SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 21, 1997
Commerce Bancorp, Inc.
(Exact Name of Registrant as Specified in Charter)
New Jersey 0-12874 22-2433468
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (609) 751-9000
NOT APPLICABLE
(Former name or former address, if changed since last report).
<PAGE>
Item 2 - Acquisition or Disposition of Assets
Under the terms of an Agreement and Plan of Reorganization and a
related Agreement and Plan of Merger, as amended, (collectively the "Merger
Agreement") each dated October 15, 1996, by and between Commerce Bancorp, Inc.
("CBI") and Independence Bancorp, Inc. ("IBI"), on January 21, 1997, IBI was
merged with and into CBI and each share of the Common Stock of IBI owned on the
Effective Date of the Merger (i.e., January 21, 1997) was automatically
converted into .98175 shares of the Common Stock of CBI. For further information
on this transaction, see CBI's Registration Statement on Form S-4 (Registration
No. 333-16263) which is incorporated herein by reference.
Item 7 - Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Independence Bancorp, Inc. and Subsidiaries
Audited Financial Statements:
Report of Independent Public Accountants.
Consolidated Balance Sheet as of December 31, 1996.
Consolidated Statement of Income for the year ended December 31, 1996.
Consolidated Statement of Changes in Stockholders' Equity for the year
ended December 31, 1996.
Consolidated Statement of Cash Flows for the year ended December 31,
1996.
Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information
Pro Forma Combined Condensed Balance Sheet as of December 31, 1996.
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1996.
<PAGE>
INDEPENDENCE BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Independence Bancorp, Inc.:
We have audited the accompanying consolidated balance sheet of Independence
Bancorp, Inc. (a New Jersey corporation) and subsidiary as of December 31, 1996
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Independence Bancorp, Inc. and
subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 21, 1997
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(000's omitted)
ASSETS
ASSETS:
Cash and due from banks (Note 2) $23,842
Interest bearing deposits in other banks 18,785
Federal funds sold 14,025
Cash and cash equivalents 56,652
SECURITIES (Notes 1 and 3):
Available for sale, at market 27,195
Held to maturity, at cost (market value $113,413) 114,201
--------
Total securities 141,396
LOANS (Notes 1, 4 and 5):
Commercial 25,159
Real estate - construction 7,013
Real estate - commercial 62,196
Real estate - residential 34,129
Installment 43,259
Total loans 171,756
Less- Allowance for possible loan losses 3,636
--------
Loans, net 168,120
PREMISES AND EQUIPMENT, net (Notes 1 and 6) 7,463
ACCRUED INTEREST RECEIVABLE 2,726
OTHER REAL ESTATE, net (Notes 1 and 4) 143
OTHER ASSETS 815
Total assets $377,315
========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEPOSITS:
<S> <C>
Demand (non interest bearing) $94,506
Money market, NOW and super NOW 115,344
Savings 66,525
Time certificates of $100,000 or more 21,402
Other time certificates 50,049
Total deposits 347,826
OTHER LIABILITIES 2,248
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) DEBT (Note 9) 1,070
---------
Total liabilities 351,144
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Notes 8, 9 and 11):
Preferred stock, no par value, 1,000,000 shares authorized --
Non convertible preferred stock, Series B, $1 stated value, authorized
217,500 shares, 30,000 issued and outstanding 30
Common stock, par value $1.667 per share; 5,000,000 authorized, 2,839,409
shares outstanding 4,734
Additional paid-in capital 18,259
Retained earnings 4,210
Net unrealized holding gain on securities available for sale, net of income 8
taxes
Unearned ESOP shares (1,070)
Total stockholders' equity 26,171
Total liabilities and stockholders' equity $377,315
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(000's omitted)
<TABLE>
<CAPTION>
INTEREST INCOME:
<S> <C>
Loans $13,861
Securities-
Taxable 8,354
Tax-exempt 299
Deposits with banks 287
Federal funds sold 675
-------
Total interest income 23,476
-------
INTEREST EXPENSE:
Interests on deposits 6,464
Interest on ESOP loan (Note 9) 105
-------
Total interest expense 6,569
Net interest income 16,907
Provision for possible loan losses 1,860
-------
Net interest income after provision for possible loan losses 15,047
NON INTEREST INCOME:
Service charges on deposit accounts 1,299
Gain on sale of securities 338
Other income 1,125
-------
2,762
=======
NON INTEREST EXPENSE:
Salaries and employee benefits 6,650
Occupancy 1,709
Equipment 1,286
Other expenses (Note 12) 5,540
-------
15,185
Income before income taxes 2,624
INCOME TAX PROVISION (Notes 1 and 10) 1,224
-------
Net income 1,400
DIVIDENDS ON PREFERRED STOCK (Note 9) 225
-------
Net income applicable to common stock $1,175
=======
INCOME PER COMMON SHARE (Note 1):
Primary $.58
Fully-diluted .56
AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,022
Fully-diluted 2,523
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(000's omitted)
