SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 2000
------------------
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
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(Address of Principal Executive Offices) (Zip Code)
(856) 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
--- ---
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 31,451,567
--------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of 11/03/00)
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 2000 and December 31, 1999...............................1
Consolidated Statements of Income (unaudited) Three months ended
September 30, 2000 and September 30, 1999 and nine months ended
September 30, 2000 and September 30, 1999..............................2
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2000 and
September 30, 1999.....................................................3
Notes to Consolidated Financial Statements (unaudited).................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.....................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk............13
PART II.OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................14
<PAGE>
<TABLE>
<CAPTION>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<S> <C> <C>
-----------------------------------------------------------------------------------------------
September 30, December 31,
--------------------------------
(dollars in thousands) 2000 1999
-----------------------------------------------------------------------------------------------
Assets Cash and due from banks $367,393 $317,624
Federal funds sold 5,300
------------- --------------
Cash and cash equivalents 367,393 322,924
Loans held for sale 5,704
Trading securities 183,895 117,837
Securities available for sale 1,869,246 1,664,257
Securities held to maturity 1,286,711 1,201,892
(market value 09/00-$1,252,206; 12/99-$1,155,447)
Loans 3,655,812 2,961,088
Less allowance for loan losses 47,357 38,382
------------- --------------
3,608,455 2,922,706
Bank premises and equipment, net 249,698 198,515
Other assets 216,023 201,958
------------- --------------
$7,781,421 $6,635,793
============= ==============
Liabilities Deposits:
Demand:
Interest-bearing $2,444,518 $2,063,899
Noninterest-bearing 1,666,274 1,420,865
Savings 1,468,291 1,054,791
Time 1,516,947 1,069,365
------------- --------------
Total deposits 7,096,030 5,608,920
Other borrowed money 88,567 558,092
Other liabilities 75,089 31,525
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
------------- --------------
7,340,186 6,279,037
Stockholders' Common stock, 31,425,060 shares
Equity issued (29,844,314 shares 12/99) 49,102 44,418
Capital in excess of par or stated value 407,426 321,443
Retained earnings 13,388 32,263
Accumulated other comprehensive income (27,059) (39,744)
------------- --------------
442,857 358,380
Less treasury stock, at cost 1,622 1,624
------------- --------------
Total stockholders' equity 441,235 356,756
------------- --------------
$7,781,421 $6,635,793
============= ==============
See accompanying notes
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------
(dollars in thousands, except per share amounts) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
Interest Interest and fees on loans $76,601 $55,664 $210,080 $156,228
income Interest on investments 52,871 42,949 152,925 122,723
Other interest 1,713 484 3,689 868
------------- ------------ ------------ ------------
Total interest income 131,185 99,097 366,694 279,819
------------- ------------ ------------ ------------
Interest Interest on deposits:
expense Demand 19,641 11,914 51,937 31,607
Savings 10,652 5,349 26,346 15,264
Time 20,614 14,999 52,148 44,684
------------- ------------ ------------ ------------
Total interest on deposits 50,907 32,262 130,431 91,555
Interest on other borrowed money 3,115 2,074 14,323 4,929
Interest on long-term debt 1,599 1,782 4,755 5,345
------------- ------------ ------------ ------------
Total interest expense 55,621 36,118 149,509 101,829
------------- ------------ ------------ ------------
Net interest income 75,564 62,979 217,185 177,990
Provision for loan losses 3,668 1,653 10,803 6,111
------------- ------------ ------------ ------------
Net interest income after provision for
loan losses 71,896 61,326 206,382 171,879
Noninterest Deposit charges and service fees 14,758 11,272 40,295 31,824
income Other operating income 22,930 16,690 67,838 50,067
Net investment securities gains 270 820 1,535
------------- ------------ ------------ ------------
Total noninterest income 37,688 28,232 108,953 83,426
