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 September 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 15,897,257
(Title of Class) (No. of Shares Outstanding
as of 11/07/97)
Series C ESOP Cumulative Con-
vertible Preferred Stock 417,000
(Title of Class) (No. of Shares Outstanding
as of 11/07/97)
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 1997 and December 31, 1996
Consolidated Statements of Income (unaudited)
Three months ended September 30, 1997 and
September 30, 1996 and nine months ended
September 30, 1997 and September 30, 1996
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1997 and
September 30, 1996
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
September 30, December 31,
--------------------------------
(dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $170,959 $181,858
Federal funds sold 26,975
--------------------------------
Cash and cash equivalents 170,959 208,833
Mortgages held for sale 3,925 1,314
Trading securities 8,765 15,327
Securities available for sale 1,221,645 767,487
Securities held to maturity:
U.S. Government agency and mortgage-backed obligations 863,170 797,045
Obligations of state and political subdivisions 18,870 22,674
Other securities 18,921 17,793
--------------------------------
Total securities held to maturity
(market value 1997-$891,550; 1996-$815,888) 900,961 837,512
Loans 1,391,388 1,266,855
Less allowance for loan losses 20,934 17,975
--------------------------------
1,370,454 1,248,880
Bank premises and equipment, net 104,481 94,339
Other assets 63,985 58,460
--------------------------------
$3,845,175 $3,232,152
================================
Liabilities Deposits:
Demand:
Interest-bearing $1,049,474 $884,310
Noninterest-bearing 698,403 626,664
Savings 684,417 638,660
Time 892,920 770,036
--------------------------------
Total deposits 3,325,214 2,919,670
Other borrowed money 186,711 70,000
Other liabilities 13,360 12,185
Obligation to Employee Stock Ownership Plan (ESOP) 2,564 3,333
Trust Capital Securities - Commerce Capital Trust I 57,500
Long-term debt 23,000 23,000
--------------------------------
3,608,349 3,028,188
Stockholders' Common stock, 15,950,314 shares issued (15,689,167 shares in 1996) 24,922 23,546
Equity 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 170,186 144,551
Retained earnings 38,400 36,086
--------------------------------
241,014 211,719
Less commitment to ESOP 2,564 4,403
Less treasury stock, at cost, 100,159 shares in 1997
(267,378 in 1996) 1,624 3,352
--------------------------------
Total stockholders' equity 236,826 203,964
--------------------------------
$3,845,175 $3,232,152
================================
</TABLE>
4
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
(dollars in thousands, except per share amounts) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Interest and fees on loans $30,798 $27,129 $88,730 $77,110
income Interest on investments 33,086 24,245 88,910 69,093
Other interest 431 500 1,162 2,053
------------------------ ------------------------
Total interest income 64,315 51,874 178,802 148,256
------------------------ ------------------------
Interest Interest on deposits:
expense Demand 6,337 5,159 17,646 14,444
Savings 4,247 3,359 12,125 9,524
Time 12,636 10,191 34,228 29,928
------------------------ ------------------------
Total interest on deposits 23,220 18,709 63,999 53,896
Interest on other borrowed money 1,735 479 3,199 1,122
Interest on long-term debt 1,780 507 3,104 1,519
------------------------ ------------------------
Total interest expense 26,735 19,695 70,302 56,537
------------------------ ------------------------
Net interest income 37,580 32,179 108,500 91,719
Provision for loan losses 1,142 980 4,094 2,548
------------------------ ------------------------
Net interest income after provision for
loan losses 36,438 31,199 104,406 89,171
Noninterest Deposit charges and service fees 6,977 5,535 19,638 15,862
income Other operating income 6,685 2,082 20,544 5,627
Net investment securities gains 1,717 36 1,717 855
------------------------ ------------------------
Total noninterest income 15,379 7,653 41,899 22,344
------------------------ ------------------------
Noninterest Salaries 13,673 9,594 38,244 27,017
expense Benefits 3,205 2,487 8,900 6,902
Occupancy 3,767 3,031 10,361 8,982
Furniture and equipment 4,714 3,616 13,195 10,108
Office 3,732 2,554 10,126 7,535
Audit and regulatory fees and assessments 428 1,806 1,182 2,699
Marketing 1,315 1,211 3,975 3,458
Other real estate (net) 407 422 1,368 1,428
Other 4,480 3,120 12,683 9,657
------------------------ ------------------------
Total noninterest expenses 35,721 27,841 100,034 77,786
------------------------ ------------------------
Income before income taxes 16,096 11,011 46,271 33,729
Provision for federal and state income taxes 5,719 3,877 16,426 11,924
------------------------ ------------------------
Net income 10,377 7,134 29,845 21,805
Dividends on preferred stocks 141 141 422 702
======================== ========================
Net income applicable to common stock $10,236 $6,993 $29,423 $21,103
======================== ========================
Net income per common and common equivalent
share:
Primary $0.62 $0.47 $1.79 $1.47
------------------------ ------------------------
