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, 1995
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 22-2433468
(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 $218,226,000.(1)
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 11,297,014
Title of Class No. of Shares Outstanding as of 3/8/96
Series C ESOP Cumulative Convertible 417,000
Preferred Stock No. of Shares Outstanding as of 3/8/96
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, 1995 (the "Annual Report"). Part III incorporates certain information by
reference from the Registrant's Proxy Statement for the 1996 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 8, 1996. 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.
<PAGE>
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 1995.)
Part II
Item 5. Market for the Registrant's Common Stock
and Related Stockholders Matters
Item 6. Selected Financial Data
Item 7. Management's 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 the
definitive proxy statement to be filed pursuant to
Regulation 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)
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)
<PAGE>
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. (J)
10.15 Term Loan Agreement between Commerce Bancorp, Inc.
Employee Stock Ownership Trust and Mellon Bank, N.A.
dated as of November 29, 1994. (J)
11.1 Computation of Net Income Per Share.
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).
(J) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994.
* Management contract or compensation plan or
arrangement.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1995.
(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
<PAGE>
PART I
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 1,287 as of December 31, 1995. The Company believes that its relationship
with its employees is good.
Commerce NJ
Commerce NJ provides retail and commercial banking services through 33
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 Absecon, 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, 1995, Commerce NJ had total assets of $1.910 billion,
total deposits of $1.695 billion and total stockholders' equity of $135.0
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.
<PAGE>
Commercial Banking Activities
Commerce NJ offers a broad range of commercial banking services, including
free checking accounts (subject to minimum balance), 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 $21.9 million as of December 31, 1995), 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, 1995, Commerce PA had
total assets of $274.0 million, total deposits of $254.8 million and total
stockholders' equity of $18.4 million.
Commerce PA provides retail and commercial banking services through 11
retail branch offices in Philadelphia, Chester, Delaware and Montgomery Counties
in Southeastern Pennsylvania. It currently has one office in Center City
Philadelphia, one in West Philadelphia, and one office each in the Philadelphia
suburbs of Chichester, Devon, Haverford, Lawrence Park, Newtown Square,
Springfield, Trooper, 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, 1995, Commerce Shore had total assets
of $306.1 million, total deposits of $285.6 million and total stockholders'
equity of $19.0 million.
Commerce Shore provides retail and commercial banking services through six
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, Manahawkin
and Toms River. 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 equity investments in
Commerce Bank/Harrisburg, Camp Hill, Pennsylvania and Independence Bancorp,
Inc., Ramsey, New Jersey. The Commerce Network provides certain marketing
support and technical support services to its members.
Competition
The Company's service area is characterized by intense competition in all
aspects and areas of its business from commercial banks, savings and loan
associations, mutual savings banks and other financial institutions. Other
competitors, including credit unions, consumer finance companies, factors,
insurance companies and money market mutual funds, compete with certain lending
and deposit gathering services offered by the Company. Many competitors have
substantially greater financial resources and larger lending limits and larger
branch systems than those of the Company.
<PAGE>
In commercial transactions, Commerce NJ's, Commerce PA's and Commerce
Shore's legal lending limit to a single borrower (approximately $21.9 million,
$2.9 million, and $3.1 million, respectively, as of December 31, 1995) 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/Interstate Banking."
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 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.
<PAGE>
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.
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 FDIC offerings. In 1995, Commerce
NJ, Commerce PA and Commerce Shore each received a "satisfactory" rating.
Commerce NJ, Commerce PA and Commerce Shore are members of the FDIC and
members of the FRB and, therefore, are subject to additional regulation by these
agencies. Some of the aspects of the lending and deposit business of Commerce
NJ, Commerce PA and Commerce Shore which are regulated by these agencies include
personal lending, mortgage lending and reserve requirements. The operations of
Commerce NJ, Commerce PA and Commerce Shore are also subject to numerous
federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to interest rates on
loans, the extension of credit, credit practices, the disclosure of credit terms
and discrimination in credit transactions.
Commerce NJ, Commerce PA and Commerce Shore are subject to certain
limitations on the amount of cash dividends that they can pay. See Note 17 of
the Company's Notes to Consolidated Financial Statements which appears elsewhere
herein.
Recent Legislation/Interstate Banking
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. Pennsylvania law was recently
amended to authorize any out-of-state bank holding company to acquire control of
any state or national bank located in Pennsylvania after it receives prior
written approval from the Pennsylvania Department of Banking. Beginning June 1,
1997, a bank may merge with a bank in another state so long as both states have
not opted out of interstate branching between the date of enactment of the
Interstate Act and May 31, 1997. States may enact laws opting out of interstate
branching before June 1, 1997, subject to certain conditions. States may also
enact laws permitting interstate merger transactions before June 1, 1997 and
host states may impose conditions on a branch resulting from an interstate
merger transaction that occurs before June 1, 1997, if the conditions do not
discriminate against out-of-state banks, are not preempted by Federal law and do
not apply or require performance after May 31, 1997. Pennsylvania has recently
enacted a law opting in immediately to interstate merger and interstate
branching transactions. Interstate acquisitions and mergers would both be
subject, in general, to certain concentration limits and state entry rules
relating to the age of the bank.
Under the Interstate Act, the Federal Deposit Insurance Act is amended to
permit the responsible Federal regulatory agency to approve the acquisition of a
branch of an insured bank by an out-of-state bank or bank holding company
without the acquisition of the entire bank or the establishment of a "de novo"
branch only if the law of the state in which the branch is located permits
out-of-state banks to acquire a branch of a bank without acquiring the bank or
permits out-of-state banks to establish "de novo" branches. Pennsylvania
recently passed such a law. New Jersey has legislation pending which attempts to
take full advantage of interstate branching.
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
<PAGE>
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.
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
<PAGE>
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, 1995 was $4,359,000.
At December 31, 1995, the ESOP owned of record approximately 5.5% of the
Company's Common Stock outstanding on a fully diluted basis. Of the shares owned
of record, approximately 48% 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.
By /s/ VERNON W. HILL, II
------------------------------
Vernon W. Hill, II
Chairman of the Board and President
Date: March 28, 1996
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Vernon W. Hill, II
- ---------------------------- Chairman of the Board and President March 28, 1996
Vernon W. Hill, II (Principal Executive Officer)
/s/ C. Edward Jordan, Jr. Executive Vice President and Director March 28, 1996
- ---------------------------- (Principal Financial and Accounting
C. Edward Jordan, Jr. Officer)
/s/ Robert C. Beck
- ---------------------------- Secretary and Director March 28, 1996
Robert C. Beck
/s/ David Baird, IV
- ---------------------------- Director March 28, 1996
David Baird, IV
/s/ Jack R Bershad
- ---------------------------- Director March 28, 1996
Jack R Bershad
/s/ Morton N. Kerr
- ---------------------------- Director March 28, 1996
Morton N. Kerr
/s/ Steven M. Lewis
- ---------------------------- Director March 28, 1996
Steven M. Lewis
/s/ Daniel J. Ragone
- ---------------------------- Director March 28, 1996
Daniel J. Ragone
/s/ Joseph T. Tarquini, Jr.
- ---------------------------- Director March 28, 1996
Joseph T. Tarquini, Jr.
</TABLE>
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,
1995 1994 1993
<S> <C> <C> <C>
Primary Net Income Per Share
Adjustment of income:
Net income $23,485 $20,377 $14,615
Preferred stock dividends 563 1,074 1,574
------- ------- -------
Adjusted net income applicable to
common stock $22,922 $19,303 $13,041
======= ======= =======
Average shares of common stock and equivalents outstanding:
Average common shares outstanding 10,942 8,716 7,904
Common stock equivalents - dilutive
options 336 304 216
------- ------- -------
Average shares of common stock and
equivalents outstanding 11,278 9,020 8,120
====== ===== =====
Net income per share of common stock $ 2.03 $ 2.14 $ 1.61
======= ======= =======
Fully Diluted Net Income Per Share
Net income applicable to common stock
on a fully diluted basis $23,485 $20,377 $14,615
Less: additional ESOP contribution
under the if-converted method 133 150 205
------- ------- -------
Adjusted net income applicable to
common stock on a fully diluted basis $23,352 $20,227 $14,410
======= ======= =======
Average number of shares outstanding on a fully
diluted basis:
Average common shares outstanding 10,942 8,716 7,904
Additional shares considered in fully
diluted computation assuming:
Exercise of stock options 406 344 215
Conversion of preferred stock 587 1,159 1,535
------- ------- -------
Average number of shares outstanding
on a fully diluted basis 11,935 10,219 9,654
====== ====== =====
Fully diluted net income per share of
common stock $ 1.96 $ 1.98 $ 1.49
======= ======= =======
</TABLE>
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.
1995 Overview
In 1995, the Company recorded increases in net income, deposits, loans, and
assets. The increase in net income was due to increases in net interest income
and noninterest income, and reduced loan loss provisions, which offset increased
overhead expenses. Loan growth totaled 13% for 1995. At December 31, 1995, the
Company had total assets of $2.4 billion, total loans of $908 million, and total
investment securities of $1.2 billion. Also, total deposits aggregated $2.2
billion, up $391 million from the previous year end. Short-term borrowings,
which totaled $313 million at year end 1994, were fully eliminated during 1995.