<TABLE>
<CAPTION>
Net
Cumulative Non Gain (Loss)
Convertible Convertible Additional on Securities Unearned Total
Preferred Preferred Common Paid-in Retained Available ESOP Stockholders
Stock Stock Stock Capital Earnings For Sale Shares Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 777 $ $ 2,189 $12,970 $ 3,594 $ 291 $ (1,194) $18,627
Net income 1,400 1,400
Cash dividends on preferred
stock ($.36 per share) (225) (225)
Cash dividends on common stock
($.2875 per share) (556) (556)
Cash dividends on nonconvertible
preferred stock ($.0875 per share) (3) (3)
Common stock issued pursuant to dividend
reinvestment and stock option plan
23 125 148
ESOP shares earned 121 124 245
Issuance of nonconvertible preferred
stock (30,000 shares) 30 258 288
Conversion and redemption of
preferred stock (777) 1,288 (541) (30)
Issuance of common stock (40,152 shares) 1,234 5,367 6,601
Taxes related to ESOP (41) (41)
Change in net unrealized holding gain
(loss) on securities available for sale,
net of income taxes (283) (283)
----- ----- ------ ------- ------ ----- ------- -------
BALANCE, December 31, 1996 $ -- $ 30 $4,734 $18,259 $4,210 $ 8 $(1,070) $26,171
===== ===== ====== ======= ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(000's omitted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,400
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for possible loan losses 1,860
Depreciation of premises and equipment 748
Net amortization and accretion on securities (317)
Provision for possible losses on other real estate 360
Gain on sale of securities (338)
Net loan charge-offs (918)
Gain on sale of other real estate (213)
Gain on sale of residential mortgage loan
and related servicing rights (20)
Decrease in accrued interest receivable 33
Increase in other assets (446)
Increase in other liabilities 2,574
--------
Total adjustments 3,323
--------
Net cash provided by operating activities 4,723
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities-
Available for sale 18,625
Held to maturity 37,201
Purchase of securities-
Available for sale (23,510)
Held to maturity (60,788)
Sale of securities available for sale 23,965
Net increase in loans (30,480)
Sale of other real estate 1,182
Capital expenditures (3,004)
--------
Net cash used in investing activities (36,809)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 43,480
Principal payments on ESOP debt 124
Proceeds from the issuance of common stock 6,749
Proceeds from the issuance of preferred stock 288
Dividends paid on preferred stock (228)
Dividends paid on common stock (556)
Other (30)
--------
Net cash provided by financing activities 49,827
--------
Net increase in cash and cash equivalents 17,741
CASH AND CASH EQUIVALENTS, beginning of year 38,911
--------
CASH AND CASH EQUIVALENTS, end of year $56,652
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $6,569
Income taxes 1,695
The accompanying notes are an integral part of this statement.
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(amounts in thousands, except share and per share data)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations and Acquisition
Independence Bancorp, Inc. (the "Company") commenced operations in June 1984, as
a New Jersey corporation and as a bank holding company registered under the Bank
Holding Company Act of 1956. Through its banking subsidiary Independence Bank of
New Jersey (the "Bank"), the Company provides a full range of banking services
to individual and corporate customers primarily located in Northeastern New
Jersey. The Company is regulated by various federal and state agencies and is
subject to periodic examination by those regulatory authorities.
During January, 1997, the Company merged with Commerce Bancorp, Inc.
("Commerce"). Each share of the Company's common stock was exchanged for .982
shares of Commerce's common stock.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The significant accounting policies are summarized as follows:
Principles of Consolidation and Use of Estimates
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, the Bank and the Bank's
wholly owned investment subsidiary, Independence Asset Management, Inc.
All significant intercompany balances and transactions have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities
The Company classifies its securities as: (1) held to maturity, (2)
available for sale and (3) trading.
Securities held to maturity consist of debt securities that management
intends to, and the Company has the ability to, hold until maturity. Such
securities are stated at cost, adjusted for amortization of premium and
accretion of discount.
<PAGE>
Securities available for sale consist of debt and equity securities that
are not intended to be held to maturity and are not held for trading.
Securities available for sale are reported at fair value, with unrealized
gains and losses credited or charged, net of tax effect, directly to
stockholders' equity. Realized gains and losses on securities available
for sale are determined on a specific identification basis.
The Company has not classified any of its securities as trading.
