SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400
(Address of Principal Executive Offices) (Zip Code)
(609) 751-9000
(Registrant's telephone number, including area code)
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 _____
<PAGE>
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 practical date.
Common Stock 15,893,337
(Title of Class) (No. of Shares Outstanding
as of 8/08/97)
Series C ESOP Cumulative Con-
vertible Preferred Stock 417,000
(Title of Class) (No. of Shares Outstanding
as of 8/08/97)
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 1997 and December 31, 1996 ..........................1
Consolidated Statements of Income (unaudited)
Three months ended June 30, 1997 and June 30, 1996
and six months ended June 30, 1997 and June 30, 1996 ..........2
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1997 and June 30, 1996 .............3
Notes to Consolidated Financial Statements (unaudited) ........4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ...........................6-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............14
Item 6. Exhibits and Reports on Form 8-K ...............................15
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in thousands) 1997 1996
<S> <C> <C>
Assets
Cash and due from banks $ 183,937 $ 181,858
Federal funds sold 26,975
---------- ----------
Cash and cash equivalents 183,937 208,833
Mortgages held for sale 2,675 1,314
Trading securities 25,677 15,327
Securities available for sale 939,782 767,487
Securities held to maturity:
U.S. Government agency and mortgage-backed obligations 890,995 797,045
Obligations of state and political subdivisions 24,706 22,674
Other securities 18,986 17,793
---------- ----------
Total securities held to maturity
(market value 1997-$914,019; 1996-$815,888) 934,687 837,512
Loans 1,361,884 1,266,855
Less allowance for loan losses 20,371 17,975
---------- ----------
1,341,513 1,248,880
Bank premises and equipment, net 100,031 94,339
Other assets 69,677 58,460
---------- ----------
$3,597,979 $3,232,152
========== ==========
Liabilities
Deposits:
Demand:
Interest-bearing $ 972,697 $ 884,310
Noninterest-bearing 701,623 626,664
Savings 691,820 638,660
Time 821,139 770,036
---------- ----------
Total deposits 3,187,279 2,919,670
Other borrowed money 90,000 70,000
Other liabilities 15,727 12,185
Obligation to Employee Stock Ownership Plan (ESOP) 2,821 3,333
Trust Capital Securities - Commerce Capital Trust I 57,500
Long-term debt 23,000 23,000
---------- ----------
3,376,327 3,028,188
Stockholders'
Equity
Common stock, 15,828,784 shares issued (15,689,167 shares in 1996) 24,732 23,546
Series C preferred stock, 417,000 shares authorized, issued and outstanding
(liquidating preference: $18.00 per share totaling $7,506) 7,506 7,506
Series A preferred stock 30
Capital in excess of par or stated value 168,310 144,551
Retained earnings 25,549 36,086
---------- ----------
226,097 211,719
Less commitment to ESOP 2,821 4,403
Less treasury stock, at cost, 100,159 shares in 1997
(267,378 in 1996) 1,624 3,352
---------- ----------
Total stockholders' equity 221,652 203,964
---------- ----------
$3,597,979 $3,232,152
========== ==========
</TABLE>
1
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in thousands,
except per share amounts) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest
income Interest and fees on loans $ 29,819 $ 25,575 $ 57,932 $ 49,981
Interest on investments 29,010 23,166 55,824 44,848
Other interest 319 352 731 1,553
-------- -------- -------- --------
Total interest income 59,148 49,093 114,487 96,382
-------- -------- -------- --------
Interest
expense Interest on deposits:
Demand 5,838 4,839 11,309 9,285
Savings 4,108 3,152 7,878 6,165
Time 10,926 9,417 21,592 19,737
-------- -------- -------- --------
Total interest on deposits 20,872 17,408 40,779 35,187
Interest on other borrowed money 1,004 612 1,464 643
Interest on long-term debt 818 506 1,324 1,012
-------- -------- -------- --------
Total interest expense 22,694 18,526 43,567 36,842
-------- -------- -------- --------
Net interest income 36,454 30,567 70,920 59,540
Provision for loan losses 1,326 774 2,952 1,568
