SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-3
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-12874
COMMERCE BANCORP, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 22-2433468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1701 Route 70 East, Cherry Hill, NJ 08034-5400 08034-5400
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 751-9000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1.5625 par value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the Registrant (i) 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, and (ii) has been subject to such
filing requirements for the past 90 days.
YES X NO
-- --
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
Registrant is $963,030,000. (1)
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.
Common Stock, $1.5625 Par Value 17,985,767
(Title of Class) No. of Shares Outstanding
as of 4/24/98
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate certain information by reference from the
Registrant's Annual Report to Shareholders for the fiscal year ended December
31, 1997 (the "Annual Report").
- ----------
(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Registrant's common stock outstanding, reduced by the amount of
Registrant's common stock held by officers, directors and shareholders owning in
excess of 10% of the Registrant's common stock, multiplied by the last sale
price for the Registrant's common stock on April 24, 1998. The information
provided shall in no way be construed as an admission that any officer, director
or 10% shareholder in the Registrant may be deemed an affiliate of the
Registrant or that he is the beneficial owner of the shares reported as being
held by him, and any such inference is hereby disclaimed. The information
provided herein is included solely for the record-keeping purposes of the
Securities and Exchange Commission.
-2-
<PAGE>
EXPLANATORY NOTE
This Amendment No. 3 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997, as filed with the Securities and Exchange
Commission on March 30, 1998 and as amended on April 30, 1998, and July 14,
1998, is being filed to reflect the June 29, 1998 Board of Directors Declaration
of a five-for-four stock split in the form of a 25% stock dividend payable July
24, 1998 to shareholders of record on July 13, 1998. Payment of this stock
dividend resulted in the issuance fo 4,500,980 additional common shares and cash
of $47,154 in lieu of fractional shares. Therefore, the following items of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 are
being amended:
Part II
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Financial Data
<PAGE>
Item 6. Selected Financial Data
Commerce Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net interest income $147,140 $125,413 $109,899 $102,997 $81,432
Provision for loan losses 4,668 4,857 2,774 5,224 8,616
Noninterest income 57,374 32,776 23,623 19,591 20,677
Noninterest expense 137,929 109,031 89,316 82,734 68,785
Income before income taxes 61,917 44,301 41,432 34,630 24,708
Net income 40,325 28,250 26,652 22,145 15,824
Balance Sheet Data:
Total assets $3,938,967 $3,232,152 $2,738,587 $2,571,704 $2,291,545
Loans (net) 1,390,028 1,248,880 1,032,801 916,437 811,580
Securities available for sale 1,315,120 767,487 571,553 126,437 191,881
Securities held to maturity 874,032 837,512 772,999 1,257,551 1,001,040
Trading securities 7,911 15,327 8,843
Federal funds sold 26,975 42,370 18,300 23,675
Deposits 3,369,404 2,919,670 2,529,186 2,099,247 1,989,598
Long-term debt 25,308 26,333 27,359 28,385 28,954
Trust preferred securities 57,500
Stockholders' equity 250,760 203,964 179,695 126,582 112,810
Per Share Data:
Net income-basic $1.89 $1.45 $1.38 $1.27 $0.89
Net income-diluted 1.78 1.33 1.30 1.18 0.87
Cash dividends 0.60 0.50 0.44 0.41 0.31
Book value 11.47 9.68 9.36 7.29 6.15
Average shares outstanding:
Basic 21,055 18,875 18,511 16,215 15,313
Diluted 22,599 21,197 20,367 18,588 17,928
Selected Ratios:
Performance
Return on average assets 1.13% 0.96% 1.01% 0.89% 0.79%
Return on average equity 18.18 15.43 16.57 18.54 15.55
Net interest margin 4.55 4.72 4.58 4.51 4.50
Liquidity and Capital
Average loans to average deposits 42.42% 42.84% 41.92% 43.24% 44.23%
Dividend payout 31.89 34.57 32.19 32.15 34.64
Stockholders' equity to total assets 6.37 6.31 6.56 4.92 4.92
Risk-based capital:
Tier 1 15.66 12.57 12.64 10.04 9.13
Total 17.73 15.09 15.49 13.08 12.20
Leverage capital 7.81 6.46 6.43 4.93 4.59
Asset Quality
Non-performing assets to total
year-end assets 0.44% 0.60% 0.81% 1.05% 1.48%
Net charge-offs to average loans
outstanding 0.10 0.25 0.14 0.35 1.19
Non-performing loans to total
year-end loans 0.82 0.89 0.97 1.64 1.44
Allowance for loan losses to total
year-end loans 1.51 1.42 1.53 1.58 1.52
Allowance for loan losses to non-
performing loans 183.46 159.88 156.72 96.26 105.53
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's
consolidated balance sheets and statements of income. This section should be
read in conjunction with the Company's consolidated financial statements and
accompanying notes. The former Independence Bancorp Inc. (Independence), Bergen
County, New Jersey, was merged into the Company on January 21, 1997 and its
wholly-owned subsidiary bank, Independence Bank of New Jersey, was thereafter
renamed Commerce Bank/North. The transaction was accounted for as a pooling of
interests. The Company's originally reported results of operations have been
restated herein to include Commerce North's results of operations for all
periods presented.
1997 Overview
In 1997, the Company posted increases in net income, deposits, loans, and
assets. The increase in net income was due to increases in net interest income
and noninterest income, which offset increased noninterest expenses. Loan growth
totaled 11% for 1997, and deposit growth totaled 15%. At December 31, 1997, the
Company had total assets of $3.9 billion, total loans of $1.4 billion, total
investment securities of $2.2 billion, and total deposits of $3.4 billion.
Average Balances and Net Interest Income
The table on page 19 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1997, 1996, and 1995 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on
liabilities for such periods. During 1997, average interest earning assets
totaled $3.27 billion, an increase of $583.8 million, or 22% over 1996. This
increase resulted primarily from the increase in the average balance of loans,
which rose $187.3 million, and the average balance of investment securities,
which rose $425.4 million during 1997. The growth in the average balance of
interest earning assets was funded primarily by an increase in the average
balance of deposits (including noninterest-bearing demand deposits) of $468.3
million. The growth in interest earning assets was also partly funded by an
increase in other borrowed money, which rose $66.5 million to $91.3 million
during 1997, and an increase in long-term debt, which rose $32.5 million to
$55.5 million, reflecting the issuance of $57.5 million of Trust Capital
Securities in June, 1997.
Net Interest Income and Net Interest Margin
Net interest margin on a tax-equivalent basis was 4.55% for 1997, a decrease of
17 basis points from 1996.
Net interest income on a tax-equivalent basis (which adjusts for the tax-exempt
status of income earned on certain loans and investments to express such income
as if it were taxable) for 1997 was $148.5 million, an increase of $22.0
million, or 17%, over 1996. Interest income on a tax-equivalent basis increased
to $245.5 million from $203.8 million, or 20%. This increase was primarily
related to volume increases in the loan and investment portfolios. Interest
expense for 1997 rose $19.7 million to $97.0 million, from $77.3 million in
1996. This increase was primarily related to increases in the Company's
interest-bearing liabilities.
The tax-equivalent yield on interest earning assets during 1997 was 7.52%, a
decrease of eight basis points from 7.60% in 1996. The decrease resulted
primarily from lower yields in the loan portfolio due to the level and timing of
changes in general market interest rates during 1997 as compared to 1996.
The cost of interest-bearing liabilities increased 15 basis points in 1997 to
3.63% from 3.48% in 1996. The increase resulted primarily from increased levels
of other borrowed money and long-term debt, which bear interest at higher rates
than the Company's deposits. The cost of total funding sources increased nine
basis points in 1997 to 2.97% from 2.88%.
17
<PAGE>
The following table presents the major factors that contributed to the changes
in net interest income for the years ended December 31, 1997 and 1996 as
compared to the respective previous periods.
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1)
Volume Rate Total Volume Rate Total
(dollars in thousands)
Interest on
investments:
<S> <C> <C> <C> <C> <C> <C>
Taxable $26,681 $610 $27,291 $4,663 $(806) $3,857
Tax-exempt 983 (416) 567 1,556 (7) 1,549
Trading 49 (91) (42) 132 49 181
Federal
funds sold (1,577) 197 (1,380) (121) (475) (596)
Interest on
loans:
Mortgage &
construction 6,337 (713) 5,624 6,489 (1,678) 4,811
Commercial 3,233 53 3,286 4,025 (856) 3,169
Consumer 6,704 (616) 6,088 5,559 (1,049) 4,510
Tax-exempt 297 (2) 295 (301) (17) (318)
- -----------------------------------------------------------------------------------------------------
Total interest
income 42,707 (978) 41,729 22,002 (4,839) 17,163
- -----------------------------------------------------------------------------------------------------
Interest expense:
Regular
savings 2,260 1,252 3,512 928 (630) 298
N.O.W
accounts (5,843) 535 (5,308) (1,257) (1,028) (2,285)
Money
market plus 10,796 (506) 10,290 5,173 (1,055) 4,118
Time
deposits 1,404 192 1,596 3,643 454 4,097
Public funds 3,388 (415) 2,973 452 (534) (82)
Other borrowed
money 3,735 55 3,790 (4,122) (921) (5,043)
Long-term
debt 2,860 2 2,862
- -----------------------------------------------------------------------------------------------------
Total interest
expense 18,600 1,115 19,715 4,817 (3,714) 1,103
- -----------------------------------------------------------------------------------------------------
Net increase $24,107 $(2,093) $22,014 $17,185 $(1,125) $16,060
- -----------------------------------------------------------------------------------------------------
<FN>
(1) Changes due to both volume and rate have been allocated to volume or rate
changes in proportion to the absolute dollar amounts of the change in each.
</FN>
</TABLE>
Noninterest Income
For 1997, noninterest income totaled $57.4 million, an increase of $24.6 million
or 75% from 1996. The increase was due primarily to increased other operating
income, which rose $18.7 million from 1996, including an increase of $15.3
million in revenues (to $16.5 million in 1997) 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 $5.3 million over 1996 due to higher transaction volumes, and net
investment securities gains were $610 thousand higher in 1997 than the prior
year.
Noninterest Expenses
Noninterest expenses totaled $137.9 million for 1997, an increase of $28.9
million, or 27% over 1996. Contributing to this increase was the addition of
nine new branches during 1997, and the formation of Commerce Insurance. 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 $1.6 million lower in 1997 than the prior year, which resulted
primarily from 1996 reflecting the one-time special assessment to recapitalize
the Savings Association Insurance Fund (SAIF) of approximately $1.3 million.
Other noninterest expenses rose $3.5 million to $17.8 million in 1997. This
increase resulted primarily from higher bank-card related service charges,
increased legal expenses, and increased provisions for non-credit-related
losses.
A key industry productivity measure is the operating efficiency ratio. This
ratio expresses the relationship of noninterest expenses (excluding other real
estate expenses and, in 1996, the SAIF assessment) to net interest income plus
noninterest income (excluding non-recurring gains). Over the last three years,
this ratio equaled 67.31%, 66.95% and 64.81% in 1997, 1996 and 1995,
respectively. The Company's efficiency ratio remains above its peer group
primarily due to its aggressive growth expansion activities and investments in
technology.
18
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(dollars in thousands) Average Average Average Average Average Average
Earning Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Taxable $1,831,692 $120,792 6.59% $1,427,098 $ 93,501 6.55% $1,355,932 $ 89,644 6.61%
Tax-exempt 50,940 2,532 4.97 31,163 1,965 6.31 6,494 416 6.41
Trading 6,766 321 4.74 5,740 363 6.32 3,649 182 4.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,889,398 123,645 6.54 1,464,001 95,829 6.55 1,366,075 90,242 6.61
Federal funds sold 27,206 1,487 5.47 56,050 2,867 5.12 58,420 3,463 5.93
Loans
Mortgage and construction 694,405 62,653 9.02 624,168 57,029 9.14 553,144 52,218 9.44
Commercial 248,958 23,432 9.41 214,604 20,146 9.39 171,732 16,977 9.89
Consumer 395,769 33,271 8.41 316,017 27,183 8.60 251,385 22,673 9.02
Tax-exempt 10,193 1,035 10.15 7,269 740 10.18 10,230 1,058 10.34
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 1,349,325 120,391 8.92 1,162,058 105,098 9.04 986,491 92,926 9.42
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets $3,265,929 $245,523 7.52% $2,682,109 $203,794 7.60% $2,410,986 $186,631 7.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Sources of Funds
Interest-bearing liabilities
Regular savings $670,074 $ 16,419 2.45% $577,824 $ 12,907 2.23% $ 536,289 $ 12,609 2.35%
N.O.W. accounts 112,421 2,569 2.29 368,120 7,877 2.14 426,846 10,162 2.38
Money market plus 880,357 22,255 2.53 453,284 11,965 2.64 257,299 7,847 3.05
Time deposits 590,866 30,587 5.18 563,752 28,991 5.14 492,920 24,894 5.05
Public funds 273,445 15,194 5.56 212,468 12,221 5.75 204,617 12,303 6.01
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 2,527,163 87,024 3.44 2,175,448 73,961 3.40 1,917,971 67,815 3.54
Other borrowed money 91,308 5,126 5.61 24,782 1,336 5.39 101,240 6,379 6.30
Long-term debt 55,452 4,887 8.81 23,000 2,025 8.80 23,000 2,025 8.80
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
bearing liabilities 2,673,923 97,037 3.63 2,223,230 77,322 3.48 2,042,211 76,219 3.73
Noninterest-bearing
funds (net) 592,006 458,879 368,775
- -----------------------------------------------------------------------------------------------------------------------------------
Total sources to fund
earning assets $3,265,929 97,037 2.97 $2,682,109 77,322 2.88 $2,410,986 76,219 3.16
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income and
margin tax-equivalent basis 148,486 4.55 126,472 4.72 110,412 4.58
Tax-exempt adjustment 1,345 1,059 513
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin $147,141 4.51% $125,413 4.68% $109,899 4.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Other Balances
Cash and due from banks $ 154,375 $147,768 $130,693
Other assets 168,818 141,848 122,913
Total assets 3,568,566 2,954,851 2,648,625
Demand deposits
(noninterest-bearing) 653,626 537,079 435,311
Other liabilities 19,153 11,488 10,302
Stockholders' equity 221,864 183,055 160,801
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes--Weighted average yields on tax-exempt obligations have been computed on a
tax-equivalent basis assuming a federal tax rate of 35%.
