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, 1999
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 27,570,311
(Title of Class) (No. of Shares Outstanding
as of 5/07/99)
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
March 31, 1999 and December 31, 1998
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1999 and
March 31, 1998
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1999 and
March 31, 1998
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
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<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
----------------------------------
(dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $206,500 $267,220
Federal funds sold 17,500 10,395
----------------------------------
Cash and cash equivalents 224,000 277,615
Loans held for sale 10,559 22,418
Trading securities 54,236 85,359
Securities available for sale 1,520,192 1,305,004
Securities held to maturity 1,086,212 1,220,874
(market value 03/99-$1,083,054; 12/98-$1,223,667)
Loans 2,475,496 2,280,326
Less allowance for loan losses 33,149 31,265
----------------------------------
2,442,347 2,249,061
Bank premises and equipment, net 155,593 147,448
Other assets 140,687 116,411
----------------------------------
$5,633,826 $5,424,190
==================================
Liabilities Deposits:
Demand:
Interest-bearing $ 1,674,636 $ 1,682,958
Noninterest-bearing 1,129,285 1,162,126
Savings 1,001,224 973,324
Time 1,236,792 1,110,400
----------------------------------
Total deposits 5,041,937 4,928,808
Other borrowed money 134,790 27,845
Other liabilities 40,468 60,027
Obligation to Employee Stock Ownership Plan (ESOP) 1,026 1,282
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
----------------------------------
5,298,721 5,098,462
Stockholders' Common stock, 27,578,515 shares issued (27,373,983 shares in 1998) 43,087 40,988
Equity Capital in excess of par or stated value 291,154 236,928
Retained earnings 2,362 43,712
Accumulated other comprehensive income 1,152 7,006
----------------------------------
337,755 328,634
Less commitment to ESOP 1,026 1,282
Less treasury stock, at cost 1,624 1,624
----------------------------------
Total stockholders' equity 335,105 325,728
----------------------------------
$5,633,826 $5,424,190
==================================
</TABLE>
<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) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Interest and fees on loans $48,003 $37,428
income Interest on investments 39,007 38,291
Other interest 156 527
----------------------------
Total interest income 87,166 76,246
----------------------------
Interest Interest on deposits:
expense Demand 9,625 7,915
Savings 4,795 5,003
Time 15,007 14,906
----------------------------
Total interest on deposits 29,427 27,824
Interest on other borrowed money 775 2,002
Interest on long-term debt 1,782 1,782
----------------------------
Total interest expense 31,984 31,608
----------------------------
Net interest income 55,182 44,638
Provision for loan losses 2,184 1,437
----------------------------
Net interest income after provision for loan losses 52,998 43,201
Noninterest Deposit charges and service fees 9,740 8,486
income Other operating income 17,128 12,997
Net investment securities gains 865 9
----------------------------
Total noninterest income 27,733 21,492
----------------------------
Noninterest Salaries 23,512 17,710
expense Benefits 5,056 3,787
Occupancy 5,093 4,371
Furniture and equipment 6,943 5,737
Office 5,298 4,007
Audit and regulatory fees and assessments 572 554
Marketing 1,663 1,933
Other real estate (net) 474 420
Other 8,866 6,402
----------------------------
Total noninterest expenses 57,477 44,921
----------------------------
Income before income taxes 23,254 19,772
Provision for federal and state income taxes 7,773 6,989
============================
Net income 15,481 12,783
============================
Net income per common and common equivalent share:
Basic $0.56 $0.49
----------------------------
Diluted $0.54 $0.46
----------------------------
Average common and common equivalent shares outstanding:
Basic 27,401 26,264
----------------------------
Diluted 28,661 27,826
----------------------------
Cash dividends declared, common stock $0.21 $0.17
============================
</TABLE>
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<PAGE>
Commerce Bancorp, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended
(dollars in thousands) March 31,
-------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities Net income $15,481 12,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,184 1,437
Provision for depreciation, amortization and accretion 7,606 5,766
Gains on sales of securities available for sale (865) (9)
Proceeds from sales of mortgages held for sale 39,794 17,478
Originations of mortgages held for sale (27,935) (25,712)
Net loan (chargeoffs) (300) (592)
Net decrease (increase) in trading securities 31,123 (1,887)
Increase in other assets (21,119) (277)
(Decrease) increase in other liabilities (19,559) 15,087
----------------------------------------------------------------------------------------------
