SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File #0-12874
COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400
(Address of Principal Executive Offices) (Zip Code)
(609) 751-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report(s), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _______
<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practical date.
Common Stock 18,011,327
(Title of Class) (No. of Shares Outstanding
as of 5/08/98)
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
March 31, 1998 and December 31, 1997
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1998 and
March 31, 1997
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1998 and
March 31, 1997
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
March 31, December 31,
------------------------------
(dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $180,406 $167,900
Federal funds sold 10,900
------------------------------
Cash and cash equivalents 191,306 167,900
Mortgages held for sale 13,489 7,260
Trading securities 9,798 7,911
Securities available for sale 1,289,115 1,315,120
Securities held to maturity 1,028,760 874,032
(market value 1998-$1,026,745; 1997-$869,815)
Loans 1,468,800 1,411,289
Less allowance for loan losses 21,976 21,261
------------------------------
1,446,824 1,390,028
Bank premises and equipment, net 116,020 111,759
Other assets 63,358 64,957
------------------------------
$4,158,670 $3,938,967
==============================
Liabilities Deposits:
Demand:
Interest-bearing $1,178,372 $1,111,302
Noninterest-bearing 778,895 762,843
Savings 751,192 705,906
Time 1,042,986 789,353
------------------------------
Total deposits 3,751,445 3,369,404
Other borrowed money 25,000 223,300
Other liabilities 27,218 12,695
Obligation to Employee Stock Ownership Plan (ESOP) 2,051 2,308
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
------------------------------
3,886,214 3,688,207
Stockholders' Common stock, 18,068,447 shares issued (16,999,824 shares in 1997) 28,232 25,309
Equity Series C preferred stock, 417,000 shares in 1997 7,506
Capital in excess of par or stated value 212,139 167,529
Retained earnings 28,695 50,592
Accumulated other comprehensive income 7,065 3,756
------------------------------
276,131 254,692
Less commitment to ESOP 2,051 2,308
Less treasury stock, at cost, 100,159 shares in 1998
(100,159 in 1997) 1,624 1,624
------------------------------
Total stockholders' equity 272,456 250,760
------------------------------
$4,158,670 $3,938,967
==============================
</TABLE>
See accompanying notes.
2
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------
(dollars in thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Interest Interest and fees on loans $31,141 $28,113
income Interest on investments 36,396 26,814
Other interest 354 412
------------------------
Total interest income 67,891 55,339
------------------------
Interest Interest on deposits:
expense Demand 7,264 5,471
Savings 4,414 3,770
Time 12,670 10,666
------------------------
Total interest on deposits 24,348 19,907
Interest on other borrowed money 2,001 460
Interest on long-term debt 1,782 506
------------------------
Total interest expense 28,131 20,873
------------------------
Net interest income 39,760 34,466
Provision for loan losses 1,210 1,626
------------------------
Net interest income after provision for loan losses 38,550 32,840
Noninterest Deposit charges and service fees 8,083 6,198
income Other operating income 11,805 6,751
Net investment securities gains
------------------------
Total noninterest income 19,888 12,949
------------------------
Noninterest Salaries 16,011 11,902
expense Benefits 3,281 2,746
Occupancy 3,922 3,334
Furniture and equipment 5,366 4,041
Office 4,106 3,089
Audit and regulatory fees and assessments 502 375
Marketing 1,848 1,239
Other real estate (net) 420 469
Other 5,239 4,011
------------------------
Total noninterest expenses 40,695 31,206
------------------------
Income before income taxes 17,743 14,583
Provision for federal and state income taxes 6,296 5,149
------------------------
Net income 11,447 9,434
Dividends on preferred stocks 141
========================
Net income applicable to common stock $11,447 $9,293
========================
Net income per common and common equivalent share:
Basic $0.65 $0.57
------------------------
Diluted $0.61 $0.53
------------------------
Average common and common equivalent shares outstanding:
Basic 17,509 16,363
------------------------
Diluted 18,750 17,684
------------------------
Cash dividends declared, common stock $0.24 $0.19
========================
</TABLE>
See accompanying notes.
