the branch office in
Gloucester Township, New Jersey. (A)
10.2 Ground lease, dated April 15, 1986, between Commerce NJ
and Mount Holly Equities, relating to Commerce NJ's branch
office in Mt. Holly, New Jersey. (C)
*10.3 The Company's 1984 Incentive Stock Option Plan. (A)
*10.4 The Company's Employee Stock Ownership Plan. (F)
10.5 Lease, dated March 29, 1985, between Commerce PA and Devon
Properties (Ltd.), and lease dated September 4, 1985, between
Commerce PA and Devon Properties (Ltd.), relating to Commerce
PA's branch office in Devon, Pennsylvania. (B)
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10.6 Assignment of Lease and Assumption Agreement dated November 30,
1987, between the Company and Commerce PA, relating to Commerce
PA's branch office in Devon, Pennsylvania. (C)
10.7 Lease between the Company and Astoria Associates, relating
to the Company's and Commerce NJ's headquarters facilities. (B)
10.8 Ground lease, dated April 15, 1986, between Commerce NJ and U.S.
Equities, relating to one of Commerce NJ's branch offices in
Washington Township, New Jersey. (D)
10.9 Ground lease, dated February 1, 1988, between Commerce NJ and
Diversified Properties of New Jersey, relating to one of Commerce
NJ's branch offices in Washington Township, New Jersey. (D)
10.10 Ground lease, dated February 15, 1988, between Commerce NJ and
Diversified Properties of New Jersey, relating to one of
Commerce NJ's branch offices in Cherry Hill, New Jersey. (D)
*10.11 The Company's 1989 Stock Option Plan for Non-Employee
Directors. (E)
*10.12 A copy of employment contracts with Vernon W. Hill, II,
C. Edward Jordan, Jr., and Peter Musumeci, Jr., dated
January 2, 1992. (G)
*10.13 A copy of the Retirement Plan for Outside Directors of
Commerce Bancorp, Inc. (H)
*10.14 The Company's 1994 Employee Stock Option Plan.
10.15 Term Loan Agreement between Commerce Bancorp, Inc. Employee
Stock Ownership Trust and Mellon Bank, N.A. dated as of
November 29, 1994.
11.1 Computation of Net Income Per Share.
13.1 Portion of Annual Report to Shareholders for the year ended
December 31, 1994.
21.1 Subsidiaries of the Company (incorporated by
reference from PART I, Item 1. "BUSINESS" of
this Report on Form 10-K.)
23.1 Consent of Ernst & Young LLP
(A) Incorporated by reference from the Company's Registration
Statement on Form S-1, and Amendments Nos. 1 and 2 thereto
(Registration No. 2-94189).
(B) Incorporated by reference from the Company's Registration
Statement on Form S-2 (Registration No 33-12603).
(C) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(D) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988.
(E) Incorporated by reference from the Company's Registration
Statement on Form S-2, and Amendments Nos. 1 and 2 thereto
(Registration No. 33-31042).
(F) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.
(G) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991.
(H) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(I) Incorporated by reference from the Company's Registration
Statement on Form S-2 and Amendments Nos. 1 and 2
thereto (Registration No. 33-62702).
* Management contract or compensation plan or arrangement.
(b) There were no reports on Form 8-K filed in the fourth quarter
of 1994.
(c)(d) Exhibits and Financial Statement Schedules - All other
exhibits and schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instruction or are inapplicable and, therefore, have been
omitted.
Item 15. Signatures
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Item 1. Business
General
Commerce Bancorp, Inc. (the "Company") is a New Jersey business corporation
which is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "Holding Company Act"). The Company was incorporated on
December 9, 1982 and became an active bank holding company on June 30, 1983
through the acquisition of 100% of the outstanding shares of Commerce Bank, N.A.
("Commerce NJ"). On January 2, 1987, the Company acquired all of the outstanding
shares of Commerce Bank/Pennsylvania, N.A. ("Commerce PA"). On December 31,
1988, the Company acquired all of the outstanding shares of Citizens State Bank
of New Jersey, Forked River, which was subsequently converted to a national
charter and renamed Commerce Bank/Shore, N.A. ("Commerce Shore"). On September
30, 1993, the Company acquired all of the outstanding shares of The Coastal
Bank, Ocean City, New Jersey ("Coastal"), which was merged into Commerce NJ.
Except as otherwise indicated, all references herein to the Company include
Commerce NJ, Commerce PA, and Commerce Shore.
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.
The total number of full-time equivalent persons employed by the Company
was 1,158 as of December 31, 1994. The Company believes that its relationship
with its employees is good.
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. Commerce NJ's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC").
In March of 1995, Commerce NJ acquired 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, was the
principal shareholder of Cypress Securities, Inc.
As of December 31, 1994, Commerce NJ had total assets of $1.878 billion,
total deposits of $1.457 billion and total stockholders' equity of $99.4
million.
Service Area
Commerce NJ's primary service area includes Burlington, Camden, Gloucester,
Atlantic, and Cape May Counties, New Jersey. Commerce NJ has attempted to locate
its branches in the fastest growing communities within its service area. Retail
deposits gathered through these focused branching activities are used to support
Commerce NJ's lending throughout Southern New Jersey.
Retail Banking Activities
Commerce NJ provides a broad range of retail banking services and products,
including free checking accounts (subject to minimum balances) and savings
programs, money market accounts, negotiable orders of withdrawal ("NOW")
accounts, certificates of deposit, safe deposit facilities, consumer loan
programs (including installment loans for home improvement and the purchase of
consumer goods and automobiles), home equity and Visa Gold card revolving lines
of credit, overdraft checking, and automated teller facilities. Commerce NJ also
offers construction loans and permanent mortgages for houses.
Trust Activities
Commerce NJ offers trust services primarily focusing on corporate trust
activities, particularly as bond trustee, paying agent, and registrar for
municipal bond offerings.
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Commercial Banking Activities
Commerce NJ offers a broad range of commercial banking services, including
free checking accounts (subject to minimum balances), night depository
facilities, money market accounts, certificates of deposit, short-term loans for
seasonal or working capital purposes, term loans for fixed assets and expansion
purposes, revolving credit plans, and other commercial loans to fit the needs of
its customers. Commerce NJ also finances the construction of business properties
and makes real estate mortgage loans on completed buildings. Where the needs of
a customer exceed Commerce NJ's legal lending limit for any one customer
(approximately $16.3 million as of December 31, 1994), Commerce NJ may
participate with other banks, including Commerce PA and Commerce Shore, in
making a loan.
Commerce PA
In 1987, the Company acquired all of the issued and outstanding shares of
capital stock of Commerce PA. As a result of this transaction, Commerce PA
became a wholly-owned subsidiary of the Company.
Commerce PA was organized as a national bank on December 28, 1983 and
commenced operations on June 29, 1984. As of December 31, 1994, Commerce PA had
total assets of $211.9 million, total deposits of $198.4 million and total
stockholders' equity of $12.2 million.
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. Commerce PA's
deposits are insured by the FDIC.
Commerce PA generally provides the same retail and commercial banking
services and products as Commerce NJ and Commerce Shore. Commerce PA does not
offer trust services.
Commerce Shore
In 1988, the Company acquired all of the issued and outstanding shares of
capital stock of Commerce Shore. As a result of this transaction, Commerce Shore
became a wholly-owned subsidiary of the Company.
Commerce Shore was organized as a state-chartered bank on December 8, 1972
and commenced operations on January 29, 1973. In 1989, Commerce Shore converted
to a national charter. As of December 31, 1994, Commerce Shore had total assets
of $216.3 million, total deposits of $201.6 million, and total stockholders'
equity of $13.4 million.
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. Commerce Shore's deposits are insured by the FDIC.
Commerce Shore generally provides the same retail and commercial banking
services and products as Commerce NJ and Commerce PA. Commerce Shore does not
offer trust services.
Other Activities
Commerce NJ Equities Corporation, a New Jersey corporation, is a
wholly-owned subsidiary of Commerce NJ which purchases, holds and sells
investments of Commerce NJ. Commerce Shore Equities Corporation, a New Jersey
corporation, is a wholly-owned subsidiary of Commerce Shore which purchases,
holds, and sells investments of Commerce Shore.
As part of the Commerce network, the Company has investments in Commerce
Bank/Harrisburg, Camp Hill, Pennsylvania (16.5% on a fully diluted basis) and
Independence Bancorp, Inc., Ramsey, New Jersey (12.5% 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
<PAGE>
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.
In commercial transactions, Commerce NJ's, Commerce PA's, and Commerce
Shore's legal lending limit to a single borrower (approximately $16.3 million,
$2.0 million, and $2.2 million, respectively, as of December 31, 1994) enables
them to compete effectively for the business of smaller and mid-sized
businesses. However, these legal lending limits are considerably lower than that
of various competing institutions and thus may act as a constraint on Commerce
NJ's, Commerce PA's, and Commerce Shore's effectiveness in competing for
financing in excess of these limits.
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.
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").
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 or 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
<PAGE>
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 any of the foregoing,
to a customer on the condition or requirement that the customer provide some
additional credit, property, or service to (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 acquirer 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
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 Resolution Trust Corporation 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. There can be no assurances that the Company's efforts
will be successful and that either rating will improve.
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
operation 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.
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Commerce NJ, Commerce PA, and Commerce Shore are subject to certain
limitations on the amount of cash dividends that they can pay. See Note 18 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 as 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 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 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
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 regulation by the various Federal banking agencies.
Moreover, many of the significant provisions of the legislation have not yet
become effective. As of the date thereof, 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 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.
<PAGE>
Legal Proceedings
Other than routine litigation incidental to its business, none of the
Company, Commerce NJ, Commerce PA, Commerce Shore, or any of their properties is
subject to any material legal proceedings, nor are any such proceedings known to
be contemplated.
Employee Stock Ownership Plan
Effective January 1, 1989, the Company's Board of Directors approved the
restatement of the Company's Stock Bonus Plan to an Employee Stock Ownership
Plan ("ESOP"). The ESOP is intended to be a qualified retirement plan
established and maintained in accordance with the Employee Retirement Income
Security Act of 1974 for the benefit of the Company's and its bank subsidiaries'
eligible employees. The ESOP is intended to invest primarily in "Qualifying
Employer Securities" (i.e., common stock or preferred stock which is convertible
into common stock). The assets of the ESOP are held in a trust fund pursuant to
a Trust Agreement. The trustees under the Trust Agreement are authorized to
invest up to 100% of the trust fund in Qualifying Employer Securities. The
trustees are also authorized to borrow money for the purpose of purchasing
Qualifying Employer Securities.
Generally, each participant in the ESOP is entitled to direct the trustees
with respect to the voting rights, if any, of the Qualifying Employer Securities
allocated to the participant's account. In other cases (i.e., unallocated
shares), the voting of shares held by the ESOP is determined by the trustees.
The current trustees are Vernon W. Hill, II and C. Edward Jordan, Jr., the
trustees under the Company's former Stock Bonus Plan.
The Company is responsible for the operation and administration of the
ESOP. The Company determines investment policies under which the trustees act.
These duties are carried out by a committee appointed by the Board of Directors.
The Board of Directors has the sole responsibility to appoint and remove members
of the committee of trustees, to determine the amount of contributions to the
ESOP by the Company and its subsidiary banks, and to amend or terminate, in
whole or in part, the ESOP or the Trust Agreement.
The Company's Board of Directors approved the creation of a new series of
cumulative convertible preferred stock known as "Series C ESOP Cumulative
Convertible Preferred Stock." On January 31, 1990, the ESOP borrowed $7.5
million from another financial institution to complete the purchase of 417,000
shares of Series C ESOP Cumulative Convertible Preferred Stock from the Company,
at $18.00 per share, with an annual dividend rate of $1.35. This loan was
guaranteed by the Company. During 1994, the loan was refinanced with another
financial institution, also with the guarantee of the Company. The balance of
the loan at December 31, 1994 was $5,385,000.
At December 31, 1994, the ESOP owned of record approximately 6.5% of the
Company's Common Stock outstanding on a fully diluted basis. Of the shares owned
of record at such date approximately 35% have been allocated to participants'
accounts.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Commerce Bancorp, Inc.
Date: March 24, 1995 By /s/ Vernon W. Hill, II
Vernon W. Hill, II
Chairman of the Board
and President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Vernon W. Hill, II Chairman of the Board March 24, 1995
Vernon W. Hill, II and President
(Principal Executive
Officer)
/s/ C. Edward Jordan, Jr. Executive Vice March 24, 1995
Edward Jordan, Jr. President and Director
(Principal Financial
and Accounting Officer)
/s/ Robert C. Beck Secretary March 24, 1995
Robert C. Beck
/s/ David Baird, IV Director March 24, 1995
David Baird, IV
/s/ Jack R Bershad Director March 24, 1995
Jack R Bershad
/s/ Morton N. Kerr Director March 24, 1995
Morton N. Kerr
/s/ Steven M. Lewis Director March 24, 1995
Steven M. Lewis
/s/ Daniel J. Ragone Director March 24, 1995
Daniel J. Ragone
/s/ Joseph T. Tarquini, Jr. Director March 24, 1995
Joseph T. Tarquini, Jr.
Exhibit 10.14
COMMERCE BANCORP, INC.
1994 EMPLOYEE STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the 1994 Employee Stock Option Plan (the "Plan")
is to provide additional incentive to officers and other key employees of
Commerce Bancorp, Inc. ("Commerce") and each present or future parent or
subsidiary corporation by encouraging them to invest in shares of common stock,
par value $1.5625 per share ("Common Stock"), of Commerce and thereby acquire a
proprietary interest in Commerce and an increased personal interest in
Commerce's continued success and progress, to the mutual benefit of officers,
employees and shareholders.
2. Aggregate Number of Shares
1,000,000 shares of Commerce Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of Commerce by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Personnel Committee (defined in Section
4(a)), deems in its sole discretion to be similar circumstances, the aggregate
number and kind of shares which may be issued under this Plan shall be
appropriately adjusted in a manner determined in the sole discretion of the
Personnel Committee. Re-acquired shares of Commerce Common Stock, as well as
unissued shares, may be used for the purpose of this Plan. Shares of Commerce
Common Stock subject to options which have terminated unexercised, either in
whole or in part, shall be available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers and key employees of Commerce and of any present or
future Commerce parent or subsidiary corporation are eligible to receive an
option or options under this Plan. The individuals who shall, in fact, receive
an option or options shall be selected by the Personnel Committee, in its sole
discretion, except as otherwise specified in Section 4 hereof.
4. Administration of Plan
(a) This Plan shall be administered by the Personnel Committee
("Committee") appointed by Commerce's Board of Directors. The Committee shall
consist of a minimum of three members of the Board of Directors, each of whom
shall be a "disinterested person" within the meaning of Rule 16b-3(c)(2)(i)
under the Securities Exchange Act of 1934, as amended, of the Securities and
Exchange Commission (the "SEC") or any future corresponding rule. The Committee,
in addition to its other authority and subject to the provisions of this Plan,
shall determine which individuals shall be granted an option or options, whether
the option shall be an Incentive Stock Option or a Non-Qualified Stock Option
(as such terms are defined in Section 5(a)), the number of shares to be subject
to each of the options, the time or times at which the options shall be granted,
the rate of option exercisability, and, subject to Section 5 hereof, the price
at which each of the options is exercisable and the duration of the option.
<PAGE>
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of any authority or discretion
granted in connection with the Plan to the Committee or the Board of Directors,
or for the acts or omissions of any other members of the Committee or the Board
of Directors. Subject to the numerical limitations on Committee membership set
forth in Section 4(a) hereof, the Board of Directors may at any time appoint
additional members of the Committee and may at any time remove any member of
this Committee with or without cause. Vacancies in the Committee, however
caused, may be filled by the Board of Directors, if it so desires.
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive
Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock
Options granted pursuant to Section 5(c) hereof, as determined by the Committee.
An "Incentive Stock Option" is an option which satisfies all of the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person. The option price for Incentive Stock Options issued under this Plan
shall be equal at least to the fair market value (as defined below) of
Commerce's Common Stock on the date of the grant of the option as determined by
the Committee in accordance with its interpretation of the requirements of
Section 422 of the Code and the regulations thereunder. The option price for
Non-Qualified Stock Options issued under this Plan may, in the sole discretion
of the Committee, be less than the fair market value of the Common Stock on the
date of the grant of the option. If an Incentive Stock Option is granted to an
individual who, at the time the option is granted, owns stock possessing more
than 10 percent of the total combined voting power of all shares of stock of
Commerce or any parent or subsidiary corporation of Commerce (a "10%
Shareholder"), the option price shall not be less than 110 percent of the fair
market value of Commerce's Common Stock on the date of grant of the option. The
fair market value of Commerce's Common Stock on any particular date shall mean
the last reported sale price of a share of Commerce's Common Stock on any stock
exchange on which such stock is then listed or admitted to trading, or on the
NASDAQ National Market System, on such date, or if no sale took place on such
day, the last such date on which a sale took place, or listed or admitted to
trading on any stock exchange, the average of the bid and asked price in the
over-the-counter market on such date, or if none of the foregoing, a price
determined by the Committee.
<PAGE>
(b) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall
be issued substantially in the form set forth in Appendix I hereof, which form
is hereby incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration date of ten years (five
years in the case of 10% shareholders) from the date such options are granted,
unless terminated earlier under the terms of the option. At the time of the
grant of an Incentive Stock Option hereunder, the Committee may, in its
discretion, modify or amend any of the option terms contained in Appendix I for
any particular optionee, provided that the option as modified or amended
satisfies the requirements of Section 422 of the Code and the regulations
thereunder. Each of the options granted pursuant to this Section 5(b) is
intended, if possible, to be an "Incentive Stock Option" as that term is defined
in Section 422 of the Code and the regulations thereunder. In the event this
Plan or any option granted pursuant to this Section 5(b) is in any way
inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued pursuant to this Plan
shall be issued substantially in the form set forth in Appendix II hereof, which
form is hereby incorporated by reference and made a part hereof, and shall
contain substantially the terms and conditions as set forth therein.
Non-Qualified Stock Options shall expire ten years and thirty days after the
date they are granted, unless terminated earlier under the option terms. At the
time of granting a Non-Qualified Stock Option hereunder, the Committee may, in
its discretion, modify or amend any of the option terms contained in Appendix II
for any particular optionee.
(d) Neither Commerce nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event: (i) an option granted pursuant to Section 5(b) hereof
does not qualify as an "Incentive Stock Option" as that term is used in Section
422 of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
6. Modification, Amendment, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from the date the Plan is adopted by the Board of
Directors of Commerce. The Board of Directors reserves the right at any time,
and from time to time, to modify or amend this Plan in any way, or to suspend or
terminate it, effective as of such date, which date may be either before or
after the taking of such action, as may be specified by the Board of Directors;
provided, however, that such action shall not affect options granted under the
Plan prior to the actual date on which such action occurred. If a modification
or amendment of this Plan is required by the Code or the regulations thereunder
to be approved by the shareholders of Commerce in order to permit the granting
of "Incentive Stock Options" (as that term is defined in Section 422 of the Code
and regulations thereunder) pursuant to the modified or amended Plan, such
modification or amendment shall also be approved by the shareholders of Commerce
in such manner as is prescribed by the Code and the regulations thereunder. If
the Board of Directors voluntarily submits a proposed modification, amendment,
suspension or termination for shareholder approval,
<PAGE>
such submission shall not require any future modifications, amendments,
suspensions or terminations (whether or not relating to the same provision or
subject matter) to be similarly submitted for shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by
Commerce's Board of Directors, subject however to approval by the holders of
Commerce Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
before such shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant
to this Plan shall confer upon any employee right to continue in the employ of
Commerce or any present or future parent, affiliated or subsidiary corporation
or interfere in any way with the rights of Commerce or any present or future
parent, affiliated or subsidiary corporation to terminate his employment in any
way.
(b) Corporate action constituting an offer of stock for sale to
any employee under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the employee, regardless of when the option is actually delivered to
the employee or acknowledged or agreed to by him.
(c) The terms "parent corporation" and "subsidiary corporation"
as used throughout this Plan, and the options granted pursuant to this Plan
shall (except as otherwise provided in the option form) have the respective
meanings ascribed to such terms when contained in Section 422(b) of the Code and
the regulations thereunder, and Commerce shall be deemed to be the grantor
corporation for purposes of applying such meetings.
(d) References in this Plan to the Code shall be deemed to also
refer to the corresponding provisions of any future United States revenue law.
(e) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
Exhibit 10.15
TERM LOAN AGREEMENT
BETWEEN
COMMERCE BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
AND
MELLON BANK, N.A.
Dated as of November 29, 1994
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Article 1 The Loan
1.1 ESOP Loan 2
1.2 ESOP Loan Note 3
1.3 Interest Rate Options, etc. 3
1.4 Prepayments 8
1.5 Interest Payment Dates 9
1.6 Payments 10
1.7 Additional Compensation 11
in Certain Circumstances
1.8 Funding by Branch, Subsidiary or Affiliate 14
1.9 Payment of Principal 15
1.10 Use of Loan Proceeds 15
1.11 Payment Account 16
Article 2 Representations and Warranties
2.1 Authority and Binding Effect 16
2.2 No Misrepresentations or Material
Nondisclosures 17
2.3 No Event of Default 17
Article 3 Closing, Conditions Precedent
3.1 Closing Date 18
3.2 Conditions Precedent 18
Article 4 Affirmative Covenants
4.1 Notify Lender 20
4.2 Failure of Commerce Entities to Make
Contributions 21
4.3 Further Assurances 21
4.4 Preservation of Corporate Existence, etc. 21
4.5 Compliance with ERISA 21
4.6 ESOP Trust 21
4.7 Amendment to ESOP 22
Article 5 Negative Covenants
5.1 Amendment of Trust Agreement 22
5.2 Other Borrowings and Liens 22
5.3 Loans 23
5.4 No Misrepresentations or Material
Nondisclosure 23
5.5 Prohibited Transactions 23
<PAGE>
Article 6 Defaults and Remedies
6.1 Events of Default 23
6.2 Remedies 27
6.3 Remedies Cumulative 27
6.4 Expenses of Enforcement of Remedies 28
Article 7 Indemnity; Maintenance of ESOP
7.1 Expenses; Taxes; Indemnity 28
7.2 Maintenance of ESOP, etc. 30
Article 8 General Provisions
8.1 Notices 30
8.2 Stamp or Excise Tax 31
8.3 No Waiver 31
8.4 Complete Agreement; Modifications 31
8.5 Severability 31
8.6 Persons Bound 32
8.7 Waiver and Release by the Trust 32
8.8 Waive Jury Trial 32
8.9 Descriptive Headings 32
8.10 Governing Law 33
8.11 Counterparts 33
Article 9 Definitions
9.1 Definitions 33
</TABLE>
EXHIBITS
A Form of Annual Contributions Agreement
B Form of Note
C Principal Repayment Schedule
D Form of Pledge and Security Agreement
E Form of Guaranty, Suretyship and Payment Agreement
<PAGE>
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT is made as of November 29, 1994 by and between the
COMMERCE BANCORP, INC. EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Trust") (acting
through Vernon W. Hill, II and C. Edward Jordan, Jr. (the "Trustees")), and
MELLON BANK, N.A., a national banking association ("Lender").
RECITALS
WHEREAS, Commerce Bancorp, Inc., a New Jersey corporation ("Commerce"),
established the Commerce Bancorp, Inc. Employee Stock Ownership Plan (the
"ESOP") for the benefit of those employees of Commerce and its subsidiaries
eligible to participate thereunder; and
WHEREAS, the ESOP is a qualified stock bonus plan in compliance with the
requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended
and supplemented (the "Code"), and an employee stock ownership plan within the
meaning of Section 4975(e)(7) of the Code; and
WHEREAS, Commerce and the Trustees also entered into a trust agreement (the
"Trust Agreement") for the purpose of establishing the Trust to hold the assets
of the ESOP; and
WHEREAS, for the purpose of providing funds to enable the Trust to
refinance a $7,500,000 term loan (the "Provident Loan") made by Provident
National Bank ("Provident") to the Trust, the proceeds of which were used by the
Trust to finance the purchase of 417,000 shares of Series C ESOP Cumulative
Convertible Preferred Stock of Commerce Bancorp, Inc. (collectively, the
"Stock"), the Trust has applied to Lender for a term loan of Five Million Three
Hundred Eighty Four Thousand Six Hundred Thirty One
<PAGE>2
and 81/100 Dollars ($5,384,631.81) and Lender is willing to make such term loan
upon the terms and subject to the conditions set forth herein; and
WHEREAS, the ESOP Loan is intended to be an "exempt loan" within the
meaning of Treasury Regulation 54.4975-7(b), 26 C.F.R. 54.4975-7(b), as amended;
and
WHEREAS, Commerce and its operating bank subsidiaries, Commerce Bank, N.A.,
Commerce Bank/Pennsylvania, N.A. and Commerce Bank/Shore, N.A. (collectively,
the "Commerce Entities") and the Trust have entered into an agreement of even
date herewith, which is attached hereto as Exhibit A (the "Annual Contributions
Agreement"), under which the Commerce Entities have agreed to make cash
contributions to or for the benefit of the Trust in amounts sufficient to enable
the Trust to pay principal and interest on the ESOP Loan; and
WHEREAS, the obligations of the Trust hereunder and under the ESOP Note are
to be secured by a pledge of all the shares of the Stock owned by the Trust
which have not been released from the liens securing the Provident Loan.