-------- -------- -------- --------
Net interest income after
provision for loan losses 35,128 29,793 67,968 57,972
Non-
interest
income Deposit charges and service fees 6,463 5,291 12,661 10,327
Other operating income 7,108 2,107 13,859 3,545
Net investment securities gains 0 48 0 819
-------- -------- -------- --------
Total noninterest income 13,571 7,446 26,520 14,691
-------- -------- -------- --------
Non-
interest
expense Salaries 12,669 9,044 24,571 17,423
Benefits 2,949 2,155 5,695 4,415
Occupancy 3,260 2,943 6,594 5,951
Furniture and equipment 4,440 3,397 8,481 6,492
Office 3,305 2,614 6,394 4,981
Audit and regulatory fees and assessments 379 470 754 893
Marketing 1,421 1,144 2,660 2,247
Other real estate (net) 492 501 961 1,006
Other 4,192 3,354 8,203 6,537
-------- -------- -------- --------
Total noninterest expenses 33,107 25,622 64,313 49,945
-------- -------- -------- --------
Income before income taxes 15,592 11,617 30,175 22,718
Provision for federal and state income taxes 5,558 4,107 10,707 8,047
-------- -------- -------- --------
Net income 10,034 7,510 19,468 14,671
Dividends on preferred stocks 140 280 281 561
-------- -------- -------- --------
Net income applicable to common stock $ 9,894 $ 7,230 $ 19,187 $ 14,110
======== ======== ======== ========
Net income per common and common
equivalent share:
Primary $ 0.60 $ 0.51 $ 1.17 $ 1.00
-------- -------- -------- --------
Fully diluted $ 0.58 $ 0.48 $ 1.14 $ 0.93
-------- -------- -------- --------
Average common and common equivalent
shares outstanding:
Primary 16,438 14,137 16,368 14,078
-------- -------- -------- --------
Fully diluted 17,155 15,536 17,127 15,492
-------- -------- -------- --------
Cash dividends declared, common stock $ 0.20 $ 0.17 $ 0.40 $ 0.33
======== ======== ======== ========
</TABLE>
2
<PAGE>
Commerce Bancorp, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
(dollars in thousands) 1997 1996
<S> <C> <C>
Operating
activities Net income $ 19,468 14,671
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,952 1,568
Provision for depreciation, amortization and accretion 8,124 7,892
Gains on sales of securities available for sale (899)
Proceeds from sales of mortgages held for sale 10,598 13,442
Originations of mortgages held for sale (11,959) (11,504)
Net loan (chargeoffs) (556) (1,055)
Net (increase) in trading securities (10,350) (2,763)
(Increase) decrease in other assets (11,145) 6,384
Increase in other liabilities 3,542 2,238
--------- ---------
Net cash provided by operating activities 10,674 29,974
Investing
activities Proceeds from the sales of securities available for sale 0 56,583
Proceeds from the maturity of securities available for sale 60,692 25,912
Proceeds from the maturity of securities held to maturity 53,481 49,874
Purchase of securities available for sale (151,963) (225,202)
Purchase of securities held to maturity (234,236) (42,981)
Net increase in loans (101,598) (141,171)
Proceeds from sales of loans 6,569 4,290
Purchases of premises and equipment (12,141) (12,692)
--------- ---------
Net cash used by investing activities (379,196) (285,387)
Financing
activities Net increase in demand and savings deposits 216,506 137,499
Net increase in time deposits 51,103 23,263
Net increase in other borrowed money 20,000 61,800
Dividends paid (5,730) (4,549)
Proceeds from issuance of Trust Capital Securities 57,500
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 3,103 2,228
Other 1,144 213
--------- ---------
Net cash provided by financing activities 343,626 220,454
Decrease in cash and cash equivalents (24,896) (34,959)
Cash and cash equivalents at beginning of year 208,833 209,857
--------- ---------
Cash and cash equivalents at end of period $ 183,937 $ 174,898
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 44,088 $ 36,063
Income taxes 11,547 8,241
--------- ---------
</TABLE>
3
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated Financial Statements
The consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. The accompanying financial
statements include the consolidated accounts of the former Independence
Bancorp of Bergen County, New Jersey, for all periods presented.
