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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of other jurisdiction of (I.R.S. Employee Identification Number)
incorporation or organization)
Commerce Atrium
1701 Route 70 East 08034-5400
Cherry Hill, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 856-751-9000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange
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Title of Class Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act: None
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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 ____.
Indicate by check mark if disclosure of' delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is $923,929,500.(1)
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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 practicable date.
Common Stock $1.5625 Par Value 30,334,028
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Title of Class No. of Shares Outstanding as of 3/3/00
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DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate certain information by reference from the
Registrant's Annual Report to Shareholders for the fiscal year ended December
31, 1999 (the "Annual Report"). Part III incorporates certain information by
reference from the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
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(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Registrant's Common Stock outstanding reduced by the amount of
Common Stock held by officers, directors, and shareholders owning in excess of
10% of the Registrant's Common Stock multiplied by the last sale price for the
Registrant's Common Stock on March 3, 2000. The information provided shall in no
way be construed as an admission that the officer, director, or 10% shareholder
in the Registrant may be deemed an affiliate of the Registrant or that he is the
beneficial owner of' the shares reported as being held by him, and any such
inference is hereby disclaimed. The information provided herein is included
solely for the recordkeeping purpose of the Securities and Exchange Commission.
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COMMERCE BANCORP, INC.
FORM 10-K CROSS-REFERENCE INDEX
The preceding Annual Report and Form 10-K incorporates into a single
document the requirements of the accounting profession and the Securities and
Exchange Commission. There has been no action by the Commission, however, to
approve or disapprove or pass upon the accuracy or adequacy of the Annual Report
and Form 10-K.
Page
Part I
Item 1. Business...........................................................66
Item 2. Properties.........................................................67
Item 3. Legal Proceedings .................................................73
Item 4. Submission of Matters to a Vote of Security Holders (This
item is omitted since no matters were submitted for security
vote during the fourth quarter of 1999.)
Part II
Item 5. Market for the Registrant's Common Stock and
Related Stockholders Matters ......................................35
Item 6. Selected Financial Data ...........................................23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .........................................24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........33
Item 8. Financial Statements and Supplementary Financial Data .............37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
(This item is omitted since it is not applicable)
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
(The information required by the items in this part has been
omitted since it will be contained in the definitive proxy
statement to be filed pursuant to Regulation 14A.)
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ...............................................63
(a) (3) - Exhibits:
3.1 Restated Certificate of Incorporation of the
Company, as amended. (I)
3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company,
setting forth the preferences, limitations and
relative rights of the Company's Series C ESOP
Cumulative Convertible Preferred Stock. (I)
3.3 By-laws of the Company, as amended. (K)
4.1 Form of Trust Indenture, dated July 15, 1993,
between the Company and United Jersey Bank, with
respect to the Company's $23,000,000 8 3/8%
Subordinated Notes due July 15, 2003. (I)
4.2 Form of Indenture between the Company and
Wilmington Trust Company, as Debenture Trustee. (M)
4.3 Certificate of Trust of Commerce Capital Trust I.
(M)
4.4 Form of Amended and Restated Declaration of Trust
of Commerce Capital Trust I. (M)
4.5 Form of Capital Security Certificate for Commerce
Capital Trust I (included in Exhibit 4.4). (M)
4.6 Form of Guarantee Agreement. (M)
10.1 Ground lease, dated July 1, 1984, between Commerce
NJ and Group Four Equities, relating to the branch
office in Gloucester Township, New Jersey. (A)
10.2 Ground lease, dated April 15, 1986, between
Commerce NJ and Mount Holly Equities, relating to
Commerce NJ's branch office in Mt. Holly, New
Jersey. (C)
*10.3 The Company's 1984 Incentive Stock Option Plan. (A)
*10.4 The Company's Employee Stock Ownership Plan. (F)
10.5 Lease, dated March 29, 1985, between Commerce PA
and Devon Properties (Ltd.), and lease dated
September 4, 1985, between Commerce PA and Devon
Properties (Ltd.), relating to Commerce PA's branch
office in Devon, Pennsylvania. (B)
10.6 Assignment of Lease and Assumption Agreement dated
November 30, 1987, between the Company and Commerce
PA, relating to Commerce PA's branch office in
Devon, Pennsylvania. (C)
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10.7 Lease between the Company and Astoria Associates,
relating to the Company's and Commerce NJ's
headquarters facilities. (B)
10.8 Ground lease, dated April 15, 1986, between
Commerce NJ and U.S. Equities, relating to one of
Commerce NJ's branch offices in Washington
Township, New Jersey. (D)
10.9 Ground lease, dated February 1, 1988, between
Commerce NJ and Diversified Properties of New
Jersey, relating to one of Commerce NJ's branch
offices in Washington Township, New Jersey. (D)
10.10 Ground lease, dated February 15, 1988, between
Commerce NJ and Diversified Properties of New
Jersey, relating to one of Commerce NJ's branch
offices in Cherry Hill, New Jersey. (D)
*10.11 The Company's 1989 Stock Option Plan for
Non-Employee Directors. (E)
*10.12 A copy of employment contracts with Vernon W. Hill,
II, C. Edward Jordan, Jr., and Peter Musumeci, Jr.,
dated January 2, 1992. (G)
*10.13 A copy of the Retirement Plan for Outside Directors
of Commerce Bancorp, Inc. (H)
*10.14 The Company's 1994 Employee Stock Option Plan. (J)
10.15 Term Loan Agreement between Commerce Bancorp, Inc.
Employee Stock Ownership Trust and Mellon Bank,
N.A. dated as of November 29, 1994. (J)
*10.16 The Company's 1997 Employee Stock Option Plan. (L)
*10.17 A copy of employment contracts with Dennis M.
DiFlorio and Robert D. Falese dated January 1,
1998. (N)
10.18 Ground lease, dated June 1, 1994, between Commerce
NJ and Absecon Associates, L.L.C., relating to
Commerce NJ's branch office in Absecon, New Jersey.
(N)
10.19 Ground lease, dated September 11, 1995, between
Commerce Shore and Whiting Equities, L.L.C.,
relating to Commerce Shore's branch office in
Manchester Township, New Jersey. (N)
10.20 Ground lease, dated November 1, 1995, between
Commerce NJ and Evesboro Associates, L.L.C.,
relating to Commerce NJ's branch office in Evesham
Township, New Jersey. (N)
10.21 Ground lease, dated October 1, 1996, between
Commerce NJ and Triad Equities, L.L.C., relating to
one of Commerce NJ's branch offices in Gloucester
Township, New Jersey. (N)
10.22 Ground lease, dated October 11, 1996, between
Commerce PA and Plymouth Equities, L.L.C., relating
to Commerce PA's branch office in Plymouth
Township, PA. (N)
10.23 Ground lease, dated January 16, 1998, between
Commerce NJ and Ewing Equities, L.L.C., relating to
Commerce NJ's branch in Ewing, New Jersey. (P)
*10.24 The Company's 1998 Stock Option Plan for
Non-Employee Directors. (O)
10.25 Ground lease, dated July 31, 1998, between Commerce
NJ and English Creek Properties, L.L.C., relating
to Commerce NJ's branch in Egg Harbor Township, New
Jersey. (P)
10.26 Ground lease, dated November 30, 1998, between
Commerce Shore and Brick/Burnt Tavern Equities,
L.L.C., relating to Commerce Shore's branch office
in Brick, New Jersey.
10.27 Ground lease, dated November 30, 1998, between
Commerce Shore and Aberdeen Equities, L.L.C.,
relating to Commerce Shore's branch office in
Aberdeen, New Jersey.
10.28 Ground lease, dated November 30, 1998, between
Commerce NJ and Hamilton/Wash Properties, L.L.C.,
relating to Commerce NJ's branch office in Hamilton
Township, New Jersey.
10.29 Ground lease, dated April 2, 1999, between Commerce
PA and Abington Equities, L.L.C., relating to
Commerce PA's branch office in Abington Township,
Pennsylvania.
11.1 Computation of Net Income Per Share..............51
13.1 The Registrant's Annual Report to Shareholders for
its fiscal year ended December 31,1999.
21.1 Subsidiaries of the Company (incorporated by
reference from PART I, Item 1. "BUSINESS" of this
Report on Form 10-K.)............................66
23.1 Consent of Ernst & Young LLP.
27.1 The Registrant's Financial Data Schedule.
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(A) Incorporated by reference from the Company's
Registration Statement on Form S-1, and Amendments
Nos. I and 2 thereto (Registration No. 2-94189).
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(B) Incorporated by reference from the Company's
Registration Statement on Form S-2 (Registration No
33-12603).
(C) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1987.
(D) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1988.
(E) Incorporated by reference from the Company's
Registration Statement on Form S-2 and Amendments
Nos. 1 and 2 thereto (Registration No. 33-31042).
(F) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989.
(G) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991.
(H) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992.
(I) Incorporated by reference from the Company's
Registration Statement on Form S-2 and Amendments
Nos. 1 and 2 thereto (Registration No. 33-62702).
(J) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.
(K) Incorporated by reference from the Company's
Registration Statement on Form S-4 (Registration
No. 333-10771).
(L) Incorporated by reference from the Company's
Definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders, Exhibit A thereto.
(M) Incorporated by reference from the Company's
Registration Statement on Form S-3 (Registration
No. 333-28311).
(N) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1997.
(O) Incorporated by reference from the Company's
Definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders, Exhibit A thereto.
(P) Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1998.
* Management contract or compensation plan or
arrangement.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1999.
(c)(d) Exhibits and Financial Statement Schedules - All other
exhibits and schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instruction or are inapplicable and,
therefore, have been omitted.
Item 15. Signatures.........................................................74
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PART I
Item 1. Business
Forward-Looking Statements
Commerce Bancorp, Inc. (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 Annual Report and Form 10-K and the exhibits hereto and thereto), 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.
General
The Company is a New Jersey business corporation which is registered as
a bank holding company under the Bank Holding Company Act of 1956, as amended
(the "Holding Company Act"). The Company was incorporated on December 9, 1982
and became an active bank holding company on June 30, 1983 through the
acquisition of 100% of the outstanding shares of Commerce Bank, N.A. ("Commerce,
NJ"). On January 2, 1987, the Company acquired all of the outstanding shares of
Commerce Bank/Pennsylvania, N.A. ("Commerce PA"). On December 31, 1988 the
Company acquired all of the outstanding shares of Citizens State Bank of New
Jersey, Forked River, which was subsequently converted to a national charter and
renamed Commerce Bank/Shore, N.A. ("Commerce Shore"). On September 30, 1993, the
Company acquired all of the outstanding shares of The Coastal Bank, Ocean City,
New Jersey, ("Coastal") which was merged into Commerce NJ. Effective January 21,
1997, the Company acquired Independence Bancorp, Inc., a bank holding company
headquartered in Bergen County, New Jersey. Independence Bancorp, Inc.'s
wholly-owned state-chartered bank subsidiary, Independence Bank of New Jersey,
was subsequently renamed Commerce Bank/North ("Commerce North"). Effective
January 15, 1999, the Company acquired Community First Banking Company ("CFBC"),
a one-bank holding company headquartered in Tinton Falls, New Jersey. CFBC's
wholly-owned bank subsidiary, Tinton Falls State Bank, was merged with and into
Commerce Shore. At the time of acquisition, Tinton Falls State Bank had six
branch offices in Monmouth County, New Jersey, and approximately $201 million in
assets. Also effective January 15, 1999, the Company acquired Prestige Financial
Corp. ("PFC"), a one-bank holding company headquartered in Flemington, New
Jersey. PFC's wholly-owned state-chartered bank subsidiary, Prestige State Bank,
was subsequently re-chartered as a national bank and renamed Commerce
Bank/Central, N.A. ("Commerce Central"). At the time of acquisition, Prestige
State Bank had seven branches in Hunterdon and Somerset Counties, New Jersey,
and had approximately $328 million in assets. In 1998, the Company received
regulatory approvals to open Commerce Bank/Delaware, N.A. ("Commerce Delaware").
Commerce Delaware's first branch opened in New Castle County, Delaware, on
December 18, 1999.
On November 15, 1996, two insurance brokerage agencies, Keystone
National Companies, Inc., Cherry Hill, New Jersey, and Morales, Potter &
Buckelew, Inc., t/a Buckelew & Associates, Toms River, New Jersey, were acquired
by the Company and thereafter merged to form Commerce National Insurance
Services, Inc. ("Commerce Insurance"). Commerce Insurance is currently a
wholly-owned subsidiary of Commerce North. In December 1996, Chesley & Cline,
Inc., Mount Holly, New Jersey, was merged with and into Commerce Insurance. In
January 1997, Colkate, Inc., t/a The Morrissey Agency, Mt. Laurel, New Jersey,
was merged with and into Commerce Insurance. In December 1997, Joseph J.