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, 1995, 1994, and 1993 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on
liabilities for such periods. During 1995, average interest earning assets
totaled $2.13 billion, an increase of $86.1 million, or 4% over 1994. This
increase resulted primarily from the increase in the average balance of loans,
which rose $101.7 million. The growth in the average balance of interest earning
assets was funded by an increase in the average balance of deposits of $239.0
million. The growth in deposits was also used to reduce short-term borrowings.
The average balance of other borrowed money was reduced to $101.2 million in
1995, a decrease of $220.4 million from 1994, and other borrowed money was fully
eliminated at December 31, 1995. The tax-equivalent yield on interest earning
assets was 7.78%, an increase of 54 basis points from 7.24% in 1994. The
increase resulted primarily from increased yields in the investment and loan
portfolios due to the rising trend and timing of changes in general market
interest rates in 1995 as compared to 1994.
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
15
<PAGE>
express such income as if it were taxable) for 1995 was $95.7 million, an
increase of $4.8 million, or 5%, over 1994. Interest income on a tax-equivalent
basis increased to $166.0 million from $148.4 million, or 12%. This increase was
primarily related to volume increases and rate increases in the loan portfolio.
Interest expense for 1995 rose $12.7 million to $70.2 million, from $57.5
million, or 22%. This increase was attributable to higher levels of deposits
which offset reduced levels of other borrowed money, and higher rates paid on
deposits and borrowings. The cost of interest-bearing liabilities was 3.29%, an
increase of 48 basis points from 2.81% for the prior year.
Net interest margin on a tax-equivalent basis was 4.49% for 1995, an increase of
six basis points from 1994.
The following table presents the major factors that contributed to the changes
in net interest income for the years ended December 31, 1995 and 1994 as
compared to the respective previous periods.
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1)
Volume Rate Total Volume Rate Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest on
investments:
Taxable $ (3,456) $ 3,922 $ 466 $ 24,807 $ 734 $ 25,541
Tax-exempt 235 (35) 200 (318) 36 (282)
Trading 182 182
Federal
funds sold 1,711 317 2,028 (912) 415 (497)
Interest on
loans:
Mortgages &
construction 3,922 2,622 6,544 5,197 (390) 4,807
Commercial 2,045 1,478 3,523 (468) 1,797 1,329
Consumer 3,588 1,078 4,666 3,167 (222) 2,945
Tax-exempt (33) 16 (17) 98 (5) 93
-------- -------- -------- -------- -------- --------
Total interest
income 8,194 9,398 17,592 31,571 2,365 33,936
-------- -------- -------- -------- -------- --------
Interest expense:
Regular
savings (927) 207 (720) 1,501 (1,647) (146)
N.O.W
accounts 1,552 1,835 3,387 1,042 (465) 577
Money
market plus 1,840 1,197 3,037 908 (152) 756
Time
deposits 2,306 3,724 6,030 2,465 (1,164) 1,301
Public funds 6,734 1,867 8,601 (2,413) 1,062 (1,351)
Other borrowed
money (13,885) 6,302 (7,583) 10,035 926 10,961
Long-term
debt 1,095 1,095
-------- -------- -------- -------- -------- --------
Total interest
expense (2,380) 15,132 12,752 14,633 (1,440) 13,193
-------- -------- -------- -------- -------- --------
Net increase $ 10,574 $ (5,734) $ 4,840 $ 16,938 $ 3,805 $ 20,743
-------- -------- -------- -------- -------- --------
<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 1995, noninterest income totaled $21.5 million, an increase of $4.0 million
from 1994. Increased deposit charges and service fees and other operating income
offset a decrease in net investment securities gains. Deposit charges and
service fees increased $2.6 million due primarily to transaction volumes. The
$1.9 million increase in other operating income to $5.0 million includes gross
revenues of Commerce Capital, the bank securities dealer division of Commerce NJ
established in March 1995. Securities gains of $106 thousand in 1995 and $641
thousand in 1994 resulted from the sale of equity securities.
Noninterest Expenses
Noninterest expenses totaled $77.7 million for 1995, an increase of $5.8
million, or 8% over 1994. Contributing to this increase was the addition of six
new branches during 1995. With the addition of these new offices, staff,
facilities, and related expenses rose accordingly. Audit and regulatory fees and
assessments decreased by $1.6 million to $3.3 million, due to the reduction in
Federal deposit insurance rates effective June 1, 1995. Other real estate
expenses totaled $2.4 million, a decrease of $700 thousand, reflecting lower
levels of other real estate for most of 1995. Other non-interest expenses rose
$200 thousand to $9.5 million in 1995. Higher consulting expenses and banking
service charges were offset by decreased printing expenses and lower provisions
for non-credit-related losses.
One key measure used to monitor progress in controlling overhead expenses is the
ratio of noninterest expenses to average assets. This ratio equaled 3.31%,
3.22%, and 3.31% in 1995, 1994, and 1993, 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 equaled 64.50%, 63.98%, and 64.11% in 1995, 1994, and
1993, respectively.
16
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(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 $1,228,921 $ 82,279 6.70% $1,280,548 $ 81,812 6.39% $ 892,255 $ 56,272 6.31%
Tax-exempt 4,407 290 6.58 828 90 10.87 3,758 372 9.90
Trading 3,649 182 4.99
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Total investment
securities 1,236,977 82,751 6.69 1,281,376 81,902 6.39 896,013 56,644 6.32
Federal funds sold 45,663 2,708 5.93 16,808 681 4.05 39,327 1,177 2.99
Loans
Mortgage and construction 479,331 45,781 9.55 438,269 39,236 8.95 380,222 34,432 9.06
Commercial 144,893 14,420 9.95 124,343 10,897 8.76 129,687 9,565 7.38
Consumer 217,901 19,355 8.88 177,506 14,689 8.28 139,237 11,744 8.43
Tax-exempt 9,281 936 10.09 9,610 954 9.93 8,626 861 9.98
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Total loans 851,406 80,492 9.45 749,728 65,776 8.77 657,772 56,602 8.61
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Total earning assets $2,134,046 $ 165,951 7.78% $2,047,912 $148,359 7.24% $1,593,112 $114,423 7.18%
========== ========== ==== ========== ======== ==== ========== ======== ====
Sources of Funds
Interest-bearing
liabilities
Regular savings $ 471,213 $ 11,225 2.38% $ 510,108 $ 11,945 2.34% $ 446,013 $ 12,091 2.71%
N.O.W. accounts 378,321 9,339 2.47 315,427 5,952 1.89 260,177 5,375 2.07
Money market plus 217,077 6,907 3.18 159,313 3,870 2.43 121,666 3,114 2.56
Time deposits 432,076 22,034 5.10 386,864 16,004 4.14 327,270 14,702 4.49
Public funds 204,617 12,303 6.01 92,615 3,702 4.00 152,994 5,054 3.30
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Total deposits 1,703,304 61,808 3.63 1,464,327 41,473 2.83 1,308,120 40,336 3.08
Other borrowed money 101,240 6,379 6.30 321,598 13,962 4.34 90,442 3,000 3.32
Long-term debt 23,000 2,025 8.80 23,000 2,025 8.80 10,712 930 8.68
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Total deposits and
interest-bearing
liabilities 1,827,544 70,212 3.84 1,808,925 57,460 3.18 1,409,274 44,266 3.14
Noninterest-bearing
funds (net) 306,502 238,987 183,838
Total sources to fund
earning assets $2,134,046 70,212 3.29 $2,047,912 57,460 2.81 $1,593,112 44,266 2.78
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Net interest income and
margin tax-equivalent
basis 95,739 4.49 90,899 4.43 70,157 4.40
Tax-exempt adjustment 429 365 432
Net interest income and
margin $ 95,310 4.47% $ 90,534 4.42% $ 69,725 4.38%
---------- ---------- ---- ---------- -------- ---- ---------- -------- ----
Other Balances
Cash and due from banks $ 113,823 $ 91,949 $ 76,422
Other assets 113,155 103,554 88,612
Total assets 2,347,853 2,232,052 1,747,989
Demand deposits
(noninterest-bearing) 366,499 305,837 238,972
Other liabilities 8,812 11,961 11,237
Stockholders' equity 144,998 105,330 88,506
======= ======= ======
<FN>
Notes
--Weighted average yields on tax-exempt obligations have been computed on a
tax-equivalent basis assuming a federal tax rate of 35%.
--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>
17
<PAGE>
Income Taxes
The provision for federal and state income taxes for 1995 was $13.4 million
compared to $11.6 million in 1994 and $8.6 million in 1993.
The increase in 1995 total tax expense was primarily the result of a significant
increase in operating income. The effective tax rate was 36.3%, 36.3% and 37.1%
in 1995, 1994, and 1993, respectively.
Net Income
Net income for 1995 was $23.5 million, an increase of $3.1 million, or 15% over
the $20.4 million recorded for 1994. This increase was due to increases in net
interest income and noninterest income, and reduced loan loss provisions, which
offset increased overhead expenses.