Fully diluted $0.60 $0.44 $1.74 $1.37
------------------------ ------------------------
Average common and common equivalent
shares outstanding:
Primary 16,592 14,860 16,449 14,343
------------------------ ------------------------
Fully diluted 17,227 15,915 17,177 15,816
------------------------ ------------------------
Cash dividends declared, common stock $0.20 $0.17 $0.60 $0.49
======================== ========================
</TABLE>
5
<PAGE>
Commerce Bancorp, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------
(dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities Net income $29,845 21,805
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,094 2,548
Provision for depreciation, amortization and accretion 12,719 12,215
Gains on sales of securities available for sale (1,717) (855)
Proceeds from sales of mortgages held for sale 16,539 19,200
Originations of mortgages held for sale (19,150) (15,012)
Net loan (chargeoffs) (1,135) (1,699)
Net (increase) in trading securities 6,562 5,640
(Increase) decrease in other assets (8,958) 7,463
Increase in other liabilities 1,175 4,747
---------------------------------------------------------------------------------------------
Net cash provided by operating activities 39,974 56,052
Investing activities Proceeds from the sales of securities available for sale 134,141 64,526
Proceeds from the maturity of securities available for sale 92,816 33,485
Proceeds from the maturity of securities held to maturity 91,055 85,360
Purchase of securities available for sale (589,301) (341,660)
Purchase of securities held to maturity (238,766) (69,918)
Net increase in loans (132,974) (183,408)
Proceeds from sales of loans 8,441 8,222
Purchases of premises and equipment (20,161) (18,775)
---------------------------------------------------------------------------------------------
Net cash provided by operating activities (654,749) (422,168)
Financing activities Net increase in demand and savings deposits 282,660 197,337
Net increase in time deposits 122,884 97,349
Net increase in other borrowed money 116,711 25,000
Dividends paid (9,152) (6,966)
Proceeds from issuance of Trust Capital Securities 57,500
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 5,119 9,890
Other 1,179 (1,099)
---------------------------------------------------------------------------------------------
Net cash provided by financing activities 576,901 321,511
Decrease in cash and cash equivalents (37,874) (44,605)
Cash and cash equivalents at beginning of year 208,833 209,857
---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $170,959 $165,252
---------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $70,336 $55,178
Income taxes 18,112 10,326
---------------------------------------------------------------------------------------------
</TABLE>
6
<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 September 30,
1997 and the nine months ended September 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.
7
<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 $2,564,000 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 September
30, 1997 and September 30, 1996 of $.03 and $.04 per share,
respectively, and an increase in primary earnings per share for the
nine months ended September 30, 1997 and September 30, 1996 of $.09 and
$.11 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.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources
At September 30, 1997, stockholders' equity totaled $236.8
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 September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Per Regulatory Guidelines
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
September 30, 1997
Company
<S> <C> <C> <C> <C> <C> <C>
Risk based capital ratios:
Tier 1 $289,539 15.47% $74,860 4.00% $112,290 6.00%
Total capital 333,473 17.82 149,720 8.00 187,150 10.00
Leverage ratio 289,539 7.72 112,554 3.00 187,589 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $156,643 12.60% $49,723 4.00% $74,584 6.00%
Total capital 170,294 13.70 99,445 8.00 124,307 10.00
Leverage ratio 156,643 6.29 74,742 3.00 124,570 5.00
September 30, 1996
Company
Risk based capital ratios:
Tier 1 $198,329 12.65% $62,693 4.00% $94,040 6.00%
Total capital 238,192 15.20 125,387 8.00 156,734 10.00
Leverage ratio 198,329 6.56 90,640 3.00 151,066 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $143,646 13.82% $41,578 4.00% $62,366 6.00%
Total capital 155,184 14.93 83,155 8.00 103,944 10.00
Leverage ratio 143,646 7.08 60,827 3.00 101,378 5.00
</TABLE>
9
<PAGE>
At September 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 September 30, 1997, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
Total deposits at September 30, 1997 were $3.33 billion, up
$501.3 million, or 18% over total deposits of $2.82 billion at
September 30, 1996, and up by $405.5 million, or 14% from year-end
1996. Deposit growth during the first nine months of 1997 was largely
from core deposits in all categories. In addition, the Company
experienced "same-store core deposit growth" of 11.2% at September 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 September 30, 1997, the
Company's income simulation model indicates an acceptable level of
interest rate risk.