NOW, THEREFORE, in consideration of the foregoing and of the agreements and
conditions herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE 1. THE LOAN
1.1 ESOP Loan. Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, Lender agrees to make a loan
(the "ESOP Loan") to the Trust on the Closing Date in the principal amount of
$5,384,631.81. On the Closing Date Lender shall make the proceeds of the ESOP
Loan
<PAGE>3
available to the Trust at Lender's Office no later than 2:00 o'clock p.m.,
Pittsburgh time, in funds immediately available at such Office.
1.2 ESOP Loan Note. The obligation of the Trust to repay the unpaid
principal amount of the ESOP Loan and to pay interest thereon shall be evidenced
in part by a single promissory note of the Trust dated the Closing Date (the
"ESOP Loan Note") in substantially the form attached hereto as Exhibit B,
payable to the order of Lender. The executed ESOP Loan Note shall be delivered
to Lender on the Closing Date.
1.3 Interest Rate Options, etc.
(a) Interest Rate Options. The unpaid principal amount of the ESOP Loan
shall bear interest for each day until due on one or more bases selected by the
Trust from among the interest rate Options set forth below, it being understood
that subject to the provisions of this Agreement the Trust may select different
Options to apply simultaneously to different parts of the ESOP Loan and may
select different Funding Segments to apply simultaneously to different parts of
the Euro-Rate Portion or the As-Offered Rate Portion; provided, that the total
number of Funding Segments under all such Portions shall not at any time exceed
five; and, provided, further, that the Trust may not select the Base Rate Option
at any time at which the Euro-Rate Option and/or the As-Offered Rate Option are
available and may be selected in accordance with the terms of this Article 1:
(i) Euro-Rate Option: For each Funding Segment of the Euro-Rate Portion, a
rate per annum (computed on the basis of a year of 360 days and actual days
elapsed) equal to the Euro- Rate for such Funding Segment plus 1.80%.
<PAGE>
4
(ii) As-Offered Rate Option: For each Funding Segment of the As-Offered
Rate Portion, a rate per annum (computed on the basis of a year of 360 days
and actual days elapsed) equal to the As-Offered Rate for such Funding
Segment.
(iii) Base Rate Option: A rate per annum (computed on the basis of a year
of 365 or 366, as the case may be) for each day equal to the Base Rate for
such day.
(b) Funding Periods. At any time when the Trust shall select, convert to or
renew the Euro-Rate Option or the As-Offered Rate Option to apply to any part of
the ESOP Loan, it shall fix one or more periods during which each such Option
shall apply, such periods (the "Funding Periods") being set forth in the chart
below:
Interest Rate Option Available Funding Periods
Euro-Rate Option One or more days
less than one month and
one, two, three or six
months ("Euro-Rate
Funding Period");
As-Offered Rate Option One year and whole year multiples
thereof, up to five years
("As-Offered Funding Period");
provided, that:
(i) Each As-Offered Rate Funding Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding Business
Day;
(ii) Each Euro-Rate Funding Period shall begin on a London Business Day,
and the term "month," when used in connection with a Euro-Rate Funding
Period, shall be construed in accordance with prevailing practices in the
interbank eurodollar market at the commencement of such Euro-Rate Funding
Period, as determined in good faith by Lender (which determination shall be
conclusive); and
<PAGE>5
(iii) The Trust may not select a Funding Period that would end after the
Maturity Date.
(c) Transactional Amounts. Each selection of, conversion from, conversion
to or renewal of an interest rate Option and each payment or prepayment of the
ESOP Loan shall be in a principal amount such that after giving effect thereto
the principal amount of the Base Rate Portion of the Loans, and the principal
amount of each Funding Segment of the Euro-Rate Portion and As-Offered Rate
Portion of the ESOP Loan, shall be as set forth below:
Portion or Funding Segment Allowable Aggregate Principal Amounts
Base Rate Portion Any;
Each Funding Segment
of the Euro-Rate Portion $100,000 and any amount greater than
$100,000
Each Funding Segment of the $1,000,000 and $1,000 increments above
As-Offered Rate Portion $1,000,000
(d) Euro-Rate Unascertainable; Impracticability. If
(i) on any date on which a Euro-Rate would otherwise be set Lender shall
have determined in good faith (which determination shall be conclusive) that:
(A) adequate and reasonable means do not exist for ascertaining such
Euro-Rate,
(B) a contingency has occurred which materially and adversely affects
the secondary market for negotiable certificates of deposit or the
interbank eurodollar market, as the case may be, or
(C) the effective cost to Lender of funding a proposed Funding Segment
of the Euro-Rate Portion from a
<PAGE>6
Corresponding Source of Funds shall exceed the Euro-Rate applicable to such
Funding Segment, or
(ii) at any time Lender shall have determined in good faith (which
determination shall be conclusive) that the making, maintenance or funding of
any part of the Euro-Rate Portion has been made impracticable or unlawful by
compliance by Lender or a Notional Euro-Rate Funding Office in good faith
with any Law or guideline or interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof or with any request or directive of any such Governmental Authority
(whether or not having the force of law);
then, and in any such event, Lender may notify the Trust of such determination.
Upon such date as shall be specified in such notice (which shall not be earlier
than the date such notice is given), the obligation of Lender to allow the Trust
to select, convert to or renew the Euro-Rate Option shall be suspended until
Lender shall have later notified the Trust of Lender's determination in good
faith (which determination shall be conclusive) that the circumstance giving
rise to such previous determination no longer exists. If Lender notifies the
Trust of a determination under clause (ii) of this Section 1.3(d), the Euro-Rate
Portion of the ESOP Loan shall automatically be converted to the Base Rate
Option as of the date specified in such notice (and accrued interest thereon
shall be due and payable on such date). If at the time Lender makes a
determination under clauses (i) or (ii) of this Section 1.3(d) the Trust
previously has notified Lender that it wishes to select, convert to or renew the
Euro-Rate Option with respect to any part of the ESOP Loan but such selection,
conversion or renewal has not yet taken effect, such notification shall be
deemed to provide for selection of,
<PAGE>7
conversion to or renewal of the Base Rate Option instead of the Euro-Rate Option
with respect to such selection, conversion or renewal.
(e) Conversion or Renewal of Interest Rate Options. Subject to the second
proviso of Section 1.3(a) and Section 1.7(b) hereof, the Trust may convert any
part of the ESOP Loan from any interest rate Option or Options to one or more
different interest rate Options and may renew the Euro-Rate Option or the
As-Offered Rate Option as to any Funding Segment:
(i) at any time with respect to conversion from the Base Rate Option; or
(ii) At the expiration of any Funding Period with respect to conversions
from or renewals of the Euro-Rate Option or the As-Offered Rate Option, as to
the Funding Segment corresponding to such expiring Funding Period.
Whenever the Trust desires to convert or renew any interest rate Option or
Options, the Trust shall provide to Lender Standard Notice setting forth the
following information: (w) the date, which shall be a Business Day, on which the
proposed conversion or renewal is to be made; (x) the principal amounts selected
in accordance with Section 1.3(c) hereof of the Base Rate Portion and each
Funding Segment of the Euro-Rate Portion or the As-Offered Rate Option, as the
case may be, to be converted from or renewed; (y) the interest rate Option or
Options selected in accordance with Section 1.3(a) hereof and the principal
amounts selected in accordance with Section 1.3(c) hereof of the Base Rate
Portion and each Funding Segment of the Euro-Rate Portion or the As-Offered Rate
Option, as the case may be, to be converted to; and (z) with respect to each
Funding Segment to be converted to or renewed, the Funding Period selected in
accordance with Section 1.3(b) hereof to apply to such Funding Segment. Standard
Notice having been so
<PAGE>8
provided, after the date specified in such Standard Notice, interest shall be
calculated upon the principal amount of the ESOP Loan as so converted or
renewed. Interest on the principal amount of any part of the ESOP Loan converted
or renewed (automatically or otherwise) shall be due and payable on the
conversion or renewal date. Absent due notice from the Trust of conversion or
renewal in the circumstances described in clause (i) of this Section 1.3(e), any
part of the Euro-Rate Portion or As-Offered Rate Portion for which such notice
is not received shall be converted automatically to the Base Rate Option on the
last day of the expiring Funding Period.
1.4 Prepayments. Subject to Section 1.7(b) hereof, the Trust shall have the
right at its option from time to time to prepay the ESOP Loan in whole or part
without premium or penalty:
(a) At any time with respect to any part of the Base Rate Portion; or
(b) At the expiration of any Funding Period with respect to prepayment of
the Euro-Rate Portion or the As-Offered Rate Portion with respect to any part
of the Funding Segment corresponding to such expiring Funding Period.
Whenever the Trust desires to prepay any part of the ESOP Loan, it shall provide
to Lender notice (which shall be irrevocable) not later than 1:00 p.m.,
Pittsburgh time, on the date on which the proposed prepayment is to be made,
setting forth the following information: (x) the date, which shall be a Business
Day, on which the proposed prepayment is to be made; (y) the total principal
amount of such prepayment, which shall be the sum of the principal amounts
selected pursuant to clause (z) of this Section 1.4, and which shall be an
integral multiple of $500,000; and (z) the principal amounts selected in
accordance with Section 1.3(c) hereof of the Base Rate Portion and each part of
each Funding
<PAGE>9
Segment of the Euro-Rate Portion or the As-Offered Rate Portion to be prepaid.
Notice having been so provided, on the date specified in such notice, the
principal amounts of the Base Rate Portion and each part of Euro-Rate Portion
and As-Offered Rate Portion specified in such notice, together with interest on
each such principal amount to such date, shall be due and payable. The Trust and
Lender hereby acknowledge that the Trust has indicated that it may prepay, in
each year, the four quarterly installments of principal due for such year as set
forth on Exhibit C hereto (any such prepayment being referred to herein as an
"Annual Prepayment"). In anticipation of such Annual Prepayments, the Trust may
select Funding Periods for the Euro-Rate Portion and/or the As-Offered Rate
Portion which will permit the Trust to make an Annual Prepayment without
incurring any liability for Funding Breakage Indemnity pursuant to Section
1.07(b) hereof, and Lender shall use reasonable commercial efforts to
accommodate such selections and Annual Prepayments; provided, that the foregoing
shall not affect the obligation of the Trust to pay any Funding Breakage
Indemnity if any Annual Prepayments results in liability for Funding Breakage
Indemnity under Section 1.07(b) hereof.
1.5 Interest Payment Dates. Accrued and unpaid interest on the ESOP Loan
shall be due and payable on the following dates (and on such other dates as may
be specified elsewhere in this Agreement): (a) in the case of the Base Rate
Portion and each Funding Segment of the Euro-Rate Portion and the As-Offered
Portion, on each Monthly Payment Date, and (b) in the case of each Funding
Segment of the Euro-Rate Portion and the As-Offered Portion, also on the last
day of the corresponding Euro-Rate Funding Period and As-Offered Funding Period,
as the case may be. After maturity of the ESOP Loan (by acceleration or
otherwise), interest on the ESOP Loan shall be due and payable on demand.
<PAGE>10
1.6 Payments.
(a) Generally. All payments and prepayments to be made by the Trust in
respect of principal, interest, fees, indemnities, expenses or other amounts due
from the Trust hereunder or under the ESOP Note shall be payable at 2:00 p.m.,
Pittsburgh time, on the day when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and an action
therefor shall immediately accrue, without setoff, counterclaim, withholding or
other deduction of any kind or nature. Such payments shall be made to Lender at
its Office in U.S. dollars in funds immediately available at such Office. Any
payment received by Lender after 2:00 p.m., Pittsburgh time, on any day shall be
deemed to have been received on the next succeeding Business Day.
(b) Interest on Overdue Amounts. To the extent permitted by law, after
there shall have become due (by acceleration or otherwise) principal, interest,
fees, indemnity, expenses or any other amounts due from the Trust hereunder or
under the ESOP Note, such amounts shall bear interest for each day until paid
(before and after judgment), payable on demand, as follows:
(i) In the case of any part of the Euro-Rate Portion or As-Offered Rate
Portion of the ESOP Loan, (A) until the end of the applicable then-current
Funding Period, at a rate per annum 2.00% above the rate otherwise applicable
to such part (calculated on the basis of a year of 360 days and actual days
elapsed), and (B) thereafter in accordance with the following clause (ii);
and
(ii) In the case of any other amount due from the Trust hereunder or under
the ESOP Note, 2.00% above the Base Rate Option (calculated on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed).
<PAGE>11
To the extent permitted by law, interest accrued on any amount which has become
due hereunder or under the ESOP Note shall compound on a day-by-day basis, and
hence shall be added daily to the overdue amount to which such interest relates.
1.7 Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc. If any Law or guideline or
interpretation or application thereof by any Governmental Authority charged with
the interpretation or administration thereof or compliance with any request or
directive of any Governmental Authority (whether or not having the force of law)
hereafter adopted:
(i) subjects Lender or any Notional Euro-Rate Funding Office to any tax or
changes the basis of taxation with respect to this Agreement, the ESOP Note,
the ESOP Loan or payments by the Trust of principal, interest or other
amounts due from the Trust hereunder or under the ESOP Note (except for any
income tax, business and occupation tax, gross receipts tax, value added tax,
franchise tax or tax penalty (unless the tax penalty results from the Trust's
failure to perform its obligations hereunder) on Lender or its Notional
Euro-Rate Funding Office imposed by the jurisdictions (federal, state and
local) in which Lender's principal office or Notional Euro-Rate Funding
Office is located) (the taxes described in the preceding parenthetical being
referred to herein as "Excluded Taxes"),
(ii) imposes, modifies or deems applicable any reserve, special deposit,
insurance assessment or any other requirement against credits or commitments
to extend credit extended by, assets (funded or contingent) of, deposits with
or for the account of, other acquisitions of funds by, Lender
<PAGE>12
or any Notional Euro-Rate Funding Office (other than requirements expressly
included herein in the determination of the Euro-Rate hereunder),
(iii) imposes, modifies or deems applicable any capital adequacy or similar
requirement against assets (funded or contingent) of, or credits or
commitments to extend credit extended by, Lender or any Notional Euro-Rate
Funding Office, or applicable to the obligations of Lender or any Notional
Euro-Rate Funding Office under this Agreement, or
(iv) imposes upon Lender or any Notional Euro-Rate Funding Office any other
condition or expense with respect to this Agreement, the ESOP Note or its
making, maintenance or funding of the ESOP Loan,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon
Lender, any Notional Euro-Rate Funding Office or, in the case of clause (iii)
hereof, any Person controlling Lender, with respect to this Agreement, the ESOP
Note or the making, maintenance or funding of the ESOP Loan (or, in the case of
any capital adequacy or similar requirement, to have the effect of reducing the
rate of return on Lender's or controlling Person's capital, taking into
consideration Lender's or controlling Person's policies with respect to capital
adequacy) by an amount which Lender deems to be material (Lender being deemed
for this purpose to have made, maintained or funded each Funding Segment of the
Euro-Rate Portion from a Corresponding Source of Funds), Lender may from time to
time notify the Trust of the amount determined in good faith by Lender (which
determination shall be conclusive) to be necessary to compensate Lender or such
Notional Euro-Rate Funding Office for such increase, reduction or imposition. In
making any such determination Lender may take into account any special,
supplemental or other nonrecurring items, may
<PAGE>13
apply any averaging or attribution methods, and may make such determination
prospectively or retrospectively. Such amount shall be due and payable by the
Trust to Lender five Business Days after such notice is given.
(b) Funding Breakage. In addition to all other amounts payable hereunder,
if and to the extent for any reason any part of any Funding Segment of any
Euro-Rate Portion or As-Offered Rate Portion of the ESOP Loan becomes due (by
acceleration or otherwise), or is paid, prepaid or converted to another interest
rate Option (whether or not such payment, prepayment or conversion is mandatory
or automatic and whether or not such payment or prepayment is then due), on a
day other than the last day of the corresponding Funding Period (the date such
amount so becomes due, or is so paid, prepaid or converted, being referred to as
the "Funding Breakage Date"), the Trust shall pay Lender an amount ("Funding
Breakage Indemnity") determined by Lender as follows:
(i) first, calculate the following amount: (A) the principal amount of such
Funding Segment of the ESOP Loan owing to Lender which so became due, or
which was so paid, prepaid or converted, times (B) the rate of interest
applicable to such principal amount on the Funding Breakage Date minus the
Treasury Rate as of the Funding Breakage Date (but not less than zero), times
(C) the number of days from and including the Funding Breakage Date to but
not including the last day of such Funding Period, times (D) 1/360;
(ii) then, the Funding Breakage Indemnity to be paid by the Trust to Lender
shall be the amount equal to the present value as of the Funding Breakage
Date (discounted at the Treasury Rate as of such Funding Breakage Date, and
calculated on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed) of the amount described in the preceding clause (i)
(which amount described in the
<PAGE>14
preceding clause (i) is assumed for purposes of such present value
calculation to be payable on the last day of the corresponding Funding
Period).
Such Funding Breakage Indemnity shall be due and payable upon demand. The amount
payable to Lender under this Section 1.7(b) shall be determined in good faith by
Lender, and such determination shall be conclusive.
1.8 Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. Lender shall have the right from time to time,
prospectively or retrospectively, without notice to the Trust, to deem any
branch, subsidiary or affiliate of Lender to have made, maintained or funded any
part of the Euro-Rate Portion at any time. Any branch, subsidiary or affiliate
so deemed shall be known as a "Notional Euro-Rate Funding Office." Lender shall
deem any part of the Euro-Rate Portion of the ESOP Loan or the funding therefor
to have been transferred to a different Notional Euro-Rate Funding Office if
such transfer would avoid or cure an event or condition described in Section
1.3(d)(ii) hereof or would lessen compensation payable by the Trust under
Section 1.7(a) hereof, and if Lender determines in its sole discretion that such
transfer would be practicable and would not have a material adverse effect on
such part of the ESOP Loan, Lender or any Notional Euro- Rate Funding Office (it
being assumed for purposes of such determination that each part of the Euro-Rate
Portion is actually made or maintained by or funded through the corresponding
Notional Euro-Rate Funding Office). Notional Euro-Rate Funding Offices may be
selected by Lender without regard to Lender's actual methods of making,
maintaining or funding the ESOP Loan or any sources of funding actually used by
or available to Lender.
<PAGE>15
(b) Actual Funding. Lender shall have the right from time to time to make
or maintain any part of the Euro-Rate Portion by arranging for a branch,
subsidiary or affiliate of Lender to make or maintain such part of the Euro-Rate
Portion. Lender shall have the right to (i) hold the ESOP Note payable for the
benefit and account of such branch, subsidiary or affiliate or (ii) request the
Trust to issue one or more promissory notes in the principal amount of such
Euro-Rate Portion, in substantially the form attached hereto as Exhibit B,
payable to such branch, subsidiary or affiliate and with appropriate changes
reflecting that the holder thereof is not obligated to make any additional loans
to the Trust. The Trust agrees to comply promptly with any request under clause
(ii) of this Section 1.8(b). If Lender causes a branch, subsidiary or affiliate
to make or maintain any part of the Euro-Rate Portion hereunder, all terms and
conditions of this Agreement shall, except where the context clearly requires
otherwise, be applicable to such part of the Euro-Rate Portion and to any note
payable to the order of such branch, subsidiary or affiliate to the same extent
as if such part of the Euro-Rate Portion were made or maintained and such note
were the ESOP Note payable to Lender's order.
1.9 Payment of Principal. The principal of the ESOP Note shall be repaid in
twenty consecutive quarterly installments commencing on March 31, 1995 and on
the last day of each June, September, December and March thereafter in the
amounts set forth on Exhibit C attached hereto, with a final installment of all
principal, together with all accrued and unpaid interest thereon, due January
28, 2000 (the "Maturity Date").
1.10 Use of Loan Proceeds. The proceeds of the ESOP Loan shall be used to
repay the outstanding principal amount of the Provident Loan, plus all interest
and other amounts due thereunder and closing costs and other fees and expenses
related to this Agreement and the making of the ESOP Loan.
<PAGE>16
1.11 Payment Account. The Trust shall maintain a demand deposit account
with Lender (the "Payment Account"), and shall have on deposit immediately
available funds in the Payment Account on the Business Day before the last day
of each quarter in amounts sufficient to make each payment hereunder and under
the ESOP Note. On the day when each payment hereunder and under the ESOP Note is
due, Lender shall charge the Payment Account (but no other account of the Trust)
in the amount of such payment. Should any such payment become due and payable on
any day other than a Business Day, the payment date thereof shall be extended to
the next Business Day and such extension of time shall be included in computing
interest.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
The Trust hereby represents and warrants to Lender that:
2.1 Authority and Binding Effect.
(a) The Trust is an employee stock ownership trust validly existing and in
good standing under the laws of the United States of America and the State of
New Jersey.
(b) There are no actions or proceedings pending or, to the knowledge of the
Trustees, threatened against the Trust before any court or administrative agency
which might materially and adversely affect the Trust.
(c) Neither the execution and delivery of this Agreement or the ESOP Note,
the consummation of the transactions herein contemplated nor compliance with the
terms and provisions hereof or of the ESOP Note will conflict with or result in
a breach of any of the terms, conditions or provisions of the ESOP or the Trust
or of any Law or of any agreement or instrument to which the Trust is a party or
by which it is bound or to which it
<PAGE>17
is subject, or constitute a default thereunder or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon the
property of the Trust pursuant to the terms of any such instrument or agreement.
(d) The execution and delivery of this Agreement, the making of any
borrowings contemplated hereby, and the execution, issuance and delivery of the
ESOP Note and the Pledge Agreement have each been duly authorized by the Trust;
no consent or approval of or filing with any court or governmental department or
agency, is or will be necessary to the valid execution and delivery by the Trust
of this Agreement, the ESOP Note or the Pledge Agreement or the consummation by
the Trust of the transaction contemplated hereby; this Agreement, the ESOP Note
and the Pledge Agreement have been duly executed and delivered by the Trust and
constitute legal, valid and binding obligations of the Trust enforceable in
accordance with their terms, except, in each case, as limited by bankruptcy, or
other laws of general application relating to or affecting the enforcement of
creditors' rights and equitable principles relating to the enforcement of
remedies.
2.2 No Misrepresentations or Material Nondisclosures. Neither this
Agreement nor any other document or statement furnished to Lender by the Trust
in connection herewith contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein not misleading.
2.3 No Event of Default. There has occurred no event which now constitutes,
or with the passage of time or the giving of notice, or both, would constitute,
an Event of Default as defined in Section 6.1 hereof.
<PAGE>18
All of the foregoing representations and warranties shall survive the
execution and delivery of this Agreement and the ESOP Note and the making by
Lender of the ESOP Loan.
ARTICLE 3. CLOSING, CONDITIONS PRECEDENT
3.1 Closing Date. The closing of the transactions contemplated by this
Agreement shall take place on November 29, 1994, or such other date as the
Trustees and Lender may agree (the "Closing Date").
3.2 Conditions Precedent. The obligation of Lender to make the ESOP Loan on
the Closing Date is subject to the following conditions precedent:
(a) Lender shall have received the following in form and substance
satisfactory to Lender and its counsel:
(i) The ESOP Note;
(ii) A Pledge and Security Agreement substantially in the form attached
hereto as Exhibit D pledging to Lender all of the Stock currently owned by
the Trust which has not been released from the liens securing the Provident
Loan (the "Unallocated Shares"), as security for the ESOP Note (the "Pledge
Agreement");
(iii) The Annual Contributions Agreement substantially in the form
attached hereto as Exhibit A, pursuant to which each of the Commerce
Entities agrees to make cash contributions to or for the benefit of the
Trust in amounts sufficient to enable the Trust to pay principal and
interest on the ESOP Loan;
<PAGE>19
(iv) A Guaranty, Surety and Purchase Agreement from Commerce to Lender
substantially in the form attached hereto as Exhibit E, guaranteeing
repayment of the ESOP Loan and agreeing to purchase the ESOP Loan from
Lender without recourse upon the happening of certain events (the
"Guaranty");
(v) Certified copies of the Certificate of Incorporation and By-laws of
each Commerce Entity and of the resolutions of the Board of Directors of
each Commerce Entity evidencing approval of the execution and delivery of
the Annual Contributions Agreement and (with respect to Commerce only) the
Guaranty, and certified copies of all other documents evidencing necessary
corporate action and government approvals with respect to the Annual
Contributions Agreement, the Guaranty and this Agreement;
(vi) An opinion of counsel to the Trust, dated as of the Closing Date
and addressed to Lender;
(vii) An opinion of counsel to the Commerce Entities, dated as of the
Closing Date and addressed to Lender;
(viii) Copies of the ESOP, the Trust Agreement and the most recent
favorable determination letter from the Internal Revenue Service relating
to the ESOP and the Trust;
(ix) Evidence of the repayment of the Provident Loan and of the release,
satisfaction and discharge of all pledges, guarantees and other security
documentation in favor of Provident securing or evidencing the Provident
Loan; and
<PAGE>20
(x) Such additional documents, certificates and information as Lender
may require pursuant to the terms hereof or otherwise reasonably request.