Reinhart and Associates, Inc., Cherry Hill, NJ, a risk/loss management and loss
investigation consulting firm, and Associated Insurance Management Inc.,
Haddonfield, NJ, an employee and executive benefit consulting firm, were merged
with and into Commerce Insurance. In August 1998, J.A. Montgomery, Inc.,
Wilmington, DE, an insurance brokerage agency, was merged with and into Commerce
Insurance. In
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November, 1999, Mullaney Insurance Associates, Oakhurst, NJ, an insurance
brokerage agency, was merged with and into Commerce Insurance. In January, 2000,
Traber and Vreeland, Inc., Randolph, NJ, an insurance brokerage agency, was
merged with and into Commerce Insurance.
On March 27, 1998, the Company completed the acquisition of A. H.
Williams & Co., Inc., ("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. ("CCMI") a
wholly-owned nonbank subsidiary of the Company engaging in certain securities
activities permitted under Section 20 of the Glass-Steagall Act.
On June 9, 1997, the Company issued $57,500,000 of 8 3/4% Trust Capital
Securities through Commerce Capital Trust 1, a newly formed Delaware business
trust subsidiary of the Company.
Except as otherwise indicated, all references herein to the Company
include Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce
Central, Commerce Delaware, Commerce Capital Trust I, Commerce Insurance, and
CCMI.
The Company's principal executive offices are located at Commerce
Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400, and its
telephone number is (856) 751-9000.
The total number of full-time equivalent persons employed by the Company
was 3,487 as of December 31, 1999. The Company believes that its relationship
with its employees is good.
Commerce NJ
Commerce NJ provides retail and commercial banking services through 48
retail branch offices in Camden, Burlington, Gloucester, Mercer, Atlantic, and
Cape May Counties in New Jersey. Commerce NJ' s deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC").
As of December 31, 1999, Commerce NJ had total assets of $3.612 billion,
total deposits of $3.008 billion, and total stockholders' equity of $203.5
million.
Service Area
Commerce NJ's primary service area includes Burlington, Camden,
Gloucester, Mercer, Atlantic and Cape May Counties, New Jersey. Commerce NJ has
attempted to locate its branches in the fastest growing communities within its
service area. Retail deposits gathered through these focused branching
activities are used to support Commerce NJ's lending throughout Southern New
Jersey.
Retail Banking Activities
Commerce NJ provides a broad range of retail banking services and
products, including free checking accounts (subject to minimum balances) and
savings programs, money market accounts, negotiable orders of withdrawal ("NOW")
accounts, certificates of deposit, safe deposit facilities, consumer loan
programs (including installment loans for home improvement and the purchase of
consumer goods and automobiles), home equity and Visa Gold card revolving lines
of credit, overdraft checking and automated teller facilities. Commerce NJ also
offers construction loans and permanent mortgages for houses.
Trust Activities
Commerce NJ offers trust services primarily focusing on corporate trust
activities, particularly as bond trustee, paying agent, and registrar for
municipal bond offerings.
Commercial Banking Activities
Commerce NJ offers a broad range of commercial banking services,
including free checking accounts (subject to minimum balance), night depository
facilities, money market accounts, certificates of deposit, short-term loans for
seasonal or working capital purposes, term loans for fixed assets and expansion
purposes, revolving credit plans and other commercial loans to fit the needs of
its customers. Commerce NJ also finances the construction of business properties
and makes real estate mortgage loans on completed buildings. Where the needs of
a customer exceed Commerce NJ's legal lending limit for any one customer
(approximately $36.9 million as of December 31, 1999), Commerce NJ may
participate with other banks, including Commerce PA, Commerce Shore, Commerce
North, Commerce Central, and Commerce Delaware in making a loan.
Commerce PA
In 1987, the Company acquired all of the issued and outstanding shares
of capital stock of Commerce PA. As a result of this transaction, Commerce PA
became a wholly-owned subsidiary of the Company.
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Commerce PA was organized as a national bank on December 28, 1983 and
commenced operations on June 29, 1984. As of December 31, 1999, Commerce PA had
total assets of $990.1 million, total deposits of $880.6 million and total
stockholders' equity of $51.4 million.
Commerce PA provides retail and commercial banking services through 27
retail branch offices in Philadelphia, Bucks, Chester, Delaware and Montgomery
Counties in Southeastern Pennsylvania. Commerce PA's deposits are insured by the
FDIC.
Commerce PA generally provides the same retail and commercial banking
services and products as Commerce NJ, Commerce Shore, Commerce North, Commerce
Central, and Commerce Delaware. Commerce PA offers trust services similar to
those offered by Commerce NJ.
Commerce Shore
In 1988, the Company acquired all of the issued and outstanding shares
of capital stock of Commerce Shore. As a result of this transaction, Commerce
Shore became a wholly-owned subsidiary of the Company.
Commerce Shore was organized as a state-chartered bank on December 8,
1972 and commenced operations on January 29, 1973. In 1989, Commerce Shore
converted to a national charter. As of December 31, 1999, Commerce Shore had
total assets of $876.7 million, total deposits of $791.6 million and total
stockholders' equity of $51.3 million.
Commerce Shore provides retail and commercial banking services through
23 retail branch offices in Ocean and Monmouth Counties, New Jersey. Commerce
Shore's deposits are insured by the FDIC.
Commerce Shore generally provides the same retail and commercial banking
services and products as Commerce NJ, Commerce PA, Commerce North, Commerce
Central, and Commerce Delaware. Commerce Shore does not offer trust services.
Commerce North
In 1997, the Company acquired Independence Bancorp, Inc. As a result of
this transaction, Independence Bancorp Inc.'s wholly-owned state-chartered bank
subsidiary, Independence Bank of New Jersey, became a wholly-owned subsidiary of
the Company, and was subsequently renamed Commerce North.
Commerce North was organized as a state-chartered bank in 1974 and
commenced operations in 1975. As of December 31, 1999, Commerce North had total
assets of $812.7 million, total deposits of $666.1 million, and total
stockholders' equity of $43.7 million.
Commerce North provides retail and commercial banking services through
14 retail branch offices in Bergen and Passaic Counties, New Jersey. Commerce
North's deposits are insured by the FDIC.
Commerce North generally provides the same retail and commercial banking
services and products as Commerce NJ, Commerce PA, Commerce Shore, Commerce
Central, and Commerce Delaware. Commerce North does not offer trust services.
Commerce Central
Effective January 15, 1999, the Company acquired Prestige Financial
Corp., and PFC's wholly-owned state-chartered bank subsidiary, Prestige State
Bank, was subsequently re-chartered as a national bank and renamed Commerce
Central.
Commerce Central was organized as a state-chartered bank and commenced
operations in 1990. As of December 31, 1999, Commerce Central had total assets
of $320.1 million, total deposits of $259.2 million, and total stockholders'
equity of $27.7 million.
Commerce Central provides retail and commercial banking services through
seven retail branch offices in Hunterdon and Somerset Counties, New Jersey.
Commerce Central's deposits are insured by the FDIC.
Commerce Central generally provides the same retail and commercial
banking services and products as Commerce NJ, Commerce PA, Commerce Shore,
Commerce North, and Commerce Delaware. Commerce Central does not offer trust
services.
Commerce Delaware
In 1998, the Company received regulatory approvals to open Commerce
Delaware. Commerce Delaware began operations on December 18, 1999, with the
opening of its first branch office in New Castle County, Delaware. Commerce
Delaware's deposits are insured by the FDIC.
As of December 31, 1999, Commerce Delaware had total assets of $23.6
million, total deposits of $15.7 million, and total stockholders' equity of $7.9
million.
Commerce Delaware generally provides the same retail and commercial
banking services and products as Commerce NJ, Commerce PA, Commerce Shore,
Commerce North, and Commerce Central. Commerce Delaware offers trust services
similar to those offered by Commerce NJ and Commerce PA.
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Commerce Insurance
Commerce Insurance operates as a regional insurance brokerage firm
concentrating on commercial property, casualty and surety as well as personal
lines. In addition, Commerce Insurance offers a line of employee benefit
programs including both group as well as individual medical, life, disability
and pension. Commerce Insurance currently operates out of 11 locations in New
Jersey and three locations in Delaware. Commerce Insurance places insurance for
clients in multiple states, primarily New Jersey, Pennsylvania, and Delaware.
Commerce Capital Markets, Inc.
Commerce Capital Markets, Inc. is a wholly-owned nonbank subsidiary of
the Company engaging in certain securities activities permitted under Section 20
of the Glass-Steagall Act, including trading, underwriting, and advisory
services. CCMI's principal place of business is Philadelphia, Pennsylvania, with
branch locations in Pittsburgh, Pennsylvania, Cherry Hill, New Jersey,
Burlingame, California, and Fort Lauderdale, Florida.
Other Activities
NA Asset Management, a Delaware corporation, is a wholly-owned
subsidiary of Commerce NJ which purchases, holds and sells investments of
Commerce NJ. Shore Asset Management Corporation, a Delaware corporation, is a
wholly-owned subsidiary of Commerce Shore which purchases, holds and sells
investments of Commerce Shore. North Asset Management, a Delaware corporation,
is a wholly-owned subsidiary of Commerce North which purchases, holds, and sells
investments of Commerce North. Central Asset Management, a Delaware corporation,
is a wholly-owned subsidiary of Commerce Central which purchases, holds, and
sells investments of Commerce Central. Delaware Asset Management, a New Jersey
corporation, is a wholly-owned subsidiary of Commerce Delaware, which purchases,
holds, and sells investments of Commerce Delaware.
As part of the Commerce Network, the Company has an equity investment in
Commerce Bank/Harrisburg, Camp Hill, Pennsylvania (15.27% beneficial ownership).
The Commerce Network provides certain marketing support and technical support
services to its members.
Competition
The Company's service area is characterized by intense competition in
all aspects and areas of its business from commercial banks, savings and loan
associations, mutual savings banks and other financial institutions. Other
competitors, including credit unions, consumer finance companies, factors,
insurance companies and money market mutual funds, compete with certain lending
and deposit gathering services offered by the Company. Many competitors have
substantially greater financial resources and larger lending limits and larger
branch systems than those of the Company.
In commercial transactions, Commerce NJ's, Commerce PA's, Commerce
Shore's, Commerce North's, Commerce Central's, and Commerce Delaware's legal
lending limit to a single borrower (approximately $36.9 million, $9.8 million,
$9.0 million, $7.7 million, $4.6 million, and $1.2 million, respectively, as of
December 31, 1999) enables them to compete effectively for the business of
smaller and mid-sized businesses. However, these legal lending limits are
considerably lower than that of various competing institutions and thus may act
as a constraint on Commerce NJ's, Commerce PA's, Commerce Shore's, Commerce
North's, Commerce Central's, and Commerce Delaware's effectiveness in competing
for financing in excess of these limits.
The Company believes that it is able to compete on a substantially equal
basis with larger financial institutions because it offers longer hours of
operation than those offered by most of its competitors, free checking accounts
for customers maintaining certain minimum balances and competitive interest
rates on savings and time accounts with low minimum deposit requirements.
The Company seeks to provide personalized services through management's
knowledge and awareness of its market area, customers and borrowers. The Company
believes this knowledge and awareness provides a business advantage in serving
the retail depositors and the small and mid-sized commercial borrowers that
comprise the Company's customer base.
Supervision and Regulation
THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF
THE REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR
SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO THE COMPANY.
THE REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION OF DEPOSITORS,
OTHER CUSTOMERS AND THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR THE
PROTECTION OF SECURITY HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION
DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN
APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF THE COMPANY.
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The Company
The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended ("Holding Company Act"), and is
therefore subject to supervision and regulation by the FRB. The Company is also
regulated by the New Jersey Department of Banking.
Under the Holding Company Act, the Company is required to secure the
prior approval of the FRB before it can merge or consolidate with any other bank
holding company or acquire all or substantially all of the assets of any bank or
acquire direct or indirect ownership or control of any voting shares of any bank
that is not already majority owned by it, if after such acquisition it would
directly or indirectly own or control more than 5% of the voting shares of such
bank. See "Interstate Banking."
The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect ownership or control or more than
5% of the voting shares of any company engaged in nonbanking activities unless
the FRB, by order or regulation, has found such activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In making such a determination, the FRB considers whether the
performance of these activities by a bank holding company can reasonably be
expected to produce benefits to the public which outweigh the possible adverse
effects. The FRB has by regulation determined that certain activities are
closely related to banking within the meaning of the Holding Company Act. These
activities include, among others, operating a mortgage, finance, credit card or
factoring company; performing certain data processing operations, providing
investment and financial advice; acting as an insurance agent for certain types
of credit-related insurance; leasing property on a full-payout, non-operating
basis; and certain stock brokerage and investment advisory services.
Satisfactory financial condition, particularly with regard to capital
adequacy, and satisfactory Community Reinvestment Act ratings are generally
prerequisites to obtaining federal regulatory approval to make acquisitions. All
of the Company's subsidiary banks are currently rated "satisfactory" under the
Community Reinvestment Act.