Net cash provided by financing activities 26,410 24,074
Investing activities Proceeds from the sales of securities available for sale 185,808 104,207
Proceeds from the maturity of securities available for sale 96,870 64,018
Proceeds from the maturity of securities held to maturity 77,100 68,708
Purchase of securities available for sale (415,463) (137,255)
Purchase of securities held to maturity (35,522) (222,287)
Net increase in loans (197,854) (74,029)
Proceeds from sales of loans 2,684 2,360
Purchases of premises and equipment (13,217) (8,480)
--------------------------------------------------------------------------------------------
Net cash used by financing activities (299,594) (202,758)
Financing activities Net increase (decrease) in demand and savings deposits (13,263) 123,249
Net increase in time deposits 126,392 276,684
Net increase(decrease) in other borrowed money 106,945 (198,300)
Dividends paid (5,074) (4,180)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 4,564 2,924
Purchase of treasury stock
Other 4 8,317
--------------------------------------------------------------------------------------------
Net cash provided by financing activities 219,568 208,694
(Decrease) increase in cash and cash equivalents (53,615) 30,010
Cash and cash equivalents at beginning of year 277,615 204,776
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $224,000 $234,786
--------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 29,024 $29,712
Income taxes 18 125
Other noncash activities:
Transfer of securities to securities available for sale 91,010 0
--------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated Financial Statements
The consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. The accompanying
financial statements include the consolidated accounts of the former
Community First Banking Company (CFBC), Tinton Falls, New Jersey, and
the former Prestige Financial Corp. (PFC), Flemington, New Jersey, for
all periods presented. Effective January 15, 1999, Commerce Bancorp,
Inc. (the Company) acquired CFBC, and CFBC's wholly-owned bank
subsidiary, Tinton Falls State Bank, was merged with and into Commerce
Bank/Shore, N.A. Also effective January 15, 1999, the Company acquired
PFC, and PFC's wholly-owned bank subsidiary, Prestige State Bank, was
re-chartered as a national bank and renamed Commerce Bank/Central, N.A.
The transactions were accounted for as poolings of interests. 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 on Form 10-K for the period
ended December 31, 1998. The results for the three months ended March
31, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The consolidated financial statements include the accounts of Commerce
Bancorp, Inc. 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 Bank/Central, N.A.,
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.
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<PAGE>
C. Comprehensive Income
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 $9.6 million and $16.1 million,
respectively, for the three months ended March 31, 1999 and 1998.
D. Segment Information
Selected segment information is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1999 Three Months Ended March 31, 1998
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $56,799 $(1,617) $55,182 $46,305 $(1,667) $44,638
Provision for loan losses 2,184 -- 2,184 1,437 -- 1,437
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision 54,615 (1,617) 52,998 44,868 (1,667) 43,201
Noninterest income 14,788 12,945 27,733 13,089 8,403 21,492
Noninterest expense 47,094 10,383 57,477 38,326 6,595 44,921
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 22,309 945 23,254 19,631 141 19,772
Income tax expense 7,329 444 7,773 6,921 68 6,989
---------- ---------- ---------- ---------- ---------- ----------
Net income $14,980 $501 $15,481 $12,710 $73 $12,783
========== ========== ========== ========== ========== ==========
Average assets (in millions) $4,870,848 $567,219 $5,438,067 $4,076,668 $424,147 $4,500,815
========== ========== ========== ========== ========== ==========
</TABLE>
-5-
<PAGE>
E. Recent Accounting Statement
In June 1998, the FASB issued Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 will
require the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative will
either be offset against the change in fair value of the hedged asset
or liability through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The ineffective
portion of a derivative's change in fair value will be immediately
recognized in earnings. FAS 133 becomes effective for the Company
beginning January 1, 2000. Although early adoption is allowed in any
quarterly period after June 1998, the Company has no plans to adopt FAS
133 prior to the effective date. Based on the Company's minimal use of
derivatives at the current time, management does not expect the
adoption of FAS 133 to have a significant effect on results of
operations or the financial position of the Company. However, the
impact from adopting FAS 133 will depend on the nature and purpose of
the derivative instruments in use by the Company at that time.