Fully diluted net income per share of common stock for 1995 was $1.96 compared
to $1.98 per common share for 1994. Net income per share for 1995 was impacted
by the issuance of 1,725,000 shares of common stock via an underwritten public
offering in the first quarter of 1995.
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 1995, the Company's
ROA was 1.00%, compared to .91% in 1994. 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 1995, the Company's ROE, impacted by the
common stock offering, was 16.20% compared to 19.35% for 1994.
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 1995 through 1991.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial real estate:
Owner-occupied $149,258 $151,420 $157,452 $146,739 $127,398
Other 206,422 175,260 136,819 117,743 107,178
Construction 46,816 51,042 45,926 39,555 41,280
-------- -------- -------- -------- --------
402,496 377,722 340,197 304,037 275,856
Commercial:
Term 110,252 87,128 91,336 86,666 79,972
Line of credit 59,122 48,489 36,928 26,837 32,327
Demand 127 262 404 1,075 2,510
-------- -------- -------- -------- --------
169,501 135,879 128,668 114,578 114,809
Consumer:
Mortgages
(1-4 family
residential) 104,515 83,484 71,583 67,454 77,285
Installment 131,407 109,949 74,684 54,541 45,162
Home equity 91,908 87,518 78,619 63,537 56,704
Credit lines 7,688 7,400 7,611 6,821 8,464
-------- -------- -------- -------- --------
335,518 288,351 232,497 192,353 187,615
-------- -------- -------- -------- --------
Total loans $907,515 $801,952 $701,362 $610,968 $578,280
======== ======== ======== ======== ========
</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 construction 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 generally 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 85% of consumer loans at
December 31, 1995.
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, 1995, are summarized in the following table.
18
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
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 $ 54,023 $283,321 $ 18,336 $355,680
Construction 34,999 11,501 316 46,816
-------- -------- -------- --------
89,022 294,822 18,652 402,496
Commercial:
Term 34,284 63,005 12,963 110,252
Line of credit 57,642 1,480 59,122
Demand 105 22 127
-------- -------- -------- --------
92,031 64,507 12,963 169,501
Consumer:
Mortgages
(1-4 family
residential) 7,060 31,182 66,273 104,515
Installment 22,069 61,767 47,571 131,407
Home equity 6,082 24,522 61,304 91,908
Credit lines 1,021 6,667 7,688
-------- -------- -------- --------
36,232 124,138 175,148 335,518
-------- -------- -------- --------
Total loans $217,285 $483,467 $206,763 $907,515
======== ======== ======== ========
Interest rates:
Predetermined $ 44,205 $278,701 $123,026 $445,932
Floating 173,080 204,766 83,737 461,583
-------- -------- -------- --------
Total loans $217,285 $483,467 $206,763 $907,515
======== ======== ======== ========
</TABLE>
During 1995, loans increased $105.5 million, or 13% from $802.0 million to
$907.5 million. At December 31, 1995, loans represented 41% of total deposits
and 38% of total assets. Growth in the loan portfolio was reflected in all
types, including commercial real estate, commercial, and consumer. The Company
has traditionally been an active 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, 1995, $149.3 million, or 42%, of
commercial real estate loans (other than construction) were secured by
owner-occupied properties. Growth in commercial loans was primarily in term
loans, reflecting an increase in loans to small businesses. Growth in consumer
loans was due primarily to loans secured by one to four family residential
properties, including home equity loans and home equity lines of credit.
Commercial real estate construction loans decreased $4.2 million to $46.8
million in 1995. At December 31, 1995, construction loans for one to four family
residential dwellings totaled $2.4 million and construction loans secured by
commercial properties amounted to $17.6 million. The balance of $26.8 million
was for land development, of which $25.8 million was residential. As of December
31, 1995, 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
The Company's asset quality showed continued improvement in 1995. 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, 1995 were $19.1
million or .79% of total assets, as compared to $22.3 million or .97% of total
assets at December 31, 1994.
Effective January 1, 1995, the Company adopted Financial Accounting Standards
Board (FASB) 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." Under these statements, a loan is considered
impaired when it is probable that all principal and interest will not be
collected when due according to the contractual terms of the loan agreement. At
December 31, 1995, impaired loans totaled $6.7 million, all of which are
included in non-performing loans.
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, 1995
were $8.5 million as compared to $11.8 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, 1995, loans past due 90 days or more
and still accruing interest amounted to $126 thousand, down from $211 thousand
at December 31, 1994. Additional loans considered as potential problem loans
($7.2 million at December 31, 1995 and $7.0 million at December 31, 1994) 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 both December 31, 1995 and 1994 totaled $10.5
million. 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, partic-
19
<PAGE>
ularly 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, 1995 through 1991.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Non-accrual loans(1):
Commercial $ 629 $ 1,624 $ 2,348 $ 5,943 $ 3,669
Consumer 853 1,427 1,676 1,678 1,778
Real estate
Construction 1,787 955 866 1,666 3,555
Mortgage 4,708 7,240 3,482 7,022 6,674
------- ------- ------- ------- -------
Total non-accrual
loans 7,977 11,246 8,372 16,309 15,676
------- ------- ------- ------- -------
Restructured loans(1):
Commercial 161 143 84 37
Consumer 60 29
Real estate
Construction
Mortgage 301 404 84
------- ------- ------- ------- -------
Total restructured
loans 522 576 168 37
Total non-performing
loans 8,499 11,822 8,540 16,309 15,713
------- ------- ------- ------- -------
Other real estate 10,561 10,517 18,325 16,102 8,326
------- ------- ------- ------- -------
Total non-performing
assets $19,060 $22,339 $26,865 $32,411 $24,039
------- ------- ------- ------- -------
Non-performing
assets as a percent
of total assets 0.79% 0.97% 1.32% 2.26% 2.26%
------- ------- ------- ------- -------
Loans past due 90 days
or more and still
accruing interest $ 126 $ 211 $ 272 $ 1,202 $ 787
------- ------- ------- ------- -------
<FN>
(1) Interest income of approximately $943,000, $1,246,000, $639,000,
$1,580,000, and $1,939,000 would have been recorded in 1995, 1994, 1993,
1992, and 1991, respectively, on non-performing loans in accordance with
their original terms. Actual interest recorded on these loans amounted to
$299,000 in 1995, $317,000 in 1994, $270,000 in 1993, $513,000 in 1992, and
$370,000 in 1991.
</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 1995, net charge-offs amounted to $931 thousand, or .11% of average loans
outstanding for the year, compared to $2.2 million or .29% of average loans
outstanding for 1994. During 1995, the Company recorded provisions of $2.2
million to the allowance for loan losses compared to $4.2 million for 1994. At
December 31, 1995, the allowance aggregated $13.3 million or 1.47% of total
loans and provided coverage of 157% of non-performing loans.
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,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Balance at beginning
of period $ 12,036 $ 10,023 $ 8,839 $ 8,899 $ 6,636
Provisions charged to
operating expenses 2,215 4,210 5,981 6,286 5,541
-------- -------- -------- -------- --------
14,251 14,233 14,820 15,185 12,177
Recoveries of loans
previously charged-off:
Commercial 154 123 213 102 129
Consumer 144 100 295 69 69
Real estate 292 22 112 42 3
-------- -------- -------- -------- --------
Total recoveries 590 245 620 213 201
-------- -------- -------- -------- --------
Loans charged-off:
Commercial (595) (1,536) (4,337) (1,997) (2,034)
Consumer (580) (531) (1,113) (788) (683)
Real estate (346) (375) (967) (3,774) (762)
-------- -------- -------- -------- --------
Total charged-off (1,521) (2,442) (6,417) (6,559) (3,479)
-------- -------- -------- -------- --------
Net charge-offs (931) (2,197) (5,797) (6,346) (3,278)
-------- -------- -------- -------- --------
Allowance for loan losses
acquired bank 1,000
-------- -------- -------- -------- --------
Balance at end of period $ 13,320 $ 12,036 $ 10,023 $ 8,839 $ 8,899
-------- -------- -------- -------- --------
Net charge-offs as a
percentage of average
loans outstanding 0.11% 0.29% 0.88% 1.06% 0.58%
-------- -------- -------- -------- --------
Allowance for loan losses
as a percentage of
year-end loans 1.47% 1.50% 1.43% 1.45% 1.54%
-------- -------- -------- -------- --------
</TABLE>
20
<PAGE>
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 31,
1995 1994 1993 1992 1991
% 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 $ 2,413 19% $ 1,806 17% $ 2,008 18% $ 2,532 19% $ 2,470 20%
Consumer 7,937 37 2,410 36 1,983 33 1,373 31 1,507 32
Real estate 2,970 44 7,820 47 6,032 49 4,934 50 4,922 48
------- -- ------- -- ------- -- ------- -- ------- --
$13,320 100% $12,036 100% $10,023 100% $ 8,839 100% $ 8,899 100%
======= === ======= === ======= === ======= === ======= ===
</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,
1995 1994 1993
<S> <C> <C> <C>
(dollars in thousands)
U.S. Government agency
and mortgage-backed
obligations $ 510,445 $ 116,167 $ 162,082
Equity securities 3,834 2,688 2,538
Other 6,035
---------- ---------- ----------
Securities available
for sale $ 520,314 $ 118,855 $ 164,620
---------- ---------- ----------
U.S. Government agency
and mortgage-backed
obligations $ 653,522 $1,115,749 $ 917,550
Obligations of state and
political subdivisions 12,289 565 1,871
Other 16,891 28,819 6,694
---------- ---------- ----------
Securities held to
maturity $ 682,702 $1,145,133 $ 926,115
========== ========== ==========
</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 (excluding trading securities) 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. 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 carried at cost and
adjusted for accretion of discounts and amortization of premiums.