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.
10
<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 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 September
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
primarily of securities sold under agreements to repurchase. During the
first nine months of 1997, these borrowings were used as an additional
source of funding for the investment portfolio and to fund loan growth.
At September 30, 1997, short-term borrowings aggregated $186.7 million
and had an average rate of 5.63%.
Interest Earning Assets
For the nine month period ended September 30, 1997, interest
earning assets increased $611.2 million from $2.92 billion to $3.53
billion. This increase was primarily in investment securities and the
loan portfolio as described below.
Loans
During the first nine months of 1997, loans increased $124.5
million from $1.27 billion to $1.39 billion. At September 30, 1997,
loans represented 42% of total deposits and 36% 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.
11
<PAGE>
Investments
In total, for the first nine months of 1997, securities
increased $511.0 million from $1.62 billion to $2.13 billion. Deposit
growth and other funding sources were used to increase the Company's
investment portfolio. The available for sale portfolio rose $454.2
million to $1.22 billion from $767.5 million at year-end 1996, and the
securities held to maturity portfolio increased $63.4 million to $901.0
million from $837.5 million. At September 30, 1997, the average life of
the investment portfolio was approximately 5.6 years, and the duration
was approximately 4.3 years. At September 30, 1997, total securities
represented 55% of total assets.
Net Income
Net income for the third quarter of 1997 was $10.4 million, an
increase of $3.3 million over the $7.1 million recorded for the third
quarter of 1996. Net income for the first nine months of 1997 was $29.8
million, an increase of $8.0 million over the $21.8 million recorded in
the first nine months of 1996. The 1996 results were impacted by a
one-time charge to recapitalize the Savings Association Insurance fund
(SAIF) which decreased net income and net income per share by $841
thousand and $.05 per share, respectively, in the third quarter of
1996. On a per share basis, primary net income for the third quarter of
1997 and the first nine months of 1997 were $.62 and $1.79 per common
share compared to $.47 and $1.47 per common share for the respective
1996 periods.
Return on average assets (ROA) and return on average equity
(ROE) for the third quarter of 1997 were 1.11% and 18.18%,
respectively, compared to .95% and 15.76%, respectively, for the same
1996 period. ROA and ROE for the first nine months of 1997 were 1.14%
and 18.51%, respectively, compared to 1.01% and 16.28% a year ago.
Net Interest Income
Net interest income totaled $37.6 million for the third quarter
of 1997, an increase of $5.4 million or 17% from $32.2 million in the
third quarter of 1996. Net interest income for the first nine months of
1997 totaled $108.5 million, up $16.8 million or 18% from the first
nine 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 $15.4 million for the third quarter
of 1997, an increase of $7.7 million or 101% from $7.7 million in the
third quarter of 1996. The increase was due primarily to increased
other operating income, which rose $4.6 million over the prior year,
including $3.8 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 $1.4 million from the third quarter of 1996 due
to higher transaction volumes, and net investment securities gains were
$1.7 million higher than the prior year.
12
<PAGE>
For the first nine months of 1997, noninterest income totaled
$41.9 million, an increase of $19.6 million or 88% from $22.3 million
in the first nine months of 1996. Other operating income rose $14.9
million over the first nine months of 1996, including $12.4 million of
revenues from Commerce Insurance. Deposit charges and service fees rose
$3.8 million over the prior year due to higher transaction volumes, and
net investment securities gains increased by $862 thousand over the
first nine months of 1996.
Noninterest Expense
For the third quarter of 1997, noninterest expense totaled
$35.7 million, an increase of $7.9 million or 28% 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
September 30, 1996 to 70 at September 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. Audit and regulatory
fees and assessments were $1.4 million lower than the third quarter of
1996, which resulted from the prior year reflecting the one-time charge
to recapitalize the SAIF. Other noninterest expenses rose $1.4 million
over the third quarter of 1996. This increase resulted primarily from
higher bank card-related service charges and increased provisions for
non-credit-related losses.
For the first nine months of 1997, noninterest expense totaled
$100.0 million, an increase of $22.2 million or 29% over $77.8 million
in the first nine months of 1996. Contributing to this increase was new
branch activity and the formation of Commerce Insurance as noted above.