--Non-accrual loans have been included in the average loan balance.
--Investment securities includes investments available for sale.
--Mortgage and construction loans include mortgage loans held for sale.
19
<PAGE>
Income Taxes
The provision for federal and state income taxes for 1997 was $21.6 million
compared to $16.1 million in 1996 and $14.8 million in 1995.
The increase in 1997 total tax expense was the result of an increase in income
before income taxes. The effective tax rate was 34.9%, 36.2% and 35.7% in 1997,
1996, and 1995, respectively.
Net Income
Net income for 1997 was $40.3 million, an increase of $12.0 million, or 43% over
the $28.3 million recorded for 1996. The increase in net income was due to
increases in net interest income and noninterest income, which offset increased
noninterest expenses.
Diluted net income per share of common stock for 1997 was $1.78, or 34% above
the $1.33 per common share for 1996.
Return on Average Equity and Average Assets
Two industry measures of the performance by a banking institution are its return
on average assets and return on average equity. Return on average assets ("ROA")
measures net income in relation to total average assets and indicates a
company's ability to employ its resources profitably. For 1997, the Company's
ROA was 1.13%, compared to .96% in 1996. Return on average equity ("ROE") is
determined by dividing annual net income by average stockholders' equity and
indicates how effectively a company can generate net income on the capital
invested by its stockholders. For 1997, the Company's ROE was 18.18% compared to
15.43% for 1996.
Loan Portfolio
The following table summarizes the loan portfolio of the Company by type of loan
as of December 31, for each of the years 1993 through 1997.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial real estate:
Owner-occupied $221,788 $167,702 $149,258 $151,420 $157,452
Other 287,510 288,733 250,782 215,063 171,282
Construction 57,182 52,372 52,593 53,792 49,811
- ------------------------------------------------------------------------------------
566,480 508,807 452,633 420,275 378,545
Commercial:
Term 152,115 153,793 126,120 106,536 117,649
Line of credit 101,134 91,418 68,372 54,379 41,329
Demand 442 529 407 766 1,118
- ------------------------------------------------------------------------------------
253,691 245,740 194,899 161,681 160,096
Consumer:
Mortgages
(1-4 family
residential) 167,979 153,615 133,893 111,689 92,049
Installment 63,448 54,548 44,781 32,447 28,012
Home equity 347,903 293,591 212,845 195,362 155,206
Credit lines 11,788 10,554 9,764 9,649 10,187
- ------------------------------------------------------------------------------------
591,118 512,308 401,283 349,147 285,454
- ------------------------------------------------------------------------------------
Total loans $1,411,289 $1,266,855 $1,048,815 $931,103 $824,095
- ------------------------------------------------------------------------------------
</TABLE>
The Company manages risk associated with its loan portfolio through
diversification, underwriting policies and procedures which are reviewed and
updated on at least an annual basis, and ongoing loan monitoring efforts. The
commercial real estate portfolio includes owner-occupied (owner occupies greater
than 50% of the property), other commercial real estate, and construction loans.
Owner-occupied and other commercial real estate loans generally have five year
call provisions and bear the personal guarantees of the principals involved.
Construction loans are primarily used for single family residential properties.
Financing is provided against firm agreements of sale, with speculative
construction limited to one sample per project. The commercial loan portfolio is
comprised primarily of amortizing loans to small businesses in the New
Jersey/Southeastern Pennsylvania market area. These loans are generally secured
by business assets, personal guarantees, and/or personal assets of the borrower.
The consumer loan portfolio is comprised primarily of loans secured by first and
second mortgage liens on residential real estate. Such loans comprised
approximately 87% of consumer loans at December 31, 1997.
20
<PAGE>
The maturity ranges of the loan portfolio and the amount of loans with
predetermined interest rates and floating rates in each maturity range, as of
December 31, 1997, are summarized in the following table.
December 31, 1997
Due in One Due in One to Due in Over
Year or Less Five Years Five Years Total
(dollars in thousands)
Real estate:
Commercial $93,270 $359,443 $56,585 $509,298
Construction 44,607 12,575 57,182
- --------------------------------------------------------------------------------
137,877 372,018 56,585 566,480
Commercial:
Term 55,021 87,244 9,850 152,115
Line of credit 99,034 2,100 101,134
Demand 412 30 442
- --------------------------------------------------------------------------------
154,467 89,374 9,850 253,691
Consumer:
Mortgages
(1-4 family
residential) 11,088 31,886 125,005 167,979
Installment 23,924 38,765 759 63,448
Home equity 37,178 132,948 177,777 347,903
Credit lines 4,053 7,735 11,788
- --------------------------------------------------------------------------------
76,243 211,334 303,541 591,118
- --------------------------------------------------------------------------------
Total loans $368,587 $672,726 $369,976 $1,411,289
- --------------------------------------------------------------------------------
Interest rates:
Predetermined $132,447 $449,755 $237,380 $819,582
Floating 236,140 222,971 132,596 591,707
- --------------------------------------------------------------------------------
Total loans $368,587 $672,726 $369,976 $1,411,289
- --------------------------------------------------------------------------------
During 1997, loans increased $144.4 million, or 11% from $1.3 billion to $1.4
billion. At December 31, 1997, loans represented 42% of total deposits and 36%
of total assets. Growth in the loan portfolio was reflected primarily in
commercial real estate and consumer loans. The Company has traditionally been an
active provider of commercial real estate loans to creditworthy local borrowers,
with such loans secured by properties within the Company's primary trade area.
At December 31, 1997, $221.8 million, or 44%, of commercial real estate loans
(other than construction) were secured by owner-occupied properties. Growth in
consumer loans was due primarily to loans secured by one to four family
residential properties, including home equity loans and home equity lines of
credit.
Commercial real estate construction loans increased $4.8 million to $57.2
million in 1997. At December 31, 1997, construction loans for 1-4 family
residential dwellings totaled $0.5 million and construction loans secured by
commercial properties amounted to $13.2 million. The balance of $43.5 million
was for land development, of which $40.6 million was residential. As of December
31, 1997, there were no concentrations of loans to any one type of industry
exceeding 10% of total loans nor were there any loans classified as highly
leveraged transactions.
Non-Performing Loans and Assets
Non-performing assets (non-performing loans and other real estate, excluding
loans past due 90 days or more and still accruing interest) at December 31, 1997
were $17.4 million or 0.44% of total assets, as compared to $19.5 million or
0.60% of total assets at December 31, 1996.
Total non-performing loans (non-accrual loans, and restructured loans excluding
loans past due 90 days or more and still accruing interest) at December 31, 1997
were $11.6 million as compared to $11.3 million a year ago. The Company
generally places a loan on non-accrual status and ceases accruing interest when
loan payment performance is deemed unsatisfactory. Generally loans past due 90
days are placed on non-accrual status, unless the loan is both well secured and
in the process of collection. At December 31, 1997, loans past due 90 days or
more and still accruing interest amounted to $226 thousand, compared to $259
thousand at December 31, 1996. Additional loans considered as potential problem
loans ($13.1 million at December 31, 1997) by the Company's internal loan review
department have been evaluated as to risk exposure in determining the adequacy
of the allowance for loan losses.
Other real estate (ORE) totaled $5.8 million at December 31, 1997 as compared to
$8.3 million at December 31, 1996. These properties have been written down to
the lower of cost or fair value less disposition costs.
The Company has on an ongoing basis updated appraisals on loans secured by real
estate, particularly those categorized as non-performing loans and potential
problem loans. In those instances where updated appraisals reflect reduced
collateral values, an evaluation of the borrowers' overall financial condition
is made to determine the need, if any, for possible writedowns or appropriate
additions to the allowance for loan losses.
21
<PAGE>
The following summary presents information regarding non-performing loans and
assets as of December 31, 1993 through 1997.
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands)
Non-accrual loans(1):
Commercial $1,816 $ 1,263 $ 1,623 $ 3,925 $ 6,109
Consumer 703 1,145 978 1,755 2,109
Real estate
Construction 1,345 2,156 1,787 955 866
Mortgage 7,706 6,157 5,308 8,025 4,881
- -------------------------------------------------------------------------------
Total non-accrual
loans 11,570 10,721 9,696 14,660 13,965
- -------------------------------------------------------------------------------
Restructured loans(1):
Commercial 19 21 161 143 84
Consumer 29 60 29
Real estate
Construction
Mortgage 481 301 404 84
-------------------------------------------------------------------------------
Total restructured
loans 19 531 522 576 168
- -------------------------------------------------------------------------------
Total non-performing
loans 11,589 11,252 10,218 15,236 14,133
- -------------------------------------------------------------------------------
Other real estate 5,845 8,252 11,862 11,739 19,825
- -------------------------------------------------------------------------------
Total non-performing
assets $17,434 $19,504 $22,080 $26,975 $33,958
- -------------------------------------------------------------------------------
Non-performing
assets as a percent
of total assets 0.44% 0.60% 0.81% 1.05% 1.48%
- -------------------------------------------------------------------------------
Loans past due 90 days
or more and still
accruing interest $226 $259 $159 $400 $450
- -------------------------------------------------------------------------------
(1)Interest income of approximately $1,361,000, $1,226,000, $1,079,000,
$1,496,000, and $912,000 would have been recorded in 1997, 1996, 1995, 1994 and
1993 respectively, on non-performing loans in accordance with their original
terms. Actual interest recorded on these loans amounted to $323,000 in 1997,
$262,000 in 1996, $299,000 in 1995, $317,000 in 1994, and $270,000 in 1993.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
a loan loss reserve which it believes is adequate for estimated losses in its
loan portfolio. Based on an evaluation of the loan portfolio, management
presents a quarterly review of the loan loss reserve to the Board of Directors,
indicating any changes in the reserve since the last review and any
recommendations as to adjustments in the reserve. In making its evaluation,
management considers the results of recent regulatory examinations, the effects
on the loan portfolio of current economic indicators and their probable impact
on borrowers, the amount of charge-offs for the period, the amount of
non-performing loans and related collateral security, and the evaluation of its
loan portfolio by the internal loan review department. Charge-offs occur when
loans are deemed to be uncollectible.
During 1997, net charge-offs amounted to $1.4 million, or 0.10% of average loans
outstanding for the year, compared to $2.9 million or 0.25% of average loans
outstanding for 1996. During 1997, the Company recorded provisions of $4.7
million to the allowance for loan losses compared to $4.9 million for 1996. At
December 31, 1997, the allowance aggregated $21.3 million or 1.51% of total
loans and provided coverage of 183% of non-performing loans, as compared to
$18.0 million, 1.42%, and 160%, respectively, at December 31, 1996.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data.
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $17,975 $16,014 $14,666 $12,515 $12,239
Provisions charged to
operating expenses 4,668 4,857 2,774 5,224 8,616
- ----------------------------------------------------------------------------------------------------------
22,643 20,871 17,440 17,739 20,855
- ----------------------------------------------------------------------------------------------------------
Recoveries of loans
previously charged-off:
Commercial 348 286 486 335 545
Consumer 406 274 243 247 408
Real estate 144 95 292 23 133
- ----------------------------------------------------------------------------------------------------------
Total recoveries 898 655 1,021 605 1,086
- ----------------------------------------------------------------------------------------------------------
Loans charged-off:
Commercial (964) (1,202) (1,253) (2,608) (7,501)
Consumer (1,170) (1,046) (771) (683) (1,917)
Real estate (146) (1,303) (423) (387) (1,008)
Total charged-off (2,280) (3,551) (2,447) (3,678) (10,426)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (1,382) (2,896) (1,426) (3,073) (9,340)
- ----------------------------------------------------------------------------------------------------------
Allowance for loan losses
acquired bank 1,000
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $21,261 $17,975 $16,014 $14,666 $12,515
- ----------------------------------------------------------------------------------------------------------
Net charge-offs as a
percentage of average
loans outstanding 0.10% 0.25% 0.14% 0.35% 1.19%
- ----------------------------------------------------------------------------------------------------------
Allowance for loan losses
as a percentage of
year-end loans 1.51% 1.42% 1.53% 1.58% 1.52%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The following table details the allocation of the allowance for loan losses to
the various categories. The allocation is made for analytical purposes and it is
not necessarily indicative of the categories in which future loan losses may
occur. The total allowance is available to absorb losses from any segment of
loans.