In total, investment securities decreased $52.1 million from $1.26 billion to
$1.21 billion at December 31, 1995. Net security purchases of approximately
$71.5 million were offset by prepayments on mortgage-backed securities in the
existing portfolio. These additional cash flows were used to fund loan growth
and reduce short-term borrowings. The increase in trading securities to $8.8
million resulted from the establishment of Commerce Capital, a bank securities
dealer division of Commerce NJ.
On November 15, 1995, the FASB issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in that report, management
reclassified $361.1 million of investment securities from the held to maturity
category to the available for sale category as of December 31, 1995. The
reclassification of these securities should provide increased flexibility in
managing interest rate risk, portfolio yields, and liquidity.
The Company's investment portfolio consists almost entirely of U.S. Government
agency and mortgage-backed obligations. These securities have little, if any,
credit risk since they are either
21
<PAGE>
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.
For the year ended December 31, 1995, the yield on the investment portfolio was
6.69%, an increase of 30 basis points from 6.39% in fiscal 1994. This increase
resulted from the upward trend and timing of changes in general market interest
rates in 1995 as compared to 1994. At December 31, 1995, the average life of the
investment portfolio was approximately 6.6 years compared to approximately 7.8
years at December 31, 1994. The duration of the investment portfolio was
approximately 4.8 years at December 31, 1995 compared to approximately 5.5 years
at December 31, 1994. The shortening in the average life and duration of the
investment portfolio was primarily caused by the decline in general market
interest rates during the latter portion of 1995. At December 31, 1995 the yield
on the portfolio was 6.65%, down slightly from 6.76% at December 31, 1994.
The decline in general market interest rates in the latter part of 1995 resulted
in an increase in the market value of the investment portfolio. At December 31,
1995, the unrealized appreciation in securities available for sale included in
stockholders' equity totaled $165 thousand net of tax, compared to unrealized
depreciation of $4.3 million, net of tax, at December 31, 1994.
The contractual maturity distribution and weighted average yield of the
Company's investment portfolio (excluding equity and trading securities) at
December 31, 1995, are summarized in the following table. Weighted average yield
is calculated by dividing income within each maturity range by the outstanding
amount of the related investment and has been tax effected on tax-exempt
obligations.
<TABLE>
<CAPTION>
December 31, 1995
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
(dollars in thousands)
Securities available for sale:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agency and
mortgage-backed
obligations $71,775 6.17% $5,365 7.24% $433,305 6.91% $510,445 6.81%
Other $6,035 5.03% 6,035 5.03
------ ---- ------- ----- ------ ---- -------- ---- -------- ----
$6,035 5.03% $71,775 6.17% $5,365 7.24% $433,305 6.91% $516,480 6.78%
------ ---- ------- ----- ------ ---- -------- ---- -------- ----
Securities held
to maturity:
U.S. Government
agency and
mortgage-backed
obligations $653,522 6.46% $653,522 6.46%
Obligations of state
and political
subdivisions $12,236 6.02% $ 53 12.16% 12,289 6.02
Other 15,891 6.00 5 5.52 $ 995 9.50% 16,891 6.21
------ ---- ------- ----- ------ ---- -------- ---- -------- ----
28,127 6.01% $ 58 11.58% $ 995 9.50% $653,522 6.46% $682,702 6.44%
====== ==== ======= ===== ====== ==== ======== ==== ======== ====
</TABLE>
22
<PAGE>
Deposits
Total deposits averaged $2.1 billion for 1995, an increase of $299.6 million or
17% above the 1994 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. The Company regards core deposits as all
deposits other than certificates of deposit, retail and public, in excess of
$100 thousand. Of the $390.5 million increase in total deposits at year end
1995, $286.3 million was in the various core categories. The average balance of
noninterest-bearing demand deposits was $366.5 million, a $60.7 million or 20%
increase over the average balance for 1994. The average total balance of
passbook and statement savings accounts decreased $38.9 million, or 8% compared
to the prior year. The average balance of interest-bearing demand accounts
(money market and N.O.W. accounts) for 1995 was $595.4 million, a $120.7 million
or 25% increase over the average balance for the prior year. The average balance
of time deposits for 1995 was $636.7 million, a $157.2 million or 33% increase
over the average balance for 1994. The Company used a portion of its deposit
growth to eliminate short-term borrowings during 1995.
For 1995, the cost of total deposits was 2.99% as compared to 2.34% in 1994.
This increase resulted from the upward trend and timing of changes in market
interest rates in 1995 as compared to 1994, as well as the growth in 1995 in the
Company's government banking deposits.
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 1995, 1994, and 1993 are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(dollars in thousands)
<S> <C> <C> <C>
Demand deposits:
Noninterest-bearing $366,499 $305,837 $238,972
Interest-bearing
(money market and
N.O.W. accounts) 595,398 2.73% 474,740 2.07% 381,843 2.22%
Savings deposits 471,213 2.38 510,108 2.34 446,013 2.71
Time deposits 636,693 5.39 479,479 4.11 480,264 4.11
------- ---- ------- ---- ------- ----
Total deposits $2,069,803 $1,770,164 $1,547,092
========== ========== ==========
</TABLE>
The remaining maturity of certificates of deposit for $100,000 or more as of
December 31, 1995, 1994, and 1993 is presented below:
<TABLE>
<CAPTION>
Maturity 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C>
3 months or less $115,251 $ 95,197 $125,430
3 to 6 months 65,668 17,867 6,754
6 to 12 months 38,963 4,271 4,762
Over 12 months 2,063 400 600
-------- -------- --------
Total $221,945 $117,735 $137,546
======== ======== ========
</TABLE>
23
<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. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time ("GAP"), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-earning assets
within the one year horizon. 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, 1995.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
December 31, 1995
1-90 91-180 181-365 1-5 Beyond
Days Days Days Years 5 Years Total
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive:
Interest-earning
assets
Loans $ 457.6 $ 16.3 $ 31.2 $ 276.5 $ 122.9 $ 904.5
Investment
securities 45.5 42.9 82.2 428.2 613.0 1,211.8
Federal funds sold 29.6 29.6
-------- -------- ---------- -------- -------- ----------
Total interest-
earning assets 532.7 59.2 113.4 704.7 735.9 2,145.9
-------- -------- ---------- -------- -------- ----------
Interest-bearing
liabilities
Transaction
accounts 365.8 777.3 1,143.1
Time deposits 259.8 122.4 101.0 159.2 642.4
Other borrowed
money
Long-term debt 23.0 23.0
-------- -------- ---------- -------- -------- ----------
Total interest-
bearing
liabilities 625.6 122.4 101.0 159.2 800.3 1,808.5
-------- -------- ---------- -------- -------- ----------
Period gap (92.9) (63.2) 12.4 545.5 (64.4) $ 337.4
-------- -------- ---------- -------- -------- ----------
Cumulative gap $ (92.9) $ (156.1) $ (143.7) $ 401.8 $ 337.4
-------- -------- ---------- -------- --------
Cumulative gap as a
percentage of total
interest-earning
assets (4.3)% (7.3)% (6.7)% 18.7% 15.7%
-------- -------- ---------- -------- --------
</TABLE>
The Company's negative one year GAP position was significantly reduced during
1995, primarily through the elimination of short-term borrowings at December 31,
1995.
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 attempts to capture 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 income over the next 24 months in a flat rate scenario versus net
income in alternative interest rate scenarios. Management continually reviews
and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate 200 basis point change during the next year, with rates remaining
constant in the second year.
The Company's Asset/Liability Committee (ALCO) policy has established that
interest income sensitivity will be considered acceptable if net income in the
above interest rate scenario is within 15 percent of net income in the flat rate
scenario in the first year and within 30 percent over the two year time frame.
At December 31, 1995, the Company's income simulation model indicates an
acceptable level of interest rate risk.
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 short-term borrowings. Although at the time 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.
24
<PAGE>
Management also monitors interest rate risk by utilizing a market value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the Company's assets and liabilities, as well as any off
balance sheet items. The model calculates the market value of the Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate 200
basis point increase in rates. The Company's ALCO policy indicates that the
level of interest rate risk is unacceptable if the immediate 200 basis point
increase would result in the loss of 100% or more of the excess of market value
over book value in the current rate scenario. At December 31, 1995, the market
value of equity model indicates an acceptable level of interest rate risk.