Loans
Substantially all loans classified as commercial loans are at least
partially secured by real estate. Loans are stated at their principal
amount outstanding, net of any unearned income and net of loan origination
fees and costs. Nonrefundable loan origination fees and certain direct
loan origination costs are deferred and recognized over the life of the
loan as an adjustment to the loan's yield. The Bank does not accrue
interest on any loan when factors indicate collectibility is doubtful. In
general, the accrual of interest is discounted when a loan becomes 90 days
past due as to principal or interest. When interest accruals are
discounted, interest credited to income in the current year is reversed,
and interest accrued in the prior year is charged to the allowance for
possible loan losses. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest. Non
accrual loans are returned to accrual status when interest is received on
a current basis and other factors indicating doubtful collection cease.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level believed
by management to be adequate to meet reasonably foreseeable loan
impairment losses on the basis of many factors including the risk of
characteristics of the portfolio, underlying collateral, current and
anticipated economic conditions that may affect the borrower's ability to
pay, specific problem loans, and trends in loan delinquencies and
charge-offs. Possible losses on loans are provided for under the allowance
method of accounting. The allowance is increased by provisions charged to
earnings and reduced by loan charge-offs, net of recoveries. Loans are
charged off in whole or in part when, in management's opinion,
collectibility is not probable.
While management uses available information to establish the allowance for
possible loan losses, future additions to the allowance may be necessary
if economic developments differ substantially from the assumptions used in
making the evaluation. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for possible loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on judgments different from
those of management.
The Company measures impaired loans based on the present value of expected
future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the
loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. When the measure of the impaired loan is
less than the recorded investment in the loan, the impairment is recorded
through a valuation allowance. This statement is not applicable to large
groups of smaller homogeneous loans,
<PAGE>
such as residential mortgage loans, credit card loans and consumer loans,
which are collectively evaluated for impairment.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is calculated on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized on a straight-line basis over the lives of the related leases,
or the life of the improvement, whichever is shorter.
Other Real Estate
Other real estate is comprised of commercial and residential real estate
properties acquired in partial or total satisfaction of problem loans.
Other real estate is carried at the lower of fair value, as determined by
current appraisals, less estimated costs to sell, or the recorded
investment in the loan on the property. Losses identified at the time of
acquisition of such properties are charged against the allowance for
possible loan losses. Subsequent write-downs that may be required to the
carrying value of these assets and losses realized from asset sales are
charged to other operating expenses. Costs of holding such property are
charged to expense as incurred. Gains, to the extent allowable, realized
on the disposition of these properties are included in other income.
Income Taxes
The asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
The Company files a consolidated federal income tax return, and the amount
of income tax expense or benefit is allocated on a subsidiary by
subsidiary basis.
Interest on Loans
Interest on commercial, industrial, simple interest installment and real
estate loans is credited to operations based upon the principal amount
outstanding. Interest on other installment loans is taken into income on
scheduled payment dates by use of the sum-of-the-month-digits method.
Net Income Per Common Share
Primary net income per common and common equivalent shares, after
preferred dividends, is based on the weighted average common shares and
common share equivalents, including stock options and warrants,
outstanding during the year, after adjustment for the elimination of
dividends paid on unallocated shares of the ESOP Plan (Note 8). Fully
diluted income per share is based on the weighted average number of common
and common equivalent shares
<PAGE>
outstanding adjusted for shares issuable upon conversion of preferred stock
and the elimination of dividends paid on unallocated shares of the ESOP
Plan.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest bearing deposits with banks and federal
funds sold.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain a cash reserve balance based upon its deposits
in accordance with banking regulations. The average amount of this reserve for
the year ended December 31, 1996 was approximately $6,880.
3. SECURITIES
The amortized cost and estimated market values of the Company's securities
available for sale portfolio at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $22,516 $93 $(54) $22,555
Obligations of other U.S. government agencies
3,689 15 (41) 3,663
Federal Home Loan Bank stock 977 -- -- 977
------- ------- ------- -------
Total $27,182 $108 $(95) $27,195
======= ======= ======= =======
Information relative to the Company's securities held to maturity portfolio at
December 31, 1996 is as follows:
Gross Gross
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains Losses Value
U.S. Treasury securities $25,222 $ -- $(331) $24,891
Obligations of other U.S. government agencies
82,419 217 (693) 81,943
Obligations of states and political subdivisions
6,560 20 (1) 6,579
-------- -------- -------- --------
Total $114,201 $237 $(1,025) $113,413
======== ======== ======== ========
</TABLE>
<PAGE>
The contractual maturities of securities at December 31, 1996 are set forth in
the following table:
<TABLE>
<CAPTION>
Held to Maturity Available For Sale
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year $ 10,004 $ 10,013 $ 3,996 $ 4,012
Due after one year through five years 64,070 63,460 19,031 19,056
Due after five years through ten years 3,588 3,498 489 473
Due after ten years 500 475 - -
Mortgage-backed securities 36,039 35,967 2,689 2,677
Federal Home Loan Bank stock - - 977 977
----------- ----------- ----------- -----------
Total securities $ 114,201 $ 113,413 $ 27,182 $ 27,195
=========== =========== =========== ===========
</TABLE>
Actual maturities on debt securities may differ from those presented above as
certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty.