<TABLE>
<CAPTION>
(dollars in thousands)
Allowance for Loan Losses at December 31,
1997 1996 1995 1994 1993
% Gross % Gross % Gross % Gross %Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $4,054 18% $3,375 19% $3,364 19% $3,105 18% $ 3,247 19%
Consumer 11,628 42 4,081 41 3,321 38 2,707 37 2,360 35
Real estate 5,579 40 10,519 40 9,329 43 8,854 45 6,908 46
- -------------------------------------------------------------------------------------------------------------------------
$21,261 100% $17,975 100% $16,014 100% $14,666 100% $12,515 100%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Securities
The following table summarizes the book value of securities available for sale
and securities held to maturity by the Company as of the dates shown.
December 31,
1997 1996 1995
(dollars in thousands)
U.S. Government agency
and mortgage-backed
obligations $1,252,693 $707,316 $555,813
Obligations of state and
political subdivisions 23,515 15,743
Equity securities 11,364 3,994 2,896
Other 27,548 40,434 12,844
- ---------------------------------------------------------------------
Securities available
for sale $1,315,120 $767,487 $571,553
- ---------------------------------------------------------------------
U.S. Government agency
and mortgage-backed
obligations $834,228 $798,345 $738,511
Obligations of state and
political subdivisions 20,940 22,674 17,597
Other 18,864 16,493 16,891
- ---------------------------------------------------------------------
Securities held to
maturity $874,032 $837,512 $772,999
- ---------------------------------------------------------------------
Consistent with accounting and regulatory pronouncements, the Company has
segregated a portion of its investment portfolio as securities available for
sale. The balance of the investment portfolio (excluding trading securities) is
categorized as securities held to maturity. Investment securities are classified
as available for sale if they might be sold in response to changes in interest
rates, prepayment risk, the Company's income tax position, the need to increase
regulatory capital, liquidity needs or other similar factors. These securities
are carried at fair market value. Investment securities are classified as held
to maturity when the Company has the intent and ability to hold those securities
to maturity. Securities held to maturity are carried at cost and adjusted for
accretion of discounts and amortization of premiums.
In total, investment securities increased $576.7 million from $1.6 billion to
$2.2 billion at December 31, 1997. Net security purchases of approximately
$856.4 million were partially offset by maturities and prepayments on
mortgage-backed securities in the existing portfolio. These security purchases
were funded primarily through deposit growth and an increase in other borrowed
money in 1997.
On November 15, 1995, the FASB issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in that report, management
reclassified $83.8 million of investment securities from held to maturity to
available for sale during the first quarter of 1997 in connection with its
acquisition of Independence.
23
<PAGE>
The Company's investment portfolio consists almost entirely of U.S. Government
agency and mortgage-backed obligations. These securities have little, if any
credit risk since they are either backed by the full faith and credit of the
U.S. Government or their principal and interest payments are guaranteed by an
agency of the U.S. Government. These investment securities carry fixed coupons
whose rate does not change over the life of the securities. Since most
securities are purchased at premiums or discounts, their yield will change
depending on any change in the estimated rate of prepayments. The Company
amortizes premiums and accretes discounts over the estimated average life of the
securities. Changes in the estimated average life of the investment portfolio
will lengthen or shorten the period in which the premium or discount must be
amortized or accreted, thus affecting the Company's investment yields.
For the year ended December 31, 1997, the yield on the investment portfolio was
6.54%, a decrease of one basis point from 6.55% in fiscal 1996. At December 31,
1997, the average life and duration of the investment portfolio were
approximately 5.4 years and 4.2 years, respectively, as compared to 6.2 years
and 4.6 years, respectively, at December 31, 1996.
At December 31, 1997 the yield on the portfolio was 6.52%, comparable to 6.53%
at December 31, 1996. At December 31, 1997, the unrealized appreciation in
securities available for sale included in stockholders' equity totaled $3.8
million, net of tax, compared to unrealized depreciation of $5.8 million, net of
tax, at December 31, 1996. The increase in the market value of the investment
portfolio resulted primarily from general market interest rates being lower at
year-end 1997 as compared to year-end 1996.
The contractual maturity distribution and weighted average yield of the
Company's investment portfolio (excluding equity and trading securities) at
December 31, 1997, are summarized in the following table. Weighted average yield
is calculated by dividing income within each maturity range by the outstanding
amount of the related investment and has been tax effected on tax-exempt
obligations.
<TABLE>
<CAPTION>
(dollars in thousands)
December 31, 1997
Due Under Due Over
1 Year Due 1-5 Years Due 5-10 Years 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Government agency and
mortgage-backed obligations $40,628 5.38% $172,937 6.42% $184,085 6.30% $855,043 6.74% $1,252,693 6.59%
Obligations of state and
political subdivisions 889 7.75 7,643 7.60 14,307 7.45 676 7.46 23,515 7.51
Other securities 25,548 4.51 2,000 9.25 27,548 4.85
- ---------------------------------------------------------------------------------------------------------------------------------
$67,065 5.08% $180,580 6.47% $198,392 6.39% $ 857,719 6.74% $1,303,756 6.57%
- ---------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
mortgage-backed obligations $ 892 6.28% $ 89,752 6.63% $ 743,584 6.60% $ 834,228 6.60%
Obligations of state and
political subdivisions $ 20,627 6.05% 313 8.01 20,940 6.08
Other securities 17,610 6.00 995 9.50 259 7.03 18,864 6.20
- ---------------------------------------------------------------------------------------------------------------------------------
$38,237 6.03% $ 1,205 6.73% $ 90,747 6.66% $ 743,843 6.60% $ 874,032 6.58%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Deposits
Total deposits averaged $3.2 billion for 1997, an increase of $468.3 million or
17% above the 1996 average. The Company remains a deposit-driven financial
institution with emphasis on core deposit accumulation and retention as a basis
for sound growth and profitability. The Company regards core deposits as all
deposits other than certificates of deposit, retail and public, in excess of
$100 thousand. Of the $449.7 million increase in total deposits at year end
1997, $412.9 million was in the various core categories. The average balance of
noninterest-bearing demand deposits in 1997 was $653.6 million, an $116.5
million or 22% increase over the average balance for 1996. The average total
balance of savings accounts increased $92.3 million, or 16% compared to the
prior year. The average balance of interest-bearing demand accounts (money
market and N.O.W. accounts) for 1997 was $992.8 million, a $171.4 million or 21%
increase over the average balance for the prior year. The average balance of
time deposits for 1997 was $864.3 million, an $88.1 million or 11% increase over
the average balance for 1996. For 1997, the cost of total deposits was 2.74% as
compared to 2.73% in 1996.
The Company believes that its record of sustaining core deposit growth is
reflective of the Company's retail approach to banking which emphasizes a
combination of free checking accounts (subject to a small minimum balance
requirement) convenient branch locations, extended hours of operation, quality
service, and active marketing.
The average balances and weighted average rates of deposits for each of the
years 1997, 1996, and 1995 are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Noninterest-bearing $653,626 $537,079 $435,311
Interest-bearing (money market
and N.O.W. accounts) 992,778 2.50% 821,404 2.42% 684,145 2.63%
Savings deposits 670,074 2.45 577,824 2.23 536,289 2.35
Time deposits 864,311 5.29 776,220 5.31 697,537 5.33
- ---------------------------------------------------------------------------------------------------------------------
Total deposits $3,180,789 $2,712,527 $2,353,282
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The remaining maturity of certificates of deposit for $100,000 or more as of
December 31, 1997, 1996, and 1995 is presented below:
Maturity 1997 1996 1995
(dollars in thousands)
3 months or less $271,765 $240,188 $192,341
3 to 6 months 32,017 30,767 8,276
6 to 12 months 12,249 7,297 31,918
Over 12 months 1,153 2,071 2,488
- --------------------------------------------------------------------
Total $317,184 $280,323 $235,023
- --------------------------------------------------------------------
25
<PAGE>
Interest Rate Sensitivity and Liquidity
The Company's risk of loss arising from adverse changes in the fair market value
of financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income while maintaining acceptable
levels of interest rate risk. The Company's Asset/Liability Committee (ALCO) is
responsible for establishing policies to limit exposure to interest rate risk,
and to ensure procedures are established to monitor compliance with these
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
An interest rate sensitive asset or liability is one that, within a defined time
period, either matures or experiences an interest rate change in line with
general market interest rates. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time ("GAP"), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-earning assets
within the one year horizon. However, assets and liabilities with similar
repricing characteristics may not reprice at the same time or to the same
degree. As a result, the Company's GAP does not necessarily predict the impact
of changes in general levels of interest rates on net interest income.
The following table illustrates the GAP position of the Company as of December
31, 1997.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gaps
December 31, 1997
1-90 91-180 181-365 1-5 Beyond
Days Days Days Years 5 Years Total
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive:
Interest-earning
assets
Loans $600.8 $36.2 $68.0 $449.9 $252.3 $1,407.2
Investment
securities 87.8 64.0 126.6 731.6 1,187.1 2,197.1
- --------------------------------------------------------------------------------------------------------------
Total interest-
earning assets 688.6 100.2 194.6 1,181.5 1,439.4 3,604.3
- --------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities
Transaction
accounts 597.1 1,220.1 1,817.2
Time deposits 368.7 109.9 108.9 201.7 0.1 789.3
Other borrowed
money 223.3 223.3
Long-term debt 23.0 57.5 80.5
- --------------------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities 1,189.1 109.9 108.9 224.7 1,277.7 2,910.3
- --------------------------------------------------------------------------------------------------------------
Period gap (500.5) (9.7) 85.7 956.8 161.7 $694.0
- --------------------------------------------------------------------------------------------------------------
Cumulative gap $(500.5) $(510.2) $(424.5) $532.3 $694.0
- --------------------------------------------------------------------------------------------------------------
Cumulative gap as a
percentage of total
interest-earning
assets (13.9)% (14.2)% (11.8)% 14.8% 19.3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will do
so. Income simulation also attends to the relative interest rate sensitivities
of these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net 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 ALCO policy has established that interest income sensitivity will
be considered acceptable if net income in the
26
<PAGE>
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
December 31, 1997, the Company's income simulation model indicates net income
would increase by 0.7% and decrease by 2.7% in the first year and over a two
year time frame, respectively, if rates decreased as described above. The model
projects that net income would decrease by 6.7% and 8.8% in the first year and
over a two year time frame, respectively, if rates increased as described above.
All of these forecasts are within an acceptable level of interest rate risk per
the policies established by ALCO.
In the event the model indicates an unacceptable level of risk, the Company
could undertake a number of actions that would reduce this risk, including the
sale of a portion of its available for sale investment portfolio, the use of
risk management strategies such as interest rate swaps and caps, or the
extension of the maturities of its short-term borrowings.
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 December 31, 1997, the market value of
equity indicates an acceptable level of interest rate risk.
The market value of equity model reflects certain estimates and assumptions
regarding the impact on the market value of the Company's assets and liabilities
given an immediate 200 basis point change in interest rates. One of the key
assumptions is the market value assigned to the Company's core deposits, or the
core deposit premium. In 1996 the Company completed a comprehensive core deposit
study in order to assign its own core deposit premiums as permitted by
regulation. The study resulted in core deposit premiums which are significantly
higher than the core deposit premiums supplied by the Office of Thrift
Supervision, which the Company utilized in its market value of equity model in
prior years. The study confirmed management's assertion that the Company's core
deposits have stable balances over long periods of time, and are generally
insensitive to changes in interest rates. Thus, these core deposit balances
provide an internal hedge to market value fluctuations in the Company's
mortgage-backed securities portfolio. The data utilized in the core deposit
study is updated on a quarterly basis. Management believes the core deposit
premiums produced by its core deposit study and utilized in its market value of
equity model at December 31, 1997 provide a more accurate assessment of the
Company's interest rate risk.
Liquidity involves the Company's ability to raise funds to support asset growth
or reduce assets to meet deposit withdrawals and other borrowing needs, to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis. The Company's liquidity needs are primarily met by growth in core
deposits, its cash and federal funds sold position, and cash flow from its
amortizing investment and loan portfolios. If necessary, the Company has the
ability to raise liquidity through collateralized borrowings, FHLB advances, or
the sale of its available for sale investment portfolio. During 1997, deposit
growth and the increased utilization of short-term borrowings were used to fund
growth in the loan portfolio and purchase additional investment securities.