The market value of equity model reflects certain estimates and assumptions
regarding the impact on the market value of the Company's assets and liabilities
given an immediate 200 basis point increase in interest rates. One of the key
assumptions is the market value assigned to the Company's core deposits, or the
core deposit premium. Currently, the Company's market value of equity model
includes core deposit premiums supplied by the Office of Thrift Supervision
("OTS"), which are updated on a quarterly basis. Management believes the core
deposit premiums supplied by the OTS are conservative, and result in the
Company's market value of equity model projecting an exaggerated level of
interest rate risk. The Company has undertaken a core deposit study in order to
assign its own core deposit premiums as permitted by regulation. The Company
expects the study to result in core deposit premiums which are significantly
higher than those contained in the OTS model. Higher core deposit premiums will
generally result in the Company's market value of equity model projecting a
lower level of interest rate risk than the OTS model projected at December 31,
1995.
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, and cash flow from its
amortizing investment and loan portfolios. If necessary, the Company has the
ability to raise liquidity through collateralized borrowings, FHLB advances, or
the sale of its available for sale investment portfolio. During 1995, deposit
growth and repayments in the investment portfolio were used to fund growth in
the loan portfolio and eliminate short-term borrowings.
Short-Term Borrowings
During 1995, the Company used deposit growth and other cash flows to eliminate
short-term borrowings as of December 31, 1995. For 1995, short-term borrowings,
which consisted primarily of securities sold under agreements to repurchase,
averaged $101.2 million as compared to $321.6 million in 1994. The average rate
on the Company's short-term borrowings was 6.30% during 1995.
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
On February 15, 1995, the Company publicly issued 1,725,000 shares of common
stock. Net proceeds to the Company were $25.8 million. The proceeds were
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.
At December 31, 1995, stockholders' equity totaled $162.0 million, up $50.1
million or 45% over stockholders' equity of $111.9 million at December 31, 1994.
This increase was primarily due to the Company's common stock offering as well
as increased earnings for the year. Stockholders' equity as a percent of total
assets was 6.71% at December 31, 1995, as compared to 4.88% at December 31,
1994.
Risk-based capital standards issued by bank regulatory authorities in the United
States 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
25
<PAGE>
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 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
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Risk-Based Capital Ratios:
Tier 1 13.02% 10.09% 4.00% 4.00%
Total 16.06 13.31 8.00 8.00
Leverage capital 6.54 4.87 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, 1995, the Company's
consolidated capital levels and 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%.
All of the bank regulatory agencies recently issued a final rule that amends
their capital guidelines for interest rate risk and requires such agencies to
consider in their evaluation of a bank's capital adequacy the exposure of a
bank's capital and economic value to changes in interest rates. This final rule
does not establish an explicit supervisory threshold. The agencies intend, at a
subsequent date, to incorporate explicit minimum requirements for interest rate
risk into their risk based capital standards. The agencies have proposed a
supervisory model to be used together with bank internal models to gather data
and hope to propose at a later date explicit minimum requirements.
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 12, 1996, January 2, 1995, and January 31, 1994. As
of February 29, 1996, there were approximately 10,500 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>
1995 Quarter Ended
December 31 $23.58 $20.83 $0.1548
September 30 24.17 18.22 0.1548
June 30 18.45 15.72 0.1548
March 31 17.97 14.77 0.1474
1994 Quarter Ended
December 31 $19.50 $15.64 $0.1474
September 30 21.55 17.00 0.1474
June 30 17.69 14.06 0.1361
March 31 15.64 13.39 0.1296
</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 - 1994 versus 1993
Net income for 1994 was $20.4 million compared to $14.6 million in 1993. Fully
diluted net income per common share was $1.98 compared to $1.49 per common share
for the prior year.
Net interest income on a tax-equivalent basis for 1994 amounted to $90.9
million, an increase of $20.7 million, or 30% over 1993.
26
<PAGE>
Interest income on a tax-equivalent basis increased $33.9 million or 30% to
$148.4 million in 1994. 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 in 1993. This 30% increase was attributable to
higher levels of short-term borrowings and, to a lesser extent, increased
deposit volumes.
The provision for loan losses was $4.2 million in 1994 compared to $6.0 million
in the prior year. The decrease in the provision for loan losses was associated
with the decrease in non-performing assets.
Noninterest income for 1994 totaled $17.5 million, an increase of $200 thousand
from $17.3 million in 1993. Increased deposit charges and service fees, which
increased $1.7 million due to transaction volumes, offset a significant decrease
in net investment securities gains. 1994 securities gains 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 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 new branch openings, staff, facilities, and related expenses
rose accordingly.
Audit and regulatory fees and assessments totaled $4.9 million for 1994, an
increase of $800 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 expense 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, and 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.
27
<PAGE>
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1995 1994
<S> <C> <C>
Assets
Cash and due from banks $ 147,465 $ 119,697
Federal funds sold 29,550 9,750
---------- ----------
Cash and cash equivalents 177,015 129,447
Mortgages held for sale 5,442 2,263
Trading securities 8,843
Securities available for sale 520,314 118,855
Securities held to maturity 682,702 1,145,133
(market value 1995-$671,539;
1994-$1,039,311)
Loans 907,515 801,952
Less allowance for loan losses 13,320 12,036
---------- ----------
894,195 789,916
Bank premises and equipment, net 74,289 57,997
Other assets 53,094 47,679
---------- ----------
$2,415,894 $2,291,290
========== ==========
Liabilities
Deposits:
Demand:
Interest-bearing $ 657,568 $ 510,345
Noninterest-bearing 439,609 367,421
Savings 485,522 488,282
Time 642,399 468,524
---------- ----------
Total deposits 2,225,098 1,834,572
Other borrowed money 312,895
Other liabilities 1,417 3,565
Obligation to Employee Stock Ownership Plan (ESOP) 4,359 5,385
Long-term debt 23,000 23,000
---------- ----------
2,253,874 2,179,417
========= =========
Stockholders'
Equity
Common stock, 11,337,719 shares issued
(9,423,812 shares in 1994) 16,880 13,234
Series C preferred stock, 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 112,894 80,033
Retained earnings 30,723 17,757
---------- ----------
168,003 118,530
Less commitment to ESOP 4,359 5,385
Less treasury stock, at cost,
100,159 common shares in 1995
(79,520 in 1994) 1,624 1,272
---------- ----------
Total stockholders' equity 162,020 111,873
---------- ----------
$2,415,894 $2,291,290
========== ==========
</TABLE>
See accompanying notes.
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands, except per share amounts) 1995 1994 1993
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 80,165 $ 65,443 $ 56,301
Interest on investment securities 81,888 81,531 56,166
Other interest 3,469 1,020 1,524
-------- -------- --------
Total interest income 165,522 147,994 113,991
-------- -------- --------
Interest expense
Interest on deposits:
Demand 16,246 9,822 8,490
Savings 11,225 11,945 12,091
Time 34,337 19,706 19,755
-------- -------- --------
Total interest on deposits 61,808 41,473 40,336
Interest on other borrowed money 6,379 13,962 3,000
Interest on long-term debt 2,025 2,025 930
-------- -------- --------
Total interest expense 70,212 57,460 44,266
-------- -------- --------
Net interest income 95,310 90,534 69,725
Provision for loan losses 2,215 4,210 5,981
-------- -------- --------
Net interest income after
provision for loan losses 93,095 86,324 63,744
-------- -------- --------
Noninterest
income
Deposit charges and service fees 16,362 13,779 12,062
Other operating income 5,024 3,114 2,326
Net investment securities gains 106 641 2,956
-------- -------- --------
Total noninterest income 21,492 17,534 17,344
-------- -------- --------
Noninterest expense
Salaries 26,430 22,750 18,697
Benefits 7,072 6,648 4,905
Occupancy 8,645 7,828 5,949
Furniture and equipment 9,742 8,340 6,292
Office 7,428 6,267 4,669
Audit and regulatory fees
and assessments 3,278 4,877 4,040
Marketing 3,135 2,722 1,778
Other real estate (net) 2,423 3,127 3,944
Other 9,540 9,304 7,599
-------- -------- --------
Total noninterest expenses 77,693 71,863 57,873
-------- -------- --------
Income before income taxes 36,894 31,995 23,215
Provision for federal and state income taxes 13,409 11,618 8,600
-------- -------- --------
Net income 23,485 20,377 14,615
Dividends on preferred stocks 563 1,074 1,574
-------- -------- --------
Net income applicable to common stock $ 22,922 $ 19,303 $ 13,041
-------- -------- --------
Net income per common and common
equivalent share:
Primary $ 2.03 $ 2.14 $ 1.61
-------- -------- --------
Fully diluted $ 1.96 $ 1.98 $ 1.49
-------- -------- --------
Average common and common equivalent
shares outstanding:
Primary 11,278 9,020 8,120
-------- -------- --------
Fully diluted 11,935 10,219 9,654
-------- -------- --------
Cash dividends declared, common stock $ 0.61 $ 0.56 $ 0.43
-------- -------- --------
</TABLE>
See accompanying notes.