In 1996, the Company sold securities totaling $23,965 at a gross gain of $338.
The carrying value of securities pledged to secure public deposits, treasury tax
and loan deposits and for other purposes as required by law, approximate $1,244
at December 31, 1996.
4. LOANS
Non Performing Assets
The following table presents categories of non performing assets, and the ratio
of total non performing assets to total assets as of December 31, 1996:
Non accrual loans:
Commercial $838
Real estate-commercial 801
Real estate-residential 277
Installment 209
------
Total 2,125
Other real estate 220
------
Total non performing assets $2,345
======
Ratio of non performing assets to total assets 0.62%
The amount of interest income lost on those loans classified as non accrual in
1996 had these loans been current in accordance with their original terms, was
$176. There were no significant restructured loan amounts at December 31, 1996.
<PAGE>
Related Party Loans
Loans have been granted to officers and directors of the Company and its
subsidiary and to their associates. As of December 31, 1996, there were no
related party loans which were past due. The aggregate dollar amount of these
loans was $2,982 at December 31, 1996. During 1996, there were $720 of new loans
made and repayments totaled $955, excluding a reduction of $266 due to the
resignations of officers during the year.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based upon estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known.
A summary of the activity in the allowance for possible loan losses is as
follows for the year ended December 31, 1996:
Balance at beginning of year $2,694
Provision charged to operations 1,860
Recoveries of charged-off loans 229
Loans charged-off (1,147)
-------
Balance at end of year $3,636
=======
A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of non accrual loans but may include
performing loans to the extent that situations arise which would reduce the
probability of collection in accordance with the contractual terms. As of
December 31, 1996, the Company's recorded investment in impaired loans and the
related valuation allowance are as follows:
Recorded Valuation
Investment Allowance
Impaired loans:
Valuation allowance required $97 $69
No valuation allowance required 2,028 --
------ ------
Total impaired loans $2,125 $69
====== ======
This valuation allowance is included in the allowance for possible loan losses
in the consolidated balance sheet.
The average recorded investment in impaired loans for the year ended December
31, 1996 was $2,116. Interest payments received on impaired loans are recorded
as interest income unless collection of the remaining recorded investment is
doubtful at which time payments received are recorded as reductions of
principal. The Company did not recognize any interest income on impaired loans
for the year ended December 31, 1996.
<PAGE>
6. PREMISES AND EQUIPMENT
The net carrying amount of premises and equipment as of December 31, 1996 is
summarized as follows:
Land and land improvements $2,168
Building 3,123
Furniture, fixtures and equipment 4,557
Leasehold improvements 2,105
11,953
Less: Accumulated depreciation and amortization 4,490
------
$7,463
======
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Certain bank facilities are occupied under non cancelable long-term operating
leases which expire at various dates through 2013. Certain lease agreements
provide for renewal options and increases in rental payments based upon
increases in the consumer price index or the lessor's cost of operating the
facility. Minimum aggregate annual lease payments for the remainder of the term
are as follows:
1997 $ 1,475
1998 782
1999 723
2000 740
2001 670
Thereafter 4,056
----------
Total lease commitments $ 8,446
==========
Net occupancy and equipment expense for 1996 includes approximately $877 of
rental expense for bank facilities.
The Bank leases one of its branches from a director and its headquarters
facility from a partnership in which a director has a substantial interest. In
management's opinion, the terms of these leases are considered comparable to
those which would exist with unaffiliated parties, and aggregate rental payments
under these leases, which totaled $503 in 1996, are included in net occupancy
and equipment expense.
Financial Instruments With
Off-Balance Sheet Risk
In the ordinary course of the business of meeting the financial needs of its
customers, the Company, through its banking subsidiary, is party to various
financial instruments which are properly not reflected in the consolidated
financial statements. These financial instruments include standby letters of
credit, unused portions of lines of credit and commitments to extend various
types of credit.
<PAGE>
These instruments involve, to varying degrees, elements of credit risk in excess
of the amounts recognized in the consolidated financial statements. The Company
seeks to limit any exposure of credit loss by applying the same credit
underwriting standards it uses for on-balance sheet lending facilities. The
following table provides a summary of financial instruments with off-balance
sheet risk at December 31, 1996:
Contract
Amount
Standby letters of credit $ 3,773
Commitments under unused lines of credit 55,626
Outstanding loan commitments 15,569
----------
Total financial instruments with
off-balance sheet risk $ 74,968
==========
Litigation
In the normal course of business, the Company may be a party to various legal
proceedings and claims. In the opinion of management, the consolidated financial
position or results of operations of the Company will not be materially affected
by the outcome of such legal proceedings and claims.