In addition, under the Holding Company Act, the Company is required to
file periodic reports of its operations with, and is subject to examination by,
the FRB.
The Company is under the jurisdiction of the Securities and Exchange
Commission ("SEC") and various state securities commissions for matters relating
to the offering and sale of its securities and is subject to the SEC's rules and
regulations relating to periodic reporting, reporting to shareholders, proxy
solicitation and insider trading.
There are various legal restrictions on the extent to which the Company
and its nonbank subsidiaries can borrow or otherwise obtain credit from its
banking subsidiaries. In general, these restrictions require that any such
extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Company or such nonbank
subsidiaries, to ten percent of the lending bank's capital stock and surplus,
and as to the Company and all such nonbank subsidiaries in the aggregate, to 20
percent of such lending bank's capital stock and surplus. Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
The Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") contains a "cross-guarantee" provision that could result in any
insured depository institution owned by the Company being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other depository institution owned by the Company. Also, under FRB
policy, the Company is expected to act as a source of financial strength to each
of its banking subsidiaries and to commit resources to support each such bank in
circumstances where such bank might not be in a financial position to support
itself.
A discussion of capital guidelines and capital is included in the
section entitled "Stockholders' Equity and Dividends" contained within
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 35 of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1999, which page of the Annual Report appears
elsewhere herein.
Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central,
and Commerce Delaware
Commerce NJ, Commerce PA, Commerce Shore, Commerce Central, and Commerce
Delaware, as national banks, are subject to the National Bank Act. Each is also
subject to the supervision of, and is regularly examined by, the Office of the
Comptroller of the Currency ("OCC") and is required to furnish quarterly reports
to the OCC. The approval of the OCC is required for the establishment of
additional branch offices by any national bank, subject to applicable state law
restrictions.
Commerce North, as a New Jersey state-chartered bank, is subject to the
New Jersey Banking Act. Commerce North is also subject to the supervision of, is
regularly examined by, the New Jersey Department of Banking and Insurance
("Department") and the FDIC, and is required to furnish quarterly reports to
each agency. The Approval of the Department and FDIC is necessary for the
establishment of any additional branch offices by any New Jersey state-chartered
bank, subject to applicable state law restrictions.
Under present New Jersey law, Commerce NJ, Commerce Shore, Commerce
North, and Commerce Central would be permitted to operate offices at any
location in New Jersey, subject to prior regulatory approval. Under present
Pennsylvania law,
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Commerce PA would be permitted to operate offices within any county in
Pennsylvania, subject to prior regulatory approval. Under present Delaware law,
Commerce Delaware would be permitted to operate offices at any location in
Delaware at which deposits are received, checks are paid, or money is lent,
subject to prior regulatory approval.
Under the Community Reinvestment Act, as amended ("CRA"), a bank has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low-
and moderate-income neighborhoods. CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with CRA. CRA
requires that the applicable regulatory agency to assess an institution's record
of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. The CRA
requires public disclosure of an institution's CRA rating and requires that the
applicable regulatory agency provide a written evaluation of an institution's
CRA performance utilizing a four-tiered descriptive rating system. An
institution's CRA rating is considered in determining, whether to grant
charters, branches and other deposit facilities, relocations, mergers,
consolidations and acquisitions. Performance less than satisfactory may be the
basis for denying an application. In addition, under applicable regulations a
bank having a less than satisfactory rating is not entitled to participate on
the bid list for FDIC offerings. For their most recent examinations, Commerce
NJ, Commerce PA, Commerce Shore, Commerce North, and Commerce Central each
received a "satisfactory" rating.
Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce
Central, and Commerce Delaware are also members of the FDIC and, except for
Commerce North, members of the FRB and, therefore, are subject to additional
regulation by these agencies. Some of the aspects of the lending and deposit
business of Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce
Central, and Commerce Delaware which are regulated by these agencies include
personal lending, mortgage lending and reserve requirements. The operation of
Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and
Commerce Delaware are also subject to numerous federal, state and local laws and
regulations which set forth specific restrictions and procedural requirements
with respect to interest rates on loans, the extension of credit, credit
practices, the disclosure of credit terms and discrimination in credit
transactions.
Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce
Central, and Commerce Delaware are subject to certain limitations on the amount
of cash dividends that they can pay. See Note 18 of the Company's Notes to
Consolidated Financial Statements which appears elsewhere herein.
The OCC has authority under the Financial Institutions Supervisory Act
to prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to the
Company and the Company's non-bank subsidiaries. The FDIC has similar authority
with respect to Commerce North.
Substantially all of the deposits of the banking subsidiaries are
insured up to applicable limits by the Bank Insurance Fund ("BIF") of the FDIC
and are subject to deposit insurance assessments to maintain the BIF. The
insurance assessments are based upon a matrix that takes into account a bank's
capital level and supervisory rating. Effective January 1, 1996, the FDIC
reduced the insurance premiums it charged on bank deposits insured by the BIF to
the statutory minimum of $2,000 annually for "well capitalized" banks. On
September 30, 1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted
and signed into law. DIFA reduced the amount of FDIC insurance premiums for
savings association deposits acquired by banks to the same levels assessed for
deposits insured by BIF. DIFA further provides for assessments to be imposed on
all insured depository institutions with respect to deposits to pay for the cost
of Financing Corporation bonds; however, banks are assessed for this purpose at
only one-fifth the rate of the assessment on savings associations until December
31, 1999. As a result of these changes, the deposit insurance assessment for
banks and for thrifts has been nearly equalized and will be identical for
comparably rated institutions after January 1, 2000, at which time banks will
share equally in the FICO assessment and the BIF and SAIF funds will be merged.
Interstate Banking
On September 29, 1994, the President signed into law the "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Act").
Among other things, the Interstate Act permits bank holding companies to acquire
banks in any state after September 29, 1995. Beginning June 1, 1997, a bank may
merge with a bank in another state so long as both states have not opted out of
interstate branching between the date of enactment of the Interstate Act and May
31, 1997. States may enact laws opting out of interstate branching before June
1, 1997, subject to certain conditions. States may also enact laws permitting
interstate merger transactions before June 1, 1997, and host states may impose
conditions on a branch resulting from an interstate merger transaction that
occurs before June 1, 1997, if the conditions do not discriminate against
out-of-state banks, are not preempted by Federal law and do not apply or require
performance after May 31, 1997. New Jersey and Pennsylvania have enacted laws
opting in immediately to interstate merger and interstate branching
transactions. Interstate acquisitions and mergers would both be subject, in
general, to certain concentration limits and state entry rules relating to the
age of the bank. Delaware has enacted a law opting in to interstate branching by
merger only.
Under the Interstate Act, the Federal Deposit Insurance Act is amended
to permit the responsible Federal regulatory agency to approve the acquisition
of a branch of an insured bank by an out-of-state bank or bank holding company
without the
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acquisition of the entire bank or the establishment of a "de novo" branch only
if the law of the state in which the branch is located permits out-of-state
banks to acquire a branch of a bank without acquiring the bank or permits
out-of-state banks to establish "de novo" branches. Pennsylvania and New Jersey
have each passed such a law. However, the New Jersey law does not authorize
establishment of interstate branches other than by means of acquiring such
branches from another institution. Delaware law does not permit interstate
branching either through the original establishment of a branch in Delaware by
an out-of-state bank or through acquisition of a branch in Delaware by an
out-of-state bank.
Commerce Insurance/ Commerce Capital Markets
Commerce Insurance, a nonbank subsidiary of Commerce North, is currently
subject to supervision, regulation and examination by the New Jersey Department
of Banking and Insurance. Commerce Capital Markets, a nonbank subsidiary of the
Company, engages in certain securities activities permitted to bank holding
company subsidiaries under Section 20 of the Glass-Steagall Act and is regulated
by the SEC. Commerce Capital Markets is also subject to rules and regulations
promulgated by the National Association of Securities Dealers, Inc., the
Securities Investors Protection Corporation and various state securities
commissions and with respect to public finance activities the Municipal
Securities Rulemaking Board.
Both Commerce Insurance and Commerce Capital Markets are also subject to
various state laws and regulations in which they do business. These laws and
regulations are primarily intended to benefit clients and generally grant
supervisory agencies broad administrative powers, including the power to limit
or restrict the carrying on of business for failure to comply with such laws and
regulations. In such event, the possible sanctions which may be imposed include
the suspension of individual employees, limitations on engaging in business for
specific periods, censures and fines.
Recent Legislation
On November 12, 1999 the Gramm-Leach-Bliley Act (the "Act") became law,
repealing the 1933 Glass-Steagall Act's separation of the commercial and
investment banking industries. The Act expands the range of nonbanking
activities a bank holding company may engage in, while preserving existing
authority for bank holding companies to engage in activities that are closely
related to banking. The new legislation creates a new category of holding
company called a "Financial Holding Company," a subset of bank holding companies
that satisfy the following criteria: (1) all of the depository institution
subsidiaries must be well capitalized and well managed; (2) the holding company
must file with the Federal Reserve Board a declaration that it elects to be a
financial holding company to engage in activities that would not have been
permissible before the Act; and (3) all of the depository institution
subsidiaries must have a CRA rating of "satisfactory" or better. Financial
holding companies may engage in any activity that (i) is financial in nature or
incidental to such financial activity or (ii) is complementary to a financial
activity and does not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. The Act specifies
certain activities that are financial in nature. These activities include -
acting as principal, agent or broker for insurance; - underwriting, dealing in
or making a market in securities; and - providing financial and investment
advice. The Federal Reserve Board and the Secretary of the Treasury have
authority to decide whether other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so on.
These new financial activities authorized by the Act may also be engaged
in by a "financial subsidiary" of a national or state bank, except for insurance
or annuity underwriting, insurance company portfolio investments, real estate
investment and development, and merchant banking, which must be conducted in a
financial holding company. In order for the new financial activities to be
engaged in by a financial subsidiary of a national or state bank, the Act
requires each of the parent bank (and its sister-bank affiliates) to be well
capitalized and well managed; the aggregate consolidated assets of all of that
bank's financial subsidiaries may not exceed the lesser of 45% of its
consolidated total assets or $50 billion; the bank must have at least a
satisfactory CRA rating; and, if that bank is one of the 100 largest national
banks, it must meet certain financial rating or other comparable requirements.
The Act establishes a system of functional regulation, under which the
federal banking agencies will regulate the banking activities of financial
holding companies and banks' financial subsidiaries, the U.S. Securities and
Exchange Commission will regulate their securities activities and state
insurance regulators will regulate their insurance activities. The Act also
provides new protections against the transfer and use by financial institutions
of consumers' nonpublic, personal information.
The Act has only recently became law. Regulations of the banking
agencies implementing the legislative changes can be expected in the near
future. Except for the increase in competitive pressures faced by all banking
organizations that is a likely consequence of the Act, the legislation and
implementing regulations are likely to have a more immediate impact on large
regional and national institutions than on community-based institutions engaged
principally in traditional banking activities. Because the legislation permits
bank holding companies to engage in activities previously prohibited altogether
or severely restricted because of the risks they posed to the banking system,
implementing regulations can be expected to impose strict and detailed
prudential safeguards on affiliations among banking and nonbanking companies in
a holding company organization. Additionally, because the legislation allows
various affiliates within a single holding company organization to serve a
broader array of customers'
72
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financial goals, including their banking, insurance and investment goals,
implementing regulations can be expected to impose strict safeguards on sharing
of customer information among affiliated entities within an organization.
The foregoing discussion is qualified in its entirety by reference to
the statutory provisions of the Act and the implementing regulations which are
adopted by various government agencies pursuant to the Act. The exact impact of
the Act on the Company and its subsidiaries, if any, cannot be predicted at this
time.
National Monetary Policy
In addition to being affected by general economic conditions, the
earnings and growth of the Company, Commerce NJ, Commerce PA, Commerce Shore,
Commerce North, Commerce Central, and Commerce Delaware are affected by the
policies of regulatory authorities, including the OCC, the FRB and the FDIC. An
important function of the FRB, is to regulate the money supply and credit
conditions. Among the instruments used to implement these objectives are open
market operations in U.S. Government securities, setting the discount rate, and
changes in reserve requirements against bank deposits. These instruments are
used in varying combinations to influence overall growth and distribution of
credit, bank loans, investments and deposits, and their use may also affect
interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the FRB have bad a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. The effects of such policies upon the future
business, earnings and growth of the Company, Commerce NJ, Commerce PA, Commerce
Shore, Commerce North, Commerce Central, and Commerce Delaware cannot be
predicted.
Legal Proceedings
Other than routine litigation incidental to its business, none of the
Company, Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce
Central, Commerce Delaware, Commerce Capital Trust 1, Commerce Insurance, or
CCMI, or any of their properties is subject to any material legal proceedings,
nor are any such proceedings known to be contemplated.