(b) The representations and warranties set forth in Section 2 hereof shall
be true and correct on and as of the Closing Date.
(c) No Event of Default hereunder, and no event which with the passage of
time or the giving of notice or both, would become such an Event of Default
shall have occurred and be continuing.
(d) There shall not be less than 299,167 Unallocated Shares pledged to
Lender pursuant to the Pledge Agreement.
(e) Commerce shall have paid the reasonable fees and disbursements of
Lender's counsel.
ARTICLE 4. AFFIRMATIVE COVENANTS
The Trust covenants and agrees to and with Lender that until payment in
full of the ESOP Note and the termination of this Agreement, the Trust will:
4.1 Notify Lender.
(a) Promptly notify Lender if there occurs any Event of Default hereunder
or there exists any event which, with the passage of time or the giving of
notice, or both, would constitute an Event of Default hereunder or of any
occurrence which would be a Reportable Event (without regard to criteria related
to funding) with respect to the ESOP.
<PAGE>21
(b) Promptly upon receipt thereof furnish to Lender a copy of any notice or
other communication received from the Internal Revenue Service with respect to
the ESOP.
4.2 Failure of Commerce Entities to Make Contributions. Promptly notify
Lender if and when any Commerce Entity fails or refuses to make a contribution
pursuant to the Annual Contributions Agreement.
4.3 Further Assurances. At any time or from time to time upon request of
Lender, execute and deliver such further documents and do such other acts and
things as Lender may reasonably request in order to effectuate more fully the
purposes of this Agreement, and deliver to Lender any other instruments,
documents and agreements which may hereafter be executed by the Trust with
regard to the transactions contemplated hereby.
4.4 Preservation of Corporate Existence, etc. Preserve and maintain its
existence, rights and privileges in the State of New Jersey and the Commonwealth
of Pennsylvania.
4.5 Compliance with ERISA. (a) Comply in all material respects with the
provisions of ERISA and the Code which are applicable to the Trust and (b) not
permit any fiduciary with respect to the Trust (i) to engage in any Prohibited
Transaction, (ii) to take or fail to take any action which could cause the Trust
to lose its exempt status under Section 501 of the Code or (iii) to acquire or
to hold any Employer Securities except as permitted by the Code, ERISA and the
Trust.
4.6 ESOP Trust. Maintain the Trust as a qualified employee stock ownership
trust as defined in Code Section 4975(e)(7), Treasury Regulation Section
54.4975-11 and Section 407(d)(6) of ERISA at all times.
<PAGE>22
4.7 Amendment to ESOP. Within 30 days of the Closing Date, Section 6.03 of
the ESOP will be amended to clarify that, to the fullest extent permitted by
law, the collateral pledged to secure an Exempt Loan (as defined in the ESOP)
shall include all earnings attributable to such collateral.
ARTICLE 5. NEGATIVE COVENANTS
The Trust covenants and agrees to and with Lender that until payment in
full of the ESOP Note and termination of this Agreement, it will not:
5.1 Amendment of Trust Agreement. Amend or modify the Trust Agreement
(except any amendment required to comply with Sections 401(a), 409 or 4975 or
other applicable provisions of the Code) or the Annual Contributions Agreement
without first obtaining the written consent of Lender, which consent shall not
be unreasonably withheld.
5.2 Other Borrowings and Liens. Incur, create, assume or permit to exist
any indebtedness of the Trust for borrowed money, or any mortgage, deed of
trust, security interest, pledge, lien, charge or other encumbrance on any of
the Trust's assets, whether now owned or hereafter acquired, other than to
Lender hereunder or under the Pledge Agreement, without first obtaining the
written consent of Lender, except (a) liens for taxes, assessments or other
similar charges which are not delinquent or which are being properly contested
in good faith and (b) indebtedness of the Trust ("Additional Indebtedness") for
borrowed money used by the Trust solely to acquire additional shares of capital
stock of Commerce ("Additional Shares"), which Additional Shares shall be
pledged to secure the obligation of the
<PAGE>23
Trust to repay such Additional Indebtedness; provided, that prior to incurring
any such Additional Indebtedness, the Trust shall deliver to Lender a
certificate signed by the Trustees and by a senior officer of Commerce
demonstrating that, after the incurrence of such Additional Indebtedness, the
Trust and Commerce shall comply with and not be in default under any of the
covenants applicable to the Trust and Commerce hereunder and under the Guaranty.
5.3 Loans. Make any loan or extension of credit, except to beneficiaries of
the ESOP as permitted thereunder, or assume, guarantee or otherwise become
liable on the obligation of any other Person.
5.4 No Misrepresentations or Material Nondisclosure. Furnish Lender any
certificate or other document that will contain any untrue statement of a
material fact or that will omit to state a material fact necessary in order to
make it not misleading in light of the circumstances under which it was
furnished.
5.5 Prohibited Transactions. Enter into any Prohibited Transaction or
permit the ESOP Loan to become a Prohibited Transaction.
ARTICLE 6. DEFAULTS AND REMEDIES
6.1 Events of Default. Each of the following is an event of default ("Event
of Default") hereunder and under the ESOP Note:
(a) Failure to Pay. The Trust fails to pay within 10 days after the date
when due, whether on demand or otherwise, any principal of the ESOP Note or
interest thereon.
<PAGE>24
(b) Default Under Annual Contributions Agreement. The Trust fails to
receive any payment from the Commerce Entities under the Annual Contributions
Agreement within 10 days after the date on which the same shall be due and
payable.
(c) Internal Revenue Code Sections 401(a) and 4975(e)(7). The ESOP shall
be determined by the Internal Revenue Service at any time not to qualify as (i)
a "qualified stock bonus plan" under Section 401(a) of the Code, or any
successor provision thereto, or (ii) an Employee Stock Ownership Plan within the
meaning of Section 4975(e)(7) of the Code, or any successor provision thereto,
and Commerce fails to have such adverse determination reversed in timely
proceedings before the United States Tax Court.
(d) Termination of Plan. The ESOP shall be completely terminated.
(e) Resignation of Trustees. The Trustees or any successor thereto as
trustee of the Trust shall resign or be removed or shall otherwise cease to act
as such, and no successor trustee permitted by subparagraph (l) of this Section
6.1 or reasonably acceptable to Lender shall be appointed within three (3)
months of the date of such resignation or removal or ceasing so to act.
(f) Failure to Perform. The Trust fails to comply with or perform as and
when required or to observe any of the terms, conditions or covenants of this
Agreement, the Pledge Agreement, the Annual Contributions Agreement or the ESOP
Note (other than payment) to be complied with, performed or observed by the
Trust and such failure shall continue unremedied for a period of 30 days after
Lender shall give the Trust notice of such failure.
<PAGE>25
(g) False Representation or Warranty. Any representation or warranty of
the Trust made herein or in any report, certificate or other document furnished
in connection with this Agreement proves to be false or misleading in any
material respect.
(h) Default Under Related Documents. There occurs a default or event of
default or any event which with the passage of time or the giving of notice or
both would become a default or an event of default under the Pledge Agreement or
the Annual Contributions Agreement or a Guarantor Default or Guarantor Event of
Default (each as defined in the Guaranty).
(i) Insolvency. The Trust shall admit in writing its inability to pay,
or generally not be paying, the Trust's debts as they become due or petition or
apply to any tribunal for the appointment of any custodian, receiver, liquidator
or trustee of or for it or any substantial part of the Trust's properties or
assets, or commence any such proceeding relating to the Trust under any
bankruptcy, reorganization, arrangement, readjustment of debt, receivership,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or there is commenced against the Trust any such proceeding
which shall remain undismissed for a period of 60 days, or an order for relief,
order, judgment or decree approving the petition in any such proceeding is
entered; or the Trust by any act or failure to act indicate its consent to,
approval of or acquiescence in any such proceeding or in the appointment of any
custodian, receiver, liquidator or trustee of or for the Trust or any
substantial part of the Trust's properties or assets.
(j) Judgments. Any final judgments, decrees or orders for the payment of
money aggregating in excess of $250,000 entered against the Trust or any of its
assets remain unstayed, unsatisfied, unbonded or undismissed for more than 60
days.
<PAGE>26
(k) Levies. Any attachment or execution process is issued against all or
any substantial part of the assets of the Trust and is not discharged, removed
or dissolved within 60 days.
(l) Change of Trustees. A new Trustee of the Trust who is not a senior
officer of Commerce or its subsidiary banks is appointed without the prior
written consent of Lender, which consent shall not be unreasonably withheld.
(m) Market Value of Pledged Stock. The Market Value (as hereinafter
defined) of the Stock that is pledged to Lender pursuant to the Pledge Agreement
as security for the ESOP Loan shall at any time be less than the outstanding
principal amount of the ESOP Loan and the Trust fails, within thirty (30) days
of such event, to provide Lender with substitute collateral of a value at least
equal to such deficiency (which collateral shall be acceptable to Lender in its
reasonable discretion). Any such substitute collateral shall be pledged to
Lender and Lender shall obtain a valid, perfected first priority lien and
security interest in such substitute collateral within such 30 day period. For
purposes hereof, the "Market Value" of the Stock that is pledged to Lender
pursuant to the Pledge Agreement shall be an amount equal to, on any given day,
the product of (a) the number of shares of common stock of Commerce into which
the Stock is convertible on such date, times (b) the per share value at which
such common stock is traded on a national market.
(n) ERISA Defaults. (i) The imposition of any tax in a material amount
under Code Sections 4980B(a), 4978, 4978B or 4979A; or (ii) any action or suit
challenging the ESOP Loan, the Trust's purchase of Employer Securities with the
proceeds of the Provident Loan or the refinancing of the Provident Loan with the
proceeds of the ESOP Loan, as a prohibited transaction under ERISA Section 406
or Code Section 4975, is brought against the
<PAGE>27
ESOP or the Trustees, and is not dismissed, withdrawn or settled on terms
favorable to the Trust and Commerce within one hundred twenty (120) days.
6.2 Remedies. Upon or after the occurrence of any Event of Default, by
notice in writing mailed or delivered to the Trust, Lender may do one or more of
the following:
(a) declare the unpaid principal of and interest on the ESOP Note due
and payable, whereupon the same shall become due and payable without
presentment, demand, protest or notice of any kind, all of which are expressly
waived, anything herein or in the ESOP Note or in any other document to the
contrary notwithstanding; and Lender may proceed to protect and enforce its
rights either by suit in equity and/or by action at law, whether for specific
performance of any covenant or agreement contained in this Agreement, the ESOP
Note, or any related document or in aid of the exercise of any power granted
herein or therein or proceed to obtain judgment or any other relief whatsoever
appropriate to the action or proceeding, or proceed to enforce any other legal
or equitable right of a holder of the ESOP Note; and
(b) have and exercise each and every right and remedy granted to it for
a default under the terms of this Agreement, the ESOP Note, the Pledge
Agreement, the Guaranty and any related document delivered to Lender pursuant
hereto (and notwithstanding that default under such document or instrument
containing such right or remedy shall not have occurred), together with every
right or remedy now or hereafter available to Lender at law or in equity.
6.3 Remedies Cumulative. All remedies of Lender provided herein or in the
ESOP Note, the Pledge Agreement, the Guaranty or in any related document
delivered to Lender (a) are cumulative and concurrent, (b) may be exercised
independently,
<PAGE>28
successively or together against the Trust or the Trust's assets or Commerce at
the sole discretion of Lender, (c) shall not be exhausted by any exercise
thereof, but may be exercised as often as occasion therefor may occur, and (d)
shall not be construed to be waived or released by Lender's delay in exercising,
or failure to exercise, them or any of them at any time it may' be entitled to
do so.
6.4 Expenses of Enforcement of Remedies. The Trust shall pay, upon demand,
all documented expenses, including reasonable attorneys' fees and disbursements
and court costs, of enforcing any of Lender's rights and remedies upon an Event
of Default.
ARTICLE 7. INDEMNITY; MAINTENANCE OF ESOP
7.1 Expenses; Taxes; Indemnity.
(a) Expenses. The Trust agrees to pay or cause to be paid and to save
Lender harmless against liability for the payment of all documented reasonable
out-of-pocket costs and expenses (including but not limited to reasonable fees
and expenses of counsel) incurred by Lender from time to time arising from or
relating to (i) the negotiation, preparation, execution and delivery of this
Agreement and the ESOP Note, (ii) any requested amendments, modifications,
supplements, waivers or consents (whether or not ultimately entered into or
granted) to this Agreement or the ESOP Note, and (iii) the enforcement or
preservation of rights under this Agreement or the ESOP Note (including but not
limited to any such costs or expenses arising from or relating to (A) collection
or enforcement of the ESOP Loan or any other amount owing hereunder or
thereunder by Lender, or (B) any litigation, proceeding, dispute, work-out,
restructuring or rescheduling related in any way to this Agreement or the ESOP
Note).
<PAGE>29
(b) Taxes. The Trust hereby agrees to pay all documented stamp, document,
transfer, recording, filing, registration, search, sales and excise fees and
taxes and all similar impositions now or hereafter determined by Lender to be
payable in connection with this Agreement or the ESOP Note or any other
documents, instruments or transactions pursuant to or in connection herewith or
therewith (but excluding, however, Excluded Taxes), and the Trust agrees to save
Lender harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such fees, taxes or impositions (other than Excluded Taxes).
(c) Indemnity. The Trust hereby agrees to reimburse and indemnify Lender,
its affiliates and each of their respective directors, officers, employees and
agents (collectively, the "Indemnified Parties") from and against any and all
losses, liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature whatsoever
(including, without limitation, the fees and disbursements of counsel for such
Indemnified Party in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnified
Party shall be designated a party thereto) that may at any time be imposed on,
asserted against or incurred by such Indemnified Party as a result of, or
arising out of, or related to or by reason of, this Agreement or the ESOP Note,
any transaction from time to time contemplated hereby or thereby, or any
transaction financed in whole or in part or directly or indirectly with the
proceeds of the ESOP Loan (and without in any way limiting the generality of the
foregoing, including any violation or breach of any Law by the Trust or any
affiliate of the Trust); but excluding any such losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements resulting solely from the gross negligence or willful misconduct
<PAGE>30
of such Indemnified Party. If and to the extent that the foregoing obligations
of the Trust under this Section 7.1(c), or any other indemnification obligation
of the Trust hereunder, are unenforceable for any reason, the Trust hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable Law.
7.2 Maintenance of ESOP, etc. All provisions hereof shall be construed so
as to maintain (i) the ESOP as a qualified leveraged employee stock ownership
plan under Section 401(a) and Section 4975(e)(7) of the Code and (ii) the Trust
as exempt from taxation under Section 501(a) of the Code.
ARTICLE 8. GENERAL PROVISIONS
8.1 Notices. All notices given under this Agreement shall be by personal
service, by registered or certified mail, postage prepaid, return receipt
requested, or by overnight delivery service, charges prepaid, addressed to the
parties at the following addresses:
If to the Trust or Trustees:
Vernon W. Hill, II and
C. Edward Jordan, Jr., Trustees
Commerce Bancorp, Inc.
Employee Stock Ownership Plan Trust
1701 Route 70 East
Cherry Hill, NJ 08034-5400
If to Lender:
Mellon Bank, N.A.
One Mellon Bank Center
Room 151-0400
Pittsburgh, PA 15259
Attention: Gregory R. Schultz
or to such other addresses as may be specified by like notice and shall be
deemed to have been duly given or made when received.
<PAGE>31
8.2 Stamp or Excise Tax. Should any stamp or excise tax be payable in
respect of this Agreement, the ESOP Note and the other documents to be delivered
hereunder, or any modification hereof or thereof, the Trust shall pay the same
and shall hold Lender harmless from any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.
8.3 No Waiver. Neither any failure or delay by Lender in exercising any
right, power or privilege hereunder or under the ESOP Note shall operate as a
waiver thereof; nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. No notice to or demand on the Trust in any case shall entitle the
Trust to any other or further notice or demand in similar or other circumstances
or shall constitute a waiver of Lender's right to any other or further action in
any circumstances without notice or demand.
8.4 Complete Agreement; Modifications. This Agreement, together with the
ESOP Note, the Pledge Agreement, the Guaranty and documents related thereto,
constitutes the full understanding between the parties hereto with respect to
the subject matter hereof and thereof, and no statements, written or oral, made
prior to or at the signing hereof shall vary or modify the terms hereof. No
amendment, modification or release from any provision hereof shall be effective
unless in writing and executed by the party to be charged therewith and shall be
effective only in the specific instance and for the specific purpose for which
given.
8.5 Severability. If any provision of this Agreement or the ESOP Note is
prohibited or unenforceable in any jurisdiction, it shall be ineffective in such
jurisdiction only to the extent of such prohibition or unenforceability, and
such prohibition or unenforceability shall not invalidate the balance
<PAGE>32
of such provision to the extent it is not prohibited or unenforceable nor the
remaining provisions hereof, nor render unenforceable such provision in any
other jurisdiction.
8.6 Persons Bound. This Agreement shall inure to the benefit of, and shall
be binding upon the Trust and Lender, and their respective successors
(including, without limitation any successor to Trustees as trustees under the
Trust) and permitted assigns. The Trust may not assign any of the Trust's rights
or obligations hereunder (except to a successor trustee under the Trust) without
the prior written consent of Lender. Lender may not participate or assign its
rights hereunder and under the ESOP Note, the Pledge Agreement, the Guaranty and
the documents related thereto without the prior consent of the Trust.
8.7 Waiver and Release by the Trust. To the maximum extent permitted by
applicable law, the Trust (a) waives protest and notice of protest of the ESOP
Note and notice and opportunity to be heard before exercise by Lender of the
remedies of self-help, set-off, or of other summary procedures permitted by any
applicable laws or by any agreement with the Trust, and, except where required
hereby or by any applicable laws, notice of any other action taken by Lender;
and (b) releases Lender and its officers, attorneys, agents and employees from
all claims for loss or damage caused by any act or omission on the part of any
of them except gross negligence or willful misconduct.
8.8 Waive Jury Trial. Lender and the Trust hereby waive all right to a
trial by jury in any litigation relating to this Agreement, the ESOP Note or the
Pledge Agreement.
8.9 Descriptive Headings. The descriptive headings of the sections and
subsections hereof are for convenience of reference only and shall in no way
affect or be used to construe or interpret this Agreement.
<PAGE>33
8.10 Governing Law. This Agreement and the ESOP Note shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to principles of conflicts of law.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument, but all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
ARTICLE 9. DEFINITIONS
9.1 Definitions. In addition to the other words and terms defined herein,
as used in this Agreement:
"As-Offered Rate" shall mean such rate per annum as may be offered by
Lender in its sole discretion to the Trust from time to time for such As-Offered
Rate Funding Period and for such Funding Segment as Lender shall offer in its
sole discretion, which rate shall remain fixed for the duration of such
As-Offered Rate Funding Period. Without limiting the discretion of Lender or the
generality of the foregoing, the As-Offered Rate (if offered) shall reflect
Lender's fully reserved cost of funds and shall include a margin of at least
1.80%.
"Base Rate" for any day shall mean the interest rate per annum announced
from time to time by Lender as its "prime rate" for such day, such interest rate
to change automatically from time to time effective as of the effective date of
each change in such prime rate.
"Business Day" shall mean any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of
<PAGE>34
Pennsylvania or other day on which banking institutions are authorized or
obligated to close in Pittsburgh, Pennsylvania.
"Corresponding Source of Funds" shall mean, in the case of any Funding
Segment of the Euro-Rate Portion, the proceeds of hypothetical receipts by a
Notional Euro-Rate Funding Office or by Lender through a Notional Euro-Rate
Funding Office of one or more Dollar deposits in the interbank eurodollar market
at the beginning of the Euro-Rate Funding Period corresponding to such Funding
Segment having maturities approximately equal to such Euro-Rate Funding Period
and in an aggregate amount approximately equal to such Funding Segment.
"Employer Securities" shall mean common stock or convertible preferred
stock of Commerce which constitutes "qualifying employer securities" under
Section 409(1) of the Code.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, 29
U.S.C. sec. 1002, et seq., as the same may from time to time be amended, and any
successor statute, and the rules and regulations of any governmental agency or
authority, as from time to time in effect, promulgated thereunder. References to
sections or provisions of ERISA shall be deemed to also refer to corresponding
or similar sections or provisions of any successor statute.
"ERISA Affiliate" shall mean, when used with respect to the ESOP, ERISA,
the PBGC or a provision of the Code pertaining to employee benefit plans, any
Person that is a member of any group of organizations within the meaning of Code
Sections 414(b), (c), (m) or (o) of which Commerce is a member.
"Euro-Rate" for any day, as used herein, shall mean for each Funding
Segment of the Euro-Rate Portion corresponding to a proposed or existing
Euro-Rate Funding Period the rate per annum
<PAGE>35
determined by Lender by dividing (the resulting quotient to be rounded upward to
the nearest 1/100 of 1%) (a) the rate of interest (which shall be the same for
each day in such Euro-Rate Funding Period) determined in good faith by Lender in
accordance with its usual procedures (which determination shall be conclusive)
to be the average of the rates per annum for deposits in Dollars offered to
major money center banks in the London interbank market at approximately 11:00
a.m., London time, two London Business Days prior to the first day of such
Euro-Rate Funding Period for delivery on the first day of such Euro-Rate Funding
Period in amounts comparable to such Funding Segment and having maturities
comparable to such Funding Period by (b) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage.
"Euro-Rate Reserve Percentage" for any day shall mean the percentage
(expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as
determined in good faith by Lender (which determination shall be conclusive),
which is in effect on such day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) representing the maximum reserve
requirement (including, without limitation, supplemental, marginal and emergency
reserve requirements) applicable to Lender with respect to eurocurrency funding
(currently referred to as "Eurocurrency liabilities") of a member bank in such
System. The Euro-Rate shall be adjusted automatically as of the effective date
of each change in the Euro-Rate Reserve Percentage.
"Funding Segment" of the Euro-Rate Portion or the As- Offered Rate Portion,
as the case may be, at any time shall mean the principal amount of such Portion
to which at such time there is applicable a particular Funding Period beginning
on a particular day and ending on another particular day. By definition, at all
times each such Portion is composed of an integral number of discrete Funding
Segments, and the sum of the
<PAGE>36
principal amounts of all Funding Segments of any such Portion equals the
principal amount of such Portion.
"Governmental Authority" shall mean any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Law" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Governmental Authority.
"London Business Day" shall mean a day for dealing in U.S. dollar deposits
in the London interbank market and which is a Business Day.
"Monthly Payment Date" shall mean the last Business Day of each calendar
month after the date hereof.
"Office", when used in connection with Lender, shall mean its office at the
address set forth under its signature hereto, or such other office or offices of
Lender or branch, subsidiary or affiliate thereof as may be designated in
writing from time to time by Lender to the Trust.
"Option" shall mean the Euro-Rate Option, the As-Offered Rate Option or the
Base Rate Option, as the case may be.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any other governmental agency,
department or instrumentality succeeding to the functions of said Corporation.
<PAGE>37
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, Governmental
Authority or any other entity.
"Plan" shall have the meaning ascribed thereto in the Guaranty.
"Portion" shall mean the Base Rate Portion, Euro-Rate Portion or the
As-Offered Rate Portion, as the case may be. "Base Rate Portion," "Euro-Rate
Portion" and "As-Offered Rate Portion" shall mean at any time the portion
(including the whole) of the ESOP Loan bearing interest at such time under the
Base Rate Option, the Euro-Rate Option or the As-Offered Rate Option, as the
case may be, or at a rate calculated by reference to such Option under Section
1.6(a) hereof.
"Prohibited Transaction" shall mean, with respect to the ESOP or the Trust,
any transaction that is prohibited under Code Section 4975 or ERISA Section 406
and which is not exempt under Code Section 4975 or ERISA Section 408.
"Reportable Event" shall mean, with respect to a Plan, (a) any of the
events set forth in ERISA Sections 4043(b) (other than a Reportable Event as to
which the provision of 30 days' notice to the PBGC is waived under applicable
regulations), 4062(e) or 4063(a) or the regulations thereunder, (b) an event
requiring the Company or any ERISA Affiliate to provide security to a Plan under
Code Section 401(a)(29) and (c) any failure to make payments required by Code
Section 412(m).
"Standard Notice" shall mean notice provided by the Trust to Lender on a
Business Day which is: (a) not later than the date of any selection of,
conversion to or renewal of the As-Offered Rate Option or prepayment of any Base
Rate Portion or any As- Offered Rate Portion, and (b) at least three London
Business
<PAGE>38
Days in advance in the case of selection of, conversion to or renewal of the
Euro-Rate Option or prepayment of any Euro-Rate Portion. Standard Notice shall
be provided no later than 1:00 p.m., Pittsburgh time, on the last day permitted
for such notice, and shall be irrevocable.