8. BENEFIT PLANS
Stock Option Plan
The Company has a 1986 Employee Stock Option Plan and a 1994 Employee Stock
Option Plan ("the plans"), which authorize the issuance of approximately 202,000
common shares to key employees of the Company and its subsidiary.
The options may not be exercised until one year from the date the options are
granted, and expire ten years from such date. The following is a summary of the
option transactions which occurred under the plans during 1996.
Shares Price Per Share
Outstanding at beginning of year 107,758 $5.50 - $22.68
Options forfeited (4,200) 6.00 - 13.25
Options exercised (2,670) 6.00 - 8.75
------------- --------------------
Outstanding at end of year 100,888 $5.50 - $22.68
============= ====================
<PAGE>
The 1990 Stock Option Plan for Non Employee Directors (the "Non Employee Plan")
reserves 84,000 shares of the Company's common stock for issuance under the plan
to members of the Board of Directors of the Company and its subsidiary who are
not also employees. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions used: risk-free interest rate of 5.4%; expected dividend yield of
3%; expected life of 3 years; expected stock price volatility of 40%. The
options may not be exercised until one year from the date the options are
granted and expire ten years from such date. The following is a summary of the
option transactions which occurred under the Non Employee Plan during 1996.
Number of
Shares Price Per Share
Outstanding at beginning of year 28,700 $6.00 - $18.00
Options granted 7,000 13.25
------
Outstanding at end of year 35,700 $6.00 - $18.00
====== =====================
The Company accounts for the aforementioned plans under APB Opinion No. 25 under
which no compensation expense has been recognized. Had compensation costs for
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and income per share would have been reduced to the
following pro forma amounts:
1996
Net income: As reported $ 1,400
Pro forma 1,383
Income per share:
Primary As reported $ .58
Pro forma .57
Fully diluted As reported $ .56
Pro forma .55
Dividend Reinvestment Plan
The Company's Dividend Reinvestment Plan authorizes the sale of 100,000 shares
of common stock to stockholders who choose to invest all or a portion of their
cash dividends. During 1996, 8,267 shares of common stock were issued through
the dividend reinvestment plan.
Retirement Savings Plan
The Company has a retirement savings plan covering substantially all of its
employees. Under the Plan, the Company matches 50 percent of the employee's
contribution (up to a maximum of three percent of their contributions). The
Company's contributions under the Plan were approximately $85 in 1996.
<PAGE>
The Company and the Bank offer no postretirement or postemployment benefits
other than those described above.
9. EMPLOYEE STOCK OWNERSHIP PLAN
In 1992, the Company's Board of Directors approved the adoption of an Employee
Stock Ownership Plan ("ESOP"). The ESOP is a qualified retirement plan for the
benefit of eligible employees of the Company and its subsidiary. The ESOP
invests primarily in 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 common stock or convertible preferred stock of
the Company. The trustees are also authorized to borrow money for the purpose of
purchasing common stock or convertible preferred stock of the Company.
The ESOP purchased directly from the Company 187,500 shares of the 9%
convertible preferred stock during the 1992 preferred stock offering. To
purchase such shares, the ESOP received a loan from a bank in which a former
director of the Company is the Chairman. The loan bears interest at a fixed
annual rate of 9% and is a five year term loan requiring 19 quarterly payments
of principal and interest of $57 and a final quarterly balloon payment of the
remaining principal and interest. The loan is secured by a pledge of the shares
owned by the ESOP. In addition, the Company has guaranteed repayment of the loan
and is required to contribute annually to the ESOP an amount sufficient to pay
the required debt service on the loan. As part of the lending arrangements, the
Company has issued the lending bank a stock purchase warrant to purchase 187,500
shares of the Company's Series B Preferred Stock.
The Company follows Statement of Position 93-6 (SOP 93-6), Employers' Accounting
for Employee Stock Ownership Plans. SOP 93-6 requires accounting for ESOPs under
the shares allocated method for shares purchased by the ESOPs.
A summary of dividends and expenses for the ESOP for the year ended December 31,
1996 is as follows:
Compensation expense $ 244
Interest expense 105
Dividends-
Allocated shares 20
Unallocated shares 84
All dividends received by the ESOP are used to pay debt service. The ESOP shares
initially were pledged as collateral for its debt. As the debt is repaid, shares
are released from collateral and allocated to active employees based on the
proportion of debt service paid in the year. Debt of the ESOP is recorded as
debt of the Company and the shares pledged as collateral are reported as
unearned ESOP shares in the balance sheet. As shares are released from
collateral, the Company reports compensation expense equal to the current market
price of the shares, and the shares become outstanding for income per share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of ESOP debt and related accrued interest.