3
<PAGE>
Commerce Bancorp, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
--------------------------
(dollars in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Operating activities Net income $11,447 9,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,210 1,626
Provision for depreciation, amortization and accretion 5,221 4,113
Proceeds from sales of mortgages held for sale 7,702 3,492
Originations of mortgages held for sale (13,931) (3,996)
Net loan (chargeoffs) (495) (57)
Net (increase) decrease in trading securities (1,887) 7,162
Decrease in other assets (446) (5,739)
Increase in other liabilities 14,523 5,212
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,345 21,247
Investing activities Proceeds from the sales of securities available for sale 102,174
Proceeds from the maturity of securities available for sale 61,621 44,655
Proceeds from the maturity of securities held to maturity 43,739 24,461
Purchase of securities available for sale (133,028) (20,336)
Purchase of securities held to maturity (199,105) (135,039)
Net increase in loans (59,871) (41,637)
Proceeds from sales of loans 2,360 2,713
Purchases of premises and equipment (8,251) (4,561)
----------------------------------------------------------------------------------------------------
Net cash used by investing activities (190,361) (129,744)
Financing activities Net increase in demand and savings deposits 128,408 100,801
Net increase in time deposits 253,633 51,988
Net decrease in other borrowed money (198,300) (45,000)
Dividends paid (3,914) (2,612)
Issuance of common stock 8,257
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 2,290 1,837
Other 49 218
----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 190,423 107,232
Increase (decrease) in cash and cash equivalents 23,406 (1,265)
Cash and cash equivalents at beginning of year 167,900 208,833
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $191,306 $207,568
----------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash
paid during the period for:
Interest $26,286 $19,877
Income taxes 125 535
Other noncash activities:
Transfer of securities to securities available for sale 82,933
----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated Financial Statements
The consolidated financial statements included herein have
been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. Certain amounts in prior
periods have been reclassified for comparative purposes.
These condensed consolidated financial statements should be
read in conjunction with the audited financial statements and the notes
thereto included in the registrant's Annual Report for the period ended
December 31, 1997. The results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998.
The consolidated financial statements include the accounts of
Commerce Bancorp, Inc. (the Company) and all of its subsidiaries,
including Commerce Bank, N.A. (Commerce NJ), Commerce
Bank/Pennsylvania, N.A., Commerce Bank/Shore, N.A., Commerce
Bank/North, Commerce Capital Trust I, and Commerce Capital Markets,
Inc. (CCMI). All material intercompany transactions have been
eliminated.
B. Commitments
In the normal course of business, there are various
outstanding commitments to extend credit, such as letters of credit and
unadvanced loan commitments, which are not reflected in the
accompanying consolidated financial statements. Management does not
anticipate any material losses as a result of these transactions.
5
<PAGE>
C. Employee Stock Ownership Plan (ESOP) Debt Guarantee
The Company has guaranteed a debt obligation of its Employee
Stock Ownership Plan (ESOP) which originated at $7,500,000 and has been
reduced to $2,051,000 through principal reductions. Accordingly, the
loan amount is reflected in the Company's consolidated balance sheet as
a liability and an equal amount, representing deferred employee
benefits, has been recorded as a deduction from stockholders' equity.
The ESOP obtained the loan in 1990 to acquire a new class of Company
Cumulative Convertible Preferred Stock (Series C) at a price of $18.00
per share. The loan was refinanced in 1994, and is payable in quarterly
installments with the final payment due January 28, 2000. The loan
bears interest at a variable rate, although the rate can be fixed at
future repricing dates in accordance with the loan agreement. Effective
March 1, 1998, the Trustees of the ESOP exercised their right to
convert all 417,000 shares of the Series C stock into 646,904 shares of
the Company's common stock, a portion of which is pledged as security
for the loan. As the Company makes annual contributions to the ESOP,
these contributions, plus dividends from the Company's common stock
held by the ESOP, will be used to repay the loan.
D. Recent Accounting Statements
As of January 1, 1998, the Company adopted Financial
Accounting Standards Board 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 to equity during the period. Prior
period financial statements have been reclassified to conform to the
requirements of FAS 130. The adoption of FAS 130 had no impact on the
Company's financial position or results of operations. During the first
quarter of 1998 and 1997, total comprehensive income, which for the
Company included net income and unrealized gains and losses on the
Company's available for sale securities, amounted to $14.8 million and
$701 thousand, respectively.