Other noninterest expenses rose $3.0 million over the first nine 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 66% for the first
nine months of 1997 as compared to 67% for the same 1996 period. The
Company's efficiency ratio remains 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 September 30, 1997 were $19.0 million, or .50% of
total assets compared to $19.5 million or .60% of total assets at
December 31, 1996 and $19.6 million or .64% of total assets at
September 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 September 30, 1997 were $12.4 million or .89% of total
loans compared to $11.2 million or .89% of total loans at December 31,
1996 and $11.3 million or .92% of total loans at September 30, 1996. At
September 30, 1997, loans past due 90 days or more and still accruing
interest amounted to $423 thousand compared to $259 thousand at
December 31, 1996 and $632 thousand at September 30, 1996. Additional
loans considered as potential problem loans by the Company's internal
loan review department ($13.6 million at September 30, 1997) have been
evaluated as to risk exposure in determining the adequacy of the
allowance for loan losses.
13
<PAGE>
Other real estate (ORE) at September 30, 1997 totaled $6.7
million compared to $8.3 million at December 31, 1996 and $8.3 million
at September 30, 1996. These properties have been written down to the
lower of cost or fair value less disposition costs.
On pages 15 and 16 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 September 30, 1997, December 31, 1996, and September 30, 1996.
Pending Acquisitions
On September 23, 1997, Commerce Insurance, a wholly-owned subsidiary of
Commerce Bancorp, Inc., reached agreement in principle to acquire
Joseph J. Reinhart and Associates, Inc. (Reinhart), Cherry Hill, NJ, a
risk/loss management and loss investigation consulting firm. On October
6, 1997, Commerce Insurance reached agreement in principle to acquire
Associated Insurance Management, Inc. (AIM), Haddonfield, New Jersey,
an employee and executive benefit consulting firm. Also, On November 4,
1997, Commerce Bancorp, Inc. reached agreement in principle to acquire
A. H. Williams, Inc., Philadelphia, PA. a public finance investment
firm. The acquisitions will be completed by the issuance of common
stock of Commerce Bancorp, Inc. totaling approximately 525,000 shares.
The acquisitions are intended to be tax-free reorganizations under
appropriate provisions of the United States Internal Revenue Code and
will be accounted for by the Company under the pooling-of-interests
method. Subject to the execution of definitive agreements and to
required approvals, the AIM and Reinhart acquisitions are expected to
close on or about December 1, 1997, and the A. H. Williams acquisition
is expected to close in the first quarter of 1998. The effect of these
acquisitions on the Company's total consolidated assets, stockholders'
equity, and net income is not expected to be material.
14
<PAGE>
The following summary presents information regarding non-performing loans and
assets as of September 30, 1997 and the preceding four quarters: (dollar amounts
in thousands)
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
1997 1997 1997 1996 1996
------- ------- ------- ------- -------
Non-accrual loans:
<S> <C> <C> <C> <C> <C>
Commercial $1,920 $1,057 $1,349 $1,595 $1,293
Consumer 893 1,254 1,109 956 1,247
Real Estate:
Construction 2,006 2,155 2,155 2,156 2,196
Mortgage 7,533 5,818 6,074 6,005 6,032
------- ------- ------- ------- -------
Total non-accrual loans 12,352 10,284 10,687 10,712 10,768
------- ------- ------- ------- -------
Restructured loans
Commercial 20 20 21 21 21
Consumer 29 29
Real Estate:
Construction
Mortgage 481 500
------- ------- ------- ------- -------
Total restructured loans 20 20 21 531 550
------- ------- ------- ------- -------
Total non-performing loans 12,372 10,304 10,708 11,243 11,318
------- ------- ------- ------- -------
Other real estate 6,673 7,035 8,042 8,252 8,323
------- ------- ------- ------- -------
Total non-performing assets 19,045 17,339 18,750 19,495 19,641
------- ------- ------- ------- -------
Loans past due 90 days or more
and still accruing 423 458 300 259 632
------- ------- ------- ------- -------
Total non-performing assets and
loans past due 90 days or more $19,468 $17,797 $19,050 $19,754 $20,273
======= ======= ======= ======= =======
Total non-performing loans as a
percentage of total period-end
loans 0.89% 0.76% 0.82% 0.89% 0.92%
Total non-performing assets as a
percentage of total period-end assets 0.50% 0.48% 0.56% 0.60% 0.64%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.51% 0.49% 0.57% 0.61% 0.66%
Allowance for loan losses as a
percentage of total non-performing
loans 169% 198% 183% 160% 149%
Allowance for loan losses as a percentage
of total period-end loans 1.50% 1.50% 1.50% 1.42% 1.38%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 8% 7% 9% 9% 10%
</TABLE>
15
<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
Nine Months Ended Ended
---------------------------
09/30/97 09/30/96 12/31/96
------------ ------------- ------------
<S> <C> <C> <C>
Balance at beginning of period $17,975 $16,014 $16,014
Provisions charged to operating expenses 4,094 2,548 4,857
------------ ------------- ------------
22,069 18,562 20,871
Recoveries on loans charged-off:
Commercial 150 259 286
Consumer 267 223 274
Real estate 121 80 95
------------ ------------- ------------
Total recoveries 538 562 655
Loans charged-off:
Commercial (783) (462) (1,202)
Consumer (846) (592) (1,046)
Real estate (44) (1,207) (1,303)
------------ ------------- ------------
Total charged-off (1,673) (2,261) (3,551)
------------ ------------- ------------
Net charge-offs (1,135) (1,699) (2,896)
------------ ------------- ------------
Balance at end of period $20,934 $16,863 $17,975
============ ============= ============
Net charge-offs as a percentage of
average loans outstanding 0.11% 0.20% 0.25%
</TABLE>
16
<PAGE>
PART II. OTHER INFORMATION
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 third quarter
ended September 30, 1997.