Employee Stock Ownership Plan
Effective January 1, 1989, the Company's Board of Directors approved the
restatement of the Company's Stock Bonus Plan to an Employee Stock Ownership
Plan ("ESOP"). The ESOP is intended to be a qualified retirement plan
established and maintained in accordance with the Employee Retirement Income
Security Act of 1974 for the benefit of the Company's and its bank subsidiaries'
eligible employees. The ESOP is intended to invest primarily in "Qualifying
Employer Securities" (i.e., common stock or preferred stock which is convertible
into common stock). The assets of the ESOP are held in a trust fund pursuant to
a Trust Agreement. The trustees under the Trust Agreement are authorized to
invest up to 100% of the trust fund in Qualifying Employer Securities. The
trustees are also authorized to borrow money for the purpose of purchasing
Qualifying Employer Securities.
Generally, each participant in the ESOP is entitled to direct the
trustees with respect to the voting rights, if any, of the Qualifying Employer
Securities allocated to the participant's account. The current trustees are
Vernon W. Hill, II and C. Edward Jordan, Jr., the trustees under the Company's
former Stock Bonus Plan.
The Company is responsible for the operation and administration of the
ESOP. The Company determines investment policies under which the trustees act.
These duties are carried out by a committee appointed by the Board of Directors.
The Board of Directors has the sole responsibility to appoint and remove members
of the committee of trustees, to determine the amount of contributions to the
ESOP by the Company and its subsidiary banks, and to amend or terminate, in
whole or in part, the ESOP or the Trust Agreement.
As of December 31, 1999, the loan which the ESOP originally obtained in
1990 from another financial institution was paid off, and all of the
approximately 923,000 shares of the Company's common stock held by the ESOP were
allocated to participant accounts.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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.
By /s/ VERNON W. HILL, II
---------------------------------------
Vernon W. Hill, II
Date: March 29, 2000 Chairman of the Board and President
By /s/ THOMAS J. SUKAY
---------------------------------------
Thomas J. Sukay
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ VERNON W. HILL, II Chairman of the Board March 29, 2000
- -------------------------------- and President
Vernon W. Hill, II (Principal Executive
Officer)
/s/ C. EDWARD JORDAN JR. Executive Vice President March 29, 2000
- -------------------------------- and Director
C. Edward Jordan Jr.
/s/ ROBERT C. BECK Secretary and Director March 29, 2000
- --------------------------------
Robert C. Beck
/s/ DAVID BAIRD, IV Director March 29, 2000
- --------------------------------
David Baird, IV
/s/ JACK R BERSHAD Director March 29, 2000
- --------------------------------
Jack R Bershad
/s/ MORTON N. KERR Director March 29, 2000
- --------------------------------
Morton N. Kerr
/s/ STEVEN M. LEWIS Director March 29, 2000
- --------------------------------
Steven M. Lewis
/s/ DANIEL J. RAGONE Director March 29, 2000
- --------------------------------
Daniel J. Ragone
/s/ WILLIAM A. SCHWARTZ JR. Director March 29, 2000
- --------------------------------
William A. Schwartz Jr.
/s/ JOSEPH T. TARQUINI JR. Director March 29, 2000
- --------------------------------
Joseph T. Tarquini Jr.
/s/ JOSEPH BUCKELEW Director March 29, 2000
- --------------------------------
Joseph Buckelew
/s/ FRANK C. VIDEON SR. Director March 29, 2000
- --------------------------------
Frank C. Videon Sr.
74
LEASE
from
BRICK/BURNT TAVERN EQUITIES, L.L.C.
to
COMMERCE BANK/SHORE, N. A.
Article 1
Reference Date and Exhibits
1.1 Data
DATE : November 30, 1998
LOCATION OF PREMISES : Burnt Tavern & Van Zile Road
Brick, NJ
LANDLORD : BRICK/BURNT TAVERN EQUITIES, L.L.C.
ORIGINAL ADDRESS OF : 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT : COMMERCE BANK/SHORE, N.A.
ORIGINAL ADDRESS OF : c/o Commerce Bancorp, Inc.
1701 Route 70 East
Cherry Hill, NJ 08034
LEASE TERM : Twenty Years
ANNUAL FIXED RENT RATE : Year 1-5 $70,000.00
6-10 $77,000.00
11-15 $84,700.00
16-20 $93,170.00
1
<PAGE>
1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits Page
1.1 Data 1
1.2 Table of Contents 2
ARTICLE II - Premises and Term
2.1 Premises 4
2.2 Term 4
2.3 Option to Extend 4
ARTICLE III - Improvements
3.1 Construction of Improvements 4
3.2 Contractor 4
3.3 Signs 5
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage 5
ARTICLE V - Real Estate Taxes
5.1 Real Estate Taxes 5
5.2 Taxes 5
5.3 Method of Payment 6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore 6
ARTICLE VII - TENANT'S Additional Covenants
7.1 Affirmative Covenants 6
7.1.1 Use 6
7.1.2 Compliance with Law 7
7.1.3 Payment of TENANT'S Work 7
7.1.4 Indemnity and Liability Insurance 7
7.1.5 LANDLORD'S Right to Enter 8
7.1.6 Personal Property at TENANT'S Risk 8
7.1.7 Payment of LANDLORD'S Cost of Enforcement 8
7.1.8 Yield Up 8
7.1.9 Maintenance 9
7.1.10 Insurance 9
7.2 Negative Comments 9
7.2.1 Overloading, Nuisance, etc. 9
7.2.2 Installation, Alteration or Additions 9
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use 10
8.2 Competing Use 10
ARTICLE IX - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty 10
9.2 Right to Terminate in Event of Casualty 10
9.3 Eminent Domain 10
2
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Page
ARTICLE X - Defaults
10.1 Events of Default 11
10.2 Remedies 12
10.3 Remedies Cumulative 12
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults 12
10.5 Effect of Waivers of Default 12
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc. 13
11.2 Notice from One Party to Other 13
11.3 Quiet Employment 13
11.4 Recording 13
11.5 Acts of God 13
11.6 Waiver of Subrogation 14
11.7 Rights of Mortgagee and Subordination 14
11.7.1 14
11.7.2 No Accord and Satisfaction 14
11.8 Applicable Law and Construction 15
ARTICLE XII - Permits and Approvals
12.1 Tenant Obligations 15
12.2 Approvals 15
12.3 Easements 15
ARTICLE XIII - Net, Net, Net Lease
13.1 Net, Net, Net Lease 15
ARTICLE XIV - Right of First Refusal
14.1 Right of First Refusal to Lease 16
14.2 Right of First Refusal to Purchase 16
ARTICLE XV - Holdover
15.1 Holdover 16
ARTICLE XVI - Common Area
16.1 Common Area 17
16.2 Common Area Charges 17
16.3 Determination and Payment of Common Area Charges 17
16.4 Construction Cost 17
ARTICLE XVII - Environmental
17.1 Environmental Matters 17
ARTICLE XVIII -
18.1 Title 18
18.2 Ownership 18
3
<PAGE>
ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit "A" and
described in Exhibit "B", both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto and a building no greater than 4,000
square feet, so long as such building is within the perimeter of the leased
premises as shown on Exhibit "A".
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of (a)
Ninety (90) days (inclusive of the time for objectors to appeal for any
approval) after LANDLORD has obtained approval for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term of twenty (20) years
unless sooner terminated as hereinafter provided. When dates of the beginning
and end of the Lease term have been determined, such dates shall be evidenced by
a document in form for recording, executed by LANDLORD and TENANT and delivered
each to the other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1 - 5 $ 102,487.00
6 -10 $ 112,735.00
11-15 $ 124,009.00
16-20 $ 136,410.00
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term. Lack of written notice by TENANT of its intention to exercise
any option prior to ninety (90) days before the expiration of the then current
term shall be deemed to constitute exercise of that option by the TENANT.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its sole
cost, a branch banking facility, pursuant to the attached Site Plan, subject to
reasonable approval by the LANDLORD of the building plans and specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD. Approval by LANDLORD shall not be unreasonably withheld.
4
<PAGE>
3.3 Signs - TENANT shall have the right to erect such signs as permitted by
applicable zoning ordinances within the leased area, provided it does not
preclude LANDLORD from erecting signs for tenants for the balance of the
shopping center.
ARTICLE IV
Rent
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times.
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly installments in
advance on the first (1st) day of each month beginning on the Commencement Date.
In addition to the base annual fixed rent, TENANT shall pay as and when the same
become due and owing as additional rents, all other monies provided for in the
Lease. It is the parties intention that all charges and assessments charged to
or assessed against the Premises shall be the responsibility of the TENANT, such
that the Lease shall be "net, net, net" to the LANDLORD, excepting only interest
and principal on any mortgage made by the LANDLORD and effecting the Premises.
(b) For purposes of this Lease, the scheduled increases in the base annual
fixed rate shall occur on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th) years of the Initial Term as same is determined pursuant to
Paragraph 2.2 and on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th), years of the Option Terms.
(c) If any installment under this Lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD
may, at its option, declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all real
estate taxes levied upon the Premises, improvements located on the Premises, the
leasehold estate, or any sublease hold estate of any nature including special
assessments. The obligation for payment by TENANT of all real estate taxes shall
commence simultaneously with the payment of rent hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon rents and personal
property, including trade fixtures and inventory, kept on the demised Premises,
covered by Section 5.1 after presentation to TENANT by LANDLORD of statements
from the taxing jurisdiction in which said property is located. TENANT, however,
will pay only the lowest discounted amount and will not be required to pay
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any penalty, interest or cost occurring by reason of LANDLORD'S failure to
secure said tax statements in a timely fashion from the taxing authorities for
any tax required to be paid by TENANT.
LANDLORD may, however, direct the taxing authorities to send the statements
directly to TENANT. "In the event LANDLORD directs the taxing authorities to
send a statement directly to TENANT, TENANT shall make all such payments
directly to the taxing authority at least ten (10) days before any delinquency
and before any fine, interest or penalty shall become due or imposed by
operation of law for their non-payment. Further, TENANT shall furnish to
LANDLORD within ten (10) days of the date when any tax, assessment or charge
would become delinquent, receipts or other satisfactory evidence establishing
the timely payment of said taxes or charges." LANDLORD further agrees that
TENANT, in the name of LANDLORD, but at TENANT'S sole expense, may protest any
assessment before any taxing authority or board or maintain any necessary legal
action in reference to said assessment or for the recovery of any taxes paid
thereon. Nothing herein contained shall require TENANT to pay any income or
excess profits, taxes assessed against LANDLORD or any corporation, capital
stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising TENANT
of the amount of real estate taxes, together with a copy of the tax bill, and
TENANT shall pay such amount to LANDLORD within thirty (30) days after receipt
of such notice. If this Lease shall terminate during a tax year, TENANT shall
pay to LANDLORD, a prorated portion of the amount that would have been due for
the full tax year based on the number of days of said tax year expired on the
date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to the
authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone connection and
standby fees and other utilities used or consumed in the Premises and shall make
its own arrangements for such utilities. In the event any such services cannot
be reasonably procured from any public agency, and LANDLORD provides any such
services, TENANT shall reimburse LANDLORD for its proportionate share of any
such services used or consumed in the demised premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
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7.1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, for any other lawful commercial purposes
which do not conflict with existing primary uses in the Shopping Center which
forms part of the common area, with such uses to be approved by the LANDLORD,
which approval shall not be unreasonably withheld. Neither TENANT nor its
subtenants, if any, shall commit any nuisance, nor permit the emission of any
objectionable noise or odor, nor bring on, deposit or allow to be brought on or
deposited on the Premises any asbestos materials or any other Hazardous
Substance or materials as the same may be defined by Federal, State or local
laws, rules, statutes or regulations or in the Environmental Rider annexed
hereto, nor use the property in such a manner which negatively effects the
reversion.
7.1.2 Compliance with Law - To make all repairs, alterations,
additions or replacements to the Premises required by any law or ordinance or
any order or regulation of any public authority because of TENANT'S use of the
Premises, to keep the Premises equipped with all safety appliances so required
because of such use; to pay all municipal, county or state taxes assessed
against the personal property of any kind owned by or placed in, upon or about
the premises by TENANT; and to comply with the orders and regulations of all
governmental authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems unduly burdensome or inappropriate
and TENANT shall not be in default for failure to comply with such law until the
legally permitted time following final determination of TENANT'S contest
expires; provided, however, if LANDLORD gives notice of request, TENANT shall
first furnish LANDLORD with a bond, satisfactory to LANDLORD in form and
insurer, guaranteeing compliance by TENANT with the contested law and
indemnifying LANDLORD against all liability that LANDLORD may sustain by reason
of TENANT'S failure or delay in complying with the law. LANDLORD may, but is not
required to, contest any such law independent of TENANT. On TENANT'S notice of
request, LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANT'S Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises
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unless arising from any omission, fault, negligence or other misconduct of
LANDLORD, and from all claims or damage to or of any person or property
occasioned by any omission, fault, neglect or other misconduct of TENANT; to
maintain in responsible companies qualified to do business in the state in which
the premises is located and in good standing therein, public liability insurance
covering the premises insuring LANDLORD, as well as TENANT, with limits at least
equal to those stated in Section 1.1, workmen's compensation insurance with
statutory limits, covering all of TENANT'S employees working in the premises,
and to deposit promptly with LANDLORD certificates for such insurance and all
renewals thereof, bearing the endorsement that the policies will not be canceled
until after ten (10) days written notice to LANDLORD. TENANT'S obligations
hereunder may be satisfied through a blanket insurance policy covering other
interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANT'S operation and conduct of its business in the demised premises or
compromise security.