Short-Term Borrowings
Short-term borrowings, or other borrowed money, consist primarily of securities
sold under agreement to repurchase, and were used in 1997 to meet short-term
funding needs. For 1997, short-term borrowings averaged $91.3 million as
compared to $24.8 million in 1996. The average rate on the Company's short-term
borrowings was 5.61% and 5.39% during 1997 and 1996, respectively. As of
December 31, 1997, short-term borrowings included $178.3 million of securities
sold under agreements to repurchase at an average rate of 6.22% and $45.0
million of federal funds purchased at an average rate of 6.00%.
Long-Term Debt
A $23 million public offering of capital-qualifying 8.375% subordinated debt was
completed in July 1993. Proceeds from this debt offering were used for general
corporate purposes, including additional capitalization of existing banking
subsidiaries and possible acquisitions.
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
27
<PAGE>
Company. All $57.5 million of the Trust Capital Securities qualify as Tier I
capital for regulatory capital purposes. Proceeds of this offering were
earmarked for general corporate purposes, including additional capitalization of
existing banking subsidiaries and possible acquisitions.
Stockholders' Equity and Dividends
At December 31, 1997, stockholders' equity totaled $250.8 million, up $46.8
million or 23% over stockholders' equity of $204.0 million at December 31, 1996.
This increase was primarily due to the Company's net income for the year.
Stockholders' equity as a percent of total assets was 6.37% at December 31,
1997, as compared to 6.31% at December 31, 1996.
Risk-based capital standards issued by bank regulatory authorities in the United
States attempt to relate a banking company's capital to the risk profile of its
assets and provide the basis for which all banking companies and banks are
evaluated in terms of capital adequacy. The risk-based capital standards require
all banks to have Tier 1 capital of at least 4% and total capital, including
Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes
common stockholders' equity and qualifying perpetual preferred stock together
with related surpluses and retained earnings. Total capital may be comprised of
limited life preferred stock, qualifying subordinated debt instruments, and the
reserve for possible loan losses.
Banking regulators have also issued leverage ratio requirements. The leverage
ratio requirement is measured as the ratio of Tier 1 capital to adjusted average
assets. The following table provides a comparison of the Company's risk-based
capital ratios and leverage ratio to the minimum regulatory requirements for the
periods indicated.
Minimum
Regulatory
December 31, Requirements
1997 1996 1997 1996
Risk-Based Capital Ratios:
Tier 1 15.66% 12.57% 4.00% 4.00%
Total 17.73 15.09 8.00 8.00
Leverage Capital Ratio 7.81 6.46 3.00-5.00 3.00-5.00
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
which became law in December of 1991, required each federal banking agency
including the Board of Governors of the Federal Reserve System ("FRB"), to
revise its risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risks of non-traditional activities, as well as reflect the actual performance
and expected risk of loss on multi-family mortgages. This law also requires each
federal banking agency, including the FRB, to specify, by regulation, the levels
at which an insured institution would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,
or "critically undercapitalized." At December 31, 1997, the Company's
consolidated capital levels and each of the Company's banking subsidiaries met
the regulatory definition of a "well capitalized" financial institution, i.e., a
leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding
6%, and a total risk-based capital ratio exceeding 10%.
Effective September 26, 1996, the Company's common stock was listed for trading
on the New York Stock Exchange under the symbol CBH. Prior to that date, the
Company's common stock traded on the NASDAQ Stock Market under the symbol COBA.
The quarterly market price ranges and dividends declared per common share for
each of the last two years are shown in the table below. The prices and
dividends per share have been adjusted to reflect the 5-for-4 stock split in the
form of a 25% stock dividend with a record date of July 13, 1998, and common
stock dividends of 5% with record dates of January 7, 1998, January 8, 1997, and
January 12, 1996. As of February 28, 1998, there were approximately 15,000
holders of record of the Company's common stock.
Common Share Data
Sale Prices Cash Dividends
High Low Per Share
1997 Quarter Ended
December 31 $39.23 $28.63 $0.1524
September 30 30.91 27.42 0.1524
June 30 29.53 21.05 0.1524
March 31 24.38 20.95 0.1451
1996 Quarter Ended
December 31 $24.03 $18.69 $0.1270
September 30 20.31 15.23 0.1270
June 30 17.95 14.69 0.1270
March 31 16.59 14.61 0.1209
Effective March 1, 1998, the Trustees of the Company's Employee Stock Ownership
Plan (ESOP) exercised their right to convert all 417,000 shares of Series C
ESOPCumulative Convertible Preferred Stock held by the ESOP into 808,630 shares
of the Company's common stock.
The Company offers a Dividend Reinvestment and Stock Purchase Plan by which
dividends on the Company's Common Stock and optional cash payments of up to
$5,000 per quarter may be invested in Common Stock at a 3% discount to the
market price and without payment of brokerage commissions.
28
<PAGE>
Results of Operations - 1996 versus 1995
Net income for 1996 was $28.3 million compared to $26.7 million in 1995. Diluted
net income per common share was $1.33 compared to $1.30 per common share for the
prior year. Net income and net income per share for 1996 were impacted by a
one-time special assessment of approximately $1.3 million from a legislative
mandate to recapitalize the Savings Association Insurance Fund (SAIF). This
assessment impacted after tax net income by approximately $850 thousand. Net
income per share for 1995 was impacted by the issuance of 1,725,000 shares of
common stock via an underwritten public offering in the first quarter of 1995.
Net interest income on a tax-equivalent basis for 1996 amounted to $126.5
million, an increase of $16.1 million, or 15% over 1995.
Interest income on a tax-equivalent basis increased $17.2 million or 9% to
$203.8 million in 1996. This increase was primarily related to volume increases
in the loan and investment portfolios. Interest expense for 1996 rose only $1.1
million to $77.3 million from $76.2 million in 1995.
The provision for loan losses was $4.9 million in 1996 compared to $2.8 million
in the prior year.
For 1996, noninterest income totaled $32.8 million, an increase of $9.2 million
from 1995. Deposit charges and service fees increased $4.2 million due primarily
to transaction volumes. The $3.4 million increase in other operating income to
$9.3 million was partly due to revenues from Commerce Insurance, the insurance
brokerage subsidiary formed during 1996. Also, this increase reflected higher
levels of bank card fees in 1996. Securities gains increased to $1.7 million in
1996 from $106 thousand in 1995.
Noninterest expenses totaled $109.0 million for 1996, an increase of $19.7
million, or 22% over 1995. Contributing to this increase was the addition of
nine new branches and the formation of Commerce Insurance during 1996. With the
addition of these new offices and the insurance business, staff, facilities, and
related expenses rose accordingly. Audit and regulatory fees and assessments for
1996 decreased $548 thousand or 15% to $3.2 million in spite of the one-time
SAIF assessment of approximately $1.3 million. Other real estate expenses
totaled $2.3 million, a decrease of $519 thousand from 1995, reflecting lower
levels of other real estate for 1996. Other noninterest expenses rose $3.1
million to $14.3 million in 1996. Higher bank card related service charges,
higher provisions for non-credit-related losses, and merger related expenses
contributed to the increase.
Year 2000
The Company began the process of preparing its computer systems and applications
for the Year 2000 in 1996. The process includes directing its external service
providers to take the appropriate action to ensure Year 2000 compliance, as well
as, to a lesser extent, modifying or replacing certain hardware and software
maintained by the Company. The Company expects to have substantially all of the
necessary changes in place before the end of 1998, and believes it is taking the
appropriate steps to address all Year 2000 issues. The Company estimates the
total cost of the Year 2000 compliance process, including internal and external
personnel and any required hardware and software modifications, will not exceed
$1.0 million.
Mergers and Acquisitions
In November, 1997, the Company reached an agreement in principle to acquire A.
H. Williams & Co., Inc., (Williams) Philadelphia, PA, a public finance
investment firm. The acquisition closed on March 27, 1998. Williams was combined
with Commerce Capital, the bank securities dealer division of Commerce NJ, to
form Commerce Capital Markets, Inc., a wholly-owned nonbank subsidiary of the
Company engaging in certain securities activities permitted under Section 20 of
the Glass-Steagall Act. The acquisition was completed by the issuance of common
stock of the Company totaling approximately 395,000 shares. The transaction was
accounted for as a pooling of interests. However, the Company has not restated
the financial statements of the periods prior to the acquisition, as the
changes, in the aggregate, would be immaterial.
29
<PAGE>
Item 8. Financial Statements and Supplementary Financial Data
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1997 1996
<S> <C> <C>
Assets Cash and due from banks $167,900 $181,858
Federal funds sold 26,975
---------- ----------
Cash and cash equivalents 167,900 208,833
Mortgages held for sale 7,260 1,314
Trading securities 7,911 15,327
Securities available for sale 1,315,120 767,487
Securities held to maturity 874,032 837,512
(market value 1997-$869,815; 1996-$815,888)
Loans 1,411,289 1,266,855
Less allowance for loan losses 21,261 17,975
---------- ----------
1,390,028 1,248,880
Bank premises and equipment, net 111,759 94,339
Other assets 64,957 58,460
---------- ----------
$3,938,967 $3,232,152
---------- ----------
Liabilities Deposits:
Demand:
Interest-bearing $1,111,302 $884,310
Noninterest-bearing 762,843 626,664
Savings 705,906 638,660
Time 789,353 770,036
---------- ----------
Total deposits 3,369,404 2,919,670
Other borrowed money 223,300 70,000
Other liabilities 12,695 12,185
Obligation to Employee Stock Ownership Plan (ESOP) 2,308 3,333
Trust Capital Securities -
Commerce Capital Trust I 57,500
Long-term debt 23,000 23,000
---------- ----------
3,688,207 3,028,188
---------- ----------
Stockholders' Common stock, 21,500,804 shares issued
Equity (20,991,819 shares in 1996) 25,309 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 167,529 144,551
Retained earnings 54,348 36,086
---------- ----------
254,692 211,719
Less commitment to ESOP 2,308 4,403
Less treasury stock, at cost, 100,159 shares in 1997
(267,378 in 1996) 1,624 3,352
---------- ----------
Total stockholders' equity 250,760 203,964
---------- ----------
$3,938,967 $3,232,152
---------- ----------
</TABLE>
See accompanying notes
30
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands, except per share amounts) 1997 1996 1995
<S> <C> <C> <C>
Interest Interest and fees on loans $120,028 $104,842 $ 92,558
income Interest on investment securities 122,662 95,026 90,097
Other interest 1,487 2,867 3,463
-------- -------- --------
Total interest income 244,177 202,735 186,118
-------- -------- --------
Interest Interest on deposits:
expense Demand 24,824 19,842 18,009
Savings 16,419 12,907 12,609
Time 45,781 41,212 37,197
-------- -------- --------
Total interest on deposits 87,024 73,961 67,815
Interest on other borrowed money 5,126 1,336 6,379
Interest on long-term debt 4,887 2,025 2,025
-------- -------- --------
Total interest expense 97,037 77,322 76,219
-------- -------- --------
Net interest income 147,140 125,413 109,899
Provision for loan losses 4,668 4,857 2,774
-------- -------- --------
Net interest income after provision for loan losses 142,472 120,556 107,125
-------- -------- --------
Noninterest Deposit charges and service fees 27,110 21,850 17,661
income Other operating income 27,979 9,251 5,856
Net investment securities gains 2,285 1,675 106
-------- -------- --------
Total noninterest income 57,374 32,776 23,623
-------- -------- --------
Noninterest Salaries 52,166 37,668 30,768
expense Benefits 12,161 9,389 8,153
Occupancy 14,223 12,418 10,144
Furniture and equipment 18,374 14,336 10,783
Office 13,712 10,646 8,318
Audit and regulatory fees and assessments 1,611 3,173 3,721
Marketing 6,069 4,777 3,409
Other real estate (net) 1,814 2,329 2,848
Other 17,799 14,295 11,172
-------- -------- --------
Total noninterest expenses 137,929 109,031 89,316
-------- -------- --------
Income before income taxes 61,917 44,301 41,432
Provision for federal and state income taxes 21,592 16,051 14,780
-------- -------- --------
Net income 40,325 28,250 26,652
Dividends on preferred stocks 563 842 1,122
-------- -------- --------
Net income applicable to common stock $ 39,762 $ 27,408 $ 25,530
-------- -------- --------
Net income per common and common equivalent share:
Basic $1.89 $1.45 $1.38
-------- -------- --------
Diluted $1.78 $1.33 $1.30
-------- -------- --------
Average common and common equivalent shares outstanding:
Basic 21,055 18,875 18,511
-------- -------- --------
Diluted 22,599 21,197 20,367
-------- -------- --------
Cash dividends declared, common stock $0.60 $0.50 $0.44
-------- -------- --------
</TABLE>
See accompanying notes.