In June, 1997, the Financial Accounting Standards Board issued
Statement No. 131 "Disclosures About Segments of an Enterprise and
Related Information" (FAS 131). FAS 131 requires disclosure of
financial and descriptive information about an enterprise's operating
segments that meet certain quantitative thresholds. 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 financial statements.
E. Trust Capital Securities
On June 9, 1997, the Company issued $57.5 million of 8.75%
Trust Capital Securities through Commerce Capital Trust I, a newly
formed Delaware business trust subsidiary of the Company. The net
proceeds of the offering will be used for general corporate purposes,
which may include contributions to subsidiary banks to fund their
operations, the financing of one or more future acquisitions, repayment
of indebtedness of the Company or of its subsidiary banks, investments
in or extensions of credit to its subsidiaries, or the repurchase of
shares of the Company's outstanding common stock. All $57.5 million of
the Trust Capital Securities qualify as Tier 1 capital for regulatory
capital purposes.
6
<PAGE>
F. Commerce Capital Markets, Inc.
In the first quarter of 1998, the Company completed the
acquisition of A. H. Williams & Co. (Williams), Philadelphia, PA, a
public finance investment firm, and combined Williams 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
316,000 shares. The transaction was accounted for as a pooling of
interests. However, financial statements of the periods prior to the
acquisition have not been restated, as the changes, in the aggregate,
would be immaterial.
G. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for
per share amounts):
Three Months Ended
March 31
1998 1997
------- -------
Basic:
Net income $11,447 $9,434
Preferred stock dividends 141
------- -------
Net income applicable to common stock $11,447 $9,293
======= =======
Average common shares outstanding 17,509 16,363
======= =======
Net income per common share - basic $0.65 $0.57
======= =======
Diluted:
Net income $11,447 $9,434
Additional ESOP contribution under the
if-converted method 11
------- -------
Net income applicable to common stock
on a diluted basis $11,447 $9,423
======= =======
Average common shares outstanding 17,509 16,363
Additional shares considered in diluted
computation assuming:
Exercise of stock options 817 674
Conversion of preferred stock 424 647
------- -------
Average common shares outstanding
on a diluted basis 18,750 17,684
======= =======
Net income per common share - diluted $0.61 $0.53
======= =======
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources
At March 31, 1998, stockholders' equity totaled $272.5 million
or 6.55% of total assets, compared to $250.8 million or 6.37% of total
assets at December 31, 1997.
On June 9, 1997, the Company issued $57.5 million of 8.75%
Trust Capital Securities through Commerce Capital Trust I, a newly
formed Delaware business trust subsidiary of the Company. The net
proceeds of the offering will be used for general corporate purposes,
which may include contributions to subsidiary banks to fund their
operations, the financing of one or more future acquisitions, repayment
of indebtedness of the Company or of its subsidiary banks, investments
in or extensions of credit to its subsidiaries, or the repurchase of
shares of the Company's outstanding common stock. All $57.5 million of
the Trust Capital Securities qualify as Tier 1 capital for regulatory
capital purposes.
The table below presents the Company's and Commerce NJ's
risk-based and leverage ratios at March 31, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Regulatory Guidelines
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
March 31, 1998
Company
Risk based capital ratios:
Tier 1 $317,704 15.87% $80,086 4.00% $120,129 6.00%
Total capital 358,080 17.88 160,172 8.00 200,215 10.00
Leverage ratio 317,704 7.86 121,280 3.00 202,133 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $177,218 13.08% $54,185 4.00% $81,278 6.00%
Total capital 191,617 14.15 108,371 8.00 135,464 10.00
Leverage ratio 177,218 6.50 81,760 3.00 136,267 5.00
March 31, 1997
Company
Risk based capital ratios:
Tier 1 $212,974 12.65% $67,369 4.00% $101,054 6.00%
Total capital 255,518 15.17 134,739 8.00 168,424 10.00
Leverage ratio 212,974 6.58 97,133 3.00 161,888 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $149,347 13.44% $44,463 4.00% $66,694 6.00%
Total capital 161,923 14.57 88,926 8.00 111,157 10.00
Leverage ratio 149,347 7.01 63,918 3.00 106,530 5.00
</TABLE>
8
<PAGE>
At March 31, 1998, the Company's consolidated capital levels and
each of the Company's bank subsidiaries met the regulatory definition
of a "well capitalized" financial institution, i.e., a leverage capital
ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding 6%, and
a total risk-based capital ratio exceeding 10%. Management believes as
of March 31, 1998, that the Company and its subsidiaries meet all
capital adequacy requirements to which they are subject.