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Operating activities
Net income $ 23,485 $ 20,377 $ 14,615
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 2,215 4,210 5,981
Provision for depreciation, amortization
and accretion 13,565 16,068 15,135
Gains on sales of securities available for sale (106) (641) (2,956)
Proceeds from sales of mortgages held for sale 18,343 76,249 80,451
Originations of mortgages held for sale (21,522) (35,361) (113,583)
Net loan chargeoffs (931) (2,197) (5,797)
Net increase in trading securities (8,843)
(Increase) decrease in other assets (8,720) 12,715 (17,610)
(Decrease) increase in other liabilities (1,573) (19,860) 23,303
Deferred income tax benefit (575) (1,105) (445)
----------- ----------- -----------
Net cash provided (used) by operating
activities 15,338 70,455 (906)
Investing activities
Proceeds from sales of securities available for sale 189 961 325,146
Proceeds from the maturity of securities available
for sale 29,406 36,752 69,411
Proceeds from the maturity of securities held
to maturity 96,081 120,052 551,735
Purchase of securities available for sale (48,781)
Purchase of securities held to maturity (13,858) (346,264) (1,440,794)
Net increase in loans (112,283) (106,617) (93,957)
Proceeds from sales of loans 6,720 6,027 4,563
Purchases of premises and equipment (24,059) (21,235) (16,231)
----------- ----------- -----------
Net cash used by investing activities (66,585) (310,324) (600,127)
Financing activities
Net increase in demand and savings deposits 216,651 119,666 172,510
Demand and savings deposits acquired 79,446
Net increase (decrease) in time deposits 173,875 (30,009) 28,864
Time deposits acquired 128,477
Net (decrease) increase in other borrowed money (312,895) 177,895 135,000
Proceeds from the issuance of long-term debt 23,000
Issuance of common stock 25,774 5,498
Dividends paid (7,116) (5,796) (4,842)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 2,681 1,913 1,397
Purchase of treasury stock (352) (214) (166)
Other 197 136 191
----------- ----------- -----------
Net cash provided by financing activities 98,815 263,591 569,375
Increase (decrease) in cash and cash equivalents 47,568 23,722 (31,658)
Cash and cash equivalents at beginning of year 129,447 105,725 137,383
----------- ----------- -----------
Cash and cash equivalents at end of year $ 177,015 $ 129,447 $ 105,725
----------- ----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 70,247 $ 56,143 $ 42,994
Income taxes 13,265 12,540 8,714
Other noncash activities
Transfer of securities to securities
available for sale $ 361,126 $ 248,784
</TABLE>
30
See accompanying notes.
<PAGE>
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Common Preferred Capital Retained Commitment Treasury
(in thousands, except per share amounts) Stock Stock Surplus Earnings to ESOP Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances 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
($0.43 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
(39 shares) 53 475 528
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1993 10,985 8,179 73,821 13,203 (5,954) (1,058) 99,176
Accounting change adjustment for
unrealized gain on securities
available for sale, net of tax 954 954
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
($0.56 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 (702 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 (55 shares) 81 871 952
Fair value adjustment on available
for sale securities, net of tax (5,242) (5,242)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1994 13,234 7,506 80,033 17,757 (5,385) (1,272) 111,873
Net income 23,485 23,485
5% common stock dividend and
cash paid in lieu of fractional
shares (419 shares) 655 7,201 (7,869) (13)
Cash dividends, common stock
($0.61 per share) (6,540) (6,540)
Common stock issued in connection
with incentive stock option plan
(108 shares) 169 899 (352) 716
Cash dividends, preferred stock (563) (563)
Decrease in obligation to ESOP 1,026 1,026
Common stock issued (1,725 shares) 2,695 23,079 25,774
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common
stock under dividend reinvestment
plan (81 shares) 127 1,485 1,612
Fair value adjustment on available
for sale securities, net of tax 4,453 4,453
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1995 $ 16,880 $ 7,506 $ 112,894 $ 30,723 $ (4,359) $ (1,624) $ 162,020
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes
31
<PAGE>
1. Significant Accounting Policies
Basis of Presentation
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 1995 presentation.
The Company is a multi-bank holding company headquartered in Cherry Hill, New
Jersey, operating primarily in the Metropolitan Philadelphia and southern New
Jersey markets. Through its subsidiaries, the Company provides retail and
commercial banking services, corporate trust services, and municipal bond
underwriting services.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Investment Securities
Trading account securities are carried at market value. Gains and losses, both
realized and unrealized, are included in other operating income.
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.
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.
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.
32
<PAGE>
Effective January 1, 1995, the Company adopted Financial Accounting Standards
Board ("FASB") Statements No.114, "Accounting by Creditors for Impairment of a
Loan" (FAS 114), and No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." These statements require impaired loans be
measured at the present value of expected future cash flows by discounting those
cash flows generally at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of these statements
did not have a material impact on the allowance for loan losses and did not
affect the Company's charge-off or income recognition policies.
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated depreciation.
Depreciation and amortization is determined on the straight-line method for
financial reporting purposes, and accelerated methods for income tax purposes.
Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan 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
$3,699,000 and $3,611,000 at December 31, 1995 and 1994, respectively. Other
intangible assets are amortized on a straight-line basis over 10- to 15-year
lives. Other intangibles amounted to $3,374,000 and $3,826,000 at December 31,
1995 and 1994, 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 January 2, 1996.
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 1995 and 1994 were
approximately $31,057,000 and $29,202,000, respectively.
33
<PAGE>
2. 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, 1995 and
1994 follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
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 and
mortgage-backed
obligations $511,048 $ 1,868 $ (2,471) $ 510,445 $ 123,453 $ (7,286) $ 116,167
Equity securities 2,988 846 3,834 2,153 $ 535 2,688
Other 6,035 6,035
-------- -------- -------- ----------- ----------- --------- ----------- -----------
Securities available
for sale $520,071 $ 2,714 $ (2,471) $ 520,314 $ 125,606 $ 535 $ (7,286) $ 118,855
-------- -------- -------- ----------- ----------- --------- ----------- -----------
U.S. Government
agency and mortgage-
backed obligations $653,522 $(11,173) $ 642,349 $ 1,115,749 $ 15 $ (105,705) $ 1,010,059
Obligations of state
and political
subdivisions 12,289 $ 10 12,299 565 8 573
Other 16,891 16,891 28,819 (140) 28,679
-------- -------- -------- ----------- ----------- --------- ----------- -----------
Securities held to
maturity $682,702 $ 10 $(11,173) $ 671,539 $ 1,145,133 $ 23 $ (105,845) $ 1,039,311
======== ======== ======== =========== =========== ========= =========== ===========
</TABLE>
The amortized cost and estimated market value of investment securities (in
thousands) at December 31, 1995, 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 $ 6,035 $ 6,035 $ 28,127 $ 28,137
Due after one year through five years 47,881 48,424 58 58
Due after five years through ten years 995 995
Due after ten years
Mortgage-backed securities 463,167 462,021 653,522 642,349
Equity securities 2,988 3,834
-------- -------- -------- --------
$520,071 $520,314 $682,702 $671,539
======== ======== ======== ========
</TABLE>
Proceeds from sales of securities available for sale during 1995, 1994, and 1993
were $189,000, $961,000, and $325,146,000 respectively. Gross gains of $106,000
and $641,000 were realized on the sales in 1995 and 1994, respectively. Gross
gains of $3,864,000 and gross losses of $907,000 were realized on the sales in
1993.
At December 31, 1995 and 1994, investment securities with a carrying value of
$219,459,000 and $88,730,000, respectively, were pledged to secure deposits of
public funds.
On November 15, 1995, the FASB issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provisions of that report,
management reclassified $362,420,000 of investment securities from the held to
maturity category to the available for sale category as of December 31, 1995.
Unrealized losses on those securities transferred were $1,294,000.
At December 31, 1995, the unrealized appreciation in securities available for
sale included in retained earnings totaled $165,000, net of tax, compared to
unrealized depreciation of $4,288,000, net of tax, at December 31, 1994.
34
<PAGE>
3. Loans
The following is a summary of loans outstanding (in thousands) at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Commercial real estate:
Owner-occupied $149,258 $151,420
Other 206,422 175,260
Construction 46,816 51,042
-------- --------
402,496 377,722
Commercial loans:
Term 110,252 87,128
Line of credit 59,122 48,489
Demand 127 262
-------- --------
169,501 135,879
Consumer:
Mortgages (1-4 family residential) 104,515 83,484
Installment 131,407 109,949
Home equity 91,908 87,518
Credit lines 7,688 7,400
-------- --------
335,518 288,351
-------- --------
$907,515 $801,952
======== ========
</TABLE>
At December 31, 1995 and 1994, loans of approximately $5,341,000 and $6,320,000,
respectively, were outstanding to certain of the Company's and the Banks'
directors and officers, and approximately $11,784,000 and $11,824,000,
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, 1995 is as
follows:
1995
Balance, January 1 $18,144
New loans 5,820
Loan payments 6,839
-------
Balance, December 31 $17,125
=======
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 $222,500 in 1995, $264,000 in 1994, and
$270,000 in 1993. The Company received legal services from two law firms of
which two directors of the Company are partners. Such aggregate legal services
amounted to $1,371,000 in 1995, $1,307,000 in 1994, and $1,524,000 in 1993.