31
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating Net income $ 40,325 $ 28,250 $ 26,652
activities Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 4,668 4,857 2,774
Provision for depreciation, amortization
and accretion 17,438 16,156 14,423
Gains on sales of securities available for sale (2,285) (1,675) (106)
Proceeds from sales of mortgages held for sale 22,626 23,683 18,343
Originations of mortgages held for sale (28,572) (19,555) (21,522)
Net loan (chargeoffs) (1,382) (2,896) (1,426)
Net decrease (increase) in trading securities 7,416 (6,484) (8,843)
(Increase) decrease in other assets (12,575) 524 (9,530)
Increase (decrease) in other liabilities 2,551 9,823 (1,576)
Deferred income tax (benefit) expense (2,041) 161 (823)
-----------------------------------------------------------------------------------------
Net cash provided by operating activities 48,169 52,844 18,366
Investing Proceeds from the sales of securities available 223,217 107,666 146
activities for sale
Proceeds from the maturity of securities available
for sale 162,892 187,120 32,052
Proceeds from the maturity of securities held
to maturity 123,496 125,283 113,762
Purchase of securities available for sale (835,005) (497,926) (52,623)
Purchase of securities held to maturity (244,503) (192,168) (51,432)
Net increase in loans (154,454) (227,331) (124,410)
Proceeds from sales of loans 10,020 9,291 6,698
Purchases of premises and equipment (31,235) (25,766) (24,878)
-----------------------------------------------------------------------------------------
Net cash used by investing activities (745,572) (513,831) (100,685)
Financing Net increase in demand and savings deposits 430,417 330,095 242,354
activities Net increase in time deposits 19,317 60,389 187,585
Net increase (decrease) in other borrowed money 153,300 70,000 (312,895)
Issuance of common stock 6,859 25,774
Dividends paid (12,484) (9,298) (7,773)
Proceeds from issuance of Trust Capital Securities 57,500
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 6,876 4,288 2,728
Purchase of treasury stock (352)
Other 1,544 (2,370) 189
-----------------------------------------------------------------------------------------
Net cash provided by financing activities 656,470 459,963 137,610
(Decrease) increase in cash and cash equivalents (40,933) (1,024) 55,291
Cash and cash equivalents at beginning of year 208,833 209,857 154,566
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 167,900 $ 208,833 $ 209,857
-----------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 98,217 $ 75,731 $ 76,254
Income taxes 23,632 14,449 14,165
Other noncash activities
Transfer of securities to securities available
for sale 83,773 401,826
-----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
32
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995 Capital in
Excess of
Common Preferred Par or Retained Commitment Treasury
(in thousands, except per share amounts) Stock Stock Stated Value Earnings to ESOP Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $15,241 $8,283 $92,967 $18,547 $(6,692) $(1,764) $126,582
Net income 26,652 26,652
5% common stock dividend and cash paid
in lieu of fractional shares (419 shares) 655 7,244 (7,869) 30
Cash dividends, common stock
($0.44 per share) (6,638) (6,638)
Common stock issued in connection with
incentive stock option plan (108 shares) 169 899 (352) 716
Cash dividends, preferred stock (1,122) (1,122)
Decrease in obligation to ESOP 1,139 1,139
Common stock issued (1,725 shares) 2,695 23,079 25,774
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(89 shares) 134 1,525 1,659
Fair value adjustment on available for
sale securities, net of tax 4,706 4,706
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 18,894 8,283 125,911 34,276 (5,553) (2,116) 179,695
Acquisition of Commerce National
Insurance Services (936 shares) 1,114 (1,135) (21)
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1996 20,008 8,283 124,776 34,276 (5,553) (2,116) 179,674
Net income 28,250 28,250
5% common stock dividend and cash paid
in lieu of fractional shares (534 shares) 834 10,388 (11,244) (22)
Cash dividends, common stock
($0.50 per share) (8,430) (8,430)
Common stock issued in connection with
incentive stock option plan (78 shares) 121 622 743
Cash dividends, preferred stock (845) (845)
Decrease in obligation to ESOP 1,150 1,150
Common stock issued pursuant to rights
offering (727 shares) 1,136 5,465 6,601
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(175 shares) 264 3,281 3,545
Conversion and redemption of preferred stock 1,183 (747) (178) 258
Purchase of common stock of former
Independence shareholders (1,236) (1,236)
Fair value adjustment on available for
sale securities, net of tax (5,921) (5,921)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 23,546 7,536 144,551 36,086 (4,403) (3,352) 203,964
Acquisition of insurance brokerage
agencies (279 shares) 332 (55) 277
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1997 23,878 7,536 144,496 36,086 (4,403) (3,352) 204,241
Net income 40,325 40,325
5% common stock dividend and cash paid
in lieu of fractional shares (611 shares) 955 18,134 (19,113) (24)
Cash dividends, common stock
($0.60 per share) (11,897) (11,897)
Common stock issued in connection with
incentive stock option plan (306 shares) 478 2,139 2,617
Cash dividends, preferred stock (563) (563)
Decrease in obligation to ESOP 2,095 2,095
Tax benefit from ESOP dividends 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan
(128 shares) 201 4,058 4,259
Retirement of Treasury shares (203) (30) (1,495) 1,728 0
Fair value adjustment on available for
sale securities, net of tax 9,510 9,510
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 $25,309 $7,506 $167,529 $54,348 $(2,308) $(1,624) $250,760
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
33
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial
Statements
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Commerce Bancorp,
Inc. (the Company) and its wholly-owned subsidiaries (Banks), Commerce Bank,
N.A. (Commerce NJ), Commerce Bank/Pennsylvania, N.A. (Commerce PA) Commerce
Bank/Shore, N.A. (Commerce Shore), Commerce Bank/North (Commerce North), and
Commerce Capital Trust I. All material intercompany transactions have been
eliminated. Certain amounts from prior years have been reclassified to conform
with 1997 presentation. All common stock per share information has been adjusted
for the 5-for-4 stock split in the form of a 25% stock dividend declared on June
29, 1998 (the payment of which on July 24, 1998 to shareholders of record on
July 13, 1998 resulted in the issuance of 4,500,980 additional common shares and
cash of $47,154 in lieu of fractional shares), and the 5% common stock dividend
declared on December 16, 1997.
The Company is a multi-bank holding company headquartered in Cherry Hill, New
Jersey, operating primarily in the metropolitan Philadelphia, Southern New
Jersey and Northern New Jersey markets. Through its subsidiaries, the Company
provides retail and commercial banking services, corporate trust services,
municipal bond underwriting services, and insurance brokerage services.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Investment Securities
Trading account securities are carried at market value. Gains and losses, both
realized and unrealized, are included in other operating income.
Investment securities are classified as held to maturity when the Company has
the intent and ability to hold those securities to maturity. Securities held to
maturity are stated at cost and adjusted for accretion of discounts and
amortization of premiums.
Those securities that might be sold in response to changes in market interest
rates, prepayment risk, the Companys income tax position, the need to increase
regulatory capital, or similar other factors are classified as available for
sale. Available for sale securities are carried at fair value, with unrealized
gains and losses, net of tax, reported as a component of stockholders equity.
The amortized cost of debt securities in this category is adjusted for accretion
of discounts and amortization of premiums. Realized gains and losses are
determined on the specific certificate method and are included in noninterest
income.
Loans
Loans are stated at principal amounts outstanding, net of deferred loan
origination fees and costs. Interest income on loans is accrued and credited to
interest income monthly as earned. Loan origination fees are generally
considered as adjustments of interest rate yields and are amortized into
interest income on loans over the terms of the related loans.
Loans are placed on a non-accrual status and cease accruing interest when loan
payment performance is deemed unsatisfactory. However, all loans past due 90
days are placed on non-accrual status, unless the loan is both well secured and
in the process of collection.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to expense and
reduced by loan charge-offs net of recoveries. Based upon managements evaluation
of the loan portfolio, the allowance is maintained at a level considered
adequate to absorb estimated inherent losses in the Banks loan portfolios.
34
<PAGE>
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated depreciation.
Depreciation and amortization is determined on the straight-line method for
financial reporting purposes, and accelerated methods for income tax purposes.
Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan is reported in other assets at
the lower of cost or fair value less disposition costs. Properties acquired by
foreclosure or deed in lieu of foreclosure are transferred to ORE and recorded
at the lower of cost or fair value less disposition costs based on their
appraised value at the date actually or constructively received. Losses arising
from the acquisition of such property are charged against the allowance for loan
losses. Subsequent adjustments to the carrying values of ORE properties are
charged to operating expense.
Intangible Assets
The excess of cost over fair value of net assets acquired (goodwill) is included
in other assets and is being amortized on a straight-line basis over the period
of expected benefit, which approximates 15 years. Goodwill amounted to
$3,082,000 and $3,377,000 at December 31, 1997 and 1996, respectively. Other
intangible assets are amortized on a straight-line basis over 10- to 15-year
lives. Other intangibles amounted to $2,471,000 and $2,923,000 at December 31,
1997 and 1996, respectively.
Income Taxes
The provision for income taxes is based on current taxable income. When income
and expenses are recognized in different periods for book purposes, deferred
taxes are provided.
Restriction on Cash and Due From Banks
The Banks are required to maintain reserve balances with the Federal Reserve
Bank. The weighted average amount of the reserve balances for 1997 and 1996 were
approximately $10,059,000 and $34,649,000, respectively.
Recent Accounting Statements The Financial Accounting Standards Board (FASB) in
June 1997 issued Statement No. 130 Reporting Comprehensive Income (FAS 130). FAS
130 establishes new standards for reporting comprehensive income, which includes
net income as well as certain other items which result in a change in equity
during the period. FAS130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 130 is effective with the Companys 1998 interim
reporting. The disclosure standards of FAS 130 will have no impact on the
Companys financial position or results of operations.
Also in June 1997, the FASBissued Statement 131 Disclosures About Segments of an
Enterprise and Related Information (FAS 131). FAS 131 requires disclosure of
financial and descriptive information about an enterprises operating segments
that meet certain quantitative thresholds. Operating segments are
revenue-producing components of the enterprise for which separate financial
information is produced internally and the performance of which is subject to
evaluation by the chief operating decision maker, as defined, in determining
resource allocation. This statement is effective for fiscal years beginning
after December 15, 1997, but is not required to be applied for interim reporting
in the initial year of application. The Company is currently evaluating the
impact of FAS 131 on the disclosures included in its annual and interim period
financial statements.
35
<PAGE>
2. Mergers and Acquisitions
On November 15, 1996, two insurance brokerage agencies, Keystone National
Companies, Inc., Cherry Hill, New Jersey, and Morales, Potter & Buckelew, Inc.,
t/a Buckelew & Associates, Toms River, New Jersey, were acquired by the Company
and thereafter merged to form Commerce National Insurance Services, Inc.
(Commerce Insurance). Effective December 1, 1996, a third insurance brokerage
agency, Chesley & Cline, Inc., Mount Holly, New Jersey, was merged with and into
Commerce Insurance. The Company issued approximately 936,000 shares of common
stock in exchange for all of the outstanding shares of these agencies. Effective
January 1, 1997, a fourth insurance brokerage agency, Colkate, Inc., t/a The
Morrissey Agency , Mt. Laurel, New Jersey, was merged with and into Commerce
Insurance. Effective December 1, 1997, Joseph J. Reinhart and Associates, Inc.,
Cherry Hill, NJ, a risk/loss management and loss investigation consulting firm,
and Associated Insurance Management, Inc., Haddonfield, NJ, an employee and
executive benefit consulting firm, were merged with and into Commerce Insurance.
The Company issued approximately 279,000 shares of common stock in exchange for
all of the outstanding shares of the agencies acquired in 1997. All of these
transactions were accounted for as poolings of interests. However, financial
statements of the periods prior to the acquisitions have not been restated, as
the changes, in the aggregate, would be immaterial.
The former Independence Bancorp, Inc. (Independence), Bergen County, New Jersey,
was merged into Commerce Bancorp, Inc. on January 21, 1997 and its wholly-owned
subsidiary bank, Independence Bank of New Jersey, was thereafter renamed
Commerce Bank/North. The Company issued approximately 3,491,000 shares of common
stock to shareholders of Independence based on an exchange ratio of 1.289 of a
share of the Companys common stock for each share of Independence common stock.
The transaction was accounted for as a pooling of interests. The Companys
originally reported results of operations have been restated herein to include
Commerce Norths results of operations for all periods presented. No
restructuring charges were recorded in connection with this acquisition.
In November, 1997, the Company reached an agreement in principle to acquire A.
H. Williams & Co., Inc., (Williams) Philadelphia, PA, a public finance
investment firm. The acquisition closed on March 27, 1998. Williams was combined
with Commerce Capital, the bank securities dealer division of Commerce NJ, to
form Commerce Capital Markets, Inc., a wholly-owned nonbank subsidiary of the
Company engaging in certain securities activities permitted under Section 20 of
the Glass-Steagall Act. The acquisition was completed by the issuance of common
stock of the Company totaling approximately 395,000 shares. The transaction was
accounted for as a pooling of interests. However, the Company has not restated
the financial statements of the periods prior to the acquisition, as the
changes, in the aggregate, would be immaterial.