Independence Bancorp was merged into Commerce Bancorp, Inc. on January 21,
1997 and its wholly-owned bank subsidiary, Independence Bank of New Jersey,
was renamed Commerce Bank/North. The transaction was accounted for as a
pooling of interests. Certain amounts in prior periods have been
reclassified for comparative purposes. No restructuring charges were
recorded in connection with this acquisition.
These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the notes thereto
included in the registrant's Annual Report for the period ended December
31, 1996. The results for the three months ended June 30, 1997 and the six
months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997.
The consolidated financial statements include the accounts of Commerce
Bancorp, Inc. (the "Company") and all of its subsidiaries, including
Commerce Bank, N.A. ("Commerce NJ"), Commerce Bank/Pennsylvania, N.A.,
Commerce Bank/Shore, N.A., Commerce Bank/North, and Commerce Capital Trust
I. All material intercompany transactions have been eliminated.
B. Commitments
In the normal course of business, there are various outstanding
commitments to extend credit, such as letters of credit and unadvanced loan
commitments, which are not reflected in the accompanying consolidated
financial statements. Management does not anticipate any material losses as
a result of these transactions.
4
<PAGE>
C. Employee Stock Ownership Plan (ESOP) Debt Guarantee
The Company has guaranteed a debt obligation of its Employee Stock
Ownership Plan ("ESOP") which originated at $7,500,000 and has been reduced
to $2,821,000 through principal reductions. Accordingly, the loan amount is
reflected in the Company's consolidated balance sheet as a liability and an
equal amount, representing deferred employee benefits, has been recorded as
a deduction from stockholders' equity. The ESOP obtained the loan in 1990
to acquire a new class of Company Cumulative Convertible Preferred Stock
(Series C) at a price of $18.00 per share. The loan was refinanced in 1994,
and is payable in quarterly installments with the final payment due January
28, 2000. The loan bears interest at a variable rate, although the rate can
be fixed at future repricing dates in accordance with the loan agreement.
As the Company makes annual contributions to the ESOP, these contributions,
plus dividends from the Company's Series C Preferred Stock held by the
ESOP, will be used to repay the loan.
D. Recent Accounting Statement
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase in primary earnings per share
for the quarters ended June 30, 1997 and June 30, 1996 of $.03 and $.04 per
share, respectively, and an increase in primary earnings per share for the
six months ended June 30, 1997 and June 30, 1996 of $.06 and $.07 per
share, respectively. The impact of Statement 128 on the calculation of
fully diluted earnings per share for these quarters is not expected to be
material.
E. Trust Capital Securities
On June 9, 1997, the Company issued $57.5 million of 8.75% Trust
Capital Securities through Commerce Capital Trust I, a newly formed
Delaware business trust subsidiary of the Company. The net proceeds of the
offering will be used for general corporate purposes, which may include
contributions to subsidiary banks to fund their operations, the financing
of one or more future acquisitions, repayment of indebtedness of the
Company or of its subsidiary banks, investments in or extensions of credit
to its subsidiaries, or the repurchase of shares of the Company's
outstanding common stock. All $57.5 million of the Trust Capital Securities
qualify as Tier 1 capital for regulatory capital purposes.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Capital Resources
At June 30, 1997, stockholders' equity totaled $221.7 million or
6.16% of total assets, compared to $204.0 million or 6.31% of total
assets at December 31, 1996.