"Treasury Rate" as of any Funding Breakage Date shall mean the rate per
annum determined by Lender (which determination shall be conclusive) to be the
money market yield to maturity for United States Treasury securities maturing on
the last day of the corresponding Funding Period and trading in the secondary
market in reasonable volume (or if no such securities mature on such date, the
rate determined by standard securities interpolation
[Signatures appear on next page]
<PAGE>
methods as applied to the series of securities maturing as close as possible to,
but earlier than, such date, and the series of such securities maturing as close
as possible to, but later than, such date).
IN WITNESS WHEREOF, the Trust and Lender have caused this Agreement to be
executed as of the date first above written.
COMMERCE BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP
PLAN TRUST,
by Vernon W. Hill, II and
C. Edward Jordan, Jr.,
Trustees
Witness
Vernon W. Hill, II, Trustee
Witness
C. Edward Jordan, Jr., Trustee
MELLON BANK, N.A.
By
Vice President
<PAGE>A-1
Exhibit A
ANNUAL CONTRIBUTIONS AGREEMENT
THIS AGREEMENT is made as of November 29, 1994, by and among COMMERCE
BANCORP, INC., a New Jersey corporation having its principal place of business
at 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400 ("Commerce"), COMMERCE
BANK, N.A. ("Bank No. 1"), COMMERCE BANK/PENNSYLVANIA, N.A. ("Bank No. 2") and
COMMERCE BANK/SHORE, N.A. ("Bank No. 3") (Commerce, Bank No. 1, Bank No. 2 and
Bank No. 3 being collectively referred to as the "Commerce Entities") and the
COMMERCE BANCORP, INC. EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Trust") (acting
through Vernon W. Hill, II and C. Edward Jordan, Jr. (the "Trustees")) with an
address c/o Commerce Bancorp, Inc., 1701 Route 70 East, Cherry Hill, New Jersey
08034-5400.
RECITALS
WHEREAS, Commerce established the Commerce Bancorp, Inc. Employee Stock
Ownership Plan (the "ESOP"), effective as of January 1, 1989, intending that it
be qualified under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code
of 1986, as amended (the "Code"), for the benefit of the employees of Commerce
and its subsidiaries eligible to participate thereunder, and their
beneficiaries;
WHEREAS, Commerce and the Trustees entered into a trust agreement (the
"Trust Agreement") dated December 28, 1989, which agreement created the Trust to
hold the assets of the ESOP.
WHEREAS, the Trust intends to execute and deliver contemporaneously with
this Agreement a Term Loan Agreement (the "ESOP Loan Agreement") whereby the
Trust will borrow from Mellon Bank, N.A. ("Lender") and Lender will make a loan
to the Trust in the amount of $5,384,631.81 (the "Loan"), as evidenced by a note
issued by the Trust (the "ESOP Note").
<PAGE>A-2
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties hereinafter set forth and intending to be legally
bound, the Commerce Entities and the Trust agree as follows:
Section 1. Covenants of the Commerce Entities.
1.1 Payments of Principal. The Commerce Entities shall contribute or cause
to be contributed to the Trust in lawful money of the United States of America
amounts sufficient to pay on or before the date when due installments of
principal payable on the ESOP Note as provided in the ESOP Note and the ESOP
Loan Agreement. Such amounts shall be payable not later than 11:00 a.m., local
time, on the date that the corresponding installment of principal is payable.
1.2 Payment of Interest and Other Amounts. The Commerce Entities shall
contribute or cause to be contributed to the Trust in lawful money of the United
States of America amounts sufficient to pay on or before the date when due the
interest payable on the ESOP Note at the rate or rates provided for in the ESOP
Note and the ESOP Loan Agreement and to pay all other amounts, including without
limitation indemnities, due and payable under the ESOP Note and the ESOP Loan
Agreement. Such amounts shall be payable not later than 11:00 A.M., local time,
on the date that the corresponding interest payment or other payment is payable.
1.3 Excess Contributions. In addition to the contributions payable under
Sections 1.1 and 1.2 hereof, the Commerce Entities may make or cause to be made
any contributions to or for the benefit of the Trust in lawful money of the
United States of America in excess of the amounts required by Sections 1.1 and
1.2 hereof ("Excess Contributions"); provided, however, that the Commerce
Entities shall not make or cause to be
<PAGE>A-3
made Excess Contributions which, when combined with all contributions made
pursuant to Sections 1.1 and 1.2 hereof and all other Excess Contributions made
pursuant to this Section 1.3, would require allocations to be made to the
accounts of ESOP participants in excess of the limitations set forth in Section
415 of the Code. Any Excess Contributions may, at the discretion of the Trust,
be applied to the ESOP Loan as prepayments in accordance with the provisions of
the ESOP Loan Agreement.
Section 2. Events of Default.
2.1 Events of Default. If one or more of the following described events of
default shall occur:
(a) The Commerce Entities shall default in the due and punctual payment
of any Minimum Contribution; or
(b) The Commerce Entities shall default in the due and punctual payment
to the Trust of an amount sufficient to pay any installment of interest on the
ESOP Note; or
(c) There occurs any Event of Default as defined in the ESOP Loan
Agreement; or
(d) Any Commerce Entity makes an assignment for the benefit of its
creditors or a composition with its creditors, or is unable or admits in writing
its inability to pay its debts as they mature, or files a petition in
bankruptcy, or commences a federal bankruptcy proceeding in which an order for
relief or such other court order or statutory provision which authorizes the
case to proceed is entered against it, or is adjudicated insolvent or bankrupt,
or petitions or applies to any tribunal for the appointment of any custodian,
receiver, liquidator or trustee of or for it or any substantial part of its
properties or assets, or commences any proceeding relating to it under any
bankruptcy,
<PAGE>A-4
reorganization, arrangement, readjustment of debt, receivership, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or there is commenced against any Commerce Entity any such proceeding
which shall remain undismissed for a period of 60 days, or an order for relief,
order, judgment or decree approving the petition in any such proceeding is
entered; or any Commerce Entity by any act or failure to act indicates its
consent to, approval of or acquiescence in any such proceeding or in the
appointment of any custodian, receiver, liquidator or trustee of or for it or
any substantial part of its properties or assets; or any Commerce Entity takes
any corporate action for the purpose of effecting any of the foregoing;
THEN and at any time thereafter, and in each and every such case, unless
such default shall have been waived in writing by the Trust and Lender, each and
every obligation of the Commerce Entities under this Agreement shall thereupon,
without presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived, be forthwith due and payable, if not otherwise then due
and payable, anything herein or in any other agreement, contract, indenture,
document or instrument contained to the contrary notwithstanding.
Section 3. Miscellaneous Provisions.
3.1 Payments. Minimum Contributions and payments of interest under
Section 1.2 hereof shall be payable in funds immediately available to the Trust
on the due date and at the time payable. Minimum Contributions, payments of
interest and Excess Contributions shall be deposited in an account of the Trust
at Lender.
3.2 Termination and Modification by Consent. This Agreement may be
terminated, modified or amended, by mutual
<PAGE>A-5
consent of Commerce, acting for itself and the other Commerce Entities, and the
Trust by a written instrument executed on behalf of such parties; provided,
however, that no termination, modification or amendment hereto shall be
effective without the prior written consent thereto of Lender, which consent
shall not be unreasonably withheld. Commerce agrees that it shall not cause or
permit the Trust to be terminated prior to payment in full of the ESOP Note
without the prior written consent of Lender.
3.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
principles of conflicts of law.
3.4 Successors and Assigns; Third Party Beneficiaries. All terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective transferees, successors and assigns;
provided, however, that this Agreement and all rights, privileges, duties and
obligations of the parties hereto may not be assigned or delegated by either
party hereto without the prior written consent of the other party hereto and
Lender. It is expressly agreed that Lender, and its successors and assigns, is
intended to be a third party creditor beneficiary of this Agreement entitled to
enforce its provisions directly.
3.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one original
instrument.
3.6 Joint and Several Obligation. The obligations of the Commerce
Entities hereunder are joint and several, and Lender may proceed to enforce the
obligation of each Commerce Entity hereunder without regard to the action or
inaction of any other Commerce Entity.
<PAGE>A-6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
[Corporate Seal] COMMERCE BANCORP, INC.
Attest By
Secretary President
[Corporate Seal] COMMERCE BANK, N.A.
Attest By:
Secretary Title:
[Corporate Seal] COMMERCE BANK/PENNSYLVANIA, N.A.
Attest By:
Secretary Title:
[Corporate Seal] COMMERCE BANK/SHORE, N.A.
Attest By:
Secretary Title:
COMMERCE BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP
PLAN TRUST,
by Vernon W. Hill, II and
C. Edward Jordan, Jr.,
Trustees
Witness
Vernon W. Hill, II, Trustee
Witness
C. Edward Jordan, Jr., Trustee
<PAGE>B-1
Exhibit B
ESOP NOTE
$5,384,631.81 November 29, 1994
Pittsburgh, Pennsylvania
For value received and intending to be legally bound, COMMERCE BANCORP,
INC. EMPLOYEE STOCK OWNERSHIP PLAN TRUST, (the "Trust") (acting through Vernon
W. Hill, II and C. Edward Jordan Jr. (the "Trustees")) hereby promises to pay to
the order of MELLON BANK, N.A. ("Lender") the principal sum of Five Million
Three Hundred Eighty Four Thousand Six Hundred Thirty One and 81/100 Dollars
($5,384,631.81). The Trust further promises to pay to the order of Lender
interest on the unpaid principal amount hereof from time to time outstanding at
the rate or rates per annum determined pursuant to Article 1 of, or as otherwise
provided in, the Agreement (as hereinafter defined), payable on the dates set
forth in Article 1 of, or as otherwise provided in, the Agreement. The principal
hereof shall be payable in twenty consecutive quarterly installments commencing
on March 31, 1995 and on the last day of June, September, December and March
thereafter in the amounts set forth on Schedule I attached hereto and made a
part hereof, with a final installment of all principal, together with all
accrued and unpaid interest thereon, due January 28, 2000 (the "Maturity Date").
All payments of principal and interest hereunder shall be due and payable at
2:00 o'clock p.m., Pittsburgh time, on the day when due. Such payments shall be
made to Lender at its Office in Dollars in immediately available funds without
setoff, counterclaim or other deduction of any nature.
Except as otherwise provided in the Agreement, if any payment of
principal or interest hereunder shall become due on a day which is not a
Business Day, such payment shall be made on the
<PAGE>B-2
next following Business Day and such extension of time shall be included in
computing interest in connection with such payment.
This ESOP Note is the "ESOP Note" referred to in, and is entitled to the
benefits of the Term Loan Agreement dated as of November 29, 1994 by and between
the Trust and Lender (as the same may be amended, modified or supplemented from
time to time, the "Agreement"), which among other things provides for the
acceleration of the maturity hereof upon the occurrence of certain events and
for prepayments in certain circumstances and upon certain terms and conditions.
This ESOP Note is secured by and is entitled to the benefits of the Pledge
Agreement described in the Agreement. Terms defined in the Agreement have the
same meanings herein.
The unpaid principal amount of this ESOP Note, the unpaid interest
accrued hereon and the interest rate or rates applicable to such unpaid
principal amount shall at all times be ascertained from the records of Lender,
which shall be presumed correct absent manifest error.
The Trust hereby expressly waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this ESOP Note and the Agreement, and an
action for amounts due hereunder or thereunder shall immediately accrue.
<PAGE>B-3
This ESOP Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
principles of conflicts of law.
COMMERCE BANCORP, INC.
EMPLOYEE STOCK
OWNERSHIP PLAN TRUST
by Vernon W. Hill, II
and C. Edward Jordan, Jr.,
Trustees
Witness:
-------------------------------- ---------------------------------
Vernon W. Hill, II Trustee
Witness:
-------------------------------- ----------------------------------
C. Edward Jordan, Jr., Trustee
<PAGE>
Schedule I
ESOP Note
[Amortization Schedule]
<PAGE>
Exhibit C
Date From Date To Amortization Outstanding
11/29/94 3/31/95 $5,384,631.81
3/31/95 6/30/95 $256,411.03 $5,128,220.78
6/30/95 9/30/95 $256,411.03 $4,871,809.75
9/30/95 12/31/95 $256,411.03 $4,615,398.72
12/31/95 3/31/96 $256,411.03 $4,358,987.69
3/31/96 6/30/96 $256,411.03 $4,102,576.66
6/30/96 9/30/96 $256,411.03 $3,846,165.63
9/30/96 12/31/96 $256,411.03 $3,589,754.60
12/31/96 3/31/97 $256,411.03 $3,333,343.57
3/31/97 6/30/97 $256,411.03 $3,076,932.54
6/30/97 9/30/97 $256,411.03 $2,820,521.51
9/30/97 12/31/97 $256,411.03 $2,564,110.48
12/31/97 3/31/98 $256,411.03 $2,307,699.45
3/31/98 6/30/98 $256,411.03 $2,051,288.42
6/30/98 9/30/98 $256,411.03 $1,794,877.39
9/30/98 12/31/98 $256,411.03 $1,538,466.36
12/31/98 3/31/99 $256,411.03 $1,282,055.33
3/31/99 6/30/99 $256,411.03 $1,025,644.30
6/30/99 9/30/99 $256,411.03 $769,233.27
9/30/99 12/31/99 $256,411.03 $512,822.24
12/31/99 1/28/00 $256,411.03 $256,411.21
1/28/00 $256,411.21 $0.00
<PAGE>D-1
Exhibit D
PLEDGE AND SECURITY AGREEMENT
THIS AGREEMENT is made this 29th day of November, 1994, between the
COMMERCE BANCORP, INC. EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the "Trust") (acting
through Vernon W. Hill, II and C. Edward Jordan, Jr. ("Trustees") under a trust
agreement (the "Trust Agreement"), and MELLON BANK, N.A., a national banking
association ("Lender").
Lender and the Trust have entered into a Term Loan Agreement (the "ESOP
Loan Agreement") of even date herewith pursuant to which Lender has agreed to
make a term loan in the amount of $5,384,631.81 (the "ESOP Loan") to the Trust
against its Note (the "ESOP Note") in the principal amount of $5,384,631.81.
Capitalized terms not otherwise defined herein shall have the meaning given them
in the ESOP Loan Agreement. As a condition to entering into the ESOP Loan
Agreement and making the ESOP Loan, Lender has required the execution and
delivery of this Agreement.
NOW, THEREFORE, in consideration of the undertakings of Lender pursuant to
the ESOP Loan Agreement and as an inducement to Lender to make the ESOP Loan
provided for in the ESOP Loan Agreement, and intending to be legally bound, the
parties hereto agree as follows:
1. Pledge of Securities.
(a) The Trust hereby pledges, assigns and grants to Lender a security
interest in all shares of capital stock of Commerce Bancorp, Inc. ("Commerce")
acquired, directly or indirectly, by the Trust with the proceeds of the
Provident Loan and not heretofore released from the liens securing the Provident
Loan, together with, to the extent permitted by law and by the ESOP (as defined
in the ESOP Loan Agreement), all earnings attributable to such shares of
Commerce capital stock (all
<PAGE>D-2
hereinafter called the "Pledged Collateral"), as security for the prompt
repayment of the ESOP Note and all obligations of the Trust pursuant to this
Agreement and the ESOP Loan Agreement (collectively, the "Secured
Indebtedness").
(b) The certificates for all Pledged Collateral now held by the Trust
and acquired from time to time by the Trust subsequent to the date of this
Agreement shall be duly endorsed in blank by the Trust or attached to an
instrument of assignment duly executed in blank by the Trust, and shall be
accepted by the Trust as Lender's agent in trust for Lender and delivered
promptly by the Trust to Lender. Lender may, at any time after an Event of
Default (as hereinafter defined), effect the transfer of any securities included
in the Pledged Collateral into the name of Lender or its nominees and cause new
certificates representing such securities to be issued in the name of Lender or
its nominee.
2. Representations and Warranties. The Trust represents and warrants to
Lender that:
(a) This Agreement has been duly authorized, executed and delivered by
Trustees on behalf of the Trust and such execution and delivery and the
performance by the Trust of its obligations hereunder will not violate any
provision of law or any judgment, order or regulation of any court or of any
public or governmental agency or authority applicable to the Trust or the ESOP
and will not conflict with or constitute a breach of or a default under any
agreement, indenture or instrument to which the Trust is a party or by which it
is bound, and this Agreement constitutes the legal, valid and binding obligation
of the Trust enforceable in accordance with its terms;
(b) All of the Pledged Collateral has been validly issued and is fully
paid and nonassessable and, except for the liens securing the Provident Loan
(which will be released
<PAGE>D-3
contemporaneously with the making of the ESOP Loan), is owned by the Trust free
and clear of all security interests, liens, encumbrances or, except as set forth
in the ESOP, other restrictions except the interest of Lender pursuant to this
Agreement and the possible restrictions on transfer referred to in Section 6.2
hereof, and no disability or contractual obligation exists which would prohibit
the Trust from pledging the Pledged Collateral pursuant to this Agreement;
(c) The Trust has full power and authority to create a first lien on the
Pledged Collateral in favor of Lender, and upon delivery of the Pledged
Collateral to Lender or its agent, this Agreement shall create a valid first
lien upon and perfected security interest in the Pledged Collateral subject to
no prior security interest, lien, encumbrance or other restriction; and
(d) The Pledged Collateral is not the subject of any present or, to the
knowledge of the Trustees, threatened suit, action, arbitration, administrative
or other proceeding, and Trustees know of no reasonable grounds for the
institution of any proceedings.
3. Covenants. The Trust hereby covenants with Lender that, until all of the
Secured Indebtedness has been satisfied in full, it will:
(a) Not sell, convey or otherwise dispose of any of the Pledged
Collateral or any interest therein or create, incur or permit to exist any
pledge, mortgage, lien, charge or encumbrance or any security interest
whatsoever in or with respect to any of the Pledged Collateral other than that
created hereby.
<PAGE>D-4
(b) Defend, at its own expense, Lender's right, title and security
interest in and to the Pledged Collateral against the claims of any Person.
(c) Give, execute, deliver, file and/or record, or cause to be given,
executed, delivered, filed and/or recorded, any financing statement,
continuation statement, notice, instrument, document, agreement or other papers
that may be necessary or desirable in order to create, preserve, perfect,
continue, substantiate or validate any security interest granted pursuant to
this Agreement or to enable Lender to exercise and enforce its right hereunder
with respect to such security interest.
4. Voting and Cash Dividends Prior to Default. Unless an Event of Default
hereunder shall have occurred and be continuing, the Trust shall be entitled to
(a) exercise any voting rights with respect to the Pledged Collateral and to
give consents, waivers and ratifications in respect thereof, provided that no
vote shall be cast or consent, waiver or ratification given or action taken
which would be inconsistent with any of the terms of this Agreement, the ESOP
Loan Agreement or any instrument executed and delivered pursuant thereto, or
which would constitute or create any violation of any of such terms, or which
would otherwise cause a material decrease in the value of or other deterioration
of the Pledged Collateral and (b) receive and retain for the use of the Trust
cash dividends on the Pledged Collateral. All such rights of the Trust to vote
and give consents, waivers and ratifications and to receive and retain cash
dividends shall cease if an Event of Default hereunder shall occur and be
continuing, in which event, whether or not the Pledged Collateral shall have
been registered in Lender's or its nominee's name, Lender or its nominee shall
have the right to exercise all voting rights with respect to the Pledged
Collateral and any dividends
<PAGE>D-5
shall be delivered by the Trust to Lender and, at Lender's option, held as
additional security hereunder or applied toward satisfaction of the Secured
Indebtedness.
5. Events of Default. Each of the following shall constitute an event of
default ("Event of Default") hereunder:
(a) The occurrence of an Event of Default under the ESOP Loan Agreement;
or
(b) Failure by the Trust to observe or perform any of the provisions of
this Agreement and such failure shall continue unremedied for a period of 30
days after Lender shall give notice to the Trust of such failure; or
(c) Any representation or warranty of the Trust made herein proves to be
false or misleading in any material respect; or
(d) The Pledged Collateral shall be converted into or exchanged for, or
there shall be substituted for or distributed with respect to the Pledged
Collateral, cash or any securities, instruments or other property (including any
such conversions, exchanges, substitutions or distributions arising from a stock
dividend, stock split, reclassification, reorganization, merger, consolidation,
sale of assets or other exchange of securities or any dividends or other
distributions of any kind upon or with respect to the Pledged Collateral) and
the security interest granted to the Lender hereby does not attach to, or the
Lender does not otherwise have a perfected first priority lien in and on, such
cash or securities, instruments or other property.
<PAGE>D-6
6. Lender's Remedies Upon Default.
6.1 Upon the occurrence of an Event of Default, Lender shall have the right
to exercise all such rights as a secured party under the Uniform Commercial Code
of Pennsylvania (the "U.C.C.") as it, in its sole judgment, shall deem necessary
or appropriate, without demand of performance or other demand, advertisement, or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon the Trust or any other Person (all of which
are to the extent permitted by law, hereby expressly waived by the Trust),
including the right to sell all or any part of the Pledged Collateral at one or
more public or private sales at any exchange, broker's board or at any of
Lender's offices or elsewhere; and any such sale or sales may be made for cash,
upon credit, or for future delivery, and in connection therewith, Lender may
grant options; provided that any such terms or options shall, in the best
judgment of Lender, be extended only in order to obtain the best possible price.
Lender need not give more than ten days notice of the time and place of any
public sale or of the time after which a private sale or other disposition of
the Pledged Collateral may take place, the length of which notice the Trust
hereby deems reasonable. No sale of any Pledged Collateral upon a generally
recognized securities exchange through a registered securities broker will give
rise to a credit against the Secured Indebtedness until such broker credits
Lender's account with the sale proceeds. Lender may resort first to the security
created by this Agreement or first to the security afforded by any other
instruments, in any such case without affecting Lender's rights under this
Agreement.
6.2 The Trust recognizes that Lender may be unable to effect a public sale
of all or a part of the Pledged Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Act"), so that Lender
may be compelled to resort to one or more private sales to a restricted group of
<PAGE>D-7
purchasers who will be obliged to agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and without a view to
the distribution or resale thereof. The Trust understands that private sales so
made may be at prices and on other terms less favorable to the seller than if
the Pledged Collateral were sold at public sales, and agrees that Lender has no
obligation to delay the sale of any of the Pledged Collateral for the period
necessary to permit the issuer of the Pledged Collateral (even if the issuer
would agree) to register such securities for sale under the Act. The Trust
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner. On any sale of the
Pledged Collateral, Lender is hereby authorized to comply with any limitation or
restriction, compliance with which is necessary, in the view of Lender's
counsel, in order to avoid any violation of applicable law or in order to obtain
any required approval of the purchaser by any applicable Governmental Authority.
6.3 After the sale of any of the Pledged Collateral, Lender may deduct all
reasonable and documented legal and other expenses and attorney's fees for
preserving, collecting, selling and delivering the Pledged Collateral and for
enforcing its rights with respect to the Secured Indebtedness, and shall apply
the residue of the proceeds to, or hold as a reserve against, the Secured
Indebtedness in such manner as Lender in its sole discretion shall determine,
and shall pay the balance, if any, to the Trust. To facilitate the exercise of
Lender's remedies following an Event of Default and during the continuance
thereof, the Trust hereby appoints any officer of Lender as its attorney-in-fact
to collect and receive all payments in respect of the Pledged Collateral, and to
endorse the name of the Trust thereto for such purpose, and to apply such
receipts to the Secured Indebtedness and to execute on behalf of the Trust all
financing statements and other documents necessary to perfect and
<PAGE>D-8
maintain Lender's security interest in the Pledged Collateral. The remedies
provided herein in favor of Lender shall not be deemed exclusive, but shall be
cumulative, and shall be in addition to all other legal and equitable remedies
which Lender may have, and no delay on the part of Lender in exercising any of
its powers or rights, or any partial or single exercise thereof, shall
constitute a waiver thereof.
7. Release of Pledged Collateral. As a result of payments made on the ESOP
Note, and, provided no Event of Default hereunder has occurred and is
continuing, Lender shall release that number of shares of stock constituting the
Pledged Collateral as may be required by application of the release rules as set
forth in Section 5.02(b) of the ESOP. The Trustees shall notify Lender in
writing of the number of shares of stock constituting Pledged Collateral which
Lender shall release from the lien of this Agreement. The notice of the Trustees
shall be accompanied by a statement of the calculations employed by the Trustees
in applying said rules. Lender shall deliver to the Trustees, at the expense of
the Trust, all shares of stock constituting Pledged Collateral and so released
within 10 Business Days of receipt of such notice. Upon satisfaction in full of
the Secured Indebtedness and of all additional costs and expenses of Lender as
provided herein and performance of all obligations of the Trust under the ESOP
Loan Agreement, this Agreement shall terminate and Lender shall promptly deliver
to the Trustees, at the expense of the Trust, such of the Pledged Collateral as
shall not have been previously released, sold or otherwise applied pursuant to
this Agreement.