------------- ------------ ------------ ------------
Noninterest Salaries 30,685 26,433 89,038 74,283
expense Benefits 6,131 4,807 18,734 14,704
Occupancy 7,651 5,765 22,335 16,065
Furniture and equipment 9,943 8,336 29,411 22,890
Office 6,204 5,403 17,758 15,554
Audit and regulatory fees and assessments 947 738 2,317 1,942
Marketing 3,147 2,735 8,109 6,901
Other real estate (net) 104 454 858 1,423
Other 13,689 10,343 39,345 30,278
------------- ------------ ------------ ------------
Total noninterest expenses 78,501 65,014 227,905 184,040
------------- ------------ ------------ ------------
Income before income taxes 31,083 24,544 87,430 71,265
Provision for federal and state income taxes 10,092 7,704 28,767 22,928
------------- ------------ ------------ ------------
Net income $20,991 $ 16,840 $58,663 $48,337
============= ============ ============ ============
Net income per common and common
equivalent share:
Basic $0.68 $0.58 $1.91 $1.67
------------- ------------ ------------ ------------
Diluted $0.64 $0.56 $1.84 $1.60
------------- ------------ ------------ ------------
Average common and common equivalent
shares outstanding:
Basic 31,109 29,233 30,676 29,022
------------- ------------ ------------ ------------
Diluted 32,752 30,318 31,965 30,311
------------- ------------ ------------ ------------
Cash dividends declared, common stock $0.25 $0.21 $0.74 $0.63
============= ============ ============ ============
</TABLE>
See accompanying notes
2
<PAGE>
<TABLE>
<CAPTION>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<S> <C> <C>
------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------------
(dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------
Operating Net income $58,663 $48,337
activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 10,803 6,111
Provision for depreciation, amortization and accretion 23,645 21,913
Gains on sales of securities available for sale (820) (1,535)
Proceeds from sales of mortgages held for sale 6,241 92,319
Originations of mortgages held for sale (537) (78,663)
Net loan chargeoffs (1,828) (1,458)
Net increase in trading securities (66,058) (5,962)
Increase in other assets (21,364) (44,783)
Increase (decrease) in other liabilities 43,564 (5,824)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 52,309 30,455
Investing Proceeds from the sales of securities available for sale 167,134 250,179
activities Proceeds from the maturity of securities available for sale 226,414 240,316
Proceeds from the maturity of securities held to maturity 132,086 204,345
Purchase of securities available for sale (577,900) (843,644)
Purchase of securities held to maturity (217,179) (103,329)
Net increase in loans (703,743) (599,149)
Proceeds from sales of loans 9,019 7,919
Purchases of premises and equipment (74,386) (47,567)
------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,038,555) (890,930)
Financing Net increase in demand and savings deposits 1,039,528 424,428
activities Net increase in time deposits 447,582 151,498
Net (decrease) increase in other borrowed money (469,525) 269,624
Dividends paid (22,071) (17,325)
Proceeds from issuance of common stock under
Dividend reinvestment and other stock plans 40,715 20,886
Other (5,514) 216
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,030,715 849,327
Increase (decrease) in cash and cash equivalents 44,469 (11,148)
Cash and cash equivalents at beginning of year 322,924 277,615
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $367,393 $266,467
======================================================================================================
Supplemental disclosures of cash flow information: Cash paid
during the period for:
Interest $146,517 $101,176
Income taxes 27,681 23,568
Other noncash activities:
Transfer of securities to securities available for sale 91,010
Securitization of loans 106,481 129,768
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
3
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated Financial Statements
The consolidated financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The accompanying condensed consolidated financial statements
reflect all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature.
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, 1999.
The results for the three months ended September 30, 2000 and the nine months
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000.
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 Bank/Delaware, N.A., Commerce
National Insurance Services, Inc. (Commerce National Insurance), 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.