Deposits
Total deposits at March 31, 1998 were $3.75 billion, up $679.0
million, or 22% over total deposits of $3.07 billion at March 31, 1997,
and up by $382.0 million, or 11% from year-end 1997. Deposit growth
during the first three months of 1998 included core deposit growth in
all categories as well as growth from the public sector. The Company
experienced "same-store core deposit growth" of 13.1% at March 31, 1998
as compared to deposits a year ago for those branches open for more
than two years.
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.
Management considers the simulation of net interest income in
different interest rate environments to be the best indicator of the
Company's interest rate risk. Income simulation analysis captures not
only the potential of all assets and liabilities to mature or reprice,
but also the probability that they will do so. Income simulation also
attends to the relative interest rate sensitivities of these items, and
projects their behavior over an extended period of time. Finally,
income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of
proposed strategies for responding to them.
The Company's income simulation model analyzes interest rate
sensitivity by projecting net income over the next 24 months in a flat
rate scenario versus net income in alternative interest rate scenarios.
Management continually reviews and refines its interest rate risk
management process in response to the changing economic climate.
Currently, the Company's model projects a proportionate 200 basis point
change during the next year, with rates remaining constant in the
second year. The Company's ALCO policy has established that interest
income sensitivity will be considered acceptable if net income in the
above interest rate scenario is within 15% of net income in the flat
rate scenario in the first year and within 30% over the two year time
frame. At March 31, 1998, the Company's income simulation model
indicates net income would decrease by 1.31% and 4.03% 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 6.69% and 9.25% 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.
9
<PAGE>
In the event the Company's interest rate risk models indicate
an unacceptable level of risk, the Company could undertake a number of
actions that would reduce this risk, including the sale of a portion of
its available for sale portfolio, 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 March 31,
1998, the market value of equity model indicates an acceptable level of
interest rate risk.
Liquidity involves the Company's ability to raise funds to
support asset growth or decrease assets to meet deposit withdrawals and
other borrowing needs, to maintain reserve requirements and to
otherwise operate the Company on an ongoing basis. The Company's
liquidity needs are primarily met by growth in core deposits, its cash
and federal funds sold position, cash flow from its amortizing
investment and loan portfolios, as well as the use of short-term
borrowings, as required.
Short-Term Borrowings
Short-term borrowings, or other borrowed money, consist
primarily of securities sold under agreements to repurchase. In 1997,
short-term borrowings were used to meet short term funding needs.
During the first three months of 1998, the Company significantly
reduced its short-term borrowings, primarily through increased
deposits. At March 31, 1998, short-term borrowings aggregated $25.0
million and had an average rate of 5.78%.
Interest Earning Assets
For the three month period ended March 31, 1998, interest
earning assets increased $205.3 million from $3.62 billion to $3.82
billion. This increase was primarily in investment securities and the
loan portfolio as described below.
Loans
During the first three months of 1998, loans increased $57.5
million from $1.41 billion to $1.47 billion. At March 31, 1998, loans
represented 39% of total deposits and 35% of total assets. The increase
in the loan portfolio was due primarily to loans secured by commercial
real estate properties.
10
<PAGE>
Investments
In total, for the first three months of 1998, securities
increased $130.6 million from $2.20 billion to $2.33 billion. Deposit
growth and other funding sources were used to increase the Company's
investment portfolio. The available for sale portfolio decreased $26.0
million to $1.29 billion from $1.32 billion at December 31, 1997, and
the securities held to maturity portfolio increased $154.7 million to
$1.03 billion at March 31, 1998 from $874.0 million at year-end 1997.
At March 31, 1998, the average life of the investment portfolio was
approximately 5.5 years, and the duration was approximately 4.2 years.
At March 31, 1998, total securities represented 56% of total assets.
Net Income
Net income for the first quarter of 1998 was $11.4 million, an
increase of $2.0 million or 21% over the $9.4 million recorded for the
first quarter of 1997. On a per share basis, diluted net income for the
first quarter of 1998 was $.61 per common share, up 15% over the $.53
per common share for the respective 1997 period.