8. Notices. The Trust will promptly deliver to Lender all written notices,
and will promptly give Lender written notice of any other notice, received by it
with respect to the Pledged Collateral, and, prior to the occurrence of an Event
of Default, Lender will promptly give like notice to the Trust of any such
<PAGE>D-9
notices received by it or its nominee. Any notice required or permitted by this
Agreement shall be effective if given in accordance with the provisions of the
ESOP Loan Agreement.
9. Miscellaneous.
(a) Other than the exercise of reasonable care to assure the safe
physical custody of the Pledged Collateral while held by Lender hereunder,
Lender shall have no duty or liability, including without limitation, any
obligation or duty to collect any sums due in respect thereof or to protect or
preserve any rights against prior parties or any other rights pertaining thereto
and shall be relieved of all responsibility for the Pledged Collateral upon
surrendering it or tendering surrender of it to the Trustees.
(b) The Trust, at its expense, will execute, acknowledge and deliver all
such instruments in form satisfactory to Lender and take all such action as
Lender from time to time may reasonably require in order further to effectuate
the purposes of this Agreement and to carry out the terms hereof, including
without limitation, delivering to Lender upon the occurrence of an Event of
Default irrevocable proxies with respect to the Pledged Collateral. Until
receipt thereof, this Agreement shall constitute the Trust's proxy to Lender or
its nominee to vote all shares of the Pledged Collateral then registered in the
Trust's name.
(c) This Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the parties hereto.
<PAGE>D-10
(d) This Agreement and the rights and obligations hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania, without regard to principles of conflicts of law.
(e) The paragraph headings used herein are for convenience only and do
not affect or modify the terms and conditions hereof.
(f) If any provision hereof is found by a court of competent
jurisdiction to be prohibited or unenforceable, it shall be ineffective only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or enforceable, nor invalidate the other provisions
[Signatures appear on next page]
<PAGE>
hereof, all of which shall be liberally construed in favor of Lender in order to
effect the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
COMMERCE BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP
PLAN TRUST,
by Vernon W. Hill, II and
C. Edward Jordan, Jr.,
Trustees
Witness
Vernon W. Hill, II, Trustee
Witness
C. Edward Jordan, Jr., Trustee
MELLON BANK, N.A.
By
Vice President
<PAGE>
Exhibit E
GUARANTY, SURETY AND PURCHASE AGREEMENT
THIS AGREEMENT is made as of this 29th day of November, 1994, by
COMMERCE BANCORP, INC., a New Jersey corporation with an address at 1701 Route
30 East, Cherry Hill, New Jersey 08034-5400 ("Guarantor"), in favor of MELLON
BANK, N.A., a national banking association with an address at One Mellon Bank
Center, Pittsburgh, Pennsylvania 19258 ("Bank"), to secure obligations of the
Commerce Bancorp, Inc. Employee Stock Ownership Plan Trust ("Borrower").
Borrower and Bank have entered into a Term Loan Agreement (the "ESOP
Loan Agreement") of even date herewith pursuant to which Bank has agreed to make
a term loan in the principal amount of $5,384,631.81 (the "ESOP Loan") to
Borrower against its Note (the "ESOP Note") in the principal amount of
$5,384,631.81. Capitalized terms not otherwise defined herein shall have the
meaning given them in the ESOP Loan Agreement. As a condition to entering into
the ESOP Loan Agreement, Bank has required the execution and delivery of this
Agreement.
NOW, THEREFORE, in consideration of the undertakings of Bank pursuant to
the ESOP Loan Agreement, and as an inducement to Bank to make the ESOP Loan
provided for in the ESOP Loan Agreement, and intending to be legally bound,
Guarantor hereby agrees as follows:
1. Payment and Performance of the Obligations. In order to secure
payment of the ESOP Note by Borrower and performance of the ESOP Loan Agreement
by Borrower, Guarantor hereby irrevocably and unconditionally guarantees to
Bank, and becomes surety to Bank for, the due and punctual payment and
performance of all the obligations of Borrower to Bank arising out of or
provided for in the ESOP Note or the ESOP Loan Agreement or under any security
agreements for the ESOP Loan (the "Collateral")
<PAGE>E-2
or under any renewals, extensions or modifications thereof, whether primary,
secondary, direct, contingent, sole, joint, several or joint and several,
including without limitation the payment of principal and any interest accruing
thereon and all fees, indemnities and other amounts payable by Borrower under
the ESOP Loan Agreement or any security agreements for the ESOP Loan, whether
before or after a default thereunder, now existing or hereafter at any time or
times incurred (hereinafter referred to individually as "Obligation" and
collectively as "Obligations"). If any Obligation is not paid or performed by
Borrower punctually when due, subject to any applicable grace period, including
without limitation any Obligation due by acceleration of the maturity thereof,
Guarantor will, upon Bank's demand, immediately pay or perform such Obligation
or cause the same to be paid or performed strictly in accordance with the terms
thereof. Guarantor will pay to Bank, upon demand, all documented costs and
expenses, including without limitation reasonable counsel fees, which may be
incurred by Bank in the collection or enforcement of the Obligations or of
Guarantor's obligations under this Agreement.
2. Representations and Warranties. Guarantor represents and warrants to
Bank that:
(a) Guarantor has all requisite power and authority to make and perform
this Agreement;
(b) This Agreement has been duly authorized, executed and delivered by
Guarantor and such execution and delivery and the performance by Guarantor of
its obligations hereunder will not violate any applicable provision of law or
any rule, regulation, order, writ, judgment, injunction, decree, determination
or award applicable to Guarantor nor conflict with or constitute a breach of or
a default under the certificate of incorporation or by-laws or any instrument to
which Guarantor is a
<PAGE>E-3
party or by which Guarantor or Guarantor's property is bound, and this Agreement
is a valid and binding obligation of Guarantor enforceable in accordance with
its terms;
(c) Guarantor's audited consolidated balance sheet as of December 31,
1993 and statements of profit and loss and surplus for the year then ended (i)
have been prepared in accordance with generally accepted accounting principles
consistently applied, (ii) have been certified by Ernst & Young and (iii)
present fairly the financial condition and results of operations of Guarantor
and its subsidiaries as of December 31, 1993 and for the period covered thereby
on a consolidated basis. Guarantor's unaudited consolidated balance sheet as of
March 31, 1994 and statements of profit and loss and surplus for the quarter
ended (i) have been prepared in accordance with generally accepted accounting
principles consistently applied and (ii) are true and correct and present fairly
the financial condition and results of operations of Guarantor and its
subsidiaries as of March 31, 1994 and for the period covered thereby on a
consolidated basis. Since March 31, 1994, each of Guarantor and its subsidiaries
has conducted its business in the ordinary course, and there has been no
material adverse change in the business, financial condition, operations or
affairs of Guarantor or any subsidiary of Guarantor;
(d) Litigation. Except as disclosed to Bank in writing prior to the date
of this Agreement, there are no legal or arbitral proceedings or any proceedings
by or before any governmental or regulatory authority or agency, now pending or
(to the knowledge of Guarantor) threatened against Guarantor or any of its
Subsidiaries which may reasonably be expected to have a material adverse effect
on the consolidated financial condition or results of operations of Guarantor
and its consolidated Subsidiaries; and
<PAGE>E-4
(e) Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by Guarantor of
this Agreement or for the validity or enforceability thereof.
3. General Terms and Conditions.
(a) All payments by Guarantor hereunder shall be made in lawful currency
of the United States of America.
(b) Guarantor hereby waives (i) notice of acceptance of this Agreement
and of any action by Bank in reliance thereon, (ii) presentment, demand of
payment, notice of dishonor or nonpayment, protest and notice of protest with
respect to the Obligations, and giving any notice of default or other notice to,
or making any demand on any Person (including without limitation Borrower and
Guarantor) liable in any manner for the payment of the Obligations, (iii) any
right to require Bank to proceed initially against Borrower or any of the
Collateral upon any default in the payment or performance of the Obligations,
and (iv) notice of any election by Bank to sell any of the property mortgaged,
assigned or pledged as security for any of the Obligations at a public or
private sale, provided that nothing contained in this paragraph shall be deemed
to be a waiver of any notice expressly required to be given to Borrower pursuant
to the ESOP Loan Agreement.
(c) Bank may at any time and from time to time without the consent of or
notice to Guarantor and without impairing or releasing the obligations of
Guarantor hereunder (i) exercise or refrain from exercising any right or remedy
against Borrower or any other Person, including without limitation Guarantor, or
against any of the Collateral and (ii) modify, amend, extend, supplement or
waive or consent to the breach of any
<PAGE>E-5
provision of the ESOP Note, the ESOP Loan Agreement or any of the Collateral, to
which modifications, amendments, extensions, supplements, waivers and consents
Guarantor hereby assents. Without limiting the foregoing, it is specifically
understood that any modification, limitation or discharge of Borrower's
liability under the ESOP Note, the ESOP Loan Agreement or any of the Collateral
arising out of or by virtue of any bankruptcy, arrangement, reorganization or
similar proceeding for relief of debtors under federal or state law hereinafter
initiated by or against Borrower shall not affect, modify, limit or discharge
the liability of Guarantor in any manner and this Guaranty shall remain in full
force and effect and shall be enforceable against Guarantor to the same extent
and with the same effect as if such proceedings had not been instituted.
(d) The guaranty and surety contained in paragraph 1 hereof is absolute
and unconditional, primary, direct and immediate and shall be valid and binding
upon Guarantor regardless of (i) any invalidity, irregularity, defect or
unenforceability of or in the ESOP Note, the ESOP Loan Agreement or any of the
Collateral or any other obligation or agreement of Borrower or Guarantor, (ii)
any action or inaction by Bank or other occurrence referred to in subsection
3(c) above, or (iii) any other circumstance which might otherwise constitute a
defense available to, or a discharge or release of, Borrower or Guarantor, by
operation of law.
(e) No failure or delay on the part of Bank in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies of Bank hereunder are cumulative and
concurrent and not exclusive of any other rights or remedies Bank may have.
<PAGE>
(f) [Deleted.]
(g) No set-off, counterclaim, reduction or diminution of an Obligation,
or any defense of any kind or nature that Guarantor has or may have against
Borrower or Bank shall affect, modify or impair Guarantor's obligations
hereunder. Any claim that Guarantor now or hereafter has against Borrower shall
be fully subordinate in lien and payment to any claim that Bank now or hereafter
has against Borrower.
(h) Upon the occurrence and during the continuance of any Guarantor
Event of Default or Event of Default under the ESOP Loan Agreement, Bank is
hereby authorized at any time and from time to time to set off any or all of the
property of Guarantor in Bank's possession (including all deposits and other
indebtedness owing by Bank to or for the credit or the account of Guarantor) at
or subsequent to the occurrence of Guarantor Event of Default or Event of
Default under the ESOP Loan Agreement against any and all of the obligations of
Guarantor now or hereafter existing under this Agreement, irrespective of
whether or not Bank shall have made any demand under this Agreement and although
such obligations may be contingent and unmatured.
(i) For the purpose of any suit, action or proceeding arising out of or
relating to this Agreement, Guarantor hereby irrevocably consents and submits to
the jurisdiction and venue of any of the courts of the Commonwealth of
Pennsylvania or of any federal court located in Pennsylvania including without
limitation, the Court of Common Pleas of Allegheny County and the Federal
District Court for the Western District of Pennsylvania, and irrevocably agrees
to service of process by certified mail, return receipt requested, postage
prepaid, to its address set forth at the beginning of this Agreement. Guarantor
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such court
and any claim that such suit, action or proceeding brought
<PAGE>E-7
in such a court has been brought in an inconvenient forum and agrees that
service of process in accordance with the foregoing sentence shall be deemed in
every respect effective and valid personal service of process upon Guarantor.
The provisions of this paragraph shall not limit or otherwise affect the right
of Bank to institute and conduct an action in any other appropriate manner,
jurisdiction or court.
(j) Bank and Guarantor hereby waive all right to a trial by jury in any
litigation relating to this Agreement.
4. Covenants of Guarantor. Guarantor covenants and agrees to and with Bank
that so long as any of the Obligations are outstanding and unpaid, or any
obligation of Guarantor to Bank hereunder is not fully performed a Guarantor
Event of Default or:
(a) Financial Statements, etc. Guarantor shall deliver to Bank:
(i) as soon as available and in any event within 60 days after the end
of each of the first three fiscal quarterly periods of each fiscal year of
Guarantor, consolidated statements of operations, changes in financial
position and changes in shareholders' equity of Guarantor and its
consolidated Subsidiaries for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and the
related consolidated balance sheet as at the end of such period, setting
forth in each case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a Responsible Officer of Guarantor, which certificate shall
state that said financial statements fairly present the consolidated
financial condition and
<PAGE>E-8
results of operations of Guarantor and its consolidated Subsidiaries in
accordance with generally accepted accounting principles, consistently
applied, as at the end of, and for, such period (subject to normal year-end
audit adjustments);
(ii) as soon as available and in any event within 120 days after the end
of each fiscal year of Guarantor, consolidated statements of operations,
changes in financial position and changes in shareholders' equity of
Guarantor and its consolidated Subsidiaries for such year and the related
consolidated balance sheet as at the end of such year, setting forth in
each case in comparative form the corresponding figures for the preceding
fiscal year, and accompanied by an opinion thereon of independent certified
public accountants of recognized national standing, which opinion shall
state that said financial statements fairly present the consolidated
financial condition and results of operations of Guarantor and its
consolidated Subsidiaries as at the end of, and for, such fiscal year, and
a certificate of such accountants stating that, in making the examination
necessary for their opinion, they obtained no knowledge, except as
specifically stated, of any Guarantor Default;
(iii) promptly upon their becoming available, copies of all registration
statements and regular periodic reports which Guarantor shall have filed
with the Securities and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
<PAGE>E-9
(iv) promptly upon the mailing thereof to the shareholders of Guarantor
generally, copies of all financial statements, reports and proxy statements
so mailed;
(vi) promptly upon its becoming available, the "Parent Company Only
Financial Statements for Bank Holding Companies" (report no. FRY 9LP or any
successor form of the Federal Reserve System) of Guarantor;
(vii) promptly after a Responsible Officer of Guarantor knows or has
reason to know that any Guarantor Default has occurred and is continuing, a
notice of such Guarantor Default with the caption "Notice of Default",
describing the same in reasonable detail and, together with such notice or
as soon thereafter as possible, a description of the action that Guarantor
has taken and proposes to be taken with respect thereto; and
(vii) from time to time such other information regarding the business,
affairs or financial condition of Guarantor or any of its Subsidiaries
(including, without limitation, the ESOP and any reports or any other
information required to be filed under ERISA) as Bank may reasonably
request.
Guarantor will furnish to Bank, at the time it furnishes each set of financial
statements pursuant to paragraph (i) or (ii) above, a certificate of a
Responsible Officer of Guarantor (x) to the effect that no Guarantor Default has
occurred and is continuing (or, if any Guarantor Default has occurred and is
continuing, describing the same in reasonable detail and describing the action
which Guarantor has taken and proposes to take with respect thereto) and (y)
setting forth in reasonable detail the computations necessary to determine
whether Guarantor is in
<PAGE>E-10
compliance with Section 4(d) hereof as of the end of the respective fiscal
quarter or fiscal year.
(b) Litigation. Guarantor shall promptly give to Bank notice of all
legal or arbitral proceedings, and of all proceedings by or before any
Governmental Authority and any material development in respect of such legal or
other proceedings affecting Guarantor or any of its Subsidiaries, which may
reasonably be expected to have a material adverse effect on the consolidated
financial condition or operations, taken as a whole, of Guarantor and its
consolidated Subsidiaries.
(c) Capital Requirements. Guarantor and its banking Subsidiaries shall
at all times maintain such amount of capital as may be prescribed by the Board
of Governors of the Federal Reserve System from time to time, whether by
regulation, agreement or order. Guarantor shall at all times ensure that none of
its Insured Subsidiaries shall be "undercapitalized", "significantly
undercapitalized" or "critically undercapitalized" for purposes of 12 U.S.C.
Section 1831o, as amended, reenacted or redesignated from time to time.
(d) Financial Covenants.
(i) Relationship of Non-Performing Assets to Total Assets. Guarantor
shall not permit the amount of Non-Performing Assets at any time to exceed
3.0% of the amount of Total Assets at such time.
(ii) Relationship of Non-Performing Assets Less Loan Reserves to Total
Equity. Guarantor shall not permit (A) the difference between (x) the
amount of Non-Performing Assets and (y) the amount of Loan Reserves at any
time to exceed (B) 25.0% of the amount of Total Equity at such time.
<PAGE>E-11
(iii) Net Income. On the last day of each calendar quarter, (A) the sum
of (x) the amount of Net Interest Income for the two consecutive fiscal
quarters ending on such day and (y) the amount of Non-Interest Income for
such two fiscal quarters shall exceed (B) the sum of (x) the amount of
Non-Interest Expenses for such two fiscal quarters and (y) the amount of
Debt Service for such two fiscal quarters.
(iv) Liquidity. Guarantor shall maintain at all times at least $500,000
in cash or Permitted Investments; it being understood, that the value
ascribed to any Permitted Investments at any time shall be the market value
of such Permitted Investments at such time. In addition to the other
certificates to be delivered to Bank hereunder, a Responsible Officer shall
deliver to Bank not less than eight Business Days prior to the making of
any payment under the Subordinated Notes a certificate certifying that,
after the making of such payment, Guarantor will be in compliance with the
requirements of this subsection 4(d)(iv).
(e) Visitation; Verification. Guarantor shall permit such Persons as
Bank may designate from time to time to visit and inspect any of the properties
of the Guarantor and of any Subsidiary, to examine their respective books and
records and take copies and extracts therefrom and to discuss their respective
affairs with their respective directors, officers, employees and independent
accountants at such times and as often as Bank may request. Guarantor hereby
authorizes such officers, employees and independent accountants to discuss with
Bank the affairs of Guarantor and its Subsidiaries. Bank shall have the right to
examine and verify accounts and other properties and liabilities of Guarantor
and its Subsidiaries from time to time, and Guarantor
<PAGE>E-12
shall cooperate, and shall cause each Subsidiary to cooperate, with Bank in such
verification.
(f) No Senior Indebtedness. Guarantor shall not incur, create or suffer
to exist any Indebtedness senior to the obligations of Guarantor under this
Guaranty.
5. Guarantor Events of Default. If any of the following events shall occur
and be continuing:
(a) (i) Guarantor or any of its Material Subsidiaries shall default in
the payment when due of any principal of or interest on any of its other
Indebtedness aggregating $900,000 or more; or (ii) any event specified in any
note, agreement, indenture or other document evidencing or relating to any of
its other Indebtedness aggregating $20,000,000 or more shall occur if the effect
of such event is to cause such Indebtedness to become due prior to its stated
maturity; or (iii) any event specified in any note, agreement, indenture or
other document evidencing or relating to any of its other Indebtedness
aggregating $20,000,000 or more shall occur if the effect of such event is to
cause or (with the giving of any notice or the lapse of time or both) to permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause, such Indebtedness to become due, or to be
prepaid in full, prior to its stated maturity; or
(b) Any representation, warranty or certification made or deemed made by
Guarantor herein or in any other document or certificate furnished to Bank
pursuant to or in connection with the provisions hereof, shall prove to have
been false or misleading as of the time made or furnished in any material
respect; or
<PAGE>E-13
(c) Guarantor (i) shall default in the performance of any of its
obligations under Section 4 of this Agreement; or (ii) shall default in the
performance of any of its other obligations under this Agreement and such
default shall continue unremedied for a period of 30 days after notice thereof
to Guarantor by Bank; or
(d) (i) Guarantor or any of its Material Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets, or
Guarantor or any of its Material Subsidiaries shall make a general assignment
for the benefit of its creditors; or (ii) there shall be commenced against
Guarantor or any of its Material Subsidiaries any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against Guarantor or any of its Material Subsidiaries
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) Guarantor or any
of its Material Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i),
<PAGE>E-14
(ii), or (iii) above; or (v) Guarantor or any of its Material Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its unability
to, pay its debts as they become due; or
(e) A final judgment or judgments for the payment of money in excess of
$5,000,000 in the aggregate shall be rendered by a court or courts, or any
Governmental Authority, against Guarantor or any of its Material Subsidiaries
and the same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within 30 days
from the date of entry thereof and Guarantor or such Material Subsidiary shall
not, within said period of 30 days, or such longer period during which execution
of the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(f) (i) Any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or any
lien in favor of the PBGC or a Plan shall arise on the assets of Guarantor or
any ERISA Affiliate; (ii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the reasonable
opinion of Bank, likely to result in the termination of such Plan for purposes
of Title IV of ERISA; (iii) any Plan shall terminate for purposes of Title IV of
ERISA; or (iv) Guarantor or any ERISA Affiliate shall, or in the reasonable
opinion of Bank is likely to, incur any liability in connection with a
withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan;
and in each case in clauses (i) through (iv) above, such event or condition,
together with all other such events or conditions, if any, could reasonably be
expected to have a material adverse effect on the consolidated
<PAGE>E-15
financial condition or operations, taken as a whole of Guarantor and its
consolidated Subsidiaries; or
(g) This Agreement shall cease, for any reason, to be in full force and
effect or Guarantor shall so assert; or
(h) Any bank Subsidiary of Guarantor which is a Material Subsidiary
shall cease accepting deposits or making commercial loans on the instruction of
any federal, state or other regulatory body with authority to give such
instruction other than pursuant to any instruction applicable to national banks
generally or a substantial portion thereof or banks located in a particular
state or substantial portion thereof; or
(i) The Comptroller of the Currency shall, pursuant to 12 U.S.C.Section
55 or any successor statute, notify any bank Subsidiary of Guarantor which is a
Material Subsidiary and a national bank, or any other federal or state
regulatory authority having jurisdiction to regulate any other bank Subsidiary
of Guarantor which is a Material Subsidiary shall, pursuant to any comparable
federal or state statute, notify such other bank Subsidiary, that such bank
Subsidiary's capital stock has become impaired; or any bank Subsidiary of
Guarantor which is a Material Subsidiary shall cease to be an insured bank under
the Federal Deposit Insurance Act, as amended, and the rules and regulations
promulgated thereunder; or
(j) Any Insured Subsidiary of Guarantor as of the date hereof shall be
required (whether or not the time allowed by the appropriate federal banking
agency for the submission of such plan has been established or elapsed) to
submit a capital restoration plan of the type referred to in 12 U.S.C.Section
1831o(b)(2)(C), as amended, reenacted or redesignated from time to time; or
<PAGE>E-16
(k) Guarantor shall guarantee in writing (voluntarily or otherwise) the
capital of any Insured Subsidiary of Guarantor as of the date hereof as part of
or in connection with any agreement or arrangement with any appropriate Federal
Banking agency;
then, and in any such event, (A) if such event is a Guarantor Event of Default
specified in clause (i) or (ii) of paragraph (d) of this Section 5 with respect
to Guarantor, automatically the ESOP Loan (with accrued interest thereon) and
all other amounts owing to Bank under the ESOP Loan Agreement shall immediately
become due and payable, and (B) if such event is any other Guarantor Event of
Default, Bank may, by notice to the Borrower and Guarantor, declare the ESOP
Loan (with accrued interest thereon) and all other amounts owning to Bank under
the ESOP Loan Agreement to be due and payable forthwith, whereupon the same
shall immediately become due and payable. Presentment, demand, protest and all
other notices of any kind are hereby expressly waived by Guarantor.
6. Purchase Obligation. Upon the occurrence of a Guarantor Event of Default
or an Event of Default under the ESOP Loan Agreement, in addition to the other
rights and remedies of Bank hereunder and under the ESOP Loan Agreement,
Guarantor shall, upon demand of Bank, immediately purchase the ESOP Loan from
Bank for the then outstanding principal balance thereof and all unpaid accrued
interest thereon plus all other amounts due thereunder, in which case Bank shall
assign the ESOP Note to Guarantor without recourse and shall assign the ESOP
Loan Agreement and the Collateral to Guarantor without representation or
warranty except as to Bank's ownership of such documents.
7. Termination. This Agreement shall terminate and be of no further force
or effect upon the payment in full of all of the Obligations and termination of
Bank's obligations under the
<PAGE>E-17
ESOP Loan Agreement, provided that this Agreement shall continue to be effective
or be reinstated (as the case may be) if at any time payment of any of the
Obligations is refunded or must otherwise be returned by Bank upon the
bankruptcy, arrangement, reorganization or similar proceeding for relief of
debtors under state or federal law, all as though such payment had not been
made.
8. Miscellaneous.
(a) This Agreement shall be binding upon Guarantor and Guarantor's
successors and assigns and shall inure to the benefit of Bank and its successors
and assigns.
(b) Any notice, demand or request under this Agreement shall be in
writing, and shall be delivered by personal service or shall be sent by postage
prepaid, first class mail, addressed, if to Guarantor or Bank, at the respective
address set forth in the heading of this Agreement, or at such other address as
the addressee may designate in writing. Each notice, demand or request hereunder
shall be deemed given on the date it is delivered, in the case of personal
service, or the date it is deposited with the Postal Service, in the case of
first class mail.