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 $39.0 million and $7.8 million, respectively, for the three months
ended September 30, 2000 and 1999. For the nine months ended September 30, 2000
and 1999, total comprehensive income was $71.3 million and $12.0 million,
respectively.
4
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
D. Segment Information
Selected segment information is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
Net interest income $75,738 $(174) $75,564 $64,741 $(1,762) $62,979
Provision for loan losses 3,668 3,668 1,653 1,653
-----------------------------------------------------------------------------------
Net interest income after provision 72,070 (174) 71,896 63,088 (1,762) 61,326
Noninterest income 22,529 15,159 37,688 16,966 11,266 28,232
Noninterest expense 65,800 12,701 78,501 54,397 10,617 65,014
-----------------------------------------------------------------------------------
Income before income taxes 28,799 2,284 31,083 25,657 (1,113) 24,544
Income tax expense 9,466 626 10,092 8,094 (390) 7,704
-----------------------------------------------------------------------------------
Net income $19,333 $1,658 $20,991 $17,563 $(723) $16,840
===================================================================================
Average assets (in millions) $6,820,784 $761,746 $7,582,530 $5,431,034 $592,980 $6,024,014
===================================================================================
-------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
Net interest income $219,253 $(2,068) $217,185 $183,075 $(5,085) $177,990
Provision for loan losses 10,803 10,803 6,111 6,111
-----------------------------------------------------------------------------------
Net interest income after provision 208,450 (2,068) 206,382 176,964 (5,085) 171,879
Noninterest income 63,777 45,176 108,953 47,213 36,213 83,426
Noninterest expense 188,770 39,135 227,905 151,719 32,321 184,040
-----------------------------------------------------------------------------------
Income before income taxes 83,457 3,973 87,430 72,458 (1,193) 71,265
Income tax expense 27,495 1,272 28,767 23,427 (499) 22,928
-----------------------------------------------------------------------------------
Net income $55,962 $2,701 $58,663 $49,031 $(694) $48,337
===================================================================================
Average assets (in millions) $6,448,989 $699,681 $7,148,670 $5,158,501 $584,261 $5,742,762
===================================================================================
</TABLE>
E. Recent Accounting Statement
In June 1998, the Financial Accounting Standards Board 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, as amended, becomes effective for
the Company beginning January 1, 2001. 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.
5
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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.
G. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net income applicable to common stock $ 20,991 $ 16,840 $58,663 $48,337
============== ============== ============== ==============
Average common shares outstanding 31,109 29,233 30,676 29,022
============== ============== ============== ==============
Net income per common share - basic $ 0.68 $ 0.58 $ 1.91 $ 1.67
============== ============== ============== ==============
Diluted:
Net income applicable to common stock
on a diluted basis $ 20,991 $ 16,840 $58,663 $48,337
============== ============== ============== ==============
Average common shares outstanding 31,109 29,233 30,676 29,022
Additional shares considered in diluted
computation assuming:
Exercise of stock options 1,643 1,085 1,289 1,289
-------------- -------------- -------------- --------------
Average common shares outstanding
on a diluted basis 32,752 30,318 31,965 30,311
============== ============== ============== ==============
Net income per common share - diluted $ 0.64 $ 0.56 $ 1.84 $ 1.60
============== ============== ============== ==============
</TABLE>
6
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources
At September 30, 2000, stockholders' equity totaled $441.2 million or 5.67% of
total assets, compared to $356.8 million or 5.38% of total assets at December
31, 1999.