17
<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)
November 14, 1997
(Date) C. EDWARD JORDAN, JR.
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
18
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 Nine Months Ended
September 30, September 30,
Primary Net Income Per Share 1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Adjustment of income:
Net income $10,377 $7,134 $29,845 $21,805
Preferred stock dividends 141 141 422 702
------- ------- ------- -------
Adjusted net income applicable to
common stock $10,236 $6,993 $29,423 $21,103
======= ======= ======= =======
Average shares of common stock and equivalents outstanding:
Average common shares outstanding 15,803 13,613 15,686 13,328
Common stock equivalents - dilutive rights 687 501
Common stock equivalents - dilutive options 789 560 763 514
------- ------- ------- -------
Average shares of common stock and
equivalents outstanding 16,592 14,860 16,449 14,343
======= ======= ======= =======
Net income per share of common stock $0.62 $0.47 $1.79 $1.47
======= ======= ======= =======
Fully Diluted Net Income Per Share
Net income applicable to common stock
on a fully diluted basis $10,377 $7,134 $29,845 $21,805
Less: additional ESOP contribution
under the if-converted method 11 26 34 76
------- ------- ------- -------
Adjusted net income applicable to
common stock on a fully diluted basis $10,366 $7,108 $29,811 $21,729
======= ======= ======= =======
Average number of shares outstanding on a fully diluted basis:
Average common shares outstanding 15,803 13,613 15,686 13,328
Additional shares considered in fully
diluted computation assuming:
Exercise of rights 690 507
Exercise of stock options 808 624 875 632
Conversion of preferred stock 616 988 616 1,349
------- ------- ------- -------
Average number of shares outstanding
on a fully diluted basis 17,227 15,915 17,177 15,816
======= ======= ======= =======
Fully diluted net income per share of
common stock $0.60 $0.44 $1.74 $1.37
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 170,959
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 8,765
<INVESTMENTS-HELD-FOR-SALE> 1,221,645
<INVESTMENTS-CARRYING> 900,961
<INVESTMENTS-MARKET> 891,550
<LOANS> 1,391,388
<ALLOWANCE> 20,934
<TOTAL-ASSETS> 3,845,175
<DEPOSITS> 3,325,214
<SHORT-TERM> 186,711
<LIABILITIES-OTHER> 13,360
<LONG-TERM> 83,064
0
7,506
<COMMON> 24,922
<OTHER-SE> 204,398
<TOTAL-LIABILITIES-AND-EQUITY> 3,845,175
<INTEREST-LOAN> 88,730
<INTEREST-INVEST> 88,910
<INTEREST-OTHER> 1,162
<INTEREST-TOTAL> 178,802
<INTEREST-DEPOSIT> 63,999
<INTEREST-EXPENSE> 70,302
<INTEREST-INCOME-NET> 108,500
<LOAN-LOSSES> 4,094
<SECURITIES-GAINS> 1,717
<EXPENSE-OTHER> 100,034
<INCOME-PRETAX> 46,271
<INCOME-PRE-EXTRAORDINARY> 46,271
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,845
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 4.37
<LOANS-NON> 12,352
<LOANS-PAST> 423
<LOANS-TROUBLED> 20
<LOANS-PROBLEM> 13,570
<ALLOWANCE-OPEN> 17,975
<CHARGE-OFFS> 1,673
<RECOVERIES> 538
<ALLOWANCE-CLOSE> 20,934
<ALLOWANCE-DOMESTIC> 20,934
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