<PAGE>
During 1996, the ESOP sold 75,589 shares of preferred stock in order to exercise
the maximum number of rights into common stock. The ESOP exercised 111,798 of
the common stock purchase rights, adding to the total of shares it owns.
The ESOP shares as of December 31, 1996, are as follows:
Allocated shares, beginning of year 38,189
Shares released for allocation on December 31 15,505
Unearned shares, at end of year 169,902
----------
Total ESOP shares 223,596
----------
Fair value of unearned shares at December 31 $4,668,100
==========
10. INCOME TAXES
The components of the income tax provision for the year ended December 31, 1996,
are as follows:
Federal:
Current $ 1,269
Deferred (65)
State 20
---------
$ 1,224
=========
A reconciliation of the income tax provision to the applicable statutory federal
income tax rate is as follows:
Income before income taxes $2,624
-------
Tax expense at statutory rate $892
Increase (decrease) in federal income tax resulting from:
State income taxes, net of federal tax benefit 13
Tax-exempt interest (99)
Non-deductible merger expenses 250
Other, net 168
-------
$1,224
=======
The components of the net deferred tax asset (liability) as of December 31, 1996
are as follows:
Allowance for possible loan losses $(388)
Allowance for possible losses on other real estate 213
Non accrual interest 97
Other, net (19)
-----
Total $(97)
=====
<PAGE>
11. REGULATORY MATTERS
The Company and its subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Company and its subsidiary meet all capital adequacy requirements
to which they are subject.
As of December 31, 1996, the most recent notification from the regulatory
authorities categorized the Company and the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, Banks must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
Actual capital amounts and ratios are also presented in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted assets)
Company $ 28,719 14.1% $ 16,313 *8.0% $20,392 *10.0%
Bank 28,296 13.9% 16,285 *8.0% 20,357 *10.0%
Tier I Capital (to risk weighted assets)
Company 26,179 12.8% 8,157 *4.0% 12,235 *6.0%
Bank 25,729 12.6% 8,168 *4.0% 12,252 *6.0%
Tier I Capital (to average assets)
Company 26,179 7.0% 14,962 *4.0% 18,702 *5.0%
Bank 25,729 6.9% 14,915 *4.0% 18,644 *5.0%
</TABLE>
* Greater than
<PAGE>
12. OTHER EXPENSES
Other non interest expense for the year ended December 31, 1996 consists of the
following:
Foreclosed real estate expense $529
Legal fees (a) 531
Merger related expenses 510
Audit and regulatory expenses 300
Credit reports 248
Other 3,422
------
Total $5,540
======
(a) The Bank paid a total of $107 in legal fees to a law firm of which a
director is a partner during 1996.
13. RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS
Certain bank regulatory limitations exist on the availability of subsidiary bank
undistributed net assets for the payment of dividends to the Company without the
prior approval of the bank regulatory authorities.
Under New Jersey State Law dividends may be paid only if capital would remain
unimpaired and remaining surplus would be no less than 50% of capital stock. In
addition to these statutory restrictions, the subsidiary bank is required to
maintain adequate levels of capital. At December 31, 1996, $5,125 was available
under the most restrictive limitations for the payment of dividends to the
Company.
14. INDEPENDENCE BANCORP, INC.
Condensed Balance Sheets
December 31, 1996
Assets:
Deposits in subsidiary $1,639
Other assets 371
Investment in subsidiary 25,737
-------
Total assets $27,747
=======
Liabilities and Stockholders' Equity:
Employee stock ownership plan (ESOP) debt $1,070
Other liabilities 496
Stockholders' equity 26,171
-------
Total liabilities and stockholders' equity $27,747
=======
<PAGE>
Condensed Statements of Income
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Dividends from subsidiary $849
Expenses:
Interest expense - ESOP loan 105
General and administrative expenses 969
-------
Loss before income taxes (225)
Income tax benefit 201
-------
Loss before equity in undistributed income of subsidiary (24)
Equity in undistributed income of subsidiary 1,424
-------
Net income $1,400
=======
Condensed Statement of Cash Flows
For the Year Ended December 31, 1996
Cash flows from operating activities:
Net income $1,400
Less- Equity in undistributed income of subsidiary (1,424)
Increase in other assets (166)
Increase in other liabilities 364
Other, net (6)
-------
Net cash provided by operating activities 168
-------
Cash flows from financing activities:
Dividends paid - preferred (228)
Dividends paid - common (556)
Issuance of common stock 6,749
Issuance of non-convertible preferred stock 288
Capital contribution to subsidiary (5,000)
Principal payment on ESOP debt 124
Other (30)
-------
Net cash provided by financing activities 1,347
Net change in cash 1,515
Cash, beginning of year 124
Cash, end of year $1,639
=======
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 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. The fair
value of a financial instrument is defined as the amount at which the instrument
could be
<PAGE>
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. SFAS 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.