The table below presents the Company's and Commerce NJ's risk-based and leverage
ratios at September 30, 2000 and 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------
September 30, 2000
Company
Risk based capital ratios:
Tier 1 $521,871 10.90% $191,453 4.00% $287,179 6.00%
Total capital 578,428 12.09 382,905 8.00 478,632 10.00
Leverage ratio 521,871 6.85 304,648 4.00 380,810 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $259,538 9.10% $ 114,055 4.00% $171,083 6.00%
Total capital 287,271 10.07 228,110 8.00 285,138 10.00
Leverage ratio 259,538 6.15 168,758 4.00 210,947 5.00
September 30, 1999
Company
Risk based capital ratios:
Tier 1 $424,423 11.48% $ 147,915 4.00% $221,873 6.00%
Total capital 474,141 12.82 295,830 8.00 369,788 10.00
Leverage ratio 424,423 7.02 242,000 4.00 302,500 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $212,741 10.31% $ 82,527 4.00% $123,791 6.00%
Total capital 232,317 11.26 165,055 8.00 206,319 10.00
Leverage ratio 212,741 6.35 134,007 4.00 167,509 5.00
</TABLE>
At September 30, 2000, 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 September 30, 2000, the
Company and its subsidiaries meet all capital adequacy requirements to which
they are subject.
Deposits
Total deposits at September 30, 2000 were $7.10 billion, up $1.59 billion, or
29% over total deposits of $5.50 billion at September 30, 1999, and up by $1.49
billion, or 27% from year-end 1999. Deposit growth during the first nine months
of 2000 included core deposit growth in all categories as well as growth from
the public sector. The Company experienced "same-store core deposit growth" of
15.2% at September 30, 2000 as compared to deposits a year ago for those
branches open for more than two years.
7
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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
September 30, 2000, the Company's income simulation model indicates net income
would increase by 7.61% and 4.80% in the first year and over a two year time
frame, respectively, if rates decreased as described above, as compared to an
increase of 5.71% of 0.66%, respectively, at September 30, 1999. At September
30, 2000, the model projects that net income would decrease by 7.52% and 5.31%
in the first year and over a two year time frame, respectively, if rates
increased as described above, as compared to a decrease of 8.92% and 6.67%,
respectively, at September 30, 1999. All of these net income projections are
within an acceptable level of interest rate risk pursuant to the policy
established by ALCO.
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 September 30, 2000, 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.
8
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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 September 30, 2000, short-term borrowings
aggregated $88.6 million and had an average rate of 6.49%, as compared to $558.1
million at an average rate of 5.38% at December 31, 1999.
Interest Earning Assets
For the nine month period ended September 30, 2000, interest earning assets
increased $1.04 billion from $5.96 billion to $6.99 billion. This increase was
primarily in investment securities and the loan portfolio as described below.
Loans
During the first nine months of 2000, loans increased $685.7 million from $2.92
billion to $3.61 billion. At September 30, 2000, loans represented 51% of total
deposits and 46% of total assets. All segments of the loan portfolio experienced
growth in the first nine months of 2000, including loans secured by commercial
real estate properties, commercial loans, and consumer loans.
Investments
In total, for the first nine months of 2000, securities increased $355.9 million
from $2.98 billion to $3.34 billion. Deposit growth and other funding sources
were used to increase the Company's investment portfolio. The available for sale
portfolio increased $205.0 million to $1.87 billion at September 30, 2000 from
$1.66 billion at December 31, 1999, and the securities held to maturity
portfolio increased $84.8 million to $1.29 billion at September 30, 2000 from
$1.20 billion at year-end 1999. The portfolio of trading securities increased
$66.1 million from year-end 1999 to $183.9 million at September 30, 2000. At
September 30, 2000, the average life of the investment portfolio was
approximately 6.7 years, and the duration was approximately 4.7 years. At
September 30, 2000, total securities represented 43% of total assets.
Net Income
Net income for the third quarter of 2000 was $21.0 million, an increase of $4.2
million or 25% over the $16.8 million recorded for the third quarter of 1999.
Net income for the first nine months of 2000 was $58.7 million, an increase of
$10.3 million or 21% over the $48.3 million recorded in the first nine months of
1999. On a per share basis, diluted net income for the third quarter of 2000 and
the first nine months of 2000 were $0.64 and $1.84 per common share compared to
$0.56 and $1.60 per common share for the respective 1999 periods.