On June 9, 1997, the Company issued $57.5 million of 8.75% Trust
Capital Securities through Commerce Capital Trust I, a newly formed
Delaware business trust subsidiary of the Company. The net proceeds of
the offering will be used for general corporate purposes, which may
include contributions to subsidiary banks to fund their operations,
the financing of one or more future acquisitions, repayment of
indebtedness of the Company or of its subsidiary banks, investments in
or extensions of credit to its subsidiaries, or the repurchase of
shares of the Company's outstanding common stock. All $57.5 million of
the Trust Capital Securities qualify as Tier 1 capital for regulatory
capital purposes.
The table below presents the Company's and Commerce NJ's
risk-based and leverage ratios at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Per Regulatory Guidelines
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997
Company
Risk based capital ratios:
Tier 1 $280,148 15.58% $ 71,914 4.00% $107,872 6.00%
Total capital 323,519 17.99 143,829 8.00 179,786 10.00
Leverage ratio 280,148 8.14 103,237 3.00 172,062 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $152,428 12.70% $ 48,020 4.00% $ 72,030 6.00%
Total capital 165,604 13.79 96,040 8.00 120,051 10.00
Leverage ratio 152,428 6.74 67,878 3.00 113,130 5.00
June 30, 1996
Company
Risk based capital ratios:
Tier 1 $186,451 12.23% $ 60,963 4.00% $ 91,445 6.00%
Total capital 225,978 14.83 121,927 8.00 152,409 10.00
Leverage ratio 186,451 6.44 86,863 3.00 144,771 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $142,282 13.83% $ 41,154 4.00% $ 61,731 6.00%
Total capital 153,473 14.92 82,308 8.00 102,885 10.00
Leverage ratio 142,282 7.21 59,229 3.00 98,716 5.00
</TABLE>
6
<PAGE>
At June 30, 1997, the Company's consolidated capital levels and
each of the Company's bank 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%.
Management believes as of June 30, 1997, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
Total deposits at June 30, 1997 were $3.19 billion, up $497.3
million, or 18% over total deposits of $2.69 billion at June 30, 1996,
and up by $267.6 million, or 9% from year-end 1996. Deposit growth
during the first six months of 1997 was largely from core deposits in
all categories. In addition, the Company experienced "same-store core
deposit growth" of 9.5% at June 30, 1997 as compared to deposits a
year ago for those branches open for more than two years.
Interest Rate Sensitivity and Liquidity
An interest rate sensitive asset or liability is one that, within
a defined time period, either matures or experiences an interest rate
change in line with general market interest rates. The objective of
interest rate risk management is to monitor and manage the sensitivity
of net interest income to changing interest rates and other factors in
order to meet the Company's overall financial goals.
Management considers the simulation of net interest income in
different interest rate environments to be the best indicator of the
Company's interest rate risk. Income simulation analysis captures not
only the potential of all assets and liabilities to mature or reprice,
but also the probability that they will do so. Income simulation also
attends to the relative interest rate sensitivities of these items,
and projects their behavior over an extended period of time. Finally,
income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of
proposed strategies for responding to them.
The Company's income simulation model analyzes interest rate
sensitivity by projecting net 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% of net income in the flat rate scenario in the
first year and within 30% over the two year time frame. At June 30,
1997, the Company's income simulation model indicates an acceptable
level of interest rate risk.
7
<PAGE>
In the event the Company's interest rate risk models indicate 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, or the use of risk management
strategies such as interest rate swaps and caps, or the extension of
the maturities of its short-term borrowings.
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 change in rates. The Company's ALCO policy indicates that
the level of interest rate risk is unacceptable if the immediate 200
basis point change would result in the loss of 60% or more of the
excess of market value over book value in the current rate scenario.
At June 30, 1997, the market value of equity model indicates an
acceptable level of interest rate risk.