(c) No amendment, modification or release from or waiver of any
provision hereof shall be effective unless in writing and signed by Bank and
shall be effective only in the specific instance and for the specific purpose
for which given.
(d) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>E-18
(e) This Agreement and the rights and obligations hereunder shall be
construed in accordance with and governed by the substantive laws of the
Commonwealth of Pennsylvania, without regard to principles of conflicts of law.
(f) The paragraph headings used herein are for convenience only and do
not affect or modify the terms and conditions hereof.
(g) If any provision hereof is found by a court of competent
jurisdiction to be prohibited or unenforceable it shall be ineffective only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of Bank in
order to effect the provisions hereof.
9. Definitions. In addition to other words and terms defined herein or in
the ESOP Loan Agreement, the following words and terms shall have the following
meanings:
"Debt Service" for any applicable period shall mean (a) the aggregate
amount of scheduled mandatory payments of principal of the ESOP Loan due in such
period plus (b) the aggregate amount of interest, fees and other charges in
respect of the ESOP Loan accrued in such period plus (c) the aggregate amount of
scheduled payments of principal and interest due or accrued in such period under
the Subordinated Notes plus (d) the aggregate amount of scheduled payments of
principal and interest due or accrued in such period under any other
Indebtedness of Guarantor.
"ERISA Affiliate" shall mean any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as
<PAGE>E-19
the Company or Guarantor or is under common control (within the meaning of
Section 414(c) of the Code) with the Company or Guarantor.
"Guarantor Default" shall mean a Guarantor Event of Default or an event
which with notice or lapse of time or both would become a Guarantor Event of
Default.
"Guarantor Event of Default" shall mean any of the events specified in
Section 5, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Indebtedness shall mean, as to any Person, (without duplication) (i) all
indebtedness and other obligations of such Person for borrowed money (including,
bonds, debentures, notes and other similar instruments and the sale of property
to another Person subject to an understanding or agreement contingent or
otherwise to repurchase such property from such Person) or for the purchase
price of any fixed or capital assets other than indebtedness under nonrecourse
leases or leveraged leases or similar nonrecourse transactions undertaken in the
ordinary course of business, (ii) all indebtedness and other obligations of
other Persons for borrowed money or for the purchase price of any fixed or
capital assets in respect of which such Person is liable, contingently or
otherwise, to pay or advance money or property as guarantor, endorser or
otherwise (except as endorser for collection in the ordinary course of
business), or which such Person has agreed to purchase or otherwise acquire, and
(iii) capitalized lease obligations of such Person.
"Indenture" shall mean that certain Indenture dated , 1993 between
Guarantor and United Jersey Bank, as Trustee, related to the Subordinated Notes
of Guarantor.
<PAGE>E-20
"Insured Subsidiary" shall mean as to Guarantor, any insured depositary
institution (as defined in 12 U.S.C. Section 1813(c) (or any successor
provision), as amended, re-enacted or redesignated from time to time) that is
controlled (within the meaning of 12 U.S.C. Section 1841 (or for any successor
provision), as amended, reenacted or redesignated from time to time) by
Guarantor.
"Loan Reserves" shall mean the aggregate amount of loan loss reserves
maintained on the books of Guarantor and its consolidated Subsidiaries and
determined in accordance with generally accepted accounting principles
consistently applied.
"Material Subsidiary" shall mean the Subsidiaries of Guarantor listed in
Schedule 1 hereto and any Subsidiary now or at any time hereafter meeting any
one of the following conditions: (a) the assets of such Subsidiary, or the
investments in or advances to such Subsidiary by Guarantor and other
Subsidiaries, exceed 5% of the aggregate assets appearing on the consolidated
balance sheet of Guarantor and its consolidated Subsidiaries for the most
recently ended fiscal year or (b) if positive, the net income of such Subsidiary
for the fiscal year of Guarantor most recently ended exceeds 5% of the total
consolidated net income of Guarantor and its consolidated Subsidiaries for such
fiscal year, or (c) the equity of such Subsidiary for the fiscal year of
Guarantor most recently ended exceeds 5% of the total consolidated equity of
Guarantor and its consolidated Subsidiaries for such fiscal year, or (d) such
Subsidiary has one or more Subsidiaries and together therewith would, if
considered in the aggregate, constitute a Material Subsidiary within the terms
of subdivisions (a), (b) and (c) hereof.
<PAGE>E-21
"Multiemployer Plan" shall mean a plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Company, Guarantor or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Interest Income" at any time shall mean the "net interest income" of
Guarantor and its consolidated Subsidiaries determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Non-Interest Income" at any time shall mean the "non-interest income" of
Guarantor and its consolidated Subsidiaries determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Non-Interest Expenses" at any time shall mean the "non-interest expenses"
of Guarantor and its consolidated Subsidiaries determined on a consolidated
basis in accordance with generally accepted accounting principles; provided,
that to the extent that any contributions to the Trust to pay principal,
interest and other amounts on the ESOP Loan are counted in determining Debt
Service, such contributions shall not be counted in determining Non-Interest
Expenses (i.e., such contributions shall not be "double counted" for purposes of
Section 4(d)(iii) hereof).
"Non-Performing Assets" shall mean (a) assets consisting of all loans and
lease financing receivables which are not performing as to principal or
interest, including, without limitation, loans and lease financing receivables
which are more than 90 days past due, nonaccrual loans and lease financing
receivables, restructured loans and foreclosed properties, as such terms are
defined in the Federal Reserve System's Reporting Form FR-Y9C (or any successor
form) and (b) (without duplication) all "other real estate owned" as shown on
the books of Guarantor and
<PAGE>E-22
its consolidated Subsidiaries and determined in accordance with generally
accepted accounting principles consistently applied.
"Permitted Investments" shall mean any of the following, to the extent
acquired for investment and not with a view to achieving trading profits: (a)
obligations fully backed by the full faith and credit of the United States of
America maturing not in excess of 60 months from the date of acquisition, (b)
commercial paper maturing not in excess of 9 months from the date of acquisition
and rated "P-1" by Moody's Investors Service or "A-1" by Standard & Poor's
Corporation on the date of acquisition, (c) the following obligations of any
domestic commercial bank having capital and surplus in excess of $500,000,000,
which has, or the holding company of which has, a commercial paper rating
meeting the requirements specified in clause (b) above: (i) time deposits,
certificates of deposit and acceptances maturing not in excess of nine months
from the date of acquisition, or (ii) repurchase obligations with a term of not
more than 90 days for underlying securities of the type referred to in clause
(a) above, and (d) mutual funds investing exclusively in the items described in
clauses (a), (b) and (c) hereof.
"Plan" shall mean an employee benefit or other plan established or
maintained by the Company, Guarantor or any ERISA Affiliate and which is covered
by Title IV of ERISA, other than a Multiemployer Plan.
"Responsible Officer" shall mean the Chairman, the President, the Chief
Executive Officer, each Vice President, the Secretary and Treasurer of
Guarantor.
"Subordinated Notes" shall mean the % Subordinated Notes due , 2003 of
Guarantor, issued pursuant to the Indenture.
<PAGE>E-23
"Subsidiary" shall mean any corporation of which at least a majority of the
outstanding shares of stock having by the terms thereof ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason or the happening of
any contingency) is at the time directly or indirectly owned or controlled by
Guarantor or one or more of its Subsidiaries or by Guarantor and one or more of
its Subsidiaries.
"Total Assets" at any time shall mean the "total assets" of Guarantor and
its consolidated Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Total Equity" at any time shall mean the "total equity" of Guarantor and
its consolidated Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles.
IN WITNESS WHEREOF, Guarantor has caused this Agreement to be duly executed
as of the day and year first above written.
[Corporate Seal] COMMERCE BANCORP, INC.
Attest
By
Title
Title
<PAGE>
Schedule 1
to Guaranty
[Material Subsidiaries]
1. Commerce Bank, N.A.
2. Commerce Bank/Pennsylvania, N.A.
3. Commerce Bank/Shore, N.A.
Exhibit No. 11.1
Commerce Bancorp, Inc. and Subsidiaries
Computation of Net Income Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31,
1994 1993 1992
<S> <C> <C> <C>
Primary Net Income Per Share
Adjustment of income:
Net income $20,377 $14,615 $10,017
Preferred stock dividends 1,074 1,574 1,574
----- ----- -----
Adjusted net income applicable to
common stock $19,303 $13,041 $8,443
======= ======= ======
Average shares of common stock and equivalents outstanding:
Average common shares outstanding 8,182 7,370 6,295
Common stock equivalents - dilutive
options 291 204 126
--- --- ---
Average shares of common stock and
equivalents outstanding 8,473 7,574 6,421
===== ===== =====
Net income per share of common stock $2.28 $1.72 $1.31
===== ===== =====
Fully Diluted Net Income Per Share
Net income applicable to common stock
on a fully diluted basis $20,377 $14,615 $10,017
Less: additional ESOP contribution
under the if-converted method 139 187
--- ---
Adjusted net income applicable to
common stock on a fully diluted basis $20,238 $14,428 $10,017
======= ======= =======
Average number of shares outstanding on a fully
diluted basis:
Average common shares outstanding 8,182 7,370 6,295
Additional shares considered in fully
diluted computation assuming:
Exercise of stock options 330 203 195
Conversion of preferred stock 1,131 1,507 1,508
----- ----- -----
Average number of shares outstanding
on a fully diluted basis 9,643 9,080 7,998
===== ===== =====
Fully diluted net income per share of
common stock $2.10 $1.59 $1.25
===== ===== =====
</TABLE>
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA
Year Ended December 31,
(dollars in thousands, except per share data )
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income $90,534 $69,725 $51,499 $38,425 $36,045
Provision for loan losses 4,210 5,981 6,286 5,541 5,095
Noninterest income 17,534 17,344 12,129 14,073 9,230
Noninterest expense 71,863 57,873 42,889 38,933 34,841
Income before income taxes 31,995 23,215 14,453 8,024 5,339
Net income 20,377 14,615 10,017 6,027 4,344
Balance Sheet Data:
Total assets $2,291,290 $2,032,556 $1,425,707 $1,057,754 $934,343
Loans (net) 789,916 691,339 602,129 569,381 547,289
Securities available for sale 118,855 164,620 309,894
Securities held to maturity 1,145,133 926,155 293,201 343,146 186,583
Federal funds sold 9,750 10,000 50,550 16,750 80,300
Deposits 1,834,572 1,744,915 1,335,618 987,053 866,940
Long-term debt 28,385 28,954 6,520 7,034 7,500
Stockholders' equity 111,873 99,176 81,916 58,170 54,262
Per Share Data:
Net income-primary $2.28 $1.72 $1.31 $0.82 $0.52
Net income-fully diluted 2.10 1.59 1.25
Cash dividends 0.58 0.45 0.38 0.36 0.70
Book value 12.46 11.02 9.53 8.42 7.78
Average shares outstanding:
Primary 8,473 7,574 6,421 5,427 5,374
Fully diluted 9,643 9,080 7,998
Selected Ratios:
Performance
Return on average assets 0.91% 0.84% 0.78% 0.61% 0.52%
Return on average equity 19.35 16.51 14.40 11.00 7.73
Net interest margin 4.43 4.40 4.46 4.41 5.04
Liquidity and Capital
Average loans to average
deposits 42.35% 42.52% 50.06% 61.57% 71.48%
Dividend payout 25.60 26.05 29.32 44.24 134.56
Stockholders' equity to
total assets 4.88 4.88 5.75 5.50 5.81
Risk-based capital:
Tier 1 10.09 9.16 9.66 7.76 7.88
Total 13.31 12.44 10.75 9.05 8.94
Leverage capital 4.87 4.53 5.53 5.08 5.46
Asset Quality
Non-performing assets to
total year-end assets 0.97% 1.32% 2.26% 2.26% 1.88%
Net charge-offs to average
loans outstanding 0.29 0.88 1.06 0.58 0.41
Non-performing loans to
total year-end loans 1.47 1.22 2.67 2.72 2.59
Allowance for loan losses
to total year-end loans 1.50 1.43 1.45 1.54 1.20
Allowance for loan losses
to non-performing loans 101.81 117.37 54.20 56.63 46.33
</TABLE>
<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 the Company's
consolidated balance sheets and statements of income. This section should be
read in conjunction with the Company's consolidated financial statements and
accompanying notes.
1994 Overview
With the continued strength of the economy in 1994, the Company posted increases
in deposits and assets, and significant improvement in net income. The increase
in net income was due to a significant increase in net interest income, as well
as reduced loan loss provisions, which offset increased overhead expenses. Loan
growth increased 14% for 1994. At December 31, 1994, the Company had total
assets of $2.3 billion, total loans of $802.0 million, and total investment
securities of $1.3 billion. During 1994, investment securities increased $173.3
million and the loan portfolio increased $100.6 million. At December 31, 1994
total deposits aggregated $1.8 billion, up $90.0 million from year-end 1993.
Short-term borrowings increased $177.9 million during 1994. As of December 31,
1994, the loan to deposit ratio was 44% as compared to 43% at year-end 1993.
Average Balances and Net Interest Income
The table on page 17 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1994, 1993, and 1992 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on
liabilities for such periods. During 1994, average interest earning assets
totaled $2.05 billion, an increase of $454.8 million, or 29%, over 1993. This
increase resulted primarily from the increase in the average balance of
investment securities, which rose $388.7 million, and the increase in the
average balance of loans, which rose $92.0 million. The growth was funded by an
increase in the average balance of deposits of $223.1 million and higher average
short-term borrowings which increased by $231.2 million. The tax equivalent
yield on interest earning assets was 7.24%, an increase of six basis points from
7.18% in 1993. The increase resulted primarily from the lengthening in the
average life of the investment portfolio due to the decreased rate of
prepayments caused by the rise in general market interest rates in 1994.
Yield 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, the average life of 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 6.41% during 1994. The average interest rate on the Company's repurchase
agreements was 4.34% during this same period. The increased use of short-term
borrowings and the reinvestment of the proceeds in higher yielding U.S.
Government agency mortgage-backed securities had a beneficial effect on net
interest income in 1994. The rate on short-term borrowings at year end 1994 was
higher than the average rate during the year. Unless the rate declines below the
1994 average rate, the benefit from the reinvestment of the proceeds from the
short-term borrowings will decrease during 1995.
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 1994 was $90.9 million, an
increase of $20.7 million, or 30%, over 1993. Interest income on a
tax-equivalent basis increased to $148.4 million from $114.4 million, or 30%.
This increase was primarily related to volume increases in the investment
portfolio.
Interest expense for 1994 rose $13.2 million to $57.5 million, from $44.3
million, or 30%. This increase was attributable to higher levels of short-term
borrowings and, to a lesser extent, increased deposit volumes. The cost of
interest-bearing liabilities was 2.81%, an increase of three basis points from
2.78% for the prior year.
Net interest margin on a tax-equivalent basis was 4.43% for 1994,
an increase of three basis points from 1993.
The following table presents the major factors that contributed to the changes
in net interest income for the years ended December 31, 1994 and 1993 as
compared to the respective previous periods.
<PAGE>
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1)
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Interest on:
Investments
Taxable $25,096 $453 $25,549 $24,860 $(4,790) $20,070
Tax exempt (318) 36 (282) (397) 44 (353)
Federal funds sold (1,023) 518 (505) (577) (320) (897)
Interest on loans:
Mortgages & construction 5,197 (390) 4,807 1,768 179 1,947
Commercial (468) 1,797 1,329 1,299 (998) 301
Consumer 3,167 (222) 2,945 1,840 (807) 1,033
Tax exempt 98 (5) 93 (125) (24) (149)
------ ------ ------ ------ ------ -----
Total interest income 31,749 2,187 33,936 28,668 (6,716) 21,952
------ ------ ------ ------ ------ -----
Interest expense:
Regular savings 1,501 (1,647) (146) 2,862 (3,728) (866)
N.O.W. accounts 1,042 (465) 577 1,514 (1,664) (150)
Money market plus 908 (152) 756 11 (840) (829)
Time deposits 2,465 (1,164) 1,301 3,297 (2,396) 901
Public funds (2,413) 1,062 (1,351) 1,559 (661) 898
Other borrowed money 10,035 926 10,961 3,000 3,000
Long-term debt 1,095 1,095 930 930
------ ------ ------ ------ ------ -----
Total interest expense 14,633 (1,440) 13,193 13,173 (9,289) 3,884
------ ------ ------ ------ ------ -----
Net increase $17,116 $3,627 $20,743 $15,495 $2,573 $18,068
======= ====== ======= ======= ====== =======
<FN>
(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.
</FN>
</TABLE>
Noninterest Income
For 1994, noninterest income totaled $17.5 million, an increase of $200 thousand
from 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 securities gain of $641 thousand resulted
from the sale of equity securities. 1993 securities gains of $3.0 million
resulted from the sale of debt securities from the Company's available for
sale portfolio. Excluding these securities gains, noninterest income increased
$2.5 million, or 17%, as compared to 1993.
Noninterest Expenses
Noninterest expenses totaled $71.9 million for 1994, an increase of $14.0
million, or 24%, over 1993. Contributing to this increase was the full year
impact of the acquisitions of four branch offices in July 1993 and three branch
offices in September 1993. As a result of the addition of these acquired offices
plus four other branch openings, staff, facilities, and related expenses rose
accordingly.
One key measure used to monitor progress in controlling overhead expenses is the
ratio of noninterest expenses to average assets. This ratio equaled 3.22%,
3.31%, and 3.35% in 1994, 1993, and 1992, respectively. Another productivity
measure is the operating efficiency ratio. This ratio expresses the relationship
of noninterest expenses (excluding other real estate expenses) to net interest
income plus noninterest income (excluding non-recurring gains). Over the last
three years, this ratio has improved to 63.98% in 1994 from 64.11% and 64.53% in
1993 and 1992, respectively. A comparison to the prior year of the noninterest
expense category is described below.
Salary expenses of $22.8 million for 1994 were $4.1 million or 22% higher than
1993. This increase was mainly a result of the 14% increase in the number of
full-time equivalent (FTE) employees from 1,017 at year-end 1993 to 1,158 at
year-end 1994. The increase in the number of FTE employees was primarily the
result of the branch expansion activities during 1994.
Employee benefits for 1994 totaled $6.6 million, an increase of $1.7 million, or
36%, over 1993. 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 $7.8 million for 1994, an increase of $1.9 million,
or 32%, as compared to the prior year. This increase was due to the increased
branch facilities, depreciation and maintenance costs.
Furniture and equipment expenses of $8.3 million for 1994 were $2.0 million, or
33%, higher than 1993. This increase was due to new branch facilities and the
ongoing refurbishment of existing offices.
Office expenses of $6.3 million were $1.6 million, or 34%, greater than the
prior year. This increase was due to increased telecommunications, stationery
and supplies, and other office expenses related to the expanded facilities.
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(dollars in thousands) Average Average Average Average Average Average
Earning Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Taxable $1,271,537 $81,473 6.41% $879,864 $55,925 6.36% $488,751 $35,855 7.34%
Tax-exempt 828 90 10.87 3,758 372 9.90 7,769 725 9.33
------- ------ ---- ------- ------ ---- ------- ------ ----
Total investment securities 1,272,365 81,563 6.41 883,622 56,297 6.37 496,520 36,580 7.37
Federal funds sold 25,819 1,020 3.95 51,718 1,524 2.95 71,310 2,421 3.40
Loans
Mortgage and construction 438,269 39,236 8.95 380,222 34,432 9.06 360,702 32,485 9.01
Commercial 124,343 10,897 8.76 129,687 9,565 7.38 112,078 9,264 8.27
Consumer 177,506 14,689 8.28 139,237 11,744 8.43 117,422 10,711 9.12
Tax-exempt 9,610 954 9.93 8,626 861 9.98 9,874 1,010 10.23
------- ------ ---- ------- ------ ---- ------- ------ ----
Total loans 749,728 65,776 8.77 657,772 56,602 8.61 600,076 53,470 8.91
------- ------ ---- ------- ------ ---- ------- ------ ----
Total earning assets $2,047,912 $148,359 7.24% $1,593,112 $114,423 7.18% $1,167,906 $92,471 7.92%
========== ======== ==== ========== ======== ==== ========== ======= ====
Sources of Funds
Interest-bearing
liabilities
Regular savings $510,108 $11,945 2.34% $446,013 $12,091 2.71% $340,454 $12,957 3.81%
N.O.W. accounts 315,427 5,952 1.89 260,177 5,375 2.07 186,889 5,525 2.96
Money market plus 159,313 3,870 2.43 121,666 3,114 2.56 121,225 3,943 3.25
Time deposits 386,864 16,004 4.14 327,270 14,702 4.49 253,870 13,801 5.44
Public funds 92,615 3,702 4.00 152,994 5,054 3.30 105,787 4,156 3.93
------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits 1,464,327 41,473 2.83 1,308,120 40,336 3.08 1,008,225 40,382 4.01
Other borrowed money 321,598 13,962 4.34 90,442 3,000 3.32
Long-term debt 23,000 2,025 8.80 10,712 930 8.68
------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits and
interest-bearing
liabilities 1,808,925 57,460 3.18 1,409,274 44,266 3.14 1,008,225 40,382 4.01
Noninterest-bearing
funds(net) 238,987 183,838 159,681
Total sources to fund
earning assets $2,047,912 57,460 2.81 $1,593,112 44,266 2.78 $1,167,906 40,382 3.46
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
Net interest income and
margin tax equivalent
basis 90,899 4.43 70,157 4.40 52,089 4.46
Tax-exempt adjustment 365 432 590
------- ------ ---- ------- ------ ---- ------- ------ ----
Net interest income
and margin $90,534 4.42% $69,725 4.38% $51,499 4.41%
========== ======== ==== ========== ======== ==== ========== ======= ====
Other Balances
Cash and due from banks $91,949 $76,422 $59,723
Other assets 103,554 88,612 61,859
Total assets 2,232,052 1,747,989 1,280,097
Demand deposits
(noninterest-bearing) 305,837 238,972 190,499
Other liabilities 11,961 11,237 11,793
Stockholders' equity 105,330 88,506 69,580
======= ====== ======
<FN>
Notes
- Weighted average yields on tax-exempt obligations have been computed on a
tax equivalent basis assuming a federal tax rate of 35% for 1994 and 1993,
and 34% for 1992.
- 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.
</FN>
</TABLE>
<PAGE>
Audit and regulatory fees and assessments totaled $4.9 million for 1994, an
increase of $900 thousand, or 21%, over 1993. This increase was primarily due to
increased deposits and associated Federal deposit insurance premiums on such
deposits.
Marketing expense totaled $2.7 million for 1994, an increase of $900 thousand,
or 53%, over 1993. This increase was due to costs associated with the opening of
new facilities and the related new markets, special promotional activities, and
direct marketing campaigns undertaken in 1994.
Other real estate expenses totaled $3.1 million for 1994, a decrease of $800
thousand over 1993. This decrease was consistent with the decrease in the other
real estate portfolio.
Other noninterest expenses totaled $9.3 million for 1994, an increase of $1.7
million, or 22%, from 1993. This increase was the result of higher loan
expenses, amortization of intangible assets, legal fees, provisions for
non-credit-related losses, and banking service charges.
Income Taxes
The provision for federal and state income taxes for 1994 was $11.6 million as
compared to $8.6 million in 1993 and $4.4 million in 1992.
The increase in 1994 total tax expense was primarily the result of a significant
increase in operating income. The effective tax rate was 36.3%, 37.1%, and 30.7%
in 1994, 1993, and 1992, respectively.
Net Income
Net income for 1994 was $20.4 million, an increase of $5.8 million, or 39%, over
the $14.6 million recorded for 1993. This increase was due to a significant
increase in net interest income, as well as reduced loan loss provisions, which
offset increased overhead expenses.
Fully diluted net income per share of common stock for 1994 was $2.10 as
compared to $1.59 per common share for 1993, an increase of 32%.
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 profitability. For 1994,
the Company's ROA was .91% as compared to .84% in 1993. 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. For 1994, the Company's
ROE was 19.35% as compared to 16.51% for 1993.
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 1994 through 1990.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial real estate:
Owner-occupied $151,420 $157,452 $146,739 $127,398 $119,919
Other 175,260 136,819 117,743 107,178 97,608
Construction 51,042 45,926 39,555 41,280 51,933
------ ------ ------ ------ ------
377,722 340,197 304,037 275,856 269,460
Commercial:
Term 87,128 91,336 86,666 79,972 75,509
Line of credit 48,489 36,928 26,837 32,327 33,051
Demand 262 404 1,075 2,510 2,862
--- --- ----- ----- -----
135,879 128,668 114,578 114,809 111,422
Consumer:
Mortgages(1-4 family
residential) 83,484 71,583 67,454 77,285 76,560
Installment 109,949 74,684 54,541 45,162 39,817
Home equity 87,518 78,619 63,537 56,704 50,077
Credit lines 7,400 7,611 6,821 8,464 6,589
----- ----- ----- ----- -----
288,351 232,497 192,353 187,615 173,043
------- ------- ------- ------- -------
Total loans $801,952 $701,362 $610,968 $578,280 $553,925
======== ======== ======== ======== ========
</TABLE>
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 con-
<PAGE>
struction loans. Owner-occupied and other commercial real estate loans have
five-year call provisions, 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 secured by business assets, personal guarantees, and/or personal
assets of the borrower. The consumer loan portfolio is comprised primarily of
loans secured by first and second mortgage liens on residential real estate.