Return on average assets (ROA) and return on average equity (ROE) for the third
quarter of 2000 were 1.11% and 20.02%, respectively, compared to 1.12% and
20.32%, respectively, for the same 1999 period. ROA and ROE for the first nine
months of 2000 were 1.09% and 20.38%, respectively, compared to 1.12% and 19.35%
a year ago.
Net Interest Income
Net interest income totaled $75.6 million for the third quarter of 2000, an
increase of $12.7 million or 20% from $63.0 million in the third quarter of
1999. Net interest income for the first nine months of 2000 totaled $217.2
million, up $39.2 million or 22% from the first nine months of 1999. The
improvement in net interest income for both periods was due primarily to volume
increases in the loan and investment portfolios.
9
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Noninterest Income
Noninterest income totaled $37.7 million for the third quarter of 2000, an
increase of $9.5 million or 33% from $28.2 million in the third quarter of 1999.
The increase was due primarily to increased other operating income, which rose
$6.2 million over the prior year, including increased revenues of $3.1 million
from Commerce National Insurance, the Company's insurance brokerage subsidiary.
In addition, deposit charges and service fees increased $3.5 million over the
third quarter of 1999 primarily due to higher transaction volumes. The Company
did not record any net investment securities gains in the third quarter of 2000,
as compared to $270 thousand a year ago.
For the first nine months of 2000, noninterest income totaled $109.0 million, an
increase of $25.5 million or 31% from $83.4 million in the first nine months of
1999. Other operating income rose $17.8 million over the first nine months of
1999, including increased revenues of $10.1 million from Commerce National
Insurance. Deposit charges and service fees rose $8.5 million over the prior
year primarily due to higher transaction volumes, and the Company recorded $820
thousand in net investment securities gains in the first nine months of 2000 as
compared to $1.5 million a year ago.
Noninterest Expense
For the third quarter of 2000, noninterest expense totaled $78.5 million, an
increase of $13.5 million or 21% over the same period in 1999. Contributing to
this increase was new branch activity over the past twelve months, with the
number of branches increasing from 111 at September 30, 1999 to 140 at September
30, 2000, and the growth of Commerce National Insurance. With the addition of
these new offices, staff, facilities, and related expenses rose accordingly.
Other noninterest expenses rose $3.3 million over the third quarter of 1999.
This increase resulted primarily from higher bank card-related service charges,
increased business development expenses, and increased provisions for
non-credit-related losses.
For the first nine months of 2000, noninterest expense totaled $227.9 million,
an increase of $43.9 million or 24% over $184.0 million in the first nine months
of 1999. Contributing to this increase was new branch activity and the growth of
Commerce National Insurance as noted above. Other noninterest expenses rose $9.1
million over the first nine months of 1999. 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 69.79% for the first nine months of 2000 as compared to
70.27% for the same 1999 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
September 30, 2000 were $16.1 million, or 0.21% of total assets compared to
$12.2 million or 0.18% of total assets at December 31, 1999 and $13.1 million or
0.21% of total assets at September 30, 1999.
Total non-performing loans (non-accrual loans and restructured loans, excluding
loans past due 90 days or more and still accruing interest) at September 30,
2000 were $13.2 million or 0.36% of total loans compared to $8.7 million or
0.29% of total loans at December 31, 1999 and $9.3 million or 0.34% of total
loans at September 30, 1999. At September 30, 2000, loans past due 90 days or
more and still accruing interest amounted to $561 thousand compared to $499
thousand at December 31, 1999 and $581 thousand at September 30, 1999.
Additional loans considered as potential problem loans by the Company's internal
loan review department ($33.5 million at September 30, 2000) have been evaluated
as to risk exposure in determining the adequacy of the allowance for loan
losses.