Liquidity involves the Company's ability to raise funds to
support asset growth or decrease 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 met by growth in core deposits, its cash and
federal funds sold position, cash flow from its amortizing investment
and loan portfolios, as well as the use of short-term borrowings, as
required.
Short-Term Borrowings
Short-term borrowings, or other borrowed money, consist of
securities sold under agreement to repurchase. During the first six
months of 1997, these borrowings were used as an additional source of
funding for the investment portfolio and to fund loan growth. At June
30, 1997, short-term borrowings aggregated $90.0 million and had an
average rate of 5.67%.
Interest Earning Assets
For the six month period ended June 30, 1997, interest earning
assets increased $349.2 million from $2.92 billion to $3.26 billion.
This increase was primarily in investment securities and the loan
portfolio as described below.
Loans
During the first six months of 1997, loans increased $95.0
million from $1.27 billion to $1.36 billion. At June 30, 1997, loans
represented 43% of total deposits and 38% of total assets.
The increase in the loan portfolio was due primarily to loans
secured by 1-4 family residential properties (including home equity
loans) and loans secured by commercial real estate properties.
8
<PAGE>
Investments
In total, for the first six months of 1997, securities increased
$279.8 million from $1.62 billion to $1.90 billion. Deposit growth and
other funding sources were used to increase the Company's investment
portfolio. The available for sale portfolio rose $172.3 million to
$939.8 million from $767.5 million at year-end 1996, and the
securities held to maturity portfolio increased $97.2 million to
$934.7 million from $837.5 million. At June 30, 1997, the average life
of the investment portfolio was approximately 5.9 years, and the
duration was approximately 4.4 years. At June 30, 1997, total
securities and Federal funds sold aggregated $1.90 billion and
represented 53% of total assets.
Net Income
Net income for the second quarter of 1997 was $10.0 million, an
increase of $2.5 million over the $7.5 million recorded for the second
quarter of 1996. Net income for the first six months of 1997 was $19.5
million, an increase of $4.8 million over the $14.7 million recorded
in the first six months of 1996. On a per share basis, fully diluted
net income for the second quarter of 1997 and the first six months of
1997 were $.58 and $1.14 per common share compared to $.48 and $.93
per common share for the respective 1996 periods.
Return on average assets (ROA) and return on average equity (ROE)
for the second quarter of 1997 were 1.17% and 19.15%, respectively,
compared to 1.04% and 16.97%, respectively, for the same 1996 period.
ROA and ROE for the first six months of 1997 were 1.17% and 18.71%,
respectively, compared to 1.04% and 16.39% a year ago.
Net Interest Income
Net interest income totaled $36.5 million for the second quarter
of 1997, an increase of $5.9 million or 19% from $30.6 million in the
second quarter of 1996. Net interest income for the first six months
of 1997 totaled $70.9 million, up $11.4 million or 19% from the first
six months of 1996. The improvement in net interest income for both
periods was due primarily to volume increases in the loan and
investment portfolios.
Noninterest Income
Noninterest income totaled $13.6 million for the second quarter
of 1997, an increase of $6.1 million or 82% from $7.4 million in the
second quarter of 1996. The increase was due primarily to increased
other operating income, which rose $5.0 million over the prior year,
including $3.9 million of revenues from Commerce National Insurance
Services, Inc. (Commerce Insurance), the insurance brokerage
subsidiary formed in the fourth quarter of 1996. In addition, deposit
charges and service fees increased $1.2 million from the second
quarter of 1996 due to higher transaction volumes.
9
<PAGE>
For the first six months of 1997, noninterest income totaled
$26.5 million, an increase of $11.8 million or 81% from $14.7 million
in the first six months of 1996. Other operating income rose $10.3
million over the first six months of 1996, including $8.6 million of
revenues from Commerce Insurance. Deposit charges and service fees
rose $2.3 million over the prior year due to higher transaction
volumes. These increases offset a decrease in net investment
securities gains of $819 thousand from the first six months of 1996.