F. 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>
G. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for
per share amounts):
Three Months Ended
March 31
1999 1998
-------- -------
Basic:
Net income applicable to common stock $ 15,481 $12,783
======== =======
Average common shares outstanding 27,401 26,264
======== =======
Net income per common share - basic $ 0.56 $ 0.49
======== =======
Diluted:
Net income applicable to common stock
on a diluted basis $ 15,481 $12,783
======== =======
Average common shares outstanding 27,401 26,264
Additional shares considered in diluted
computation assuming:
Exercise of stock options 1,260 1,138
Conversion of preferred stock 424
-------- -------
Average common shares outstanding
on a diluted basis 28,661 27,826
======== =======
Net income per common share - diluted $ 0.54 $ 0.46
======== =======
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Capital Resources
At March 31, 1999, stockholders' equity totaled $335.1 million or 5.95%
of total assets, compared to $325.7 million or 6.01% of total assets at
December 31, 1998.
The table below presents the Company's and Commerce NJ's risk-based and
leverage ratios at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Per Regulatory Guidelines
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999
Company
Risk based capital ratios:
Tier 1 $386,771 11.64% $132,954 4.00% $199,431 6.00%
Total capital 438,320 13.19 265,908 8.00 332,385 10.00
Leverage ratio 386,771 7.12 217,174 4.00 271,468 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $200,137 10.92% $ 73,300 4.00% $109,950 6.00%
Total capital 218,152 11.90 146,600 8.00 183,250 10.00
Leverage ratio 200,137 6.57 121,771 4.00 152,214 5.00
March 31, 1998
Company
Risk based capital ratios:
Tier 1 $350,375 15.18% $ 92,319 4.00% $138,478 6.00%
Total capital 398,370 17.26 184,638 8.00 230,797 10.00
Leverage ratio 350,375 7.80 134,709 3.00 224,515 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
</TABLE>
-8-
<PAGE>
At March 31, 1999, 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
that as of March 31, 1999, the Company and its subsidiaries meet all
capital adequacy requirements to which they are subject.
Deposits
Total deposits at March 31, 1999 were $5.04 billion, up $857.4 million,
or 20% over total deposits of $4.18 billion at March 31, 1998, and up
by $113.1 million, or 2% from year-end 1998. Deposit growth during the
first three months of 1999 included core deposit growth in savings
balances as well as growth from the public sector. The Company
experienced "same-store core deposit growth" of 21.1% at March 31, 1999
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, 1999, the Company's income simulation model
indicates net income would decrease by 0.32% and 6.22% in the first
year and over a two year time frame, respectively, if rates decreased
as described above, as compared to a decrease of 1.31% and 4.03%,
respectively, at March 31, 1998. At March 31, 1999, the model projects
that net income would decrease by 2.81% and 1.98% in the first year and
over a two year time frame, respectively, if rates increased as
described above, as compared to a decrease of 6.69% and 9.25%,
respectively, at March 31, 1998. All of these net income projections
are within an acceptable level of interest rate risk pursuant to the
policy 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, 1999, 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 and overnight lines of
credit, and are used to meet short term funding needs. At March 31,
1999, short-term borrowings aggregated $134.8 million and had an
average rate of 5.23%, as compared to $27.8 million at an average rate
of 4.98% at December 31, 1998.
Interest Earning Assets
For the three month period ended March 31, 1999, interest earning
assets increased $232.7 million from $4.91 billion to $5.15 billion.
This increase was primarily in investment securities and the loan
portfolio as described below.
Loans
During the first three months of 1999, loans increased $193.3 million
from $2.25 billion to $2.44 billion. At March 31, 1999, loans
represented 48% of total deposits and 43% of total assets. All segments
of the loan portfolio experienced growth in the first three months of
1999, including loans secured by commercial real estate properties,
commercial loans, and consumer loans.