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. In cases
where the quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the entire holdings of a particular financial instrument. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimated future cash flows, and judgments regarding expected
loss experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates involve uncertainties
and are subjective in nature, and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are determined for on- and off-balance sheet financial
instruments, without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial statements. Tax implications related to the realization of the
unrealized gains and losses have a significant effect on fair value estimates
and have not been considered in any of the estimates.
Reasonable comparability between financial institutions may not be likely due to
the various valuation techniques permitted and numerous estimates which must be
made given the absence of secondary markets for many of the financial
instruments. This lack of uniform valuation methodologies introduces a greater
degree of subjectivity of these estimated fair values.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents
and Accrued Interest Receivable
The carrying amounts for cash and cash equivalents and accrued interest
receivable approximate fair value.
Securities
The fair values for 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
The fair values of loans are estimated by discounting future cash flows,
using interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
<PAGE>
Deposits
The fair value of demand and savings deposits are equal to the carrying
amounts reported in the consolidated financial statements. For
certificates of deposit, fair value is estimated using the rates currently
offered for deposits of similar maturities.
Standby Letters of Credit
and Commitments to Extend Credit
These off-balance sheet instruments are primarily comprised of unfunded
loan commitments which are generally priced at market at the time of
funding, therefore, the fair values of these items are substantially
similar to the related notional amounts.
The carrying values and estimated fair values of the Bank's financial
instruments as of December 31, 1996 are as follows:
Carrying Estimated
Financial assets: Value Fair Value
Cash and cash equivalents $56,652 $56,652
Securities available for sale 27,195 27,195
Securities held to maturity 114,201 113,413
Loans, net 168,120 168,539
Accrued interest receivable 2,726 2,726
Financial liabilities:
Deposits 347,826 348,254
Accrued interest payable 418 418
<PAGE>
Pro Forma Financial Information
Pro Forma Combined Condensed Balance Sheet
Commerce Bancorp, Inc. and Independence Bancorp, Inc.
December 31, 1996
(unaudited)
The following unaudited pro forma combined condensed balance sheet combines
the consolidated historical balance sheets of CBI and IBI, assuming the
companies had been combined as of December 31, 1996 on a pooling of interests
accounting basis with respect to the Merger.
<TABLE>
<CAPTION>
Commerce Independence Pro Forma Pro Forma
(in thousands) Bancorp Bancorp Adjustment Combined
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $159,577 $23,843 ($1,561) $181,859
Federal funds sold 12,950 14,025 26,975
---------- -------- ------- ----------
Total cash and cash equivalents 172,527 37,868 (1,561) 208,834
Mortgages held for sale 1,314 1,314
Trading securities 15,327 15,327
Securities available for sale 725,887 45,980 (4,380) 767,487
Securities held to maturity 723,311 114,201 837,512
Loans 1,096,169 171,756 (1,110) 1,266,815
Allowance for loan losses 14,339 3,636 17,975
---------- -------- ------- ----------
Loans, net 1,081,830 168,120 (1,110) 1,248,840
Bank premises and equipment, net 87,957 6,382 94,339
Goodwill 5,819 5,819
Other assets 47,980 4,764 52,744
---------- -------- ------- ----------
Total assets $2,861,952 $377,315 ($7,051) $3,232,216
========== ======== ======= ==========
Liabilities
Deposits
Interest-bearing $768,966 $110,000 $878,966
Noninterest-bearing 533,719 91,459 ($1,561) 623,617
Savings 572,135 66,871 639,006
Time 698,585 79,496 778,081
---------- -------- ------- ----------
Total deposits 2,573,405 347,826 (1,561) 2,919,670
Other borrowed money 70,000 70,000
Other liabilities 10,861 2,208 (928) 12,141
Obligation to Employee Stock Ownership Plan (ESOP) 3,333 1,110 (1,110) 3,333
Long-term debt 23,000 23,000
---------- -------- ------- ----------
Total liabilities 2,680,599 351,144 (3,599) 3,028,144
Stockholders' equity
Common stock 19,190 4,734 (581) 23,343
Preferred stock 7,506 30 (30) 7,506
Paid in capital 126,121 18,258 (2,186) 142,193
Retained earnings 37,531 4,210 41,741
Unrealized loss on available for sale securities (4,038) 8 (1,724) (5,754)
Less commitment to ESOP (3,333) (1,069) 1,069 (3,333)
Less treasury stock (1,624) (1,624)
Total stockholders' equity 181,353 26,171 (3,452) 204,072
---------- -------- ------- ----------
Total liabilities and stockholders' equity $2,861,952 $377,315 ($7,051) $3,232,216
========== ======== ======= ==========
</TABLE>
<PAGE>
Pro Forma Combined Condensed Statement of Income
Commerce Bancorp, Inc. and Independence Bancorp, Inc.