Noninterest Expense
For the second quarter of 1997, noninterest expense totaled $33.1
million, an increase of $7.5 million or 29% over the same period in
1996. Contributing to this increase was new branch activity over the
past twelve months, with the number of branches increasing from 62 at
June 30, 1996 to 69 at June 30, 1997, and the formation of Commerce
Insurance in the fourth quarter of 1996. With the addition of these
new offices and the insurance business, staff, facilities, marketing,
and related expenses rose accordingly. Other noninterest expenses rose
$838 thousand over the first quarter of 1996. This increase resulted
primarily from higher bank card-related services charges and increased
provisions for non-credit-related losses.
For the first six months of 1997, noninterest expense totaled
$64.3 million, an increase of $14.4 million or 29% over $49.9 million
in the first six months of 1996. Contributing to this increase was new
branch activity and the formation of Commerce Insurance as noted
above. Other noninterest expenses rose $1.7 million over the first six
months of 1996. This increase resulted primarily from higher bank-card
related service charges, expenses associated with the acquisition of
Independence Bancorp, and increased provisions for non-credit-related
losses.
The Company's operating efficiency ratio (noninterest expenses,
less other real estate, divided by net interest income plus
noninterest income excluding non-recurring gains) was 65.02% for the
first six months of 1997 as compared to 66.66% for the same 1996
period. The Company's efficiency ratio remains slightly above its peer
group primarily due to its aggressive growth expansion activities and
investments in technology.
Loan and Asset Quality
Total non-performing assets (non-performing loans and other real
estate, excluding loans past due 90 days or more and still accruing
interest) at June 30, 1997 were $17.3 million, or .48% of total assets
compared to $19.5 million or .60% of total assets at December 31, 1996
and $19.6 million or .66% of total assets at June 30, 1996.
Total non-performing loans (non-accrual loans and restructured
loans, excluding loans past due 90 days or more and still accruing
interest) at June 30, 1997 were $10.3 million or .76% of total loans
compared to $11.2 million or .89% of total loans at December 31, 1996
and $11.0 million or .93% of total loans at June 30, 1996. At June 30,
1997, loans past due 90 days or more and still accruing interest
amounted to $458 thousand compared to $259 thousand at December 31,
1996 and $923 thousand at June 30, 1996. Additional loans considered
as potential problem loans by the Company's internal loan review
department ($14.0 million at June 30, 1997) have been evaluated as to
risk exposure in determining the adequacy of the allowance for loan
losses.
10
<PAGE>
Other real estate (ORE) at June 30, 1997 totaled $7.0 million
compared to $8.3 million at December 31, 1996 and $8.6 million at June
30, 1996. These properties have been written down to the lower of cost
or fair value less disposition costs.
On pages 12 and 13 are tabular presentation showing detailed
information about the Company's non-performing loans and assets and an
analysis of the Company's allowance for loan losses and other related
data for June 30, 1997, December 31, 1996, and June 30, 1996.