7.1.6 Personal Property at TENANT'S Risk - That all of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of TENANT and of all persons claiming under TENANT, may be on the
premises, shall be at the sole risk and hazard of TENANT, and if the whole or
any part thereof shall be destroyed or damaged by fire, water, or otherwise, or
by the leakage or bursting of water pipes, steam pipes or other pipes, by theft
or from any other cause, no part of said loss or damage is to charged to or be
borne by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease, TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the premises and yield up
the premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds therefrom, all of which shall become the property of LANDLORD. Any
holdover by TENANT will not be deemed an
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extension of this Lease, and TENANT shall indemnify LANDLORD against all losses
and damages from a failure to surrender.
7.1.9 Maintenance - Throughout the term, TENANT shall, at TENANT'S
sole cost and expense maintain the premises and all improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) federal,
state, county, municipal and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting board or insurance inspection bureau
having or claiming jurisdiction; and (3) all insurance companies insuring all or
any part of the premises of the improvements located thereon, or both except as
provided below and subject only to the provisions of Paragraph 9.2, TENANT shall
promptly and diligently repair, restore and replace as required to maintain the
premises and the improvements in the condition set forth above, or to remedy all
damage to or destruction of all or any part of the improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality and use to the condition of the
improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the premises, LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together will endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement parts value above foundation walls. All insurance policies shall
name the LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the Lease
term and such further times as TENANT occupies the premises or any part thereof:
7.2.1 Overloading Nuisance, etc. - Not to injure, overload, deface or
otherwise harm the premises; nor commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation, Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not be
unreasonable withheld. No consent shall be required for nonstructural
alterations not exceeding $100,000 in cost. No
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addition will be allowed which increases the building size to more than 4,000
square feet, or which violates the terms of Paragraph 2.1 of this Lease.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B". LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANT'S sole and conclusive remedy for a breach of this warranty
shall be its right, at its election, to terminate the Lease prior to
commencement of construction.
8.2 Competing Use - During the term of this Lease, provided TENANT is not
in default, LANDLORD agrees not to lease or sell any portion of the project, of
which the leased premises is a part, to a commercial bank, savings bank, savings
and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this Article shall include a sale in lieu of the exercise of the
right of eminent domain) or ordered to be demolished by the action of any public
authority in consequence of a fire or other casualty, this Lease shall, unless
it is terminated as provided below in Section 9.2 or 9.3, remain in full force
and effect and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this Lease.
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TENANT reserves the unto itself the right to prosecute its claim for an award
based upon its leasehold interest for such taking, without impairing any rights
of LANDLORD for the taking of or injury to the reversion.
In the event that a part of the demised premises shall be taken or
condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof, or (c) the
part so taken shall consist of 25% or more of the total parking area, or (d)
such partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the date when possession of the premises shall be required by the
condemning authority elect to terminate this Lease, or if any option to purchase
the premises is conferred upon the TENANT by any other provision of this Lease,
may as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purpose option. In the event that
TENANT shall fail to exercise any such option to terminate this Lease or to
purchase the premises or in the event that a part of the demised premises shall
be taken or condemned under circumstances under which the TENANT will have no
such option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to an economic
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, to the extent that may have been necessary by
such condemnation, subject to a pro-rata reduction in rental. Any dispute
resulting from Section 9.3 of this Lease shall be submitted to the American
Arbitration Society, whose decision shall be binding on the parties hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) Tenant shall default in the performance of
any of its obligations to pay rent or additional rent hereunder and if such
default shall continue for ten (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such corrective action to completion, or
(b) any assignment shall be made by TENANT for the benefit of credits, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights
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available to it under law, including repossession of the leased property,
termination of the lease, acceleration of all future rental payments, and such
other rights as may be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of the
provisions contained in Section 10.1 or shall be otherwise terminated for breach
of any obligation of TENANT, TENANT covenants to pay punctually to LANDLORD all
the sums and perform all the obligations which TENANT covenants in this Lease to
pay and to perform in the same manner and to the same extent at the same time as
if this Lease had not been terminated so long as such obligations shall have not
been rendered unnecessary or impossible of performance by the subsequent
re-letting or other occupancy permitted by LANDLORD. In calculating the amounts
to be paid by TENANT under the foregoing covenant, TENANT shall be credited with
the net proceeds of any rent or the value of other considerations obtained by
LANDLORD by re-letting the premises, after deducting all LANDLORD'S expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, reasonable fees for legal services and expenses of
preparing the premises for re-letting, it being agreed by TENANT that LANDLORD
may (i) re-let the premises or any part or parts thereof, for a term or terms
which may at LANDLORD'S option be equal to or less than or exceed the period
which would otherwise have constituted the balance of the Lease term, and (ii)
make such alterations, repairs and decorations in the premises as LANDLORD in
its sole judgement considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which LANDLORD
may have under this Lease, and at law and equity, shall be cumulative and shall
not be deemed inconsistent with each other, and any two or more of all such
rights and remedies may be exercised at the same time insofar as permitted by
law.
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
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10.5 Effect of Waivers on Default - No consent or waiver, expressed or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
11.1 Assignment, Subletting, etc. - LANDLORD'S written consent shall be
required for any assignment, transfer or subletting except to another financial
institution which consent shall not be unreasonably withheld.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed, if to TENANT, at the original address of TENANT or such other
addresses as TENANT shall have last designated by notice in writing to LANDLORD,
and if to LANDLORD, at the original address of LANDLORD or such other address as
LANDLORD shall have last designated by notice in writing to TENANT.
11.3 Quiet Employment - LANDLORD agrees that upon TENANT'S paying the rent
and performing and observing the agreements, conditions and other provisions on
its part to be performed and observed, TENANT shall and may peaceably and
quietly have, hold and enjoy the demised premises during the Lease term without
any manner or hindrance or molestation from LANDLORD or anyone claiming under
LANDLORD, subject to the covenants and conditions of this Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANT'S attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
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11.5 Acts of God - In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations, or other causes beyond such party's
reasonable control shall not be counted in determining the time during which
work shall be completed, whether or such time be designated by a fixed date, a
fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All insurance which is carried by either party
with respect to the demised premises, whether or not required, shall include
provisions which either designates the other party as one of the insured or deny
to the insurer acquisition by subrogation of rights of recovery against the
other party. Each party shall be entitled to have duplicates or certificates of
any policies containing such provisions. Each party hereby waives all rights of
recovery against the other for loss or injury against which the waiving party is
protected by insurance containing such provisions.
11.7 Rights of Mortgagee and Subordination -
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
premises or the property of which said premises are a part; provided, however,
that an agreement or instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provisions of
this Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the premises by foreclosing or otherwise, TENANT'S use, occupancy
and quiet enjoyment of the premises shall not be disturbed by any such
proceedings; (iii) in the event the premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of the TENANT hereunder; (iv) in the event
the buildings and improvements upon the premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this Lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of
lesser sum than the rent or any other charges then due shall be deemed to be
other than on account of the earliest
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installment of such rent or charge due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed an accord and satisfaction, and LANDLORD may accept such check
or payment without prejudice to LANDLORD'S right to recover and balance of such
installments or pursue any other remedy in this Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by and
construed in accordance with the laws of the State of New Jersey, and if any
provisions of this Lease shall to any extent be invalid, the remainder of this
Lease shall not be affected thereby. There are no oral or written agreements
between LANDLORD and TENANT affecting this Lease. This Lease may be amended only
by instruments in writing executed by LANDLORD and TENANT. LANDLORD shall not be
deemed in any way or for any purpose, to have become, by the execution of this
Lease or any action taken thereunder, a partner of TENANT in its business or
otherwise a joint venturer or member of any enterprises of TENANT. The titles of
the several Articles and Sections contained herein are for convenience only and
shall not be considered in construing this Lease. Unless repugnant to the
context, the words "LANDLORD and TENANT" appearing in this Lease shall be
construed to mean those names above and their respective heirs, administrators,
successors and assigns, and those claiming through or under them respectively.
ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon final approval by the bank's Board of Directors of this
transaction and upon TENANT securing on or before January 1, 1999 the following
unconditional and unappealable approvals:
A. All state and federal regulatory approvals for the construction and
operation of a branch bank on the leased premises.
B. All municipal and governmental approvals required for the construction
of TENANT'S proposed building including the issuance of a building
permit ("Permit and Approvals").
12.2 Approvals - TENANT shall diligently pursue all required approvals.
12.3 Easements - TENANT shall have absolutely no right to grant any
easement with regard to the premises other than such easements to public
entities or public service corporations for the purpose of serving only the
premises, rights-of-way or easements on or over the premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
LANDLORD shall cooperate with TENANT to permit the creation of all necessary
easements.
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ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease - It is the intention of LANDLORD and TENANT that
the rental herein specified shall be net to LANDLORD in each lease year, that
all costs, expenses, and obligations of every kind relating to the TENANT'S use
and occupancy of the premises which may arise during the term of this Lease
shall be paid by TENANT, and that LANDLORD shall be indemnified by TENANT
against any such costs, expenses and obligations.
ARTICLE XIV
Right of First Refusal
14.1 Right of First Refusal to Lease - Prior to or within one hundred
eighty (180) days after the conclusion of this Lease and all options to extend
the term thereof, LANDLORD shall desire to accept a bona fide offer received by
it to lease any part of the Premises, LANDLORD shall notify TENANT of such a
desire in the manner provided in this Lease for the giving of notice, and TENANT
shall have the right of first refusal to lease said premises exercisable within
ten (10) days of said written notice upon the terms contained in the notice.
This provision shall only be effective after the termination, expiration or
conclusion of the original lease term and all options to extend the Lease, and
shall not affect the premises during the term of this Lease or any option to
extend the term thereof.
14.2 Right of First Refusal to Purchase - TENANT shall have the right of
first refusal to purchase the demised premises as hereinafter set forth. If at
any time during the term as extended, LANDLORD shall receive a bona fide offer
from a third person for the purchase of the demised premises, which offer
LANDLORD shall desire to accept, LANDLORD shall promptly deliver to TENANT a
copy of such offer, and TENANT may, within fifteen (15) days thereafter, elect
to purchase the demised premises on the same terms as those set forth in such
offer, excepting that TENANT shall be credited against the purchase price to be
paid by TENANT, with a sum equal to the amount of any brokerage commissions, if
any, which LANDLORD shall save by a sale to TENANT. If LANDLORD shall receive an
offer for the purchase of the demised premises, which is not consummated by
delivering a deed to the offerer, the TENANT'S right of first refusal to
purchase shall remain applicable to subsequent offers. If LANDLORD shall sell
the demised premises after a failure of TENANT to exercise its right of first
refusal, such shall be subject to the Lease and shall continue to be applicable
to subsequent sales of the demised premises. Notwithstanding the foregoing,
TENANT'S right of first refusal shall not apply or extend to any sales or
transfers between LANDLORD and any affiliates in which the principals of the
LANDLORD are the majority shareholders to any family trusts or to the heirs of
the principals of LANDLORD. LANDLORD shall be entitled to net the same amount
under any right of first refusal exercise.
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ARTICLE XV
Holdover
15.1 Holdover - In the event that TENANT continues in use and occupancy and
holds over in possession of the premises after the expiration of the Initial
Term or, properly exercised, the Option Term, in addition to all other damages
to which LANDLORD may be entitled, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
ARTICLE XVI
Common Area
16.1 Common Area - LANDLORD hereby grants to TENANT, in common with
LANDLORD and other tenants, with respective invitees and licensees, the right to
use the parking and public areas in the project of which the Leased Premises is
a part, subject to the conditions hereinafter provided. TENANT hereby agrees
that:
(a) LANDLORD may designate an area for TENANT'S employee parking
(b) Said parking area will not be used for permanent garaging or
overnight parking
(c) TENANT will conform with the reasonable rules and
regulations of the Shopping Center common area
(d) LANDLORD agrees that it will permit construction of the
parking area in substantial conformance with the attached
plan.
16.2 Common Area Charges - As additional rental, TENANT agrees to pay its
pro rata share of the common area maintenance costs which shall include
maintenance, landscaping, illumination, cleaning, snow and ice removals, common
sewerage disposal costs, common signs, and all other common area costs.
16.3 Determination and Payment of Common Area Charges - All such common
area charges shall be deemed additional rental and shall be paid in monthly
installments equal to 1/12th of TENANT'S estimated common are contribution.