(unaudited)
The following unaudited pro forma combined condensed statement of income
presents the combined statements of income of CBI and IBI, assuming the
companies had been combined for the year ended December 31, 1996 on a pooling of
interests accounting basis.
Year Ended
December 31,
(in thousands, except per share amounts) 1996
Interest income $202,735
Interest expense 77,322
-------
Net interest income 125,413
Provision for loan losses 4,857
-------
Net interest income after provision for loan losses 120,556
Net investment securities gains 1,675
Noninterest income 31,101
Noninterest expense 109,256
-------
Income before income taxes 44,076
Income taxes 16,051
-------
Net income 28,025
Dividends on preferred stock 788
-------
Net income applicable to common
stockholders $27,237
=======
PRO FORMA PER COMMON SHARE DATA
Primary
Net income applicable to common stockholders $1.78
Average common shares-primary (in thousands) 15,275
=======
Fully diluted
Net income applicable to common stockholders $1.73
Average common shares-fully diluted (in thousands) 16,124
=======
COMMERCE BANCORP HISTORICAL PER
COMMON SHARE DATA
Primary
Net income applicable to common stockholders $2.08
Average common shares-primary (in thousands) 12,551
=======
Fully diluted
Net income applicable to common stockholders $1.98
Average common shares-fully diluted (in thousands) 13,388
=======
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
1. The pro forma information presented with respect to the Merger assumes the
Merger was consummated as of the beginning of 1996. The pro forma information
presented is not necessarily indicative of the results of operations or the
combined financial position that would have resulted had the Merger been
consummated at the beginning of 1996, nor is it necessarily indicative of the
results of operations in future periods or the future financial position of the
combined entities.
2. The Merger (which was consummated on January 21, 1997) was accounted for on a
pooling of interests accounting basis, and accordingly, the related pro forma
adjustments herein reflect, where applicable, an exchange ratio of .98175 shares
of CBI Common Stock for each of the 2,847,849 shares of IBI Common Stock (less
140,327 shares held by CBI) which were outstanding at January 21,1997.
As a result, information was adjusted for the merger by the (i) addition of
2,658,109 shares of CBI Common Stock amounting to $4,153,000; (ii) elimination
of 2,847,849 shares of IBI Common Stock (including 140,327 shares held by CBI)
amounting to $4,734,000; (iii) elimination of 30,000 shares of IBI
Nonconvertible Preferred Stock, Series B held by CBI amounting to $30,000; (iv)
reversal of the unrealized gain on shares of IBI held by CBI of $1,724,000, net
of taxes of $928,000; and (v) recording of the remaining net amount of
$2,186,000 as a reduction in paid in capital at December 31, 1996.
Information was also adjusted for the Merger by the elimination of the loan from
CBI to the IBI Employee Stock Ownership Plan in the amount of $1,110,000, and
the elimination of an IBI noninterest-bearing deposit at CBI of $1,561,000.
3. Income per share data has been computed based on the combined historical net
income applicable to common stockholders of CBI and IBI using the historical
average shares outstanding of CBI Common Stock, adjusted to reflect the
equivalent shares of CBI Common Stock issued in the Merger.
4. Certain insignificant reclassifications have been included herein to conform
statement presentation. Transactions conducted in the ordinary course of
business between CBI and IBI are immaterial, and accordingly, have not been
eliminated.
<PAGE>
(c) Exhibits (listed by numbers corresponding to the Exhibit Table of Item
601 of Regulation S-K)
Exhibit No. Description
*2.1 Agreement and Plan of Merger, as amended, dated October 15, 1996 by
and between Commerce Bancorp, Inc. and Independence Bancorp, Inc.
(incorporated by reference from Registration Statement No. 333-16263,
Exhibit No. 1.2)
*2.2 Agreement and Plan of Reorganization dated October 15, 1996 by and
between Commerce Bancorp, Inc. and Independence Bancorp, Inc.
(incorporated by reference from Registration Statement No. 333-16263,
Exhibit No. 1.1). The Schedules to this Agreement are not filed as an
Exhibit hereto pursuant to Regulation S-K, Item 601(b)(2). However,
the Registrant will furnish a copy of these Schedules to the
Commission upon its request.
24.1 Consent of Arthur Andersen LLP.
- ----------------
* Previously Filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
Dated: March 31, 1997 By: /s/ C. Edward Jordan, Jr.
-------------------------
C. Edward Jordan, Jr.
Executive Vice President
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commerce Bancorp, Inc.
As independent public accountants, we hereby consent to the inclusion in this
Form 8-K of our report dated January 21, 1997 on the financial statements of
Independence Bancorp, Inc. It should be noted that we have not audited any
financial statments of the Company subsequent to December 31, 1996 or performed
any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 3, 1997