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<PAGE>
Investments
In total, for the first three months of 1999, securities increased
$49.4 million from $2.61 billion to $2.66 billion. Deposit growth and
other funding sources were used to increase the Company's investment
portfolio. The available for sale portfolio increased $215.2 million to
$1.52 billion at March 31, 1999 from $1.31 billion at December 31,
1998, and the securities held to maturity portfolio decreased $134.7
million to $1.09 billion at March 31, 1999 from $1.22 billion at
year-end 1998. In connection with the acquisitions of CFBC and PFC,
management reclassified $91.0 million of investment securities from
held to maturity to available for sale during the first quarter of
1999. Unrealized losses on those securities transferred were
approximately $330 thousand. The portfolio of trading securities
decreased $31.1 million from year-end 1998 to $54.2 million at March
31, 1999. At March 31, 1999, the average life of the investment
portfolio was approximately 4.2 years, and the duration was
approximately 3.2 years. At March 31, 1999, total securities
represented 47% of total assets.
Net Income
Net income for the first quarter of 1999 was $15.5 million, an increase
of $2.7 million or 21% over the $12.8 million recorded for the first
quarter of 1998. On a per share basis, diluted net income for the first
quarter of 1999 was $0.54 per common share compared to $0.46 per common
share for the first quarter of 1998.
Return on average assets (ROA) and return on average equity (ROE) for
the first quarter of 1999 were 1.14% and 18.76%, respectively, compared
to 1.14% and 17.25%, respectively, for the same 1998 period.
Net Interest Income
Net interest income totaled $55.2 million for the first quarter of
1999, an increase of $10.5 million or 24% from $44.6 million in the
first quarter of 1998. The improvement in net interest income was due
primarily to volume increases in the loan and investment portfolios.
Noninterest Income
Noninterest income totaled $27.7 million for the first quarter of 1999,
an increase of $6.2 million or 29% from $21.5 million in the first
quarter of 1998. The increase was due primarily to increased other
operating income, which rose $4.1 million over the prior year,
including increased revenues of $2.1 million from Commerce National
Insurance Services, Inc. (Commerce Insurance), the Company's insurance
brokerage subsidiary, and $1.5 million from CCMI. In addition, deposit
charges and service fees increased $1.3 million over the first quarter
of 1998 primarily due to higher transaction volumes. The Company also
recorded $865 thousand in net investment securities gains in the first
quarter of 1999.
-11-
<PAGE>
Noninterest Expense
For the first quarter of 1999, noninterest expense totaled $57.5
million, an increase of $12.6 million or 28% over the same period in
1998. Contributing to this increase was new branch activity over the
past twelve months, with the number of branches increasing from 89 at
March 31, 1998 to 97 at March 31, 1999, and the expansion of Commerce
Insurance and CCMI. With the addition of these new offices, staff,
facilities, and related expenses rose accordingly. Other noninterest
expenses rose $2.5 million over the first quarter of 1998. This
increase resulted primarily from higher bank card-related service
charges, increased business development expenses, and increased
provisions for non-credit-related losses.
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 69.47% for the
first three months of 1999 as compared to 67.30% for the same 1998
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, 1999 were $14.5 million, or 0.26% of total
assets compared to $14.7 million or 0.27% of total assets at December
31, 1998 and $18.4 million or 0.40% of total assets at March 31, 1998.
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, 1999 were $8.9 million or 0.36% of total loans compared to
$8.6 million or 0.38% of total loans at December 31, 1998 and $12.4
million or 0.71% of total loans at March 31, 1998. At March 31, 1999,
loans past due 90 days or more and still accruing interest amounted to
$696 thousand compared to $945 thousand at December 31, 1998 and $1.2
million at March 31, 1998. Additional loans considered as potential
problem loans by the Company's internal loan review department ($19.3
million at March 31, 1999) have been evaluated as to risk exposure in
determining the adequacy of the allowance for loan losses.
Other real estate (ORE) at March 31, 1999 totaled $5.6 million compared
to $6.1 million at December 31, 1998 and $6.0 million at March 31,
1998. These properties have been written down to the lower of cost or
fair value less disposition costs.