Such loans comprised approximately 87% of consumer loans at December 31, 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
December 31, 1994, are summarized in the following table.
<TABLE>
<CAPTION>
December 31, 1994
Due In One Due In One To Due In Over
Year Or Less Five Years Five Years Total
<S> <C> <C> <C> <C>
(dollars in thousands)
Real estate:
Commercial $51,851 $256,145 $18,684 $326,680
Construction 39,627 10,847 568 51,042
------ ------ --- ------
91,478 266,992 19,252 377,722
Commercial:
Term 30,974 51,540 4,614 87,128
Line of credit 46,473 2,016 48,489
Demand 262 262
------ ------ --- ------
77,709 53,556 4,614 135,879
Consumer:
Mortgages
(1-4 family
residential) 4,413 30,416 48,655 83,484
Installment 28,240 40,285 41,424 109,949
Home equity 5,834 23,338 58,346 87,518
Credit lines 2,879 4,521 7,400
------ ------ --- ------
41,366 98,560 148,425 288,351
------ ------ ------- -------
Total loans $210,553 $419,108 $172,291 $801,952
======== ======== ======== ========
Interest rates:
Predetermined $60,453 $239,074 $95,952 $395,479
Floating 150,100 180,034 76,339 406,473
------- ------- ------ -------
Total loans $210,553 $419,108 $172,291 $801,952
======== ======== ======== ========
</TABLE>
During 1994, loans increased $100.6 million, or 14%, from $701.4 million to
$802.0 million. At December 31, 1994, loans represented 44% of total deposits
and 35% 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. The
Company has traditionally been an acting provider of commercial real estate
loans to creditworthy local borrowers, with such loans secured by properties
within the Company's primary trade area. At December 31, 1994, $151.4 million,
or 46%, of commercial real estate loans (other than construction) were secured
by owner-occupied properties.
Commercial real estate construction loans increased $5.1 million to $51.0
million in 1994. At December 31, 1994, construction loans for 1-4 family
residential dwellings totaled $3.3 million and construction loans secured by
commercial properties amounted to $18.9 million. The balance of $28.8 million
was for land development, of which $25.9 million was residential. As of December
31, 1994, 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
With stabilized local economic conditions and local real estate values, the
Company's asset quality showed continued improvement in 1994. Non-performing
assets (non-performing loans and other real estate, excluding loans past due 90
days or more and still accruing interest) at December 31, 1994 were $22.3
million, or .97% of total assets, as compared to $26.9 million, or 1.32% of
total assets, at December 31, 1993.
Total non-performing loans (non-accrual loans and restructured loans, excluding
loans past due 90 days or more and still accruing interest) at December 31, 1994
were $11.8 million as compared to $8.5 million a year ago. 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 December 31, 1994, loans past due 90 days or more
and still accruing interest amounted to $211 thousand, down from $272 thousand
at December 31, 1993. Additional loans considered as potential problem loans
($7.0 million at December 31, 1994 and
<PAGE>
$7.7 million at December 31, 1993) 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, 1994 totaled $10.5 million as compared
to $18.3 million a year ago. These properties have been written down to the
lower of cost or fair value less disposition costs.
The Company has on an ongoing basis updated 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 or appropriate
additions to the allowance for loan losses.
The following summary presents information regarding non-performing loans and
assets as of December 31, 1994 through 1990.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1):
Commercial $1,624 $2,348 $5,943 $3,669 $3,211
Consumer 1,427 1,676 1,678 1,778 498
Real estate
Construction 955 866 1,666 3,555 2,282
Mortgage 7,240 3,482 7,022 6,674 8,045
----- ----- ----- ----- -----
Total non-accrual loans 11,246 8,372 16,309 15,676 14,036
------ ----- ------ ------ ------
Restructured loans (1):
Commercial 143 84 37 84
Consumer 29
Real estate
Construction
Mortgage 404 84 203
------ ----- ------ ------ ------
Total restructured loans 576 168 37 287
Total non-performing loans 11,822 8,540 16,309 15,713 14,323
------ ----- ------ ------ ------
Other real estate 10,517 18,325 16,102 8,326 3,373
------ ------ ------ ----- -----
Total non-performing
assets $22,339 $26,865 $32,411 $24,039 $17,696
======= ======= ======= ======= =======
Non-performing assets as
a percent of total assets 0.97% 1.32% 2.26% 2.26% 1.88%
==== ==== ==== ==== ====
Loans past due 90 days or
more and still accruing
interest $211 $272 $1,202 $787 $1,508
==== ==== ====== ==== ======
<FN>
(1) Interest income of approximately $1,246,000, $639,000, $1,580,000,
$1,939,000, and $1,948,000 would have been recorded in 1994, 1993, 1992,
1991, and 1990, respectively, on non-performing loans in accordance with
their original terms. Actual interest recorded on these loans amounted to
$317,000 in 1994, $270,000 in 1993, $513,000 in 1992, $370,000 in 1991, and
$878,000 in 1990.
</FN>
</TABLE>
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.
During 1994, net charge-offs amounted to $2.2 million, or .29%, of average loans
outstanding for the year, compared to $5.8 million, or .88%, of average loans
outstanding for 1993. During 1994, the Company recorded provisions of $4.2
million to the allowance for loan losses compared to $6.0 million for 1993. At
December 31, 1994, the allowance aggregated $12.0 million, or 1.50%, of total
loans and provided coverage of 102% of non-performing loans.
<PAGE>
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Balance at beginning of period $10,023 $8,839 $8,899 $6,636 $3,787
Provisions charged
to operating expenses 4,210 5,981 6,286 5,541 5,095
----- ----- ----- ----- -----
14,233 14,820 15,185 12,177 8,882
Recoveries of loans
previously charged-off:
Commercial 22 213 102 129 107
Consumer 100 295 69 69 67
Real estate 123 112 42 3 6
----- ----- ----- ----- -----
Total recoveries 245 620 213 201 180
----- ----- ----- ----- -----
Loans charged-off:
Commercial (375) (4,337) (1,997) (2,034) (1,124)
Consumer (1,517) (1,113) (788) (683) (434)
Real estate (550) (967) (3,774) (762) (868)
----- ----- ----- ----- -----
Total charged-off (2,442) (6,417) (6,559) (3,479) (2,426)
----- ----- ----- ----- -----
Net charge-offs (2,197) (5,797) (6,346) (3,278) (2,246)
----- ----- ----- ----- -----
Allowance for loan
losses acquired bank 1,000
----- ----- ----- ----- -----
Balance at end of period $12,036 $10,023 $8,839 $8,899 $6,636
======= ======= ====== ====== ======
Net charge-offs as a
percentage of average
loans outstanding 0.29% 0.88% 1.06% 0.58% 0.41%
==== ==== ==== ==== ====
Allowance for loan losses
as a percentage of year-
end loans 1.50% 1.43% 1.45% 1.54% 1.20%
==== ==== ==== ==== ====
</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.
<TABLE>
<CAPTION>
Allowance for Loan Losses at December
1994 1993 1992 1991 1990
% Gross % Gross % Gross % Gross %Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in
thousands)
Commercial $1,806 17% $2,008 18% $2,532 18% $2,470 20% $1,770 20%
Consumer 2,410 36 1,983 33 1,373 33 1,507 32 853 31
Real estate 7,820 47 6,032 49 4,934 49 4,922 48 4,013 49
$12,036 100% $10,023 100% $8,839 100% $8,899 100% $6,636 100%
</TABLE>
Investment Securities
The following table summarizes the book value of securities available for sale
and securities held to maturity by the Company as of the dates shown.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
(dollars in thousands)
U.S. Government agency
mortgage-backed obligations $116,167 $162,082 $309,894
Equity securities 2,688 2,538
-------- -------- --------
Securities available for sale $118,855 $164,620 $309,894
-------- -------- --------
U.S. Government agency
mortgage-backed obligations $1,113,359 $912,467 $269,479
Obligations of state and
political subdivisions 565 1,871 5,720
Corporate securities 2,297
Collateralized mortgage
obligations 2,390 5,083 10,588
Other 28,819 6,694 5,117
------ ----- -----
Securities held to maturity $1,145,133 $926,115 $293,201
========== ======== ========
</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. Beginning in 1994, these securities
are carried at fair value. Prior to 1994, these securities were carried at the
lower of cost or market. See Note 1 of "COMMERCE BANCORP, INC.'S NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS."
<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 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 or their principal and interest payments are guaranteed by an agency
of the U.S. Government. 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 December 31, 1994, the average life of the investment portfolio was
approximately 7.8 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
market interest rates during 1994. The Company's investment portfolio contained
no "high-risk" securities or derivatives as of December 31, 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" (FAS 115). Accordingly, the net unrealized losses in the available
for sale portfolio at December 31, 1994 of $4.3 million (net of taxes of $2.5
million) were recorded as an adjustment to stockholders' equity. FAS 115
mandates that investment securities classified as held to maturity be carried at
amortized cost. See Note 3 of "Commerce Bancorp, Inc.'s NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS" for information relating to market
values.
During 1994, new funds (primarily from short-term borrowings) were used
to increase the Company's securities held to maturity portfolio. Securities
held to maturity increased $219.0 million from $926.1 million to $1.1 billion.
Total securities increased $173.3 million from $1.1 billion to $1.3 billion.
During 1994, securities available for sale declined $45.7 million from $164.6
million to $118.9 million due primarily to prepayments.
The yield on the investment portfolio was 6.41% during 1994, an increase of four
basis points from 6.37% in fiscal 1993. The purchase of investment securities in
the lower interest rate
<TABLE>
<CAPTION>
December 31, 1994
Due Under Due Over
1 Year Due 1-5 Years Due 5-10 Years 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Securities available for sale:
U.S. Government agency
mortgage-backed obligations $6,684 7.61% $109,483 7.43% $116,167 7.44%
------ ---- -- ---- ------ ---- ------ ---- ------ ----
Securities held to maturity:
U.S. Government agency
mortgage-backed obligations $18,718 6.45% $18,587 6.71% $1,076,054 6.74% $1,113,359 6.73%
State and municipal bonds $304 7.05% 200 12.26 61 12.15 565 9.43
Collateralized mortgage
obligations 2,390 9.51 2,390 9.51
Other securities 13,773 4.94 10 5.52 973 9.61 14,063 6.22 28,819 5.73
------ ---- -- ---- --- ---- ------ ---- ------ ----
$14,077 4.99% $18,928 6.51% $19,621 6.87% $1,092,507 6.74% $1,145,133 6.71%
======= ==== ======= ==== ======= ==== ========== ==== ========== ====
</TABLE>
<PAGE>
environment in late 1993 and the first quarter of 1994 contributed to an initial
decline in the portfolio yield during the early portions of 1994. The increase
in general market interest rates throughout the remainder of 1994 slowed the
rate of prepayments on the mortgage-backed securities portfolio and resulted in
increased yields during the latter portion of 1994.
The contractual maturity distribution and weighted average yield of
the Company's investment portfolio (excluding equity securities) at December
31, 1994, are summarized in the preceding 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.
Deposits
Total deposits averaged $1.770 billion for 1994 an increase of $223.1 million,
or 14%, above the 1993 average. 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. All
of the $89.7 million increase in total deposits at year-end 1994 was in the
various core categories. The average balance of noninterest-bearing demand
deposits was $305.8 million, a $66.9 million or 28% increase over the average
balance for 1993. The average total balance of passbook and statement savings
accounts increased $64.1 million, or 14%, as compared to the prior year. The
average balance of interest-bearing demand accounts (money-market and N.O.W.
accounts) for 1994 was $474.7 million, a $92.9 million, or 24%, increase over
the average balance for the prior year. The average balance of time deposits for
1994 was approximately the same as the average balance for 1993.
For 1994, the total deposit cost was 2.34% 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.
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 1994, 1993, and 1992 are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Demand deposits:
Noninterest-bearing $305,837 $238,972 $190,499
Interest-bearing (money market
and N.O.W. accounts) 474,740 2.07% 381,843 2.22% 308,114 3.07%
Savings deposits 510,108 2.34 446,013 2.71 340,454 3.81
Time deposits 479,479 4.11 480,264 4.11 359,657 4.99
------- ---- ------- ---- ------- ----
Total deposits $1,770,164 $1,547,092 $1,198,724
========== ========== ==========
</TABLE>
The remaining maturity of certificates of deposit for $100,000 or more as of
December 31, 1994, 1993, and 1992 is presented below:
<TABLE>
<CAPTION>
Maturity 1994 1993 1992
(dollars in thousands)
<S> <C> <C> <C>
3 months or less $95,197 $125,430 $103,053
3 to 6 months 17,867 6,754 11,402
6 to 12 months 4,271 4,762 9,448
Over 12 months 400 600 667
-- --- --- ---
Total $117,735 $137,546 $124,570
======== ======== ========
</TABLE>
<PAGE>
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 December
31, 1994.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
December 31, 1994
1-90 91-180 181-365 1-5 Beyond
Days Days Days Years 5 Years Total
<S> <C> <C> <C> <C> <C> <C>
(dollars in millions)
Rate Sensitive:
Interest-earning assets
Loans $ 414.3 $11.2 $24.0 $249.9 $93.0 $792.4
Investment securities 31.6 17.9 35.3 253.3 925.9 1,264.0
Federal funds sold 9.7 9.7
----- ---- ---- ----- ------- -------
Total interest-earning
assets 455.6 29.1 59.3 503.2 1,018.9 2,066.1
----- ---- ---- ----- ------- -------
Interest-bearing liabilities
Transaction accounts 315.9 682.7 998.6
Time deposits 173.3 87.4 65.1 142.7 0.1 468.6
Other borrowed money 312.8 312.8
Long-term debt 23.0 23.0
----- ---- ---- ----- ------- -------
Total interest-bearing
liabilities 802.0 87.4 65.1 142.7 705.8 1,803.0
----- ---- ---- ----- ----- -------
Period gap (346.4) (58.3) (5.8) 360.5 313.1 $263.1
------ ----- ---- ----- ----- ------
Cumulative gap $(346.4) $(404.7) $(410.5) $(50.0) $263.1
======= ======= ======= ====== ======
Cumulative gap as a percentage of
total interest-earning assets (16.8)% (19.6)% (19.9)% (2.4)% 12.7%
===== ===== ===== ==== ====
</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. The Company's income simulation model
at year-end 1994 assumed that the interest rates on its transaction accounts
moved at approximately 30% of the movement in the federal funds rate (one of the
base rates against which the Company measures the movement of its deposit
rates). Therefore, the Company has included approximately 30% of its transaction
accounts in the 1-90 day category within its GAP table.
Based on its interest rate sensitivity analysis prepared as of December 31,
1994, it is projected that net interest income would be reduced by approximately
0.60%, as a result of a 100 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 sold under agreement to
repurchase.
<PAGE>
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.
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. In the event the
model indicates an unacceptable level of 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 interest rate swaps and caps, or the extension of the maturities of its
short-term borrowings. Although the Company's model indicated an acceptable
level of interest rate risk, the Company entered into interest-rate cap
agreements during the first quarter of 1995. The agreements are intended to
reduce the potential impact from a dramatic increase in interest rates. The
strike price of the agreements exceeds current market interest rates. The
agreements are for a notional amount of $200 million for a period of two years.
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. During 1994, repayments in the
investment portfolio were used to help fund growth in the loan portfolio and
were also reinvested in securities held to maturity. The purchase of securities
held to maturity 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.
Short-Term Borrowings
Short-term borrowings consist primarily of securities sold under agreements to
repurchase. These borrowings were used as an additional source of funding for
the investment portfolio and to fund loan growth during 1994. During 1994, the
average rate on the Company's repurchase agreements was 4.34%. Recent rises in
short-term interest rates have increased the cost of the repurchase agreements.
As of December 31, 1994, short-term borrowings aggregated $312.9 million and had
an average interest rate of 5.94%.
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 used for general corporate purposes, including additional capitalization of
existing banking subsidiaries.
Stockholders' Equity and Dividends
At December 31, 1994, stockholders' equity totaled $111.9 million, up $12.7
million, or 13%, over stockholders' equity of $99.2 million at December 31,
1993. This increase was primarily due to a significant increase in earnings for
the year. Stockholders' equity as a percent of total assets at both December 31,
1994 and December 31, 1993 was 4.88%.
Risk-based capital standards issued by bank regulatory authorities in the United
States were fully implemented on December 31, 1992. 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
<PAGE>
capital and total capital guidelines used previously. The following table
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
December 31, Requirements
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Risk-Based Capital Ratios:
Tier 1 10.09% 9.16% 4.00% 4.00%
Total 13.31 12.44 8.00 8.00
Leverage capital 4.87 4.53 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, 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,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
or "critically undercapitalized." At December 31, 1994, each of the Company's
banking subsidiaries met the regulatory definition of a "well capitalized"
financial institution, i.e., a leverage capital ratio exceeding 5%, 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 December 31, 1994
meet the regulatory definition of "adequately capitalized."
On February 15, 1995, the Company publicly issued 1,725,000 shares of common
stock. Net proceeds to the Company were $25.9 million. The proceeds are
earmarked for general corporate purposes, including providing additional equity
capital to the Company's bank subsidiaries to support the Company's branch
expansion growth strategy. As a result of the public offering, the Company's
consolidated capital levels at February 28, 1995 meet the regulatory definition
of "well capitalized."
The Company's common stock trades on the NASDAQ Stock Market under the symbol
COBA. The quarterly market price ranges and dividends declared per common share
for each of the last two years are shown in the table below. 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, and February 5, 1993. As
of February 28, 1995, there were approximately 2,700 holders of record of the
Company's common stock.
<TABLE>
<CAPTION>
Common Share Data
Sale Prices Cash Dividends
High Low Per Share
<S> <C> <C> <C>
1994 Quarter Ended
March 31 $16.42 $14.06 $0.1361
June 30 18.58 14.77 0.1429
September 30 22.63 17.86 0.1548
December 31 20.47 16.42 0.1548
1993 Quarter Ended
March 31 $15.42 $12.31 $0.1079
June 30 15.88 14.06 0.1133
September 30 16.09 14.06 0.1133
December 31 16.09 14.06 0.1133
</TABLE>
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.
Results of Operations - 1993 versus 1992
Earnings for 1993 were $14.6 million as compared to $10.0 million in 1992. Fully
diluted net income per common share was $1.59 as compared to $1.25 per common
share for the prior year.
Net interest income on
a tax-equivalent basis for 1993 amounted to $70.2 million, an increase of $18.1
million, or 35%, over 1992.
Interest income on a tax-equivalent basis increased $22.0 million, or 24%, to
$114.4 million in 1993. This increase was entirely related to volume increases
in investment securities which more than offset the effect of lower interest
rates prevalent during 1993. Interest expense for 1993 rose $3.9 million to
$44.3 million from $40.4 million in 1992. This 10% increase was attributable to
increased deposit volume which overshadowed the significant decline in interest
rates in 1993.
<PAGE>
The provision for loan losses was $6.0 million in 1993 compared to $6.3 million
in the prior year. The decrease in the provision for loan losses was associated
with the decrease in non-performing loans, and improved local economic
conditions and stabilized local real estate values.
Noninterest income for 1993 totaled $17.3 million, an increase of $5.2 million,
or 43%, from $12.1 million in 1992. Included in noninterest income for 1993 were
investment securities gains of $3.0 million. A comparison to the prior year of
the noninterest income categories follows below.
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 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 in 1993. Net
investment securities gains of $3.0 million were recognized in 1993 compared to
net gains of $249 thousand in 1992. Securities sales for 1992 were limited to
equity issues.
Noninterest 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. A comparison to the prior year of the
noninterest expense categories is described below.
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
full-time equivalent (FTE) employees from 771 at year-end 1992 to 1,017 at
year-end 1993. This increase in the number of FTE employees was primarily the
result of the branch expansion activities 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%, as compared to 1992. 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 were $1.2 million, or 36%, greater than 1992.
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.
Other noninterest expenses totaled $7.6 million for 1993, an increase of $2.0
million, or 36%, from 1992. This increase was the result of higher provisions
for non-credit-related losses, increased legal fees, and business travel and
entertainment expenses.
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1994 1993
<S> <C> <C>
Assets
Cash and due from banks $119,697 $95,725
Federal funds sold 9,750 10,000
----- ------
Cash and cash equivalents 129,447 105,725
Mortgages held for sale 2,263 43,151
Securities available for sale
(market value 1993 - $166,111) 118,855 164,620
Securities held to maturity 1,145,133 926,115
(market value 1994 - $1,039,311;
1993 - $920,724)
Loans 801,952 701,362
Less allowance for loan losses 12,036 10,023
------ ------
789,916 691,339
Bank premises and equipment, net 57,997 42,941
Other assets 47,679 58,665
------ ------
$2,291,290 $2,032,556
========== ==========
Liabilities
Deposits:
Demand:
Interest-bearing $510,345 $452,028
Noninterest-bearing 367,421 310,598
Savings 488,282 483,756
Time 468,524 498,533
------- -------
Total deposits 1,834,572 1,744,915
Other borrowed money 312,895 135,000
Other liabilities 3,565 24,511
Obligation to Employee Stock Ownership
Plan(ESOP) 5,385 5,954
Long-term debt 23,000 23,000
------ ------
2,179,417 1,933,380
========= =========
Stockholders' Equity
Common stock, 8,889,506 shares issued
(7,797,520 shares in 1993) 13,234 10,985
Preferred stock:
Series B, 675,000 shares authorized in 1993,
672,950 shares issued and outstanding in 1993 0 673
Series C, 417,000 shares authorized, issued
and outstanding(liquidating preference:
$18.00 per share totaling $7,506) 7,506 7,506
Capital in excess of par or stated value 80,033 73,821
Retained earnings 17,757 13,203
------ ------
118,530 106,188
Less commitment to ESOP 5,385 5,954
Less treasury stock, at cost, 79,520 common
shares in 1994 (67,851 in 1993) 1,272 1,058
----- -----
Total stockholders' equity 111,873 99,176
------- ------
$2,291,290 $2,032,556
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands, except per share amounts) 1994 1993 1992
<S> <C> <C> <C>
Interest income
Interest and fees on loans $65,443 $56,301 $53,127
Interest on investment securities 81,531 56,166 36,333
Other interest 1,020 1,524 2,421
----- ----- -----
Total interest income 147,994 113,991 91,881
======= ======= ======
Interest expense
Interest on deposits:
Demand 9,822 8,490 8,728
Savings 11,945 12,091 13,696
Time 19,706 19,755 17,958
------ ------ ------
Total interest on deposits 41,473 40,336 40,382
Interest on other borrowed money 13,962 3,000
Interest on long-term debt 2,025 930
----- ---
Total interest expense 57,460 44,266 40,382
====== ====== ======
Net interest income 90,534 69,725 51,499
Provision for loan losses 4,210 5,981 6,286
----- ----- -----
Net interest income after provision
for loan losses 86,324 63,744 45,213
------ ------ ------
Noninterest income
Deposit charges and service fees 13,779 12,062 9,900
Other operating income 3,114 2,326 2,229
Net investment securities gains 641 2,956
--- -----
Total noninterest income 17,534 17,344 12,129
====== ====== ======
Noninterest expense
Salaries 22,750 18,697 13,916
Benefits 6,648 4,905 3,768
Occupancy 7,828 5,949 5,255
Furniture and equipment 8,340 6,292 4,920
Office 6,267 4,669 3,425
Audit and regulatory fees and assessments 4,877 4,040 2,953
Marketing 2,722 1,778 1,064
Other real estate (net) 3,127 3,944 1,991
Other 9,304 7,599 5,597
----- ----- -----
Total noninterest expenses 71,863 57,873 42,889
====== ====== ======
Income before income taxes 31,995 23,215 14,453
Provision for federal and state income taxes 11,618 8,600 4,436
------ ----- -----
Net income 20,377 14,615 10,017
Dividends on preferred stocks 1,074 1,574 1,574
----- ----- -----
Net income applicable to common stock $19,303 $13,041 $8,443
======= ======= ======
Net income per common and common equivalent
share:
Primary $2.28 $1.72 $1.31
===== ===== =====
Fully diluted $2.10 $1.59 $1.25
===== ===== =====
Average common and common equivalent
shares outstanding:
Primary 8,473 7,574 6,421
===== ===== =====
Fully diluted 9,643 9,080 7,998
===== ===== =====
Cash dividends declared, common stock $0.58 $0.45 $0.38
===== ===== =====
</TABLE>
See accompanying notes.