Other real estate (ORE) at September 30, 2000 totaled $2.9 million compared to
$3.5 million at December 31, 1999 and $3.8 million at September 30, 1999. These
properties have been written down to the lower of cost or fair value less
disposition costs.
10
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
On pages 12 and 13 are tabular presentation showing detailed information about
the Company's non-performing loans and assets and an analysis of the Company's
allowance for loan losses and other related data for September 30, 2000,
December 31, 1999, and September 30, 1999.
Year 2000
In prior years, The Company discussed the nature and progress of its plans to
become Year 2000 ready. In 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information and technology systems, and believes those systems successfully
responded to the Year 2000 date change. The cumulative cost of the Year 2000
compliance process, including internal and external personnel and any required
hardware and software modifications, was less than $1.0 million. The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its internal systems, or the products and services of third parties (including
loan customers).
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
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.
11
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following summary presents information regarding non-performing loans and
assets as of September 30, 2000 and the preceding four quarters: (dollar amounts
in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 1999
--------------------------------------------------------------------------
Non-accrual loans:
Commercial $5,771 $4,960 $5,272 $2,254 $2,827
Consumer 1,296 891 709 674 748
Real estate:
Construction 50 55 55 55 55
Mortgage 5,979 4,720 5,458 5,230 5,539
--------------------------------------------------------------------------
Total non-accrual loans 13,096 10,626 11,494 8,213 9,169
--------------------------------------------------------------------------
Restructured loans:
Commercial 12 240 256 277 15
Consumer
Real estate:
Construction
Mortgage 85 183 189 192 108
--------------------------------------------------------------------------
Total restructured loans 97 423 445 469 123
--------------------------------------------------------------------------
Total non-performing loans 13,193 11,049 11,939 8,682 9,292
--------------------------------------------------------------------------
Other real estate 2,941 3,448 3,681 3,523 3,799
--------------------------------------------------------------------------
Total non-performing assets 16,134 14,497 15,620 12,205 13,091
--------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing 561 473 916 499 581
--------------------------------------------------------------------------
Total non-performing assets and
loans past due 90 days or more $16,695 $14,970 $16,536 $12,704 $13,672
==========================================================================
Total non-performing loans as a
percentage of total period-end loans 0.36% 0.32% 0.37% 0.29% 0.34%
Total non-performing assets as a
percentage of total period-end assets 0.21% 0.19% 0.23% 0.18% 0.21%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.21% 0.20% 0.24% 0.19% 0.22%
Allowance for loan losses as a percentage
of total non-performing loans 359% 398% 341% 442% 387%
Allowance for loan losses as a percentage
of total period-end loans 1.30% 1.28% 1.27% 1.30% 1.31%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 3% 3% 4% 3% 4%
</TABLE>
12
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data: (dollar amounts in thousands)
<TABLE>
<CAPTION>
Year
Nine Months Ended Ended
------------------------------
09/30/00 09/30/99 12/31/99
----------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of period $38,382 $31,265 $31,265
Provisions charged to operating expenses 10,803 6,111 9,175
----------- ----------- ----------
49,185 37,376 40,440
Recoveries on loans charged-off:
Commercial 205 446 551
Consumer 214 193 286
Real estate 50 72 132
----------- ----------- ----------
Total recoveries 469 711 969
Loans charged-off:
Commercial (1,373) (1,087) (1,599)
Consumer (870) (805) (1,078)
Real estate (54) (277) (350)
----------- ----------- ----------
Total charge-offs (2,297) (2,169) (3,027)
----------- ----------- ----------
Net charge-offs (1,828) (1,458) (2,058)
----------- ----------- ----------
Balance at end of period $47,357 $35,918 $38,382
=========== =========== ==========
Net charge-offs as a percentage of
average loans outstanding 0.07% 0.08% 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.
13
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended
September 30, 2000.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
--------------------------------------------
(Registrant)
November 13, 2000 /s/ DOUGLAS J. PAULS
----------------- --------------------------------------------
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
15