36
<PAGE>
3. Investment Securities
A summary of the amortized cost and market value of securities available for
sale and securities held to maturity (in thousands) at December 31, 1997 and
1996 follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agency and
mortgage-backed obligations $1,250,977 $5,028 $(3,312) $1,252,693 $717,560 $108 $(10,352) $707,316
Obligations of state and
political subdivisions 23,085 430 23,515 15,670 73 15,743
Equity securities 7,679 3,685 11,364 2,832 1,162 3,994
Other 27,548 27,548 40,434 40,434
- ----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale $1,309,289 $9,143 $(3,312) $1,315,120 $776,496 $1,343 $(10,352) $767,487
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency and
mortgage-backed obligations $834,228 $3,976 $(8,198) $830,006 $798,345 $218 $(21,860) $776,703
Obligations of state and
political subdivisions 20,940 20,940 22,674 19 (1) 22,692
Other 18,864 5 18,869 16,493 16,493
- ----------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity $874,032 $3,981 $(8,198) $869,815 $837,512 $237 $(21,861) $815,888
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities (in
thousands) at December 31, 1997, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because obligors
have the right to repay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $67,141 $67,065 $38,237 $38,237
Due after one year through five years 168,443 168,659 313 313
Due after five years through ten years 39,973 40,305 995 995
Due after ten years 3,164 3,155 259 264
Mortgage-backed securities 1,022,889 1,024,572 834,228 830,006
Equity securities 7,679 11,364
- --------------------------------------------------------------------------------------------------
$1,309,289 $1,315,120 $874,032 $869,815
- --------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of securities available for sale during 1997, 1996 and 1995
were $223,217,000, $107,666,000 and $146,000, respectively. Gross gains of
$2,669,000, $1,675,000 and $106,000 were realized on the sales in 1997, 1996 and
1995, respectively, and gross losses of $384,000 were realized in 1997.
At December 31, 1997 and 1996, investment securities with a carrying value of
$324,717,000 and $269,617,000, respectively, were pledged to secure deposits of
public funds.
On November 15, 1995, the FASB issued a special report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with the provisions of that report,
management reclassified $401,800,000 of investment securities from the held to
maturity category to the available for sale category as of December 31, 1995.
Unrealized losses on those securities transferred were $861,000. In connection
with the acquisition of Independence, management reclassified $83.8 million of
investment securities from held to maturity to available for sale in the first
quarter of 1997. Unrealized losses on those securities transferred were
$840,000.
37
<PAGE>
At December 31, 1997, the unrealized appreciation in securities available for
sale included in retained earnings totaled $3,756,000, net of tax, compared to
unrealized depreciation of $5,755,000, net of tax, at December 31, 1996.
4. Loans
The following is a summary of loans outstanding (in thousands) at December 31,
1997 and 1996:
December 31,
1997 1996
Commercial real estate:
Owner-occupied $221,788 $167,702
Other 287,510 288,733
Construction 57,182 52,372
---------- ----------
566,480 508,807
Commercial loans:
Term 152,115 153,793
Line of credit 101,134 91,418
Demand 442 529
---------- ----------
253,691 245,740
Consumer:
Mortgages (1-4 family residential) 167,979 153,615
Installment 63,448 54,548
Home equity 347,903 293,591
Credit lines 11,788 10,554
---------- ----------
591,118 512,308
---------- ----------
$1,411,289 $1,266,855
---------- ----------
At December 31, 1997 and 1996, loans of approximately $8,308,000 and $7,118,000,
respectively, were outstanding to certain of the Companys and the Banks
directors and officers, and approximately $25,584,000 and $17,015,000,
respectively, of loans were outstanding from companies in which certain of the
Companys and the Banks directors and officers are associated, exclusive of loans
to any such person and associated companies which in aggregate did not exceed
$60,000. The terms of these loans are substantially the same as those prevailing
at the time for comparable unrelated transactions. A summary (in thousands) of
the related party loans outstanding at December 31, 1997 is as follows:
1997
Balance, January 1 $24,133
New loans 17,387
Loan payments 7,628
Balance, December 31 $33,892
The Company engaged in certain activities with entities affiliated with
directors of the Company. The Company received real estate appraisal services
from a company owned by a director of the Company. Such real estate appraisal
services amounted to $183,000 in 1997, $195,000 in 1996, and $222,500 in 1995.
The Company received legal services from two law firms of which two directors of
the Company are partners. Such aggregate legal services amounted to $1,439,000
in 1997, $1,243,000 in 1996 and $1,371,000 in 1995.
38
<PAGE>
5. Allowances for Loan Losses
The following is an analysis of changes in the allowance for loan losses (in
thousands) for 1997, 1996, and 1995:
1997 1996 1995
Balance, January 1 $17,975 $16,014 $14,666
Provision charged to
operating expense 4,668 4,857 2,774
Recoveries of loans
previously charged off 898 655 1,021
Loan charge-offs (2,280) (3,551) (2,447)
------- ------- -------
Balance, December 31 $21,261 $17,975 $16,014
------- ------- -------
6. Non-accrual and Restructured Loans and Other Real Estate
The total of non-performing loans (non-accrual and restructured loans) was
$11,589,000 and $11,252,000 at December 31, 1997 and 1996, respectively.
Non-performing loans of $2,320,000, $1,758,000, and $5,664,000 net of charge
offs of $47,000, $250,000, and $103,000 were transferred to other real estate
during 1997, 1996, and 1995, respectively. Other real estate ($5,845,000 and
$8,252,000 at December 31, 1997 and 1996, respectively) is included in other
assets.
At December 31, 1997 and 1996, the recorded investment in loans considered to be
impaired under FASB Statement No. 114 Accounting by Creditors for Impairment of
a Loan totaled $9,700,000 and $8,628,000, respectively, all of which are
included in non-performing loans. As permitted, all homogenous smaller balance
consumer and residential mortgage loans are excluded from individual review for
impairment. The majority of impaired loans were measured using the fair market
of collateral. No portion of the allowance for loan losses for 1997 or 1996 was
allocated to these loans. During 1997 and 1996, impaired loans averaged
approximately $9,126,000 and $8,288,000, respectively. Interest income of
approximately $1,361,000 and $1,226,000 would have been recorded on
non-performing loans (including impaired loans) in accordance with their
original terms in 1997 and 1996, respectively. Actual interest income recorded
on these loans amounted to $323,000 and $262,000 during 1997 and 1996,
respectively.
7. Bank Premises, Equipment, and Leases
A summary of bank premise and equipment (in thousands) is as follows:
December 31,
1997 1996
Land $22,707 $20,291
Buildings 49,101 44,230
Leasehold improvements 9,293 9,763
Furniture, fixtures and equipment 68,238 49,751
Leased property under capital leases 124 124
-------- --------
149,463 124,159
Less accumulated depreciation
and amortization 37,704 29,820
-------- --------
$111,759 $ 94,339
-------- --------
At December 31, 1997, Commerce NJ leased one of its branches under a capital
lease with an unrelated party. All other branch leases are accounted for as
operating leases with the related rental payments being expensed ratably over
the life of the lease.
39
<PAGE>
The Company leases its headquarters building from a limited partnership in which
the Company is a limited partner at December 31, 1997. The lease is accounted
for as an operating lease with an annual rent of $1,200,000. The lease expires
in 2001 and is renewable for five additional terms of five years each. The
Company leases its operations facility from a limited partnership in which the
Company is a limited partner at December 31, 1997. The lease is accounted for as
an operating lease with an annual rent of $572,000. The lease expires in 2004
and is renewable for two additional terms of five years each.
At December 31, 1997, the Company leased from related parties under separate
operating lease agreements the land on which it has constructed 10 branch
offices. The aggregate annual rental under these related party leases for 1997
was approximately $375,000, and was approximately $250,000 in 1996 and 1995.
These leases expire periodically through 2017 but are renewable through 2037.
Aggregate annual rentals escalate to $501,000 in 2007. The Company leases land
to a limited partnership partially comprised of the directors of Commerce PA and
Commerce NJ. The initial lease term is 25 years, with two successive 10-year
options. As of December 31, 1997, the future minimum lease payments to be
received by the Company amount to approximately $55,000 for each of the next two
years and $432,000 thereafter for the remainder of the initial lease term. In
accordance with the provision of the land lease, the limited partnership
constructed and owns the office building located on the land. Commerce PA leases
the building as a branch facility through 2010. Commerce North leases one of its
branches from a director and its headquarters facility from a partnership in
which a director has a substantial interest. The aggregate annual rental under
these related party leases for 1997, 1996, and 1995 was approximately $432,000,
$503,000, and $554,000, respectively. The leases expire in 2007 and 2017.
Total rent expense charged to operations under operating leases was
approximately $4,334,000 in 1997, $3,706,000 in 1996 and $3,834,000 in 1995.
The future minimum rental commitments, by year, under the non-cancelable leases
are as follows (in thousands) at December 31, 1997:
Capital Operating
1998 $12 $4,489
1999 12 4,050
2000 12 3,757
2001 12 3,470
2002 12 2,663
Later years 144 23,937
-----------------------------------------------------
Net minimum lease payment $204 $42,366
-----------------------------------------------------
Less amount representing interest 102
-----------------------------------------------------
Present value of net minimum
lease payments $102
-----------------------------------------------------
The Company obtained interior design and general contractor services for
$916,000, $642,000, and $596,000 in 1997, 1996, and 1995, respectively, from a
business owned by the spouse of the Chairman of the Board of the Company.
Additionally, the business received commissions of approximately $1,464,000,
$990,0000, and $931,000 in 1997, 1996 and 1995, respectively, on furniture and
facility purchases made directly by the Company.
40
<PAGE>
8. Deposits
The aggregate amount of time certificates of deposits in denominations of
$100,000 or more was $317,184,000 and $280,323,000 at December 31, 1997 and
1996, respectively.
9. Other Borrowed Money
Other borrowed money consisted primarily of securities sold under agreements to
repurchase, which ranged up to three months in maturity. The following table
represents information for other borrowed money.
December 31,
1997 1996
Average Average
Amount Rate Amount Rate
Securities sold under
agreements to repurchase $178,300 6.22% $70,000 6.33%
Federal funds purchased 45,000 6.00
-----------------------------------------------------------------------
$223,300 $70,000
-----------------------------------------------------------------------
Average amount outstanding $91,308 5.61% $24,782 5.39%
Maximum month-end balance 223,300 70,000
As of December 31, 1997, the Company had a line of credit of $360,749,000
available from the Federal Home Loan Bank of New York.
10. Long-Term Debt
On July 15, 1993, the Company issued $23,000,000 of 8 3/8% subordinated notes
due 2003. Interest on the debt is payable semi-annually on January 15 and July
15 of each year. The notes may be redeemed in whole or in part at the option of
the Company after July 15, 2000 at a price from 102% to 100% of the principal
plus accrued interest, if any, to the date fixed for redemption, subject to
certain conditions. A portion of the notes qualify for total risk-based capital
for regulatory purposes, subject to certain limitations.
On June 9, 1997, the Company issued $57,500,000 of 8 3/4% Trust Capital
Securities through Commerce Capital Trust I, a newly formed Delaware business
trust subsidiary. The Trust Capital Securities evidence a preferred ownership
interest in the Trust of which 100% of the common equity is owned by the
Company. The proceeds from the issuance of the Trust Capital Securities were
invested in substantially similar Junior Subordinated Debt of the Company. The
Trust Capital Securities are unconditionally guaranteed by the Company. Interest
on the debt is payable quarterly in arrears on March 31, June 30, September 30,
and December 31 of each year. The Trust Capital Securities are scheduled to
mature on June 30, 2027. The Trust Capital Securities may be redeemed in whole
or in part at the option of the Company on or after June 30, 2002 at 100% of the
principal plus accrued interest, if any, to the date fixed for redemption,
subject to certain conditions. All $57,500,000 of the Trust Capital Securities
qualify as Tier I capital for regulatory capital purposes.
11. Income Taxes
The provision for income taxes consists of the following (in thousands):
1997 1996 1995
Current:
Federal $21,980 $15,026 $14,618
State 1,653 864 985
Deferred:
Federal (1,733) 106 (707)
State (308) 55 (116)
------- ------- -------
$21,592 $16,051 $14,780
------- ------- -------
The above provision includes income taxes related to securities gains of
$800,000, $586,000 and $37,000 for 1997, 1996 and 1995, respectively.
41
<PAGE>
The provision for income taxes differs from the expected statutory provision as
follows:
1997 1996 1995
Expected provision at statutory rate: 35.0% 35.0% 35.0%
Difference resulting from:
Tax-exempt interest on loans (0.3) (0.3) (0.4)
Tax-exempt interest on securities (0.8) (1.0) (0.3)
Purchase accounting adjustments 0.2 0.3 0.2
Other 0.8 2.2 1.2
---- ---- ----
34.9% 36.2% 35.7%
---- ---- ----
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The significant components of the Companys deferred tax liabilities and assets
as of December 31, 1997 and 1996 are as follows (in thousands):
1997 1996
Deferred tax assets:
Loan loss reserves $7,525 $5,221
Other reserves 651 436
Fair value adjustment, available
for sale securities 2,333
Other 1,775 913
------ ------
Total deferred tax assets 9,951 8,903
------ ------
Deferred tax liabilities:
Depreciation 1,252 1,564
Intangibles 167 227
Fair value adjustment, available
for sale securities 2,075
Other 1,924 1,101
------ ------
Total deferred tax liabilities 5,418 2,892
------ ------
Net deferred assets $4,533 $6,011
------ ------
12. Commitments and Letters of Credit
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit, which are not reflected in the
accompanying financial statements. These arrangements have credit risk
essentially the same as that involved in extending loans to customers and are
subject to the Companys normal credit policies. Collateral is obtained based on
managements credit assessment of the borrower. At December 31, 1997, the Banks
had outstanding standby letters of credit in the amount of $18,619,000.