On pages xx and xx 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, 1999, December 31, 1998, and March 31, 1998.
-12-
<PAGE>
Year 2000
The Company began the process of preparing its computer systems and
applications for the Year 2000 in 1996. The process involves
identifying and resolving date recognition problems in computer systems
and software, and to a lesser extent, other operating equipment, that
could be caused by the date change from December 31, 1999 to January 1,
2000.
The Company has completed its assessment of all business processes that
could be affected by the Year 2000 issue. Each business process
assessment included a review of the information systems used in that
process, including hardware and software, involvement of third parties,
and any other operating equipment. The Company licenses substantially
all software used in conducting its business from third party vendors.
All vendors have been contacted regarding the Year 2000 issue, and the
Company continues to track the progress each vendor is making in
reaching Year 2000 compliance. The Company is also working with
significant customers and counterparties to monitor their Year 2000
efforts. The Company has all necessary changes in place and tested for
all mission critical systems (those systems defined as absolutely
essential to the daily business operation of the Company).
Additionally, the Company has completed certification testing with most
mission critical service providers. Changes for most remaining systems
are in place and testing should be substantially completed by the end
of the second quarter of 1999. Contingency plans will be completed and
validated during the second quarter of 1999.
The Company believes it is taking the appropriate steps to address all
Year 2000 issues. Despite the Company's efforts to address the Year
2000 problem and develop contingency plans in the event of Year 2000
failures, including non-compliance by third parties (including loan
customers), there can be no assurance that the Year 2000 issue will not
materially adversely impact the Company's financial position, results
of operations, or relationships with customers, vendors, or others.
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.
Forward-Looking Statements
The Company may from time to time make written or oral "forward-looking
statements", including statements contained in the Company's filings
with the Securities and Exchange Commission (including this Form 10-Q),
in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations,
anticipations, estimates and intentions, that are subject to
significant risks and uncertainties and are subject to change based on
various factors (some of which are beyond the Company's control). The
words "may", "could", "should", "would", believe", "anticipate",
"estimate", "expect", "intend", "plan" and similar expressions are
intended to identify forward-looking statements. The following factors,
among others, could cause the Company's financial performance to differ
materially from that expressed in such forward-looking statements: the
strength of the United States economy in general and the strength of
the local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies,
including interest rate policies of the Board of
-13-
<PAGE>
Governors of the Federal Reserve System (the "FRB"); inflation;
interest rates, market and monetary fluctuations; the timely
development of competitive new products and services by the Company and
the acceptance of such products and services by customers; the
willingness of customers to substitute competitors' products and
services for the Company's products and services and vice versa; the
impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
technological changes; future acquisitions; the expense savings and
revenue enhancements from acquisitions being less than expected; the
growth and profitability of the Company's noninterest or fee income
being less than expected; unanticipated regulatory or judicial
proceedings; changes in consumer spending and saving habits; and the
success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any
forward-looking statement, whether written or oral, that may be made
from time to time by or on behalf of the Company.