11
<PAGE>
The following summary presents information regarding non-performing loans and
assets as of June 30, 1997 and the preceding four quarters: (dollar amounts in
thousands)
<TABLE>
<CAPTION>
June 30, March 31, December 31, September 30, June 30,
1997 1997 1996 1996 1996
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 1,057 $ 1,349 $ 1,595 $ 1,293 $ 1,230
Consumer 1,254 1,109 956 1,247 1,093
Real Estate:
Construction 2,155 2,155 2,156 2,196 1,687
Mortgage 5,818 6,074 6,005 6,032 6,931
------- ------- ------- ------- -------
Total non-accrual loans 10,284 10,687 10,712 10,768 10,941
------- ------- ------- ------- -------
Restructured loans
Commercial 20 21 21 21 22
Consumer 29 29 59
Real Estate:
Construction
Mortgage 481 500
------- ------- ------- ------- -------
Total restructured loans 20 21 531 550 81
------- ------- ------- ------- -------
Total non-performing loans 10,304 10,708 11,243 11,318 11,022
------- ------- ------- ------- -------
Other real estate 7,035 8,042 8,252 8,323 8,606
------- ------- ------- ------- -------
Total non-performing assets 17,339 18,750 19,495 19,641 19,628
------- ------- ------- ------- -------
Loans past due 90 days or more
and still accruing 458 300 259 632 923
------- ------- ------- ------- -------
Total non-performing assets and
loans past due 90 days or more $17,797 $19,050 $19,754 $20,273 $20,551
======= ======= ======= ======= =======
Total non-performing loans as a
percentage of total period-end
loans 0.76% 0.82% 0.89% 0.92% 0.93%
Total non-performing assets as a
percentage of total period-end assets 0.48% 0.56% 0.60% 0.64% 0.66%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.49% 0.57% 0.61% 0.66% 0.69%
Allowance for loan losses as a
percentage of total non-performing
loans 198% 183% 160% 149% 150%
Allowance for loan losses as a percentage
of total period-end loans 1.50% 1.50% 1.42% 1.38% 1.39%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 7% 9% 9% 10% 10%
</TABLE>
12
<PAGE>
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data: (dollar amounts in thousands)
<TABLE>
<CAPTION>
Year
Six Months Ended Ended
06/30/97 06/30/96 12/31/96
<S> <C> <C> <C>
Balance at beginning of period $ 17,975 $ 16,014 $ 16,014
Provisions charged to operating expenses 2,952 1,568 4,857
-------- -------- --------
20,927 17,582 20,871
Recoveries on loans charged-off:
Commercial 104 112 286
Consumer 134 134 274
Real estate 42 72 95
-------- -------- --------
Total recoveries 280 318 655
Loans charged-off:
Commercial (369) (274) (1,202)
Consumer (432) (395) (1,046)
Real estate (35) (704) (1,303)
-------- -------- --------
Total charged-off (836) (1,373) (3,551)
-------- -------- --------
Net charge-offs (556) (1,055) (2,896)
-------- -------- --------
Balance at end of period $ 20,371 $ 16,527 $ 17,975
======== ======== ========
Net charge-offs as a percentage of
average loans outstanding 0.08% 0.19% 0.25%
</TABLE>
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The Annual Meeting of the Registrant's Shareholders was held on June
17, 1997. The only items of business acted upon at the Annual Meeting
were (i) the election of nine directors for one year terms; (ii)
approval of the amendment to the Company's Restated Certificate of
Incorporation to increase the number of shares of Common Stock that
the Company is authorized to issue by 30,000,000 shares and the number
of shares of Preferred Stock that the Company is authorized to issue
by 5,000,000 shares; and (iii) approval of the Commerce Bancorp, Inc.
1997 Employee Stock Option Plan. The number of votes cast for,
against, or withheld, as well as the number of abstentions and broker
non-votes was as follows:
(i) Election of directors:
Name of (Withhold Authority)
Nominee For Against
Vernon W. Hill II 14,307,516 135,981
C. Edward Jordan, Jr. 14,310,791 132,706
David Baird, IV 14,308,724 134,773
Robert C. Beck 14,188,388 255,109
Jack R Bershad 14,179,749 263,748
Joseph M. Buckelew 14,298,689 144,808
Steven M. Lewis 14,310,881 132,616
Morton N. Kerr 14,301,479 142,018
Daniel J. Ragone 14,296,997 146,500
Joseph T. Tarquini, Jr 14,124,991 132,506
(ii) Approval of the amendment to the Company's Restated Certificate
of Incorporation to increase the number of shares of Common Stock
that the Company is authorized to issue by 30,000,000 shares and
the number of shares of Preferred Stock that the Company is
authorized to issue by 5,000,000 shares:
Broker
For Against Abstain Non-Vote
8,948,995 2,685,048 98,970 2,710,484
(iii)Approval of the Commerce Bancorp, Inc. 1997 Employee Stock
Option Plan:
Broker
For Against Abstain Non-Vote
9,016,928 2,881,733 136,057 2,408,779
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Computation of Net Income Per Share
No reports on Form 8-K were filed during the second quarter ended
June 30, 1997.