35
<PAGE>
4. Allowances for Loan Losses
The following is an analysis of changes in the allowance for loan losses (in
thousands) for 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Balance, January 1 $ 12,036 $ 10,023 $ 8,839
Provision charged to
operating expense 2,215 4,210 5,981
Recoveries of loans
previously charged off 590 245 620
Loan charge-offs (1,521) (2,442) (6,417)
Allowance for loan losses,
acquired bank 1,000
-------- -------- --------
Balance, December 31 $ 13,320 $ 12,036 $ 10,023
======== ======== ========
</TABLE>
5. Nonaccrual and Restructured Loans and Other Real Estate
The total of non-performing loans (nonaccrual and restructured loans) was
$8,499,000 and $11,822,000 at December 31, 1995 and 1994, respectively.
Non-performing loans of $5,664,000, $1,861,000, and $6,655,000 net of charge
offs of $103,000, $153,000, and $1,316,000 were transferred to other real estate
during 1995, 1994, and 1993, respectively. Other real estate ($10,561,000 and
$10,517,000 at December 31, 1995 and 1994, respectively) is included in other
assets.
At December 31, 1995, the recorded investment in loans considered to be impaired
under FAS 114 totaled $6,668,000, all of which are included in non-performing
loans. As permitted, all homogeneous smaller balance consumer and residential
mortgage loans are excluded from individual review for impairment. The majority
of impaired loans were measured using the fair value of collateral. No portion
of the allowance for loan losses is allocated to these loans. During 1995,
impaired loans averaged approximately $7,227,000. Interest income of
approximately $943,000 would have been recorded on non-performing loans
(including impaired loans) in accordance with their original terms in 1995.
Actual interest income recorded on these loans amounted to $299,000 during 1995.
36
<PAGE>
6. Bank Premises, Equipment, and Leases
A summary of bank premises and equipment (in thousands) is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Land $15,320 $12,583
Buildings 33,779 24,968
Leasehold improvements 5,391 5,464
Furniture, fixtures and equipment 38,723 30,149
Leased property under capital leases 124 124
------- -------
93,337 73,288
Less accumulated depreciation
and amortization 19,048 15,291
------- -------
$74,289 $57,997
======= =======
</TABLE>
At December 31, 1995, 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, 1995. The lease is
accounted for as an operating lease with an annual rent of $926,000. 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, 1995. The lease is
accounted for as an operating lease with an annual rent of $572,000. The lease
expires in 2004 and is renewable for two additional terms of five years each.
At December 31, 1995, 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 1995,
1994, and 1993 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, 1995, the future minimum
lease payments to be received by the Company amount to approximately $55,000 for
each of the next four years and $542,000 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 $2,954,000 in 1995, $2,716,000 in 1994, and $2,542,000 in 1993.
37
<PAGE>
The future minimum rental commitments, by year, under the non-cancelable leases
are as follows (in thousands) at December 31, 1995:
<TABLE>
<CAPTION>
Capital Operating
<S> <C> <C>
1995 $ 12 $2,752
1996 12 2,107
1997 12 2,113
1998 12 1,977
1999 12 1,731
Later years 168 11,940
---- -------
Net minimum lease payment $228 $22,620
---- -------
Less amount representing
interest 122
----
Present value of net
minimum lease payments $106
====
</TABLE>
The Company obtained interior design and general contractor services for
$496,000, $468,000, and $651,000 in 1995, 1994, and 1993, respectively, from a
business owned by the spouse of the Chairman of the Board of the Company.
Additionally, the business received commissions of approximately $931,000,
$962,000, and $265,000 in 1995, 1994, and 1993, respectively, on furniture and
facility purchases made directly by the Company.
7. Deposits
The aggregate amount of time certificates of deposits in denominations of
$100,000 or more was $221,945,000 and $117,735,000 at December 31, 1995 and
1994, respectively.
8. Other Borrowed Money
Other borrowed money consisted of securities sold under agreements to
repurchase, which ranged up to three months in maturity. The following table
represents information for securities sold under agreements to repurchase.
<TABLE>
<CAPTION>
December 31,
1995 1994
Average Average
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Securities sold under
agreements to repurchase $312,895 5.94%
Average amount outstanding $101,240 6.30% 321,598 4.34%
Maximum month-end balance 347,531 363,210
</TABLE>
As of December 31, 1995, the Company had a line of credit of $359,493,000
available from the Federal Home Loan Bank of New York.
9. 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.
38
<PAGE>
10. Income Taxes
At December 31, 1995, the Company had federal net operating loss carryforwards
of $600,000 for income tax purposes that expire in 2006. Those carryforwards
resulted from a prior acquisition.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $ 12,999 $ 11,917 $ 8,001
State 985 806 811
Deferred:
Federal (459) (1,038) (212)
State (116) (67)
-------- -------- --------
$ 13,409 $ 11,618 $ 8,600
======== ======== ========
</TABLE>
The above provision includes income taxes related to securities gains of
$37,000, $224,000 and $1,035,000 for 1995, 1994, and 1993, respectively.
The provision for income taxes differs from the expected statutory provision as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Expected provision at statutory rate: 35.0% 35.0% 35.0%
Difference resulting from:
Tax-exempt interest on loans (0.4) (0.6) (0.8)
Tax-exempt interest on securities (0.3) (0.1) (0.3)
Purchase accounting adjustments 0.3 0.3 0.4
Other 1.7 1.7 2.8
---- ---- ----
36.3% 36.3% 37.1%
==== ==== ====
</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.
39
<PAGE>
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $5,157 $4,522
Other reserves 181 155
Fair value adjustment, available
for sale securities 2,463
Investment valuations 48 239
Interest income 210 105
Net operating losses 181 180
Other 546 467
------ ------
Total deferred tax assets 6,323 8,131
------ ------
Deferred tax liabilities:
Depreciation 977 821
Intangibles 102 159
Fair value adjustment, available
for sale securities 77
Other 534 593
------ ------
Total deferred tax liabilities 1,690 1,573
------ ------
Net deferred assets $4,633 $6,558
====== ======
</TABLE>
11. 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, 1995, the Banks
had outstanding standby letters of credit in the amount of $12,801,000.
In addition, the Banks are committed as of December 31, 1995 to advance
$49,021,000 on construction loans, $86,384,000 on home equity lines of credit
and $55,869,000 on lines of credit. All other commitments total approximately
$75,555,000. The Company anticipates no material losses as a result of these
transactions.
12. Dividends
On January 2, 1996, the Board of Directors declared a cash dividend of $0.175
for each share of common stock outstanding and a 5% stock dividend payable
January 26, 1996 to stockholders of record on January 12, 1996. Payment of the
stock dividend will result in the issuance of 534,306 additional common shares
and cash of $23,180 in lieu of fractional shares.
40
<PAGE>
13. Common Stock and Preferred Stock
At December 31, 1995 , the Company's common stock had a par value of $1.5625.
The Company had 20,000,000 shares authorized as of this date.
At December 31, 1995 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 14).
14. Benefit Plans
Employee Stock Option Plan
The Company has an Employee Stock Option Plan (the 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, 1995, 1994, and
1993 is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Under option 1,020,693 872,173 982,130
Exercisable 752,335 741,969 608,889
Exercised during year 118,404 95,286 115,232
Granted during year 274,211 467,883
Canceled during year 7,287 14,671 18,303
Year Shares Under Shares
Ended Option Exercised
December 31, 1995 $9.78 to $17.85 $9.78 to $16.32
December 31, 1994 $4.67 to $16.32 $4.67 to $13.39
December 31, 1993 $4.67 to $13.39 $4.67 to $11.85
</TABLE>
All shares and per share prices for shares under option and exercised have been
adjusted for a 5% common stock dividend declared on January 2, 1996.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). FAS 123 defines a fair value based method of accounting
for stock-based employee compensation plans, and encourages all entities to
adopt this method of accounting for all employee stock compensation plans. Under
the fair value based method, compensation expense would be measured at the grant
date based upon the value of the award, and would be recognized over the vesting
period. However, FAS 123 also permits entities to continue to measure
compensation expense for their stock-based plans as prescribed in APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Under the provisions of APB
Opinion No. 25, compensation expense is measured as the excess, if any, of the
market price of the stock underlying the award on the grant date over the
exercise price. Under the Company's Plan, awards do not result in compensation
expense on the date of grant as the exercise price equals the market price.
41
<PAGE>
Entities electing to continue the accounting prescribed in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share in fiscal
years beginning after December 31, 1995, as if the fair value method defined in
FAS 123 was applied. Currently, management expects to continue its accounting in
accordance with APB Opinion No. 25, and will provide the required pro forma
disclosures in the December 31, 1996 financial statements.
Employee Stock Ownership Plan
As of December 31, 1995 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. The loan is payable in
quarterly installments 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 1995, 1994, and 1993 was $934,000, $648,000, and
$617,000, respectively.
Post-employment and Post-retirement Benefits
The Company offers no post-employment and post-retirement benefits.
15. 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.