-14-
<PAGE>
The following summary presents information regarding non-performing loans and
assets as of March 31, 1999 and the preceding four quarters: (dollar amounts in
thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
March 31, December 31, September 30, June 30, March 31,
1999 1998 1998 1998 1998
--------------- --------------- -------------- --------------- ---------------
Non-accrual loans:
Commercial $2,821 $2,466 $2,417 $2,021 $2,638
Consumer 846 831 782 851 949
Real estate:
Construction 115 189 587 603 613
Mortgage 4,937 4,849 4,631 5,500 8,026
--------------- --------------- -------------- --------------- ---------------
Total non-accrual loans 8,719 8,335 8,417 8,975 12,226
--------------- --------------- -------------- --------------- ---------------
Restructured loans:
Commercial 16 17 17 18 19
Consumer
Real estate:
Construction
Mortgage 117 217 104 109 114
--------------- --------------- -------------- --------------- ---------------
Total restructured loans 133 234 121 127 133
--------------- --------------- -------------- --------------- ---------------
Total non-performing loans 8,852 8,569 8,538 9,102 12,359
--------------- --------------- -------------- --------------- ---------------
Other real estate 5,645 6,081 5,409 5,649 6,029
--------------- --------------- -------------- --------------- ---------------
Total non-performing assets 14,497 14,650 13,947 14,751 18,388
--------------- --------------- -------------- --------------- ---------------
Loans past due 90 days or more
and still accruing 696 945 2,622 1,187 1,188
--------------- --------------- -------------- --------------- ---------------
Total non-performing assets and
loans past due 90 days or more $15,193 $15,595 $16,569 $15,938 $19,576
=============== =============== ============== =============== ===============
Total non-performing loans as a
percentage of total period-end
loans 0.36% 0.38% 0.41% 0.47% 0.71%
Total non-performing assets as a
percentage of total period-end assets 0.26% 0.27% 0.27% 0.30% 0.40%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.27% 0.29% 0.33% 0.32% 0.42%
Allowance for loan losses as a
percentage of total non-performing
loans 374% 365% 332% 293% 202%
Allowance for loan losses as a percentage
of total period-end loans 1.34% 1.37% 1.36% 1.36% 1.44%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 4% 4% 5% 5% 6%
</TABLE>
-15-
<PAGE>
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data: (dollar amounts in thousands)
<TABLE>
<CAPTION>
Year
Three Months Ended Ended
----------------------------
03/31/99 03/31/98 12/31/98
----------- ---------- -----------
<S> <C> <C> <C>
Balance at beginning of period $31,265 $24,150 $24,150
Provisions charged to operating expenses 2,184 1,437 8,762
----------- ---------- -----------
33,449 25,587 32,912
Recoveries on loans charged-off:
Commercial 220 52 418
Consumer 36 98 305
Real estate 2 9 764
----------- ---------- -----------
Total recoveries 258 159 1,487
Loans charged-off:
Commercial (368) (262) (1,281)
Consumer (168) (287) (1,352)
Real estate (22) (202) (501)
----------- ---------- -----------
Total charge-offs (558) (751) (3,134)
----------- ---------- -----------
Net charge-offs (300) (592) (1,647)
----------- ---------- -----------
Balance at end of period $33,149 $24,995 $31,265
=========== ========== ===========
Net charge-offs as a percentage of
average loans outstanding 0.05 % 0.14 % 0.08 %
</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.
-16-
<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, 1999.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
(Registrant)
May 14, 1999 /s/ THOMAS J. SUKAY
(Date) THOMAS J. SUKAY
SENIOR VICE PRESIDENT
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
-18-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 224,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 54,236
<INVESTMENTS-HELD-FOR-SALE> 1,086,212
<INVESTMENTS-CARRYING> 1,520,192
<INVESTMENTS-MARKET> 1,083,054
<LOANS> 2,475,496
<ALLOWANCE> 33,149
<TOTAL-ASSETS> 5,633,826
<DEPOSITS> 5,041,937
<SHORT-TERM> 134,790
<LIABILITIES-OTHER> 40,468
<LONG-TERM> 81,526
0
0
<COMMON> 43,087
<OTHER-SE> 292,018
<TOTAL-LIABILITIES-AND-EQUITY> 5,633,826
<INTEREST-LOAN> 48,003
<INTEREST-INVEST> 39,007
<INTEREST-OTHER> 156
<INTEREST-TOTAL> 87,166
<INTEREST-DEPOSIT> 29,427
<INTEREST-EXPENSE> 31,984
<INTEREST-INCOME-NET> 55,182
<LOAN-LOSSES> 2,184
<SECURITIES-GAINS> 865
<EXPENSE-OTHER> 57,477
<INCOME-PRETAX> 23,254
<INCOME-PRE-EXTRAORDINARY> 23,254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,481
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 4.54
<LOANS-NON> 8,719
<LOANS-PAST> 696
<LOANS-TROUBLED> 133
<LOANS-PROBLEM> 19,338
<ALLOWANCE-OPEN> 31,265
<CHARGE-OFFS> 558
<RECOVERIES> 258
<ALLOWANCE-CLOSE> 33,149
<ALLOWANCE-DOMESTIC> 33,149
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