15
<PAGE>
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.
(Registrant)
16
August 13,1997
(Date) C. EDWARD JORDAN, JR.
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
Exhibit No. 11.1
Commerce Bancorp, Inc. and Subsidiaries
Computation of Net Income Per Share
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Primary Net Income Per Share 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Adjustment of income:
Net income $10,034 $ 7,510 $19,468 $14,671
Preferred stock dividends 140 280 281 561
------- ------- ------- -------
Adjusted net income applicable to
common stock $ 9,894 $ 7,230 $19,187 $14,110
======= ======= ======= =======
Average shares of common stock and equivalents outstanding:
Average common shares outstanding 15,690 13,216 15,626 13,183
Common stock equivalents - dilutive rights 417 407
Common stock equivalents - dilutive options 748 504 742 488
------- ------- ------- -------
Average shares of common stock and
equivalents outstanding 16,438 14,137 16,368 14,078
======= ======= ======= =======
Net income per share of common stock $ 0.60 $ 0.51 $ 1.17 $ 1.00
======= ======= ======= =======
Fully Diluted Net Income Per Share
Net income applicable to common stock
on a fully diluted basis $10,034 $ 7,510 $19,468 $14,671
Less: additional ESOP contribution
under the if-converted method 11 25 23 51
------- ------- ------- -------
Adjusted net income applicable to
common stock on a fully diluted basis $10,023 $ 7,485 $19,445 $14,620
======= ======= ======= =======
Average number of shares outstanding on a fully diluted basis:
Average common shares outstanding 15,690 13,216 15,626 13,183
Additional shares considered in fully
diluted computation assuming:
Exercise of rights 430 414
Exercise of stock options 849 541 885 546
Conversion of preferred stock 616 1,349 616 1,349
------- ------- ------- -------
Average number of shares outstanding
on a fully diluted basis 17,155 15,536 17,127 15,492
======= ======= ======= =======
Fully diluted net income per share of
common stock $ 0.58 $ 0.48 $ 1.14 $ 0.93
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 183,937
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 25,677
<INVESTMENTS-HELD-FOR-SALE> 939,782
<INVESTMENTS-CARRYING> 934,687
<INVESTMENTS-MARKET> 914,019
<LOANS> 1,361,884
<ALLOWANCE> 20,371
<TOTAL-ASSETS> 3,597,979
<DEPOSITS> 3,187,279
<SHORT-TERM> 90,000
<LIABILITIES-OTHER> 15,727
<LONG-TERM> 83,321
<COMMON> 24,732
0
7,506
<OTHER-SE> 189,414
<TOTAL-LIABILITIES-AND-EQUITY> 3,597,979
<INTEREST-LOAN> 57,932
<INTEREST-INVEST> 55,824
<INTEREST-OTHER> 731
<INTEREST-TOTAL> 114,487
<INTEREST-DEPOSIT> 40,779
<INTEREST-EXPENSE> 43,567
<INTEREST-INCOME-NET> 70,920
<LOAN-LOSSES> 2,952
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 64,313
<INCOME-PRETAX> 30,175
<INCOME-PRE-EXTRAORDINARY> 30,175
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,468
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 4.70
<LOANS-NON> 10,284
<LOANS-PAST> 458
<LOANS-TROUBLED> 20
<LOANS-PROBLEM> 14,044
<ALLOWANCE-OPEN> 17,975
<CHARGE-OFFS> 836
<RECOVERIES> 280
<ALLOWANCE-CLOSE> 20,371
<ALLOWANCE-DOMESTIC> 20,371
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