Return on average assets (ROA) and return on average equity
(ROE) for the first quarter of 1998 were 1.13% and 17.29%,
respectively, compared to 1.17% and 18.26%, respectively, for the same
1997 period.
Net Interest Income
Net interest income totaled $39.8 million for the first quarter
of 1998, an increase of $5.3 million or 15% from $34.5 million in the
first quarter of 1997. The improvement in net interest income was due
primarily to volume increases in the loan and investment portfolios.
Noninterest Income
Noninterest income totaled $19.9 million for the first quarter
of 1998, an increase of $6.9 million or 54% from $12.9 million in the
first quarter of 1997. The increase was due primarily to increased
other operating income, which rose $5.1 million over the prior year,
including increased revenues of $1.5 million and $2.6 million from
Commerce National Insurance Services, Inc., the Company's insurance
brokerage subsidiary, and CCMI, respectively. In addition, deposit
charges and service fees increased $1.9 million from the first quarter
of 1997 primarily due to higher transaction volumes.
Noninterest Expense
For the first quarter of 1998, noninterest expense totaled $40.7
million, an increase of $9.5 million or 30% over the same period in
1997. Contributing to this increase was new branch activity over the
past twelve months, with the number of branches increasing from 68 at
March 31, 1997 to 76 at March 31, 1998, and the formation of CCMI in
the first quarter of 1998. With the addition of these new offices and
CCMI, staff, facilities, marketing, and related expenses rose
accordingly. Other noninterest expenses rose $1.2 million over the
first quarter of 1997. This increase resulted primarily from higher
bank card-related service charges, increased business development
expenses, and higher legal fees.
11
<PAGE>
The Company's operating efficiency ratio (noninterest expenses,
less other real estate expense, divided by net interest income plus
noninterest income excluding non-recurring gains) was 67.52% for the
first three months of 1998 as compared to 64.83% for the same 1997
period. The Company's efficiency ratio remains above its peer group
primarily due to its aggressive growth expansion activities.
Loan and Asset Quality
Total non-performing assets (non-performing loans and other
real estate, excluding loans past due 90 days or more and still
accruing interest) at March 31, 1998 were $17.0 million, or 0.41% of
total assets compared to $17.4 million or 0.44% of total assets at
December 31, 1997 and $18.8 million or 0.56% of total assets at March
31, 1997.
Total non-performing loans (non-accrual loans and restructured
loans, excluding loans past due 90 days or more and still accruing
interest) at March 31, 1998 were $11.0 million or 0.75% of total loans
compared to $11.6 million or 0.82% of total loans at December 31, 1997
and $10.7 million or 0.82% of total loans at March 31, 1997. At March
31, 1998, loans past due 90 days or more and still accruing interest
amounted to $308 thousand compared to $226 thousand at December 31,
1997 and $300 thousand at March 31, 1997. Additional loans considered
as potential problem loans by the Company's internal loan review
department ($12.2 million at March 31, 1998) have been evaluated as to
risk exposure in determining the adequacy of the allowance for loan
losses.
Other real estate (ORE) at March 31, 1998 totaled $6.0 million
compared to $5.8 million at December 31, 1997 and $8.0 million at March
31, 1997. These properties have been written down to the lower of cost
or fair value less disposition costs.
On pages 13 and 14 are tabular presentation showing detailed
information about the Company's non-performing loans and assets and an
analysis of the Company's allowance for loan losses and other related
data for March 31, 1998, December 31, 1997, and March 31, 1997.
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.