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Operating activities
Net income $20,377 $14,615 $10,017
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 4,210 5,981 6,286
Provision for depreciation, amortization
and accretion 16,068 15,135 7,519
Realized marketable equity securities gains (249)
Gains on sales of securities available for sale (641) (2,956)
Proceeds from sales of mortgages held for sale 76,249 80,451
Originations of mortgages held for sale (35,361) (113,583)
Net loan chargeoffs (2,197) (5,797) (6,346)
Decrease (increase)in other assets 12,715 (17,610) (15,688)
(Decrease) increase in other liabilities (19,860) 23,303 (3,416)
Deferred income tax benefit (1,105) (445) (428)
------ ---- ----
Net cash provided (used) by
operating activities 70,455 (906) (2,305)
Investing activiti`es
Proceeds from sales of securities available for sale 961 325,146
Proceeds from the maturity of securities available
for sale 36,752 69,411
Proceeds from sale of marketable equity securities 339
Rollover of money market funds 218,866 355,160 59,375
Proceeds from the maturity of securities held to
maturity 132,021 209,208 142,659
Purchase of securities held to maturity (577,099) (1,453,427) (465,175)
Net increase in loans (106,617) (93,957) (42,707)
Proceeds from sales of loans 6,027 4,563
Purchases of premises and equipment (21,235) (16,231) (4,191)
------- ------- ------
Net cash used by investing activities (310,324) (600,127) (309,700)
Financing activites
Net increase in demand and savings deposits 119,666 172,510 277,298
Demand and savings deposits acquired 79,446
Net (decrease) increase in time deposits (30,009) 28,864 71,267
Time deposits acquired 128,477
Net increase in other borrowed money 177,895 135,000
Proceeds from the issuance of long-term debt 23,000
Issuance of common stock 5,498 16,641
Dividends paid (5,796) (4,842) (3,902)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 1,913 1,397 622
Purchase of treasury stock (214) (166) (146)
Other 136 191
--- ---
Net cash provided by financing activities 263,591 569,375 361,780
Increase(decrease)in cash and cash equivalents 23,722 (31,658) 49,775
Cash and cash equivalents at beginning of year 105,725 137,383 87,608
------- ------- ------
Cash and cash equivalents at end of year $129,447 $105,725 $137,383
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $56,143 $42,994 $41,227
Income taxes 12,540 8,714 5,740
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.
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993, and 1992
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Preferred Capital Retained Commitment Treasury
Stock Stock Surplus Earnings to ESOP Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1992 $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 The Coastal Bank
(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 share) 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
Net income 20,377 20,377
5% common stock dividend and
cash paid in lieu of fractional
shares (348 shares) 543 5,196 (5,749) (10)
Cash dividends, common stock
($0.58 per share) (4,712) (4,712)
Common stock issued in connection
with incentive stock option plan
(98 shares) 153 808 (214) 747
Cash dividends, preferred stock (1,074) (1,074)
Decrease in obligation to ESOP 569 569
Conversion of Series B preferred stock
to common at 1.4071 for 1 (669 shares) 1,472 (669) (803) 0
Redemption of Series B preferred stock
(4 shares) (4) (57) (61)
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(52 shares) 81 871 952
Fair value adjustment on available for
sale securities, net of tax (4,288) (4,288)
------- ------ ------- ------- ------- ------- --------
Balances at December 31, 1994 $13,234 $7,506 $80,033 $17,757 $(5,385) $(1,272) $111,873
======= ====== ======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Certain amounts from prior years have been reclassified to
conform with 1994 presentation.
Investment Securities
Effective January 1, 1994, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (FAS 115) for investments
held as of or acquired after that date.
Investment securities are classified as held to maturity when the Company has
the intent and ability to hold those securities to maturity. Securities held to
maturity 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 classified as available for
sale. Available for sale securities are carried at fair value, with unrealized
gains and losses, net of tax, reported as a component of stockholders' equity.
The amortized cost of debt securities in this category is adjusted for accretion
of discounts and amortization of premiums. Realized gains and losses are
determined on the specific certificate method and are included in noninterest
income.
In accordance with FAS 115, prior period financial statements have not been
restated. The cumulative effect as of January 1, 1994 of adopting FAS 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 FAS 115. At December 31, 1994,
stockholders' equity has been decreased by $4,288,000 (net of adjustments to
deferred income taxes of $2,463,000) to reflect the write-down of securities
available for sale to fair value.
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 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.
<PAGE>
1. Significant Accounting Policies (Continued)
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 Banks loan
portfolios.
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated depreciation.
Depreciation and amortization are 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 is reported in other assets at
the lower of cost or fair value less disposition costs. Properties acquired by
foreclosure or deed in lieu of foreclosure are transferred to ORE and recorded
at the lower of cost or fair value less disposition costs 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.
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 $3,611,000 and $3,893,000 at December 31, 1994 and 1993, respectively. Other
intangible assets are amortized on a straight-line basis over 10- to 15-year
lives. Other intangibles amounted to $3,826,000 and $4,278,000 at December 31,
1994 and 1993, 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 stock. All common stock per share information has been
adjusted for the 5% common stock dividend declared on 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.
Restriction on Cash and Due From Banks
The Banks are required to maintain reserve balances with the Federal Reserve
Bank. The weighted average amount of the reserve balances for 1994 and 1993 were
approximately $29,202,000 and $24,573,000, respectively.
<PAGE>
1. Significant Accounting Policies (Continued)
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 Disclosures." 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 loans 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
restructurings 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.
2. Mergers and Acquisitions
On September 30, 1993, The Coastal Bank of 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 to maturity (in thousands) at December 31, 1994 and
1993 follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
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>
U.S. Government agency
mortgage-backed obligations $123,453 $(7,286) $116,167 $162,082 $1,519 $(426) $163,175
Equity securities 2,153 $535 2,688 2,538 398 2,936
-------- ---- ------- -------- -------- ------ ----- --------
Securities available for
sale $125,606 $535 $(7,286) $118,855 $164,620 $1,917 $(426) $166,111
-------- ---- ------- -------- -------- ------ ----- --------
U.S. Government agency
mortgage-backed obligations $1,113,359 $6 $(105,705) $1,007,660 $912,467 $1,998 $(7,581) $906,884
Obligations of state and
political subdivisions 565 8 573 1,871 48 1,919
Collateralized mortgage
obligations 2,390 9 2,399 5,083 144 5,227
Other 28,819 (140) 28,679 6,694 6,694
-------- ---- ------- -------- -------- ------ ----- --------
Securities held to maturity $1,145,133 $23 $(105,845) $1,039,311 $926,115 $2,190 $(7,581) $920,724
========== === ========= ========== ======== ====== ======= ========
</TABLE>
<PAGE>
3. Investment Securities (Continued)
The amortized cost and estimated market value of investment securities (in
thousands) at December 31, 1994, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because obligors
have the right to repay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $28,140 $28,000
Due after one year through five years 210 218
Due after five years through ten years 1,034 1,034
Due after ten years
Mortgage backed securities $123,453 $116,167 1,115,749 1,010,059
Equity securities 2,153 2,688
----- -----
$125,606 $118,855 $1,145,133 $1,039,311
======== ======== ========== ==========
</TABLE>
Proceeds from sales of securities available for sale during 1994 and 1993 were
$961,000 and $325,146,000, respectively. Gross gains of $641,000 were realized
on the sales in 1994. Gross gains of $3,864,000 and gross losses of $907,000
were realized on the sales in 1993. There were no sales of debt securities
during 1992.
At December 31, 1994 and 1993, investment securities with a carrying value of
$88,730,000 and $315,810,000, respectively, were pledged to secure deposits of
public funds.
4. Loans
The following is a summary of loans outstanding (in thousands) at December 31,
1994 and 1993:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Commercial real estate:
Owner-occupied $151,420 $157,452
Other 175,260 136,819
Construction 51,042 45,926
------ ------
377,722 340,197
Commercial loans:
Term 87,128 91,336
Line of credit 48,489 36,928
Demand 262 404
--- ---
135,879 128,668
Consumer:
Mortgages (1-4 family residential) 83,484 71,583
Installment 109,949 74,684
Home equity 87,518 78,619
Credit lines 7,400 7,611
----- -----
288,351 232,497
------- -------
$801,952 $701,362
======== ========
</TABLE>
<PAGE>
4. Loans (Continued)
At December 31, 1994 and 1993, loans of approximately $6,320,000 and $5,882,000,
respectively, were outstanding to certain of the Company's and the Banks'
directors and officers, and approximately $11,824,000 and $10,189,000,
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 (in
thousands) of the related party loans outstanding at December 31, 1994 is as
follows:
<TABLE>
<CAPTION>
1994
<S> <C>
Balance, January 1 $16,071
New loans 7,560
Loan payments 5,487
-----
Balance, December 31 $18,144
=======
</TABLE>
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 $264,000 in 1994, $270,000 in 1993, and
$326,000 in 1992. The Company received legal services from two law firms of
which two directors of the Company are partners. Such aggregate legal services
amounted to $1,307,000 in 1994, $1,524,000 in 1993, and $764,000 in 1992.
Commerce NJ has a loan outstanding for $1,307,000, as of December 31, 1994, to
an ESOP which is guaranteed by a bank holding company in which the Chairman of
the Board of the Company is a director. In addition, the Company owns 41,327
shares of Common Stock and 187,500 of Common Stock Warrants. Also, the Company
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 12.5% of the total outstanding common equivalent shares.
5.Allowance for Loan Losses
The following is an analysis of changes in the allowance for loan losses (in
thousands) for 1994, 1993, and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance, January 1 $10,023 $8,839 $8,899
Provision charged to
operating expense 4,210 5,981 6,286
Recoveries of loans
previously charged off 245 620 213
--- --- ---
14,478 15,440 15,398
Loan charge-offs (2,442) (6,417) (6,559)
Allowance for loan losses,
acquired bank 1,000
-----
Balance, December 31 $12,036 $10,023 $8,839
======= ======= ======
</TABLE>
<PAGE>
6. Nonaccrual and Restructured Loans and Other Real Estate
The total of non-performing loans (nonaccrual and restructured loans) was
$11,822,000 and $8,540,000 at December 31, 1994 and 1993, respectively.
Non-performing loans of $1,861,000, $6,655,000, and $12,116,000 net of
charge-offs of $153,000, $1,316,000, and $3,267,000 were transferred to other
real estate during 1994, 1993, and 1992, respectively. Other real estate
($10,517,000 and $18,325,000 at December 31, 1994 and 1993, respectively) is
included in other assets.
Interest income of approximately $1,246,000 and $639,000 would have been
recorded on non-performing loans in accordance with their original terms in 1994
and 1993, respectively. Actual interest income recorded on these loans amounted
to $317,000 and $270,000, during 1994 and 1993, respectively.
7. Bank Premises, Equipment, and Leases
A summary of bank premises and equipment (in thousands) is as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land $12,583 $9,229
Buildings 24,968 20,919
Leasehold improvements 5,464 5,333
Furniture, fixtures and equipment 30,149 22,962
Leased property under capital leases 124 124
--- ---
73,288 58,567
Less accumulated depreciation
and amortization 15,291 15,626
------ ------
$57,997 $42,941
======= =======
</TABLE>
At December 31, 1994, 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, 1994. The lease is
accounted for as an operating lease with an annual rent of $892,000. The lease
expires in 1996 and is renewable for six additional terms of five years each.
The Company leases its operations facility from a limited partnership in which
the Company is a 44% limited partner at December 31, 1994. The lease is
accounted for as an operating lease with an annual rent of $520,000. The lease
expires in 2004 and is renewable for two additional terms of five years each.
<PAGE>
7. Bank Premises, Equipment, and Leases (Continued)
At December 31, 1994, 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 for 1994,
1993, and 1992 was approximately $200,000. 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, 1994, the future minimum
lease payments to be received by the Company amount to approximately $55,000 for
each of the next four years and $597,000 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.
Total rent expense charged to operations under operating leases was
approximately $2,716,000 in 1994, $2,542,000 in 1993, and $2,387,000 in 1992.
The future minimum rental commitments, by year, under the non-cancelable leases
are as follows (in thousands) at December 31, 1994:
<TABLE>
<CAPTION>
Capital Operating
<S> <C> <C>
1995 $12 $2,623
1996 12 2,589
1997 12 1,939
1998 12 1,935
1999 12 1,877
Later years 180 11,783
--- ------
Net minimum lease payment 240 $22,746
--- -------
Less amount representing interest 132
---
Present value of net minimum
lease payments $108
====
</TABLE>
The Company obtained interior design services for $468,000, $651,000, and
$191,000 in 1994, 1993, and 1992, respectively, from a business owned by the
spouse of the Chairman of the Board of the Company. Additionally, the business
received commissions of approximately $962,000, $265,000, and $85,000 in 1994,
1993, and 1992, respectively, on furniture and facility purchases made directly
by the Company.
8. Deposits
The aggregate amount of time certificates of deposits in denominations of
$100,000 or more was $117,735,000 and $137,546,000 at December 31, 1994 and
1993,respectively.
<PAGE>
9. Other Borrowed Money
Other borrowed money consists of securities sold under agreements to repurchase,
which range from one day to three months in maturity. The following table
represents information for securities sold under agreements to repurchase.
<TABLE>
<CAPTION>
December 31,
1994 1993
Average Average
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Securities sold under
agreements to repurchase $312,895 5.94% $135,000 3.44%
Average amount outstanding 321,598 4.34 90,442 3.32
Maximum month-end balance 363,210 267,398
</TABLE>
As of December 31, 1994, the Company had a line of credit of $285,352,000
available from the Federal Home Loan Bank of New York.
10. Long-Term Debt
On July 15, 1993, the Company issued $23,000,000 of 8 3/8% subordinated notes
due 2003. Interest on the debt is payable semi-annually 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.
11. Income Taxes
At December 31, 1994, the Company had 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):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $11,917 $8,001 $4,768
State 806 811 96
Deferred:
Federal (1,038) (212) (428)
State (67)
---
$11,618 $8,600 $4,436
======= ====== ======
</TABLE>
The above provision includes income taxes related to securities gains of
$224,000, $1,035,000, and $85,000 for 1994, 1993, and 1992, respectively.
<PAGE>
11. Income Taxes (Continued)
The provision for income taxes differs from the expected statutory provision as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Expected provision at statutory rate: 35.0% 35.0% 34.0%
Difference resulting from:
Tax-exempt interest on loans (0.6) (0.8) (1.4)
Tax-exempt interest on securities (0.1) (0.3) (1.1)
Purchase accounting adjustments 0.3 0.4 0.6
ESOP dividends (1.3)
Other 1.7 2.8 (0.1)
--- --- ----
36.3% 37.1% 30.7%
==== ==== ====
</TABLE>
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, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $4,522 $3,861
Other reserves 155 404
Fair value adjustment,
available for sale
securities 2,463
Investment valuations 239 239
Interest income 105 196
Net operating losses 180 180
Other 467 254
--- ---
Total deferred tax assets 8,131 5,134
----- -----
Deferred tax liabilities:
Depreciation 821 1,469
Intangibles 159 215
Other 593 450
--- ---
Total deferred tax
liabilities 1,573 2,134
----- -----
Net deferred debits $6,558 $3,000
====== ======
</TABLE>
<PAGE>
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, 1994, the Banks
had outstanding standby letters of credit in the amount of $18,890,000.
In addition, the Banks are committed as of December 31, 1994 to advance
$50,032,000 on construction loans, $72,741,000 on home equity loans and
$47,486,000 on lines of credit. All other commitments total approximately
$51,978,000. The Company anticipates no material losses as a result of these
transactions.
13. Dividends
On December 13, 1994, the Board of Directors declared a cash dividend of $0.1625
for each share of common stock outstanding and a 5% stock dividend payable
January 17, 1995 to stockholders of record on January 2, 1995. Payment of the
stock dividend will result in the issuance of 418,967 additional common shares
and cash of $12,740 in lieu of fractional shares.
14. Common Stock and Preferred Stocks
At December 31, 1994, 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 510,000 were
reserved for issuance under the Company's Dividend Reinvestment and Stock
Purchase Plan.
At December 31, 1994, 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).
On July 1, 1994, the Company exercised its right to redeem all of its Series B
Cumulative Convertible 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
669,000, or 99%, were converted. If these Series B shares had been converted as
of January 1, 1994 primary earnings per common and common equivalent share would
have been $2.18 for 1994.
On February 15, 1995, the Company issued 1,725,000 shares of common stock. Net
proceeds to the Company were $25,851,000 after deducting expenses of $1,749,000.
<PAGE>
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, 1994,
1993, and 1992 is as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
Under option 830,641 935,362 600,429
Exercisable 706,637 579,894 432,802
Exercised during year 90,749 109,745 112,627
Granted during year 445,603 100,192
Canceled during year 13,972 17,431 3,889
</TABLE>
Effective January 2, 1995, 232,155 options were granted at an exercise price of
$18.75.
Price per share of shares under option and exercised during the year were as
follows:
<TABLE>
<CAPTION>
Year Shares Under Shares
Ended Option Exercised
<S> <C> <C>
December 31, 1994 $4.90 to $17.14 $4.90 to $14.06
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
</TABLE>
All shares and per share prices for shares under option and exercised have been
adjusted for a 5% common stock dividend declared on December 13, 1994.
Employee Stock Ownership Plan
As of December 31, 1994, 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 held by the ESOP, which was refinanced in
1994. The loan is payable in quarterly installments commencing March 31, 1995
with the final payment due January 28, 2000. The loan currently bears interest
at a variable rate, although the rate can be fixed at future repricing dates in
accordance with the loan agreement. 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, including interest, under the
loan. The total contribution expense associated with the Plan for 1994, 1993,
and 1992 was $648,000, $617,000, and $577,000, respectively.
Post-employment and Post-retirement Benefits
The Company offers no post-employment and post-retirement benefits.
<PAGE>
16. 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 non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following table represents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
December 31,
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $129,447 $129,447 $105,725 $105,725
Mortgages held for sale 2,263 2,263 43,151 43,151
Investment securities 1,263,988 1,158,166 1,090,735 1,086,835
Loans (net) 789,916 788,516 691,339 710,593
Financial liabilities:
Deposits 1,834,572 1,836,178 1,744,915 1,751,038
Other borrowed money 312,895 312,895 135,000 135,000
Obligation to ESOP 5,385 5,385 5,954 6,218
Long-term debt 23,000 21,045 23,000 23,575
Off-balance sheet instruments:
Standby letters of credit $(189) $(132)
Commitments to extend credit (278) (332)
</TABLE>
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.
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.
<PAGE>
16. Fair Value of Financial Instruments (Continued)
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 analysis,
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 noninterest-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.
Other borrowed money: 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.
<PAGE>
17. Quarterly Financial Data (Unaudited)
The following represents summarized unaudited quarterly financial data of the
Company which, in the opinion of management, reflects adjustments (comprising
only normal recurring accruals) necessary for fair presentation (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
1994 December 31 September 30 June 30 March 31
<S> <C> <C> <C> <C>
Interest income $39,428 $38,504 $36,555 $33,507
Interest expense 15,897 14,856 13,932 12,775
Net interest income 23,531 23,648 22,623 20,732
Provision for loan losses 1,050 1,050 1,060 1,050
Net investment securities
gains 641
Provision for federal and
state income taxes 2,804 3,128 3,045 2,641
Net income 4,935 5,516 5,289 4,637
Net income applicable to
common stock 4,794 5,369 4,896 4,244
Net income per common share:
Primary $0.52 $0.62 $0.61 $0.53
Fully diluted 0.51 0.57 0.54 0.48
1993
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
Provision 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
</TABLE>
<PAGE>
18. Condensed Financial Statements of the Parent Company and Other Matters
Balance Sheets
December 31,
(dollars in thousands) 1994 1993
Assets
Cash $4,216 $7,470
Securities available for sale 2,688 2,538
Securities held to maturity 371 167
Investment in Banks 124,917 108,959
Other assets 9,279 9,978
----- -----
$141,471 $129,112
-------- --------
Liabilities
Other liabilities $1,213 982
Long-term debt 23,000 23,000
Obligation to Employee Stock
Ownership Plan (ESOP) 5,385 5,954
----- -----
29,598 29,936
------ ------
Stockholders' equity
Common stock 13,234 10,985
Preferred stock:
Series B 0 673
Series C 7,506 7,506
Capital in excess of par or
stated value 80,033 73,821
Retained earnings 17,757 13,203
------ ------
118,530 106,188
Less commitment to ESOP 5,385 5,954
Less treasury stock 1,272 1,058
----- -----
Total stockholders'
equity 111,873 99,176
------- ------
$141,471 $129,112
-------- --------
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Income:
Dividends from Banks $4,400 $7,182 $3,372
Interest income 203 256 411
Other 872 298 486
--- --- ---
5,475 7,736 4,269
----- ----- -----
Expenses:
Interest expense 2,025 930
Operating expenses 1,601 1,246 962
----- ----- ---
3,626 2,176 962
Income before income taxes
and equity in undistributed
income of Banks 1,849 5,560 3,307
Income tax expense (benefit) (834) (489) 44
---- ---- --
2,683 6,049 3,263
Equity in undistributed income of
Banks 17,694 8,566 6,754
------ ----- -----
Net income 20,377 14,615 10,017
Dividends on preferred stock 1,074 1,574 1,574
----- ----- -----
Net income applicable to common
stock $19,303 $13,041 $8,443
======= ======= ======
</TABLE>
<PAGE>
18. Condensed Financial Statements of the Parent Company and Other Matters
(Continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Operating activities:
Net income $20,377 $14,615 $10,017
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of Banks (17,694) (8,566) (6,754)
Gains on sales of securities available for sale (641)
(Increase) decrease in accrued interest
receivable and other assets 699 (3,731) 1,104
(Decrease) increase in accounts payable and
other liabilities 44 (881) 1,321
-- ---- -----
Net cash provided by operating activities 2,785 1,437 5,688
Investing activities:
Investment in Banks (2,900) (24,509) (13,200)
Proceeds from sale of securities available for sale 961 339
Purchase of equity securities (283) (245)
Other (139) 66 (246)
---- -- ----
Net cash used by investing activities (2,078) (24,726) (13,352)
Financing activities:
Net proceeds from common stock offering 16,641
Tax benefit from ESOP dividends 197 191
Proceeds from issuance of common stock under
dividend reinvestment plan 952 528
Cash dividends (5,796) (4,842) (3,902)
Proceeds from exercise of stock options 961 870 622
Purchase of treasury stock (214) (166) (146)
Redemption of preferred B stock (61)
Proceeds from issuance of long-term debt 23,000
Equity of acquired bank 5,498
-----
Net cash (used) provided by
financing activities (3,961) 25,079 13,215
(Decrease)increase in cash and cash equivalents (3,254) 1,790 5,551
Cash and cash equivalents at beginning of year 7,470 5,680 129
----- ----- ---
Cash and cash equivalents at end of year $4,216 $7,470 $5,680
------ ------ ------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $1,926
Income taxes 11,763 $7,852 $5,740
</TABLE>
<PAGE>
18. Condensed Financial Statements of the Parent Company and Other Matters
(Continued)
Holders of common stock of the Company are entitled to receive dividends
when declared by the Board of Directors out of funds legally available.
Under the New Jersey Business Corporation Act, the Company may 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 1995 without approval of the Comptroller of the Currency of
approximately $21,767,000, $2,417,000, and $2,075,000, respectively, plus
an additional amount equal to each bank's net profit for 1995 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, 1994 and
1993, the Company complies with these guidelines.
<PAGE>
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, 1994 and 1993 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, 1994. 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, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1994 the Company changed
its method of accounting for certain investments in debt and equity securities.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 30, 1995
Exhibit 23.1
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Commerce Bancorp, Inc. and Subsidiaries of our report dated January 30, 1995,
included in the consolidated financial statements of Commerce Bancorp, Inc. and
Subsidiaries.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 24, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CIK> 0000715096
<NAME> COMMERCE BANCORP, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 119,697
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 118,855
<INVESTMENTS-CARRYING> 1,145,133
<INVESTMENTS-MARKET> 1,039,311
<LOANS> 801,952
<ALLOWANCE> 12,036
<TOTAL-ASSETS> 2,291,290
<DEPOSITS> 1,834,572
<SHORT-TERM> 312,895
<LIABILITIES-OTHER> 3,565
<LONG-TERM> 28,385
<COMMON> 13,234
0
7,506
<OTHER-SE> 91,133
<TOTAL-LIABILITIES-AND-EQUITY> 2,291,290
<INTEREST-LOAN> 65,443
<INTEREST-INVEST> 81,531
<INTEREST-OTHER> 1,020
<INTEREST-TOTAL> 147,994
<INTEREST-DEPOSIT> 41,473
<INTEREST-EXPENSE> 57,460
<INTEREST-INCOME-NET> 90,534
<LOAN-LOSSES> 4,210
<SECURITIES-GAINS> 641
<EXPENSE-OTHER> 71,863
<INCOME-PRETAX> 31,995
<INCOME-PRE-EXTRAORDINARY> 31,995
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,377
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 4.43
<LOANS-NON> 11,246
<LOANS-PAST> 211
<LOANS-TROUBLED> 576
<LOANS-PROBLEM> 7,000
<ALLOWANCE-OPEN> 10,023
<CHARGE-OFFS> 2,442
<RECOVERIES> 245
<ALLOWANCE-CLOSE> 12,036
<ALLOWANCE-DOMESTIC> 12,036
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