42
<PAGE>
The following table represents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
December 31,
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 177,015 $ 177,015 $ 129,447 $ 129,447
Mortgages held for sale 5,442 5,442 2,263 2,263
Trading securities 8,843 8,843
Investment securities 1,203,016 1,191,853 1,263,988 1,158,166
Loans (net) 894,195 921,449 789,916 788,516
Financial liabilities:
Deposits 2,225,098 2,233,133 1,834,572 1,836,178
Other borrowed money 312,895 312,895
Obligation to ESOP 4,359 4,359 5,385 5,385
Long-term debt 23,000 25,663 23,000 21,045
Off-balance sheet instruments:
Standby letters of credit $ (128) $ (189)
Commitments to extend credit (440) (278)
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents, mortgages held for sale and trading securities: 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.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans receivable were estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Loans with significant collectibility
concerns were fair valued on a loan-by-loan basis utilizing a discounted cash
flow method. The carrying amount of accrued interest approximates its fair
value.
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.
43
<PAGE>
Other borrowed money: The carrying amounts reported approximate 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.
Long-term debt: Current quoted market prices were used to estimate 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.
16. 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
1995 December 31 September 30 June 30 March 31
<S> <C> <C> <C> <C>
Interest income $41,937 $41,574 $41,594 $40,417
Interest expense 17,134 17,603 17,938 17,537
Net interest income 24,803 23,971 23,656 22,880
Provision for loan losses 582 388 388 857
Net investment securities gains 88 18
Provision for federal and state
income taxes 3,482 3,577 3,356 2,994
Net income 6,149 6,277 5,816 5,243
Net income applicable to
common stock 6,008 6,136 5,676 5,102
Net income per common share:
Primary $ 0.52 $ 0.52 $ 0.50 $ 0.49
Fully diluted 0.50 0.51 0.48 0.47
1994
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 $ 0.50 $ 0.58 $ 0.56 $ 0.50
Fully diluted 0.48 0.53 0.51 0.46
</TABLE>
44
<PAGE>
17. Condensed Financial Statements of the Parent Company and Other Matters
Balance Sheets
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1995 1994
<S> <C> <C>
Assets
Cash $ 5,979 $ 4,216
Securities available for sale 4,077 2,688
Securities held to maturity 110 371
Investment in Banks 172,392 124,917
Other assets 8,850 9,279
-------- --------
$191,408 $141,471
-------- --------
Liabilities
Other liabilities $ 2,029 $ 1,213
Long-term debt 23,000 23,000
Obligation to Employee Stock
Ownership Plan (ESOP) 4,359 5,385
-------- --------
29,388 29,598
-------- --------
Stockholders' equity
Common stock 16,880 13,234
Series C preferred stock: 7,506 7,506
Capital in excess of par or stated value 112,894 80,033
Retained earnings 30,723 17,757
-------- --------
168,003 118,530
Less commitment to ESOP 4,359 5,385
Less treasury stock 1,624 1,272
-------- --------
Total stockholders' equity 162,020 111,873
-------- --------
$191,408 $141,471
======== ========
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Income:
Dividends from Banks $ 8,203 $ 4,400 $ 7,182
Interest income 207 203 256
Other 325 872 298
-------- -------- --------
8,735 5,475 7,736
-------- -------- --------
Expenses:
Interest expense 2,025 2,025 930
Operating expenses 1,479 1,601 1,246
-------- -------- --------
3,504 3,626 2,176
Income before income taxes and equity
in undistributed income of Banks 5,231 1,849 5,560
Income tax expense (benefit) (956) (834) (489)
-------- -------- --------
6,187 2,683 6,049
Equity in undistributed income of Banks 17,298 17,694 8,566
-------- -------- --------
Net income 23,485 20,377 14,615
Dividends on preferred stock 563 1,074 1,574
-------- -------- --------
Net income applicable to common stock $ 22,922 $ 19,303 $ 13,041
======== ======== ========
</TABLE>
45
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income $ 23,485 $ 20,377 $ 14,615
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of Banks (17,298) (17,694) (8,566)
Gains on sales of securities available for sale (106) (641)
Decrease (increase) in accrued interest
receivable and other assets 429 699 (3,731)
Increase (decrease) in accounts payable and
other liabilities 706 44 (881)
-------- -------- --------
Net cash provided by operating activities 7,216 2,785 1,437
Investing activities:
Investment in Banks (25,925) (2,900) (24,509)
Proceeds from sale of securities available for sale 189 961
Purchase of equity securities (918) (283)
Other 18 (139) 66
-------- -------- --------
Net cash used by investing activities (26,636) (2,078) (24,726)
Financing activities:
Net proceeds from common stock offering 25,774
Tax benefit from ESOP dividends 197 197 191
Proceeds from issuance of common stock
under dividend reinvestment plan 1,612 952 528
Cash dividends (7,116) (5,796) (4,842)
Proceeds from exercise of stock options 1,068 961 870
Purchase of treasury stock (352) (214) (166)
Redemption of preferred B stock (61)
Proceeds from issuance of long-term debt 23,000
Equity of acquired bank 5,498
-------- -------- --------
Net cash provided (used) by financing
activities 21,183 (3,961) 25,079
Increase (decrease) in cash and cash equivalents 1,763 (3,254) 1,790
Cash and cash equivalents at beginning of year 4,216 7,470 5,680
-------- -------- --------
Cash and cash equivalents at end of year $ 5,979 $ 4,216 $ 7,470
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,926 $ 1,926
Income taxes 12,245 11,763 $ 7,852
-------- -------- --------
</TABLE>
46
<PAGE>
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 1996 without approval of
the Comptroller of the Currency of approximately $27,838,000, $3,039,000, and
$4,114,000, respectively, plus an additional amount equal to each bank's net
profit for 1996 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, 1995 and 1994, the Company complies with
these guidelines.
47
<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, 1995 and 1994 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, 1995. 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, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 26, 1996
<PAGE>
Headquarters
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey
08034-5400
Annual Shareholders' Meeting
Commerce Bancorp, Inc.'s annual shareholders' meeting will be held on Tuesday,
June 18, 1996 at 5:30 p.m. at
Commerce University
17000 Horizon Way at Springdale Road
Mount Laurel, New Jersey.
Dividend Reinvestment
and Stock Purchase Plan
Commerce Bancorp, Inc. offers its shareholders a convenient plan to increase
their investment in the company. Through the Dividend Reinvestment and Stock
Purchase Plan, holders of common stock may have their quarterly dividends and
optional cash payments of up to $5,000 per quarter reinvested in additional
common shares at a 3% discount from the market price and without brokerage fees,
commissions, or service charges. Shareholders not enrolled in this plan, as well
as brokers and custodians who hold stock for clients, may receive a plan
prospectus and enrollment card by contacting Mellon Securities Trust Company at
(800) 526-0801.
Contacts
Analysts, portfolio managers, and others seeking financial information about
Commerce Bancorp, Inc. should contact C. Edward Jordan, Jr., Executive Vice
President, at (609) 751-9000. News media representatives and others seeking
general corporate information should contact John J. Cunningham, Jr., Senior
Vice President, at (609) 751-9000.
Shareholders seeking assistance should contact Cathy L. Lowther, Assistant
Secretary. For assistance with stock records, please contact Mellon Securities
Trust Company at (800) 526-0801.
Annual Report and Form 10-K
Additional copies of Commerce Bancorp, Inc.'s Annual Report and Form 10-K are
available without charge by writing
Commerce Bancorp, Inc.,
Shareholder Relations,
1701 Route 70 East,
Cherry Hill, New Jersey 08034-5400.
NASDAQ Symbol
Shares of Commerce Bancorp, Inc.'s common stock are traded nationally under the
symbol COBA in the Over-The-Counter Market and are listed in NASDAQ Quotations.
Transfer and Dividend Paying Agent/Registrar
Mellon Securities Trust Company
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
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 26, 1996,
included in the consolidated financial statements of Commerce Bancorp, Inc. and
Subsidiaries.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000715096
<NAME> COMMERCE BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 147,465
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 29,550
<TRADING-ASSETS> 8,843
<INVESTMENTS-HELD-FOR-SALE> 520,314
<INVESTMENTS-CARRYING> 682,702
<INVESTMENTS-MARKET> 671,539
<LOANS> 907,515
<ALLOWANCE> 13,320
<TOTAL-ASSETS> 2,415,894
<DEPOSITS> 2,225,098
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,417
<LONG-TERM> 27,359
0
7,506
<COMMON> 16,880
<OTHER-SE> 137,634
<TOTAL-LIABILITIES-AND-EQUITY> 2,415,894
<INTEREST-LOAN> 80,165
<INTEREST-INVEST> 81,888
<INTEREST-OTHER> 3,469
<INTEREST-TOTAL> 165,522
<INTEREST-DEPOSIT> 61,808
<INTEREST-EXPENSE> 70,212
<INTEREST-INCOME-NET> 95,310
<LOAN-LOSSES> 2,215
<SECURITIES-GAINS> 106
<EXPENSE-OTHER> 77,693
<INCOME-PRETAX> 36,894
<INCOME-PRE-EXTRAORDINARY> 36,894
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,485
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 1.96
<YIELD-ACTUAL> 4.49
<LOANS-NON> 7,977
<LOANS-PAST> 126
<LOANS-TROUBLED> 522
<LOANS-PROBLEM> 7,166
<ALLOWANCE-OPEN> 12,036
<CHARGE-OFFS> 1,521
<RECOVERIES> 590
<ALLOWANCE-CLOSE> 13,320
<ALLOWANCE-DOMESTIC> 13,320
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