TENANT'S common area pro rata shall be determined pursuant to the following
formula:
Total Common Area Charges x TENANT Net Square Ft = TENANT Common Area
Total Shopping Center Square Ft Charges
16.4 Construction Cost - TENANT shall construct its own building at its own
costs and bear all construction within its demised premises, as identified in
Exhibit A.
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ARTICLE XVII
Environmental
17.1 Environmental Matters -
A. LANDLORD represents and warrants that any handling, transportation,
storage, treatment or usage of hazardous or toxic substances (as defined by any
applicant government authority and hereinafter being referred to as "Hazardous
Materials") that has occurred or will occur on the Demised Premises shall be in
compliance with all applicable federal, state and local laws, regulations and
ordinances. TENANT represents and warrants that any handling, transportation,
storage, treatment or usage of Hazardous Materials by TENANT at the Demised
Premises shall be in compliance with applicable federal, state and local laws.
LANDLORD further represents and warrants that no leak, spill, discharge,
emission or disposal of Hazardous Materials has occurred or will occur on the
Demised Premises and that the soil, groundwater, soil vapor on or under the
Demised Premises is or will be free of Hazardous Materials as of the date
hereof. LANDLORD agrees to indemnify, defend and hold TENANT and its officers,
from any claims, judgments, damages, fines, penalties, costs, liabilities
(including sums paid in settlement of claims) or loss including attorney's fees,
consultants fees, and expert fees which arise during or after the Primary Term
or any Renewal Term, or in connection with the presence of suspected presence of
Hazardous Materials in the soil, groundwater, or soil vapor on or under the
Demised Premises, unless such Hazardous Materials are present solely as the
result of the acts of TENANT, its officers, employees or agents. Without
limiting the generality of the foregoing, this indemnification shall survive the
expiration of this Lease and does specifically cover costs incurred in
connection with any investigation of site conditions or any cleanup, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence or suspected presence of
Hazardous Materials in the soil, groundwater or soil vapor odor under the
Demised Premises, unless the hazardous Materials are present solely as the
result of the acts of TENANT, its officers, agents or employees. Without
limiting the generality of the foregoing, this indemnification shall also
specifically cover costs in connection with:
1. Hazardous Materials present or suspected to be present in
the soil, groundwater or soil vapor on or under the Demised
Premises before the date hereof; or
2. Hazardous Materials that migrate, flow, percolate, diffuse
or in any move onto or under the Demised Premises after the
date hereof; or
3. Hazardous Materials present on or under the Demised Premises
as a result of any discharge, dumping, spilling (accidental
or otherwise) onto the Demised Premises during or after the
Primary Term or any Renewal Term by any person or entity.
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B. TENANT agrees to indemnify LANDLORD and its officers, employees and
agents harmless from any claims, judgments, damages, fines, penalties, costs,
liabilities (including sums paid in settlement of claims) or loss including
attorney's fees, consultants fees and expert fees which arise during or after
the Primary Term or any Renewal Term in connection with the presence of toxic or
hazardous substances in the soil, groundwater, or soil vapor on or under the
Demised Premises to the extent such presence is caused by the acts of Tenant,
its officers, employees and agents.
C. A condition precedent to this Lease shall be TENANT's satisfactory
review of the report (the "Phase I Environmental Survey") on the environmental
condition of the land on which the Demised Premises is located. LANDLORD agrees
to provide TENANT with a Phase I Environmental Survey of the land on which the
Demised Premises is located. In the event that TENANT shall discover in its
review of the Phase I Environmental Survey that any Hazardous Materials may be
present in the soil, ground water or soil vapor on or under the Demised
Premises, TENANT may, upon written notice to LANDLORD within ten (10) days after
the date TENANT receives the Phase I Environmental Survey, terminate this Lease.
D. If during the term of this Lease any governmental authority
requires the remediation of Hazardous Materials from the Demised Premises or the
Shopping Center and such remediation materially affects TENANT's business
operations or poses a safety threat to TENANT's employees or customers, then
TENANT shall be entitled to an equitable abatement of rent from the date such
interference or safety hazard occurs to the date such interference and safety
hazard are no longer present.
ARTICLE XVIII
18.1 Title - This lease shall be subject and subordinate to the lien
of any bank or institution or other mortgage or mortgages now or hereafter in
force against LANDLORD's property, and to all advances made upon the security
thereof, provided the holder of any such mortgage shall execute and deliver to
TENANT an agreement, in the form of Exhibit D attached hereto, or as otherwise
agreed to by TENANT, LANDLORD and such holder, providing that such holder will
recognize this lease and not disturb TENANT's possession of the premises in the
event of foreclosure if TENANT is not then in default hereunder beyond any
applicable cure period. TENANT agrees, upon receipt of such agreement, to
execute such further instrument(s) as may be necessary to subordinate this lease
to the lien of any such mortgage. The term "mortgage" shall include deeds of
trust or any other similar hypothecations.
18.2 Ownership - LANDLORD warrants that it owns in fee the subject
premises subject only to the liens, mortgages and encumbrances listed on the
attached schedule, evidenced by a title report provided by LANDLORD to TENANT
within forty-five (45) days of the execution of this lease, which shall be
subject to TENANT's reasonable approval. TENANT'S lease hereunder shall be
subordinate only to
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such liens where the holder of such liens has executed and delivered to TENANT
in the form attached hereto a Subordination and Non-Disturbance Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first above written.
COMMERCE BANK/SHORE, N.A.
/s/ Jacqueline Watson BY: /s/ Thomas H. Arasz
- ------------------------- -----------------------------------------
Attest Thomas H. Arasz
Senior Vice President/Real Estate Officer
BRICK/BURNT TAVERN EQUITIES, L.L.C.
/s/ Jacqueline Watson BY: /s/ John P. Silvestri
- ------------------------- -----------------------------------------
Attest John P. Silvestri
Managing Member
LEASE
from
ABERDEEN EQUITIES, L.L.C.
to
COMMERCE BANK/SHORE, N.A.
Article 1
Reference Date and Exhibits
1.1 Data
DATE : November 30, 1998
LOCATION OF PREMISES : Rt. 34 & South Atlantic Avenue
Aberdeen, NJ
LANDLORD : ABERDEEN EQUITIES, L. L.C.
ORIGINAL ADDRESS OF : 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT : COMMERCE BANK/SHORE, N.A.
ORIGINAL ADDRESS OF : c/o Commerce Bancorp, Inc.
1701 Route 70 East
Cherry Hill, NJ 08034
LEASE TERM : Twenty Years
ANNUAL FIXED RENT RATE : Year 1-5 $ 80,000.00
6-10 $ 88,000.00
11-15 $ 96,800.00
16-20 $ 106,480.00
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1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits Page
1.1 Data 1
1.2 Table of Contents 2
ARTICLE II - Premises and Term
2.1 Premises 4
2.2 Term 4
2.3 Option to Extend 4
ARTICLE III - Improvements
3.1 Construction of Improvements 4
3.2 Contractor 4
3.3 Signs 5
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage 5
ARTICLE V - Real Estate Taxes
5.1 Real Estate Taxes 5
5.2 Taxes 5
5.3 Method of Payment 6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore 6
ARTICLE VII - TENANT'S Additional Covenants
7.1 Affirmative Covenants 6
7.1.1 Use 6
7.1.2 Compliance with Law 7
7.1.3 Payment of TENANT'S Work 7
7.1.4 Indemnity and Liability Insurance 7
7.1.5 LANDLORD'S Right to Enter 8
7.1.6 Personal Property at TENANT'S Risk 8
7.1.7 Payment of LANDLORD'S Cost of Enforcement 8
7.1.8 Yield Up 8
7.1.9 Maintenance 9
7.1.10 Insurance 9
7.2 Negative Comments 9
7.2.1 Overloading, Nuisance, etc. 9
7.2.2 Installation, Alteration or Additions 9
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use 10
8.2 Competing Use 10
ARTICLE IX - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty 10
9.2 Right to Terminate in Event of Casualty 10
9.3 Eminent Domain 10
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Page
ARTICLE X - Defaults
10.1 Events of Default 11
10.2 Remedies 12
10.3 Remedies Cumulative 12
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults 12
10.5 Effect of Waivers of Default 12
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc. 13
11.2 Notice from One Party to Other 13
11.3 Quiet Employment 13
11.4 Recording 13
11.5 Acts of God 13
11.6 Waiver of Subrogation 14
11.7 Rights of Mortgagee and Subordination 14
11.7.1 14
11.7.2 No Accord and Satisfaction 14
11.8 Applicable Law and Construction 15
ARTICLE XII - Permits and Approvals
12.1 Tenant Obligations 15
12.2 Approvals 15
12.3 Easements 15
ARTICLE XIII - Net, Net, Net Lease
13.1 Net, Net, Net Lease 15
ARTICLE XIV - Right of First Refusal
14.1 Right of First Refusal to Lease 16
14.2 Right of First Refusal to Purchase 16
ARTICLE XV - Holdover
15.1 Holdover 16
ARTICLE XVI - Common Area
16.1 Common Area 17
16.2 Common Area Charges 17
16.3 Determination and Payment of Common Area Charges 17
16.4 Construction Cost 17
ARTICLE XVII - Environmental
17.1 Environmental Matters 17
ARTICLE XVIII -
18.1 Title 18
18.2 Ownership 18
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ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit "A" and
described in Exhibit "B", both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto and a building no greater than 4,000
square feet, so long as such building is within the perimeter of the leased
premises as shown on Exhibit "A".
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of (a)
Ninety (90) days (inclusive of the time for objectors to appeal for any
approval) after LANDLORD has obtained approval for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term of twenty (20) years
unless sooner terminated as hereinafter provided. When dates of the beginning
and end of the Lease term have been determined, such dates shall be evidenced by
a document in form for recording, executed by LANDLORD and TENANT and delivered
each to the other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1 - 5 $ 117,128.00
6 -10 $ 128,840.00
11-15 $ 141,724.00
16-20 $ 155,897.00
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term. Lack of written notice by TENANT of its intention to exercise
any option prior to ninety (90) days before the expiration of the then current
term shall be deemed to constitute exercise of that option by the TENANT.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its sole
cost, a branch banking facility, pursuant to the attached Site Plan, subject to
reasonable approval by the LANDLORD of the building plans and specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD. Approval by LANDLORD shall not be unreasonably withheld.
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3.3 Signs - TENANT shall have the right to erect such signs as permitted by
applicable zoning ordinances within the leased area, provided it does not
preclude LANDLORD from erecting signs for tenants for the balance of the
shopping center.
ARTICLE IV
Rent
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times.
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly installments in
advance on the first (1st) day of each month beginning on the Commencement Date.
In addition to the base annual fixed rent, TENANT shall pay as and when the same
become due and owing as additional rents, all other monies provided for in the
Lease. It is the parties intention that all charges and assessments charged to
or assessed against the Premises shall be the responsibility of the TENANT, such
that the Lease shall be "net, net, net" to the LANDLORD, excepting only interest
and principal on any mortgage made by the LANDLORD and effecting the Premises.
(b) For purposes of this Lease, the scheduled increases in the base annual
fixed rate shall occur on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th) years of the Initial Term as same is determined pursuant to
Paragraph 2.2 and on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th), years of the Option Terms.
(c) If any installment under this Lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD
may, at its option, declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all real
estate taxes levied upon the Premises, improvements located on the Premises, the
leasehold estate, or any sublease hold estate of any nature including special
assessments. The obligation for payment by TENANT of all real estate taxes shall
commence simultaneously with the payment of rent hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon rents and personal
property, including trade fixtures and inventory, kept on the demised Premises,
covered by Section 5.1 after presentation to TENANT by LANDLORD of statements
from the taxing jurisdiction in which said property is located. TENANT, however,
will pay only the lowest discounted amount and will not be required to pay
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any penalty, interest or cost occurring by reason of LANDLORD'S failure to
secure said tax statements in a timely fashion from the taxing authorities for
any tax required to be paid by TENANT.