12
<PAGE>
The following summary presents information regarding non-performing loans and
assets as of March 31, 1998 and the preceding four quarters: (dollar amounts in
thousands)
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
1998 1997 1997 1997 1997
Non-accrual loans:
<S> <C> <C> <C> <C> <C>
Commercial $1,764 $1,816 $1,920 $1,057 $1,349
Consumer 944 703 893 1,254 1,109
Real Estate:
Construction 393 1,345 2,006 2,155 2,155
Mortgage 7,742 7,706 7,533 5,818 6,074
------- ------- ------- ------- -------
Total non-accrual loans 10,843 11,570 12,352 10,284 10,687
------- ------- ------- ------- -------
Restructured loans
Commercial 19 19 20 20 21
Consumer
Real Estate:
Construction
Mortgage 114
------- ------- ------- ------- -------
Total restructured loans 133 19 20 20 21
------- ------- ------- ------- -------
Total non-performing loans 10,976 11,589 12,372 10,304 10,708
------- ------- ------- ------- -------
Other real estate 6,029 5,845 6,673 7,035 8,042
------- ------- ------- ------- -------
Total non-performing assets 17,005 17,434 19,045 17,339 18,750
------- ------- ------- ------- -------
Loans past due 90 days or more
and still accruing 308 226 423 458 300
------- ------- ------- ------- -------
Total non-performing assets and
loans past due 90 days or more $17,313 $17,660 $19,468 $17,797 $19,050
======= ======= ======= ======= =======
Total non-performing loans as a
percentage of total period-end
loans 0.75% 0.82% 0.89% 0.76% 0.82%
Total non-performing assets as a
percentage of total period-end assets 0.41% 0.44% 0.50% 0.48% 0.56%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.42% 0.45% 0.51% 0.49% 0.57%
Allowance for loan losses as a
percentage of total non-performing
loans 200% 183% 169% 198% 183%
Allowance for loan losses as a percentage
of total period-end loans 1.50% 1.51% 1.50% 1.50% 1.50%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 6% 6% 8% 7% 9%
</TABLE>
13
<PAGE>
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data: (dollar amounts in thousands)
<TABLE>
<CAPTION>
Year
Three Months Ended Ended
------------------------------
03/31/98 03/31/97 12/31/97
------------ ------------- ------------
<S> <C> <C> <C>
Balance at beginning of period $21,261 $17,975 $17,975
Provisions charged to operating expenses 1,210 1,626 4,668
------------ ------------- ------------
22,471 19,601 22,643
Recoveries on loans charged-off:
Commercial 45 53 348
Consumer 94 72 406
Real estate 9 18 144
------------ ------------- ------------
Total recoveries 148 143 898
Loans charged-off:
Commercial (189) (42) (964)
Consumer (271) (158) (1,170)
Real estate (183) 0 (146)
------------ ------------- ------------
Total charged-off (643) (200) (2,280)
------------ ------------- ------------
Net charge-offs (495) (57) (1,382)
------------ ------------- ------------
Balance at end of period $21,976 $19,544 $21,261
============ ============= ============
Net charge-offs as a percentage of
average loans outstanding 0.14% 0.02% 0.10%
</TABLE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operation - Interest Rate Sensitivity and
Liquidity.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended March
31, 1998.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
(Registrant)
May 14, 1998
(Date) C. EDWARD JORDAN, JR.
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 180,406
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,900
<TRADING-ASSETS> 9,798
<INVESTMENTS-HELD-FOR-SALE> 1,289,115
<INVESTMENTS-CARRYING> 1,028,760
<INVESTMENTS-MARKET> 1,026,745
<LOANS> 1,468,800
<ALLOWANCE> 21,976
<TOTAL-ASSETS> 4,158,670
<DEPOSITS> 3,751,445
<SHORT-TERM> 25,000
<LIABILITIES-OTHER> 27,218
<LONG-TERM> 82,551
0
0
<COMMON> 28,232
<OTHER-SE> 244,224
<TOTAL-LIABILITIES-AND-EQUITY> 4,158,670
<INTEREST-LOAN> 31,141
<INTEREST-INVEST> 36,396
<INTEREST-OTHER> 354
<INTEREST-TOTAL> 67,891
<INTEREST-DEPOSIT> 24,348
<INTEREST-EXPENSE> 28,131
<INTEREST-INCOME-NET> 39,760
<LOAN-LOSSES> 1,210
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 40,695
<INCOME-PRETAX> 17,743
<INCOME-PRE-EXTRAORDINARY> 17,743
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,447
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 4.38
<LOANS-NON> 10,843
<LOANS-PAST> 308
<LOANS-TROUBLED> 133
<LOANS-PROBLEM> 12,174
<ALLOWANCE-OPEN> 21,261
<CHARGE-OFFS> 643
<RECOVERIES> 148
<ALLOWANCE-CLOSE> 21,976
<ALLOWANCE-DOMESTIC> 21,976
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