In addition, the Banks are committed as of December 31, 1997 to advance
$81,204,000 on construction loans, $126,828,000 on home equity lines of credit
and $86,043,000 on lines of credit. All other commitments total approximately
$121,705,000. The Company anticipates no material losses as a result of these
transactions.
42
<PAGE>
13. Common Stock and Preferred Stock
At December 31, 1997, the Companys common stock had a par value of $1.5625. The
Company had 50,000,000 shares authorized as of this date.
At December 31, 1997 the Company had 417,000 shares of Series C ESOP Cumulative
Convertible Preferred Stock authorized and issued without par value (stated
value of $1.00 per share), which were converted to the Companys common stock
effective March 1, 1998 (see Note 14). These shares have been issued to the
Companys Employee Stock Ownership Plan (see Note 15).
On October 16, 1992, the Company issued 776,875 shares of non-voting Series A 9%
cumulative convertible preferred stock. Each share of the Series A preferred
stock gave the holder thereof the option to purchase one share of common stock
for $9.60 per share, subject to adjustment in certain events. During 1996, the
Company exercised its option to redeem all outstanding shares of the Series A
preferred stock. 30,000 of the redeemed shares were converted into 30,000 shares
of non-convertible non-voting preferred stock, which were held in treasury by
the Company at December 31, 1996, and then retired in 1997.
In conjunction with the redemption, approximately 727,000 shares of common stock
were issued upon the exercise of the attached purchase options. Net proceeds to
the Company were approximately $6.6 million.
On December 16, 1997, the Board of Directors declared a cash dividend of $0.18
for each share of common stock outstanding and a 5% stock dividend payable
January 21, 1998 to stockholders of record on January 7, 1998. Payment of the
stock dividend resulted in the issuance of 801,672 additional common shares
and cash of $38,539 in lieu of fractional shares.
14. Earnings Per Share
In February, 1997, the FASB issued statement No. 128 Earnings Per Share (FAS
128) which became effective for the Company as of December 31, 1997. FAS 128
changes the method used to compute earnings per share, and replaces the former
primary and fully-diluted earnings per share with basic and diluted earnings per
share, respectively. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options is excluded. For purposes of
comparability, all prior period earnings per share data has been restated.
43
<PAGE>
The calculation of earnings per share follows (in thousands, except for per
share amounts):
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
Basic:
Net income $40,325 $28,250 $26,652
Preferred stock dividends 563 842 1,122
------- ------- -------
Net income applicable to common stock $39,762 $27,408 $25,530
------- ------- -------
Average common shares outstanding 21,055 18,875 18,511
------- ------- -------
Net income per common share basic $1.89 $1.45 $1.38
------- ------- -------
Diluted:
Net income $40,325 $28,250 $26,652
Additional ESOP contribution
under the if-converted method 50 102 133
------- ------- -------
Net income applicable to common stock
on a diluted basis $40,275 $28,148 $26,519
------- ------- -------
Average common shares outstanding 21,055 18,875 18,511
Additional shares considered in diluted
computation assuming:
Exercise of stock options/rights 897 1,675 1,209
Conversion of preferred stock 647 647 647
------- ------- -------
Average common shares outstanding
on a diluted basis 22,599 21,197 20,367
------- ------- -------
Net income per common share - diluted $1.78 $1.33 $1.30
------- ------- -------
Effective March 1, 1998 the Trustees of the Company's Employee Stock Ownership
Plan exercised their right to convert all 417,000 shares of Series C ESOP
Cumulative Convertible Preferred Stock held by the ESOPinto 808,630 shares of
the Company's common stock.
15. Benefit Plans
Employee Stock Option Plan
The Company has the 1997 Employee Stock Option Plan (the Plan) for the officers
and employees of the Company and the Banks as well as a plan for its
non-employee directors. The Plan authorizes the issuance of up to 3,281,250
shares of common stock (as adjusted for stock dividends) upon the exercise of
options. 740,353 options have been issued under the Plan as of December 31,
1997. The option price for options issued under the Plan must be at least equal
to 100% of the fair market value of the Companys common stock as of the date the
option is granted. These options generally become exercisable to the extent of
25% annually beginning one year from the date of grant, although the amount
exercisable beginning one year from the date of grant may be greater depending
on the employees length of service. The options expire not later than 10 years
from the date of grant.
44
<PAGE>
Information concerning option activity for the periods indicated is as follows:
Shares Under Weighted Average
Option Exercise Price
Balance at January 1, 1996 1,541,910 $ 9.33
Options granted 932,745 18.54
Options exercised 112,790 8.79
Options canceled 34,047 12.66
Balance at December 31, 1996 2,327,818 13.06
-----------------------------------------------------
Options granted 760,697 35.33
Options exercised 444,090 9.10
Options canceled 31,462 13.29
Balance at December 31, 1997 2,612,963 20.38
-----------------------------------------------------
Information concerning options outstanding as of December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Average Weighted- Weighted-
Range of Number Remaining Average Number Average
exercise prices Outstanding Contractural Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$4.44 to $19.99 1,339,022 7.58 $11.49 1,053,567 $11.07
$20.00 and greater 1,273,941 10.00 29.61 337,559 21.14
</TABLE>
The Company has elected not to adopt the recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation (FAS 123), which
requires a fair value based method of accounting for all employee stock
compensation plans. The Company will continue to follow APB Opinion No. 25,
Accounting for Stock Issued to Employees and related Interpretations to account
for its stock-based compensation plans. If the Company had accounted for stock
options granted in 1997, 1996, and 1995 under the fair value provisions of FAS
123, net income and earnings per share would have been as follows (in thousands,
except per share amounts):
1997 1996 1995
Pro forma net income $38,558 $27,257 $26,014
Pro forma earnings per share:
Basic $1.80 $1.40 $1.34
Diluted 1.71 1.28 1.27
Due to the inclusion of only options granted in 1997, 1996, and 1995, the pro
forma effects of applying FAS 123 in 1997 and 1996 may not be representative of
the pro forma impact in future years.
The fair value of options granted in 1997, 1996, and 1995 was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 5.57% to 6.70%,
dividend yields of 3% to 4%, volatility factors of the expected market price of
the Companys common stock of .215 to .332, and a weighted average expected life
of the options of four years.
45
<PAGE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Companys stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
Employee Stock Ownership Plan
As of December 31, 1997 the Company maintains an Employee Stock Ownership Plan
(ESOP) for the benefit of its officers and employees who meet age and service
requirements. The ESOP held 417,000 shares of Series C ESOP Cumulative
Convertible Preferred Stock, purchased at a price of $18.00 per share. The
Company guarantees a loan outstanding held by the ESOP. The loan is payable in
quarterly installments with the final payment due January 28, 2000. The loan
currently bears interest at a variable rate, although the rate can be fixed at
future repricing dates in accordance with the loan agreement. The preferred
stock was pledged as security to the loan and paid an annual dividend of $1.35
per share, which the ESOP applied to its obligations under the loan. Effective
March 1, 1998, the Trustees of the ESOP exercised their right to convert all
417,000 shares of the preferred stock into 808,630 shares of the Companys common
stock, a portion of which is pledged as security for the loan.
Employer contributions are determined at the discretion of the Board of
Directors but will be sufficient to enable the ESOP to discharge current
obligations, including interest, under the loan. The total contribution expense
associated with the Plan for 1997, 1996 and 1995 was $1,177,000, $885,000 and
$934,000, respectively.
In addition, Commerce NJ had a loan outstanding to the Employee Stock Ownership
Plan of Independence totaling $1,070,000 at December 31, 1996. This amount was
recorded as a deduction from stockholders equity. The loan was paid off in May,
1997. After receiving a positive ruling from the Internal Revenue Service, the
Independence ESOP was terminated during 1997. No contribution expense was
recorded related to the Independence ESOP in 1997.
Post-employment or Post-retirement Benefits
The Company offers no post-employment or post-retirement benefits.
16. Fair Value of Financial Instruments
FASB Statement No. 107, Disclosures about Fair Value
of Financial Instruments (FAS 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. FAS 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
46
<PAGE>
The following table represents the carrying amounts and fair values of the
Companys financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $167,900 $167,900 $208,833 $208,833
Mortgages held for sale 7,260 7,260 1,314 1,314
Trading securities 7,911 7,911 15,327 15,327
Investment securities 2,189,152 2,184,935 1,604,999 1,583,375
Loans (net) 1,390,028 1,416,151 1,248,880 1,270,178
Financial liabilities:
Deposits 3,369,404 3,375,949 2,919,670 2,931,212
Other borrowed money 223,300 223,300 70,000 70,000
Obligation to ESOP 2,308 2,308 3,333 3,333
Long-term debt 80,500 85,266 23,000 24,610
--------- --------- --------- ---------
Off-balance sheet instruments:
Standby letters of credit $(186) $(153)
Commitments to extend credit (520) (550)
</TABLE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents, mortgages held for sale and trading securities: The
carrying amounts reported approximate those assets fair value.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans receivable were estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Loans with significant collectibility
concerns were fair valued on a loan-by-loan basis utilizing a discounted cash
flow method. The carrying amount of accrued interest approximates its fair
value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest-bearing and noninterest-bearing checking, passbook savings, and certain
types of money market accounts) are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
of deposit to a schedule of aggregated expected monthly maturities on time
deposits.
47
<PAGE>
Other borrowed money: The carrying amounts reported approximate fair value.
Obligation to ESOP: The fair value of the guarantee of the ESOP
obligation is estimated using a discounted cash flow calculation that applies
interest rates currently being offered to obligations of a similar maturity.
Long-term debt: Current quoted market prices were used to estimate fair value.
Off-balance sheet instruments:
Off-balance sheet instruments of the Company consist of letters of credit, loan
commitments and unfunded lines of credit. Fair values for the Companys
off-balance sheet instruments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counterparties credit standing.
17. Quarterly Financial Data (Unaudited)
The following represents summarized unaudited quarterly financial data of the
Company which, in the opinion of management, reflects adjustments (comprising
only normal recurring accruals) necessary for fair presentation (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
December 31 September 30 June 30 March 31
1997
<S> <C> <C> <C> <C>
Interest income $65,375 $64,315 $59,148 $55,339
Interest expense 26,735 26,735 22,694 20,873
Net interest income 38,640 37,580 36,454 34,466
Provision for loan losses 574 1,142 1,326 1,626
Net investment securities gains 568 1,717
Provision for federal and state
income taxes 5,166 5,719 5,558 5,149
Net income 10,480 10,377 10,034 9,434
Net income applicable to
common stock 10,339 10,236 9,894 9,293
Net income per common share:
Basic $0.49 $0.48 $0.47 $0.45
Diluted 0.46 0.46 0.44 0.42
1996
Interest income $54,479 $51,874 $49,093 $47,289
Interest expense 20,785 19,695 18,526 18,316
Net interest income 33,694 32,179 30,567 28,973
Provision for loan losses 2,309 980 774 794
Net investment securities gains 820 36 48 771
Provision for federal and state
income taxes 4,127 3,877 4,107 3,940
Net income 6,445 7,134 7,510 7,161
Net income applicable to
common stock 6,305 6,993 7,230 6,880
Net income per common share:
Basic $0.32 $0.37 $0.39 $0.37
Diluted 0.30 0.33 0.36 0.34
</TABLE>
48
<PAGE>
18. Condensed Financial Statements of the Parent Company and Other Matters
Balance Sheets
December 31,
(dollars in thousands) 1997 1996
Assets
Cash $62,457 $8,294
Securities available for sale 11,451 8,374
Securities held to maturity 41 77
Investment in Banks 254,407 209,335
Other assets 10,042 8,713
-------- --------
$338,398 $234,793
-------- --------
Liabilities
Other liabilities $4,830 $4,496
Trust Capital Securities 57,500
Long-term debt 23,000 23,000
Obligation to Employee Stock
Ownership Plan (ESOP) 2,308 3,333
-------- --------
87,638 30,829
-------- --------
Stockholders equity
Common stock 25,309 23,546
Series C preferred stock 7,506 7,506
Series A preferred stock 30
Capital in excess of par or stated value 167,529 144,551
Retained earnings 54,348 36,086
-------- --------
254,692 211,719
Less commitment to ESOP 2,308 4,403
Less treasury stock 1,624 3,352
-------- --------
Total stockholders equity 250,760 203,964
-------- --------
$339,898 $234,793
-------- --------
<TABLE>
<CAPTION>
Statements of Income
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Income:
Dividends from Banks $14,448 $11,406 $8,203
Interest income 248 728 207
Other 491 173 325
------ ------- -------
15,187 12,307 8,735
------ ------- -------
Expenses:
Interest expense 4,961 2,025 2,025
Operating expenses 2,426 1,911 1,479
------ ------- -------
7,387 3,936 3,504
Income before income taxes and equity
in undistributed income of Banks 7,800 8,371 5,231
Income tax benefit (2,141) (975) (956)
------ ------- -------
9,941 9,346 6,187
Equity in undistributed income of Banks 30,384 18,904 20,465
------ ------- -------
Net income 40,325 28,250 26,652
Dividends on preferred stock 563 842 1,122
------ ------- -------
Net income applicable to common stock $39,762 $27,408 $25,530
------ ------- -------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Year Ended December 31,
(dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $40,325 $28,250 $26,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of Banks (30,384) (18,904) (20,465)
Gains on sales of securities available for sale (301) (106)
(Increase) decrease in other assets (1,329) 137 429
Increase in other liabilities 359 1,428 706
------- ------- -------
Net cash provided by operating activities 8,670 10,911 7,216
Investing activities:
Investment in Banks (2,000) (3,000) (25,925)
Proceeds from sale of securities available for sale 1,090 189
Purchase of equity securities (5,636) (1,572) (918)
Other (50) 69 18
------- ------- -------
Net cash used by investing activities (6,596 (4,503) (26,636)
Financing activities:
Net proceeds from common stock offering 25,774
Tax benefit from ESOP dividends 197 197 197
Proceeds from issuance of common stock
under dividend reinvestment plan 4,259 3,397 1,612
Cash dividends (12,484) (8,430) (7,116)
Proceeds from exercise of stock options 2,617 743 1,068
Purchase of treasury stock (352)
Proceeds from issuance of long-term debt 57,500
------- ------- -------
Net cash (used) provided by financing
activities 52,089 (4,093) 21,183
Increase in cash and cash equivalents 54,163 2,315 1,763
Cash and cash equivalents at beginning of year 8,294 5,979 4,216
------- ------- -------
Cash and cash equivalents at end of year $62,457 $8,294 $5,979
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $4,809 $1,926 $1,926
Income taxes 21,377 11,905 12,245
------- ------- -------
</TABLE>
50
<PAGE>
Holders of common stock of the Company are entitled to receive dividends when
declared by the Board of Directors out of funds legally available. Under the New
Jersey Business Corporation Act, the Company may pay dividends only if it is
solvent and would not be rendered insolvent by the dividend payment and only to
the extent of surplus (the excess of the net assets of the Company over its
stated capital).