LANDLORD may, however, direct the taxing authorities to send the statements
directly to TENANT. "In the event LANDLORD directs the taxing authorities to
send a statement directly to TENANT, TENANT shall make all such payments
directly to the taxing authority at least ten (10) days before any delinquency
and before any fine, interest or penalty shall become due or imposed by
operation of law for their non-payment. Further, TENANT shall furnish to
LANDLORD within ten (10) days of the date when any tax, assessment or charge
would become delinquent, receipts or other satisfactory evidence establishing
the timely payment of said taxes or charges." LANDLORD further agrees that
TENANT, in the name of LANDLORD, but at TENANT'S sole expense, may protest any
assessment before any taxing authority or board or maintain any necessary legal
action in reference to said assessment or for the recovery of any taxes paid
thereon. Nothing herein contained shall require TENANT to pay any income or
excess profits, taxes assessed against LANDLORD or any corporation, capital
stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising TENANT
of the amount of real estate taxes, together with a copy of the tax bill, and
TENANT shall pay such amount to LANDLORD within thirty (30) days after receipt
of such notice. If this Lease shall terminate during a tax year, TENANT shall
pay to LANDLORD, a prorated portion of the amount that would have been due for
the full tax year based on the number of days of said tax year expired on the
date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to the
authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone connection and
standby fees and other utilities used or consumed in the Premises and shall make
its own arrangements for such utilities. In the event any such services cannot
be reasonably procured from any public agency, and LANDLORD provides any such
services, TENANT shall reimburse LANDLORD for its proportionate share of any
such services used or consumed in the demised premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
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7.1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, for any other lawful commercial purposes
which do not conflict with existing primary uses in the Shopping Center which
forms part of the common area, with such uses to be approved by the LANDLORD,
which approval shall not be unreasonably withheld. Neither TENANT nor its
subtenants, if any, shall commit any nuisance, nor permit the emission of any
objectionable noise or odor, nor bring on, deposit or allow to be brought on or
deposited on the Premises any asbestos materials or any other Hazardous
Substance or materials as the same may be defined by Federal, State or local
laws, rules, statutes or regulations or in the Environmental Rider annexed
hereto, nor use the property in such a manner which negatively effects the
reversion.
7.1.2 Compliance with Law - To make all repairs, alterations,
additions or replacements to the Premises required by any law or ordinance or
any order or regulation of any public authority because of TENANT'S use of the
Premises, to keep the Premises equipped with all safety appliances so required
because of such use; to pay all municipal, county or state taxes assessed
against the personal property of any kind owned by or placed in, upon or about
the premises by TENANT; and to comply with the orders and regulations of all
governmental authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems unduly burdensome or inappropriate
and TENANT shall not be in default for failure to comply with such law until the
legally permitted time following final determination of TENANT'S contest
expires; provided, however, if LANDLORD gives notice of request, TENANT shall
first furnish LANDLORD with a bond, satisfactory to LANDLORD in form and
insurer, guaranteeing compliance by TENANT with the contested law and
indemnifying LANDLORD against all liability that LANDLORD may sustain by reason
of TENANT'S failure or delay in complying with the law. LANDLORD may, but is not
required to, contest any such law independent of TENANT. On TENANT'S notice of
request, LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANT'S Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises
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unless arising from any omission, fault, negligence or other misconduct of
LANDLORD, and from all claims or damage to or of any person or property
occasioned by any omission, fault, neglect or other misconduct of TENANT; to
maintain in responsible companies qualified to do business in the state in which
the premises is located and in good standing therein, public liability insurance
covering the premises insuring LANDLORD, as well as TENANT, with limits at least
equal to those stated in Section 1.1, workmen's compensation insurance with
statutory limits, covering all of TENANT'S employees working in the premises,
and to deposit promptly with LANDLORD certificates for such insurance and all
renewals thereof, bearing the endorsement that the policies will not be canceled
until after ten (10) days written notice to LANDLORD. TENANT'S obligations
hereunder may be satisfied through a blanket insurance policy covering other
interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANT'S operation and conduct of its business in the demised premises or
compromise security.
7.1.6 Personal Property at TENANT'S Risk - That all of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of TENANT and of all persons claiming under TENANT, may be on the
premises, shall be at the sole risk and hazard of TENANT, and if the whole or
any part thereof shall be destroyed or damaged by fire, water, or otherwise, or
by the leakage or bursting of water pipes, steam pipes or other pipes, by theft
or from any other cause, no part of said loss or damage is to charged to or be
borne by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease, TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the premises and yield up
the premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds therefrom, all of which shall become the property of LANDLORD. Any
holdover by TENANT will not be deemed an
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extension of this Lease, and TENANT shall indemnify LANDLORD against all losses
and damages from a failure to surrender.
7.1.9 Maintenance - Throughout the term, TENANT shall, at TENANT'S
sole cost and expense maintain the premises and all improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) federal,
state, county, municipal and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting board or insurance inspection bureau
having or claiming jurisdiction; and (3) all insurance companies insuring all or
any part of the premises of the improvements located thereon, or both except as
provided below and subject only to the provisions of Paragraph 9.2, TENANT shall
promptly and diligently repair, restore and replace as required to maintain the
premises and the improvements in the condition set forth above, or to remedy all
damage to or destruction of all or any part of the improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality and use to the condition of the
improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the premises, LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together will endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement parts value above foundation walls. All insurance policies shall
name the LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the Lease
term and such further times as TENANT occupies the premises or any part thereof:
7.2.1 Overloading Nuisance, etc. - Not to injure, overload, deface or
otherwise harm the premises; nor commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation, Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not be
unreasonable withheld. No consent shall be required for nonstructural
alterations not exceeding $100,000 in cost. No
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addition will be allowed which increases the building size to more than 4,000
square feet, or which violates the terms of Paragraph 2.1 of this Lease.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B". LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANT'S sole and conclusive remedy for a breach of this warranty
shall be its right, at its election, to terminate the Lease prior to
commencement of construction.
8.2 Competing Use - During the term of this Lease, provided TENANT is not
in default, LANDLORD agrees not to lease or sell any portion of the project, of
which the leased premises is a part, to a commercial bank, savings bank, savings
and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this Article shall include a sale in lieu of the exercise of the
right of eminent domain) or ordered to be demolished by the action of any public
authority in consequence of a fire or other casualty, this Lease shall, unless
it is terminated as provided below in Section 9.2 or 9.3, remain in full force
and effect and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this Lease.
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TENANT reserves the unto itself the right to prosecute its claim for an award
based upon its leasehold interest for such taking, without impairing any rights
of LANDLORD for the taking of or injury to the reversion.
In the event that a part of the demised premises shall be taken or
condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof, or (c) the
part so taken shall consist of 25% or more of the total parking area, or (d)
such partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the date when possession of the premises shall be required by the
condemning authority elect to terminate this Lease, or if any option to purchase
the premises is conferred upon the TENANT by any other provision of this Lease,
may as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purpose option. In the event that
TENANT shall fail to exercise any such option to terminate this Lease or to
purchase the premises or in the event that a part of the demised premises shall
be taken or condemned under circumstances under which the TENANT will have no
such option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to an economic
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, to the extent that may have been necessary by
such condemnation, subject to a pro-rata reduction in rental. Any dispute
resulting from Section 9.3 of this Lease shall be submitted to the American
Arbitration Society, whose decision shall be binding on the parties hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) Tenant shall default in the performance of
any of its obligations to pay rent or additional rent hereunder and if such
default shall continue for ten (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such corrective action to completion, or
(b) any assignment shall be made by TENANT for the benefit of credits, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights
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available to it under law, including repossession of the leased property,
termination of the lease, acceleration of all future rental payments, and such
other rights as may be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of the
provisions contained in Section 10.1 or shall be otherwise terminated for breach
of any obligation of TENANT, TENANT covenants to pay punctually to LANDLORD all
the sums and perform all the obligations which TENANT covenants in this Lease to
pay and to perform in the same manner and to the same extent at the same time as
if this Lease had not been terminated so long as such obligations shall have not
been rendered unnecessary or impossible of performance by the subsequent
re-letting or other occupancy permitted by LANDLORD. In calculating the amounts
to be paid by TENANT under the foregoing covenant, TENANT shall be credited with
the net proceeds of any rent or the value of other considerations obtained by
LANDLORD by re-letting the premises, after deducting all LANDLORD'S expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, reasonable fees for legal services and expenses of
preparing the premises for re-letting, it being agreed by TENANT that LANDLORD
may (i) re-let the premises or any part or parts thereof, for a term or terms
which may at LANDLORD'S option be equal to or less than or exceed the period
which would otherwise have constituted the balance of the Lease term, and (ii)
make such alterations, repairs and decorations in the premises as LANDLORD in
its sole judgement considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which LANDLORD
may have under this Lease, and at law and equity, shall be cumulative and shall
not be deemed inconsistent with each other, and any two or more of all such
rights and remedies may be exercised at the same time insofar as permitted by
law.
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
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10.5 Effect of Waivers on Default - No consent or waiver, expressed or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
11.1 Assignment, Subletting, etc. - LANDLORD'S written consent shall be
required for any assignment, transfer or subletting except to another financial
institution which consent shall not be unreasonably withheld.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed, if to TENANT, at the original address of TENANT or such other
addresses as TENANT shall have last designated by notice in writing to LANDLORD,
and if to LANDLORD, at the original address of LANDLORD or such other address as
LANDLORD shall have last designated by notice in writing to TENANT.
11.3 Quiet Employment - LANDLORD agrees that upon TENANT'S paying the rent
and performing and observing the agreements, conditions and other provisions on
its part to be performed and observed, TENANT shall and may peaceably and
quietly have, hold and enjoy the demised premises during the Lease term without
any manner or hindrance or molestation from LANDLORD or anyone claiming under
LANDLORD, subject to the covenants and conditions of this Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANT'S attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
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11.5 Acts of God - In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations, or other causes beyond such party's
reasonable control shall not be counted in determining the time during which
work shall be completed, whether or such time be designated by a fixed date, a
fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All insurance which is carried by either party
with respect to the demised premises, whether or not required, shall include
provisions which either designates the other party as one of the insured or deny
to the insurer acquisition by subrogation of rights of recovery against the
other party. Each party shall be entitled to have duplicates or certificates of
any policies containing such provisions. Each party hereby waives all rights of
recovery against the other for loss or injury against which the waiving party is
protected by insurance containing such provisions.
11.7 Rights of Mortgagee and Subordination -
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
premises or the property of which said premises are a part; provided, however,
that an agreement or instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provisions of
this Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the premises by foreclosing or otherwise, TENANT'S use, occupancy
and quiet enjoyment of the premises shall not be disturbed by any such
proceedings; (iii) in the event the premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of the TENANT hereunder; (iv) in the event
the buildings and improvements upon the premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this Lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of
lesser sum than the rent or any other charges then due shall be deemed to be
other than on account of the earliest
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installment of such rent or charge due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed an accord and satisfaction, and LANDLORD may accept such check
or payment without prejudice to LANDLORD'S right to recover and balance of such
installments or pursue any other remedy in this Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by and
construed in accordance with the laws of the State of New Jersey, and if any
provisions of this Lease shall to any extent be invalid, the remainder of this
Lease shall not be affected thereby. There are no oral or written agreements
between LANDLORD and TENANT affecting this Lease. This Lease may be amended only
by instruments in writing executed by LANDLORD and TENANT. LANDLORD shall not be
deemed in any way or for any purpose, to have become, by the execution of this
Lease or any action taken thereunder, a partner of TENANT in its business or
otherwise a joint venturer or member of any enterprises of TENANT. The titles of
the several Articles and Sections contained herein are for convenience only and
shall not be considered in construing this Lease. Unless repugnant to the
context, the words "LANDLORD and TENANT" appearing in this Lease shall be
construed to mean those names above and their respective heirs, administrators,
successors and assigns, and those claiming through or under them respectively.
ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon final approval by the bank's Board of Directors of this
transaction and upon TENANT securing on or before November 12, 1999 the
following unconditional and unappealable approvals:
A. All state and federal regulatory approvals for the construction and
operation of a branch bank on the leased premises.
B. All municipal and governmental approvals required for the construction
of TENANT'S proposed building including the issuance of a building
permit ("Permit and Approvals").
12.2 Approvals - TENANT shall diligently pursue all required approvals.
12.3 Easements - TENANT shall have absolutely no right to grant any
easement with regard to the premises other than such easements to public
entities or public service corporations for the purpose of serving only the
premises, rights-of-way or easements on or over the premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
LANDLORD shall cooperate with TENANT to permit the creation of all necessary
easements.
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ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease - It is the intention of LANDLORD and TENANT that
the rental herein specified shall be net to LANDLORD in each lease year, that
all costs, expenses, and obligations of every kind relating to the TENANT'S use
and occupancy of the premises which may arise during the term of this Lease
shall be paid by TENANT, and that LANDLORD shall be indemnified by TENANT
against any such costs, expenses and obligations.
ARTICLE XIV
Right of First Refusal
14.1 Right of First Refusal to Lease - Prior to or within one hundred
eighty (180) days after the conclusion of this Lease and all options to extend
the term thereof, LANDLORD shall desire to accept a bona fide offer received by
it to lease any part of the Premises, LANDLORD shall notify TENANT of such a
desire in the manner provided in this Lease for the giving of notice, and TENANT
shall have the right of first refusal to lease said premises exercisable within
ten (10) days of said written notice upon the terms contained in the notice.
This provision shall only be effective after the termination, expiration or
conclusion of the original lease term and all options to extend the Lease, and
shall not affect the premises during the term of this Lease or any option to
extend the term thereof.