The approval of the Comptroller of the Currency is required for a national bank
to pay dividends if the total of all dividends declared in any calendar year
exceeds net profits (as defined) for that year combined with its retained net
profits for the preceding two calendar years. Under this formula, Commerce NJ,
Commerce PA, Commerce Shore, and Commerce North can declare dividends in 1998
without approval of the Comptroller of the Currency of approximately
$26,229,000, $5,885,000, $8,106,000, and $8,017,000, respectively, plus an
additional amount equal to each banks net profit for 1998 up to the date of any
such dividend declaration.
The Federal Reserve Act requires the extension of credit by Commerce NJ,
Commerce PA, Commerce Shore, and Commerce North to certain affiliates, including
Commerce Bancorp, Inc. (parent), be secured by readily marketable securities,
that extension of credit to any one affiliate be limited to 10% of the capital
and capital in excess of par or stated value, as defined, and that extensions of
credit to all such affiliates be limited to 20% of capital and capital in excess
of par or stated value. At December 31, 1997 and 1996, the Company complies with
these guidelines.
The Company and its subsidiaries 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 Companys financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific guidelines that involve quantitative measures of
the Companys assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Companys 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 subsidiaries to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to risk-based assets
(as defined) and of Tier I capital to average assets (as defined), or leverage.
Management believes, as of December 31, 1997, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are subject.
51
<PAGE>
The following table presents the Companys and Commerce NJs risk-based and
leverage capital ratios at December 31, 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>
December 31, 1997
Company
Risk based capital ratios:
Tier 1 $299,191 15.66% $76,439 4.00% $114,658 6.00%
Total capital 338,852 17.73 152,878 8.00 191,097 10.00
Leverage ratio 299,191 7.81 114,971 3.00 191,619 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $161,621 12.55% $51,494 4.00% $77,241 6.00%
Total capital 175,617 13.64 102,988 8.00 128,735 10.00
Leverage ratio 161,621 6.27 77,270 3.00 128,784 5.00
December 31, 1996
Company
Risk based capital ratios:
Tier 1 $203,898 12.57% $64,908 4.00% $97,362 6.00%
Total capital 244,873 15.09 129,816 8.00 162,269 10.00
Leverage ratio 203,898 6.46 94,684 3.00 157,807 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $146,226 13.61% $42,984 4.00% $64,475 6.00%
Total capital 157,735 14.68 85,967 8.00 107,459 10.00
Leverage ratio 146,226 7.06 62,165 3.00 103,609 5.00
</TABLE>
52
<PAGE>
The Board of Directors and Stockholders
Commerce Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Commerce
Bancorp, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Independence Bancorp,
Inc., a wholly-owned subsidiary, which statements reflect total assets
constituting 11.6% in 1996, and net interest income constituting 13.6% in 1996
and 13.4% in 1995, of the related consolidated totals. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for Independence Bancorp, Inc.,
is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Commerce Bancorp, Inc. and Subsidiaries
at December 31, 1997 and 1996, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 26, 1998 (except for
Note 1, as to which the
date is June 29, 1998)
53
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange of 1934, the Registrant has duly caused this Amendment No. 3 to its
Annual Report of Form 10-K for the year ended December 31, 1997 to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
Date: October 27, 1998 By: /s/ Douglas J. Pauls
-----------------------------
Douglas J. Pauls
Vice President and Controller
Consent of Independent Auditors
We consent to the use of our report dated January 26, 1998 (except for Note 1,
as to which the date is June 29, 1998), in this Form 10-K/A which amends the
Annual Report on Form 10-K of Commerce Bancorp, Inc. and Subsidiaries for the
year ended December 31, 1997, with respect to the consolidated financial
statements as amended.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 167,900
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 7,911
<INVESTMENTS-HELD-FOR-SALE> 1,315,120
<INVESTMENTS-CARRYING> 874,032
<INVESTMENTS-MARKET> 869,815
<LOANS> 1,411,289
<ALLOWANCE> 21,261
<TOTAL-ASSETS> 3,938,967
<DEPOSITS> 3,369,404
<SHORT-TERM> 223,300
<LIABILITIES-OTHER> 12,695
<LONG-TERM> 82,808
0
7,506
<COMMON> 25,309
<OTHER-SE> 217,945
<TOTAL-LIABILITIES-AND-EQUITY> 3,938,967
<INTEREST-LOAN> 120,028
<INTEREST-INVEST> 122,662
<INTEREST-OTHER> 1,487
<INTEREST-TOTAL> 244,177
<INTEREST-DEPOSIT> 87,024
<INTEREST-EXPENSE> 97,037
<INTEREST-INCOME-NET> 147,140
<LOAN-LOSSES> 4,668
<SECURITIES-GAINS> 2,285
<EXPENSE-OTHER> 137,929
<INCOME-PRETAX> 61,917
<INCOME-PRE-EXTRAORDINARY> 61,917
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,325
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 4.55
<LOANS-NON> 11,570
<LOANS-PAST> 226
<LOANS-TROUBLED> 19
<LOANS-PROBLEM> 13,061
<ALLOWANCE-OPEN> 17,975
<CHARGE-OFFS> 2,280
<RECOVERIES> 898
<ALLOWANCE-CLOSE> 21,261
<ALLOWANCE-DOMESTIC> 21,261
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<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> 1.40
<EPS-DILUTED> 1.32
<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
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<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
0
7,506
<COMMON> 24,732
<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> 0.92
<EPS-DILUTED> 0.86
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 181,918
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 25,650
<TRADING-ASSETS> 8,165
<INVESTMENTS-HELD-FOR-SALE> 812,418
<INVESTMENTS-CARRYING> 864,132
<INVESTMENTS-MARKET> 828,344
<LOANS> 1,305,779
<ALLOWANCE> 19,544
<TOTAL-ASSETS> 3,345,298
<DEPOSITS> 3,072,459
<SHORT-TERM> 25,000
<LIABILITIES-OTHER> 17,441
<LONG-TERM> 26,077
0
7,506
<COMMON> 24,564
<OTHER-SE> 172,251
<TOTAL-LIABILITIES-AND-EQUITY> 3,345,298
<INTEREST-LOAN> 28,113
<INTEREST-INVEST> 26,814
<INTEREST-OTHER> 412
<INTEREST-TOTAL> 55,339
<INTEREST-DEPOSIT> 19,907
<INTEREST-EXPENSE> 20,873
<INTEREST-INCOME-NET> 34,466
<LOAN-LOSSES> 1,626
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 31,206
<INCOME-PRETAX> 14,583
<INCOME-PRE-EXTRAORDINARY> 14,583
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,434
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 4.78
<LOANS-NON> 10,687
<LOANS-PAST> 300
<LOANS-TROUBLED> 21
<LOANS-PROBLEM> 13,839
<ALLOWANCE-OPEN> 17,975
<CHARGE-OFFS> 200
<RECOVERIES> 143
<ALLOWANCE-CLOSE> 19,544
<ALLOWANCE-DOMESTIC> 19,544
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 181,858
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 26,975
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<INVESTMENTS-HELD-FOR-SALE> 767,487
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<SHORT-TERM> 70,000
<LIABILITIES-OTHER> 12,185
<LONG-TERM> 26,333
0
7,536
<COMMON> 23,546
<OTHER-SE> 172,882
<TOTAL-LIABILITIES-AND-EQUITY> 3,232,152
<INTEREST-LOAN> 104,842
<INTEREST-INVEST> 95,026
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<INTEREST-DEPOSIT> 73,961
<INTEREST-EXPENSE> 77,322
<INTEREST-INCOME-NET> 125,413
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<SECURITIES-GAINS> 1,675
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<INCOME-PRE-EXTRAORDINARY> 44,301
<EXTRAORDINARY> 0
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</TABLE>
<TABLE> <S> <C>
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<S> <C>
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<PERIOD-END> SEP-30-1996
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0
7,536
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</TABLE>
<TABLE> <S> <C>
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<RESTATED>
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<S> <C>
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<PERIOD-END> JUN-30-1996
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0
8,283
<COMMON> 19,943
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<INTEREST-DEPOSIT> 35,187
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</TABLE>
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<S> <C>
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<PERIOD-END> MAR-31-1996
<CASH> 156,708
<INT-BEARING-DEPOSITS> 0
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<LONG-TERM> 27,103
0
8,283
<COMMON> 19,852
<OTHER-SE> 150,638
<TOTAL-LIABILITIES-AND-EQUITY> 2,805,904
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<INTEREST-OTHER> 1,201
<INTEREST-TOTAL> 47,289
<INTEREST-DEPOSIT> 17,779
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<INTEREST-INCOME-NET> 28,973
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<INCOME-PRE-EXTRAORDINARY> 11,101
<EXTRAORDINARY> 0
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<NET-INCOME> 7,161
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.67
<LOANS-NON> 9,897
<LOANS-PAST> 693
<LOANS-TROUBLED> 288
<LOANS-PROBLEM> 10,500
<ALLOWANCE-OPEN> 16,014
<CHARGE-OFFS> 720
<RECOVERIES> 168
<ALLOWANCE-CLOSE> 16,256
<ALLOWANCE-DOMESTIC> 16,256
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 167,487
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 42,370
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<INVESTMENTS-CARRYING> 772,999
<INVESTMENTS-MARKET> 761,865
<LOANS> 1,048,815
<ALLOWANCE> 16,014
<TOTAL-ASSETS> 2,738,587
<DEPOSITS> 2,529,186
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,347
<LONG-TERM> 27,359
0
7,506
<COMMON> 18,894
<OTHER-SE> 153,295
<TOTAL-LIABILITIES-AND-EQUITY> 2,738,587
<INTEREST-LOAN> 92,558
<INTEREST-INVEST> 90,097
<INTEREST-OTHER> 3,463
<INTEREST-TOTAL> 186,118
<INTEREST-DEPOSIT> 67,815
<INTEREST-EXPENSE> 76,219
<INTEREST-INCOME-NET> 109,899
<LOAN-LOSSES> 2,774
<SECURITIES-GAINS> 106
<EXPENSE-OTHER> 89,316
<INCOME-PRETAX> 41,432
<INCOME-PRE-EXTRAORDINARY> 41,432
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,652
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.58
<LOANS-NON> 9,696
<LOANS-PAST> 159
<LOANS-TROUBLED> 522
<LOANS-PROBLEM> 8,800
<ALLOWANCE-OPEN> 14,666
<CHARGE-OFFS> 2,447
<RECOVERIES> 1,021
<ALLOWANCE-CLOSE> 16,014
<ALLOWANCE-DOMESTIC> 16,014
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