14.2 Right of First Refusal to Purchase - TENANT shall have the right of
first refusal to purchase the demised premises as hereinafter set forth. If at
any time during the term as extended, LANDLORD shall receive a bona fide offer
from a third person for the purchase of the demised premises, which offer
LANDLORD shall desire to accept, LANDLORD shall promptly deliver to TENANT a
copy of such offer, and TENANT may, within fifteen (15) days thereafter, elect
to purchase the demised premises on the same terms as those set forth in such
offer, excepting that TENANT shall be credited against the purchase price to be
paid by TENANT, with a sum equal to the amount of any brokerage commissions, if
any, which LANDLORD shall save by a sale to TENANT. If LANDLORD shall receive an
offer for the purchase of the demised premises, which is not consummated by
delivering a deed to the offerer, the TENANT'S right of first refusal to
purchase shall remain applicable to subsequent offers. If LANDLORD shall sell
the demised premises after a failure of TENANT to exercise its right of first
refusal, such shall be subject to the Lease and shall continue to be applicable
to subsequent sales of the demised premises. Notwithstanding the foregoing,
TENANT'S right of first refusal shall not apply or extend to any sales or
transfers between LANDLORD and any affiliates in which the principals of the
LANDLORD are the majority shareholders to any family trusts or to the heirs of
the principals of LANDLORD. LANDLORD shall be entitled to net the same amount
under any right of first refusal exercise.
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ARTICLE XV
Holdover
15.1 Holdover - In the event that TENANT continues in use and occupancy and
holds over in possession of the premises after the expiration of the Initial
Term or, properly exercised, the Option Term, in addition to all other damages
to which LANDLORD may be entitled, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
ARTICLE XVI
Common Area
16.1 Common Area - LANDLORD hereby grants to TENANT, in common with
LANDLORD and other tenants, with respective invitees and licensees, the right to
use the parking and public areas in the project of which the Leased Premises is
a part, subject to the conditions hereinafter provided. TENANT hereby agrees
that:
(a) LANDLORD may designate an area for TENANT'S employee parking
(b) Said parking area will not be used for permanent garaging or
overnight parking
(c) TENANT will conform with the reasonable rules and regulations of
the Shopping Center common area
(d) LANDLORD agrees that it will permit construction of the parking
area in substantial conformance with the attached plan.
16.2 Common Area Charges - As additional rental, TENANT agrees to pay its
pro rata share of the common area maintenance costs which shall include
maintenance, landscaping, illumination, cleaning, snow and ice removals, common
sewerage disposal costs, common signs, and all other common area costs.
16.3 Determination and Payment of Common Area Charges - All such common
area charges shall be deemed additional rental and shall be paid in monthly
installments equal to 1/12th of TENANT'S estimated common are contribution.
TENANT'S common area pro rata shall be determined pursuant to the following
formula:
Total Common Area Charges x TENANT Net Square Ft = TENANT Common Area
Total Shopping Center Square Ft Charges
16.4 Construction Cost - TENANT shall construct its own building at its own
costs and bear all construction within its demised premises, as identified in
Exhibit A.
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ARTICLE XVII
Environmental
17.1 Environmental Matters -
A. LANDLORD represents and warrants that any handling, transportation,
storage, treatment or usage of hazardous or toxic substances (as defined by any
applicant government authority and hereinafter being referred to as "Hazardous
Materials") that has occurred or will occur on the Demised Premises shall be in
compliance with all applicable federal, state and local laws, regulations and
ordinances. TENANT represents and warrants that any handling, transportation,
storage, treatment or usage of Hazardous Materials by TENANT at the Demised
Premises shall be in compliance with applicable federal, state and local laws.
LANDLORD further represents and warrants that no leak, spill, discharge,
emission or disposal of Hazardous Materials has occurred or will occur on the
Demised Premises and that the soil, groundwater, soil vapor on or under the
Demised Premises is or will be free of Hazardous Materials as of the date
hereof. LANDLORD agrees to indemnify, defend and hold TENANT and its officers,
from any claims, judgments, damages, fines, penalties, costs, liabilities
(including sums paid in settlement of claims) or loss including attorney's fees,
consultants fees, and expert fees which arise during or after the Primary Term
or any Renewal Term, or in connection with the presence of suspected presence of
Hazardous Materials in the soil, groundwater, or soil vapor on or under the
Demised Premises, unless such Hazardous Materials are present solely as the
result of the acts of TENANT, its officers, employees or agents. Without
limiting the generality of the foregoing, this indemnification shall survive the
expiration of this Lease and does specifically cover costs incurred in
connection with any investigation of site conditions or any cleanup, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence or suspected presence of
Hazardous Materials in the soil, groundwater or soil vapor odor under the
Demised Premises, unless the hazardous Materials are present solely as the
result of the acts of TENANT, its officers, agents or employees. Without
limiting the generality of the foregoing, this indemnification shall also
specifically cover costs in connection with:
1. Hazardous Materials present or suspected to be
present in the soil, groundwater or soil vapor on
or under the Demised Premises before the date
hereof; or
2. Hazardous Materials that migrate, flow, percolate,
diffuse or in any move onto or under the Demised
Premises after the date hereof; or
3. Hazardous Materials present on or under the
Demised Premises as a result of any discharge,
dumping, spilling (accidental or otherwise) onto
the Demised Premises during or after the Primary
Term or any Renewal Term by any person or entity.
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B. TENANT agrees to indemnify LANDLORD and its officers, employees and
agents harmless from any claims, judgments, damages, fines, penalties, costs,
liabilities (including sums paid in settlement of claims) or loss including
attorney's fees, consultants fees and expert fees which arise during or after
the Primary Term or any Renewal Term in connection with the presence of toxic or
hazardous substances in the soil, groundwater, or soil vapor on or under the
Demised Premises to the extent such presence is caused by the acts of Tenant,
its officers, employees and agents.
C. A condition precedent to this Lease shall be TENANT's satisfactory
review of the report (the "Phase I Environmental Survey") on the environmental
condition of the land on which the Demised Premises is located. LANDLORD agrees
to provide TENANT with a Phase I Environmental Survey of the land on which the
Demised Premises is located. In the event that TENANT shall discover in its
review of the Phase I Environmental Survey that any Hazardous Materials may be
present in the soil, ground water or soil vapor on or under the Demised
Premises, TENANT may, upon written notice to LANDLORD within ten (10) days after
the date TENANT receives the Phase I Environmental Survey, terminate this Lease.
D. If during the term of this Lease any governmental authority
requires the remediation of Hazardous Materials from the Demised Premises or the
Shopping Center and such remediation materially affects TENANT's business
operations or poses a safety threat to TENANT's employees or customers, then
TENANT shall be entitled to an equitable abatement of rent from the date such
interference or safety hazard occurs to the date such interference and safety
hazard are no longer present.
ARTICLE XVIII
18.1 Title - This lease shall be subject and subordinate to the lien of any
bank or institution or other mortgage or mortgages now or hereafter in force
against LANDLORD's property, and to all advances made upon the security thereof,
provided the holder of any such mortgage shall execute and deliver to TENANT an
agreement, in the form of Exhibit D attached hereto, or as otherwise agreed to
by TENANT, LANDLORD and such holder, providing that such holder will recognize
this lease and not disturb TENANT's possession of the premises in the event of
foreclosure if TENANT is not then in default hereunder beyond any applicable
cure period. TENANT agrees, upon receipt of such agreement, to execute such
further instrument(s) as may be necessary to subordinate this lease to the lien
of any such mortgage. The term "mortgage" shall include deeds of trust or any
other similar hypothecations.
18.2 Ownership - LANDLORD warrants that it owns in fee the subject premises
subject only to the liens, mortgages and encumbrances listed on the attached
schedule, evidenced by a title report provided by LANDLORD to TENANT within
forty-five (45) days of the execution of this lease, which shall be subject to
TEWNANT's reasonable approval. TENANT'S lease hereunder shall be subordinate
only to
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such liens where the holder of such liens has executed and delivered to TENANT
in the form attached hereto a Subordination and Non-Disturbance Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first above written. COMMERCE BANK/SHORE, N. A.
/s/ Jacqueline Watson BY: /s/ Thomas H. Arasz
- ----------------------------- -----------------------------------------
Attest Thomas H. Arasz
Senior Vice President/Real Estate Officer
ABERDEEN EQUITES, L.L.C.
/s/ Jacqueline Watson BY: /s/ John P. Silvestri
- ----------------------------- -----------------------------------------
Attest John P. Silvestri
Managing Member
20
LEASE
from
HAMILTON/WASH PROPERTIES, L.C.C.
to
COMMERCE BANK, N.A.
Article 1
Reference Date and Exhibits
1.1 Data
DATE : November 30, 1998
LOCATION OF PREMISES : Rt.33 & Washington Avenue
Hamilton Township, NJ
LANDLORD : HAMILTON/WASH PROPERTIES, L.L.C.
ORIGINAL ADDRESS OF : 17000 Horizon Way
Suite 200
Mt. Laurel, NJ 08054
TENANT : COMMERCE BANK, N.A.
ORIGINAL ADDRESS OF : c/o Commerce Bancorp, Inc.
1701 Route 70 East
Cherry Hill, NJ 08034
LEASE TERM : Twenty Years
ANNUAL FIXED RENT RATE : Year 1-5 $70,000.00
6-10 $77,000.00
11-15 $84,700.00
16-20 $93,170.00
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1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits Page
1.1 Data 1
1.2 Table of Contents 2
ARTICLE II - Premises and Term
2.1 Premises 4
2.2 Term 4
2.3 Option to Extend 4
ARTICLE III - Improvements
3.1 Construction of Improvements 4
3.2 Contractor 4
3.3 Signs 5
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage 5
ARTICLE V - Real Estate Taxes
5.1 Real Estate Taxes 5
5.2 Taxes 5
5.3 Method of Payment 6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore 6
ARTICLE VII - TENANT'S Additional Covenants
7.1 Affirmative Covenants 6
7.1.1 Use 6
7.1.2 Compliance with Law 7
7.1.3 Payment of TENANT'S Work 7
7.1.4 Indemnity and Liability Insurance 7
7.1.5 LANDLORD'S Right to Enter 8
7.1.6 Personal Property at TENANT'S Risk 8
7.1.7 Payment of LANDLORD'S Cost of Enforcement 8
7.1.8 Yield Up 8
7.1.9 Maintenance 9
7.1.10 Insurance 9
7.2 Negative Comments 9
7.2.1 Overloading, Nuisance, etc. 9
7.2.2 Installation, Alteration or Additions 9
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use 10
8.2 Competing Use 10
ARTICLE IX - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty 10
9.2 Right to Terminate in Event of Casualty 10
9.3 Eminent Domain 10
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Page
ARTICLE X - Defaults
10.1 Events of Default 11
10.2 Remedies 12
10.3 Remedies Cumulative 12
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults 12
10.5 Effect of Waivers of Default 12
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc. 13
11.2 Notice from One Party to Other 13
11.3 Quiet Employment 13
11.4 Recording 13
11.5 Acts of God 13
11.6 Waiver of Subrogation 14
11.7 Rights of Mortgagee and Subordination 14
11.7.1 14
11.7.2 No Accord and Satisfaction 14
11.8 Applicable Law and Construction 15
ARTICLE XII - Permits and Approvals
12.1 Tenant Obligations 15
12.2 Approvals 15
12.3 Easements 15
ARTICLE XIII - Net, Net, Net Lease
13.1 Net, Net, Net Lease 15
ARTICLE XIV - Right of First Refusal
14.1 Right of First Refusal to Lease 16
14.2 Right of First Refusal to Purchase 16
ARTICLE XV - Holdover
15.1 Holdover 16
ARTICLE XVI - Common Area
16.1 Common Area 17
16.2 Common Area Charges 17
16.3 Determination and Payment of Common Area Charges 17
16.4 Construction Cost 17
ARTICLE XVII - Environmental
17.1 Environmental Matters 17
ARTICLE XVIII -
18.1 Title 18
18.2 Ownership 18
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ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit "A" and
described in Exhibit "B", both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto and a building no greater than 4,000
square feet, so long as such building is within the perimeter of the leased
premises as shown on Exhibit "A".
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of (a)
Ninety (90) days (inclusive of the time for objectors to appeal for any
approval) after LANDLORD has obtained approval for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term of twenty (20) years
unless sooner terminated as hereinafter provided. When dates of the beginning
and end of the Lease term have been determined, such dates shall be evidenced by
a document in form for recording, executed by LANDLORD and TENANT and delivered
each to the other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1 - 5 $ 102,487.00
6 -10 $ 112,735.00
11-15 $ 124,009.00
16-20 $ 136,410.00
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term. Lack of written notice by TENANT of its intention to exercise
any option prior to ninety (90) days before the expiration of the then current
term shall be deemed to constitute exercise of that option by the TENANT.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its sole
cost, a branch banking facility, pursuant to the attached Site Plan, subject to
reasonable approval by the LANDLORD of the building plans and specifications.
3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD. Approval by LANDLORD shall not be unreasonably withheld.
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3.3 Signs - TENANT shall have the right to erect such signs as permitted by
applicable zoning ordinances within the leased area, provided it does not
preclude LANDLORD from erecting signs for tenants for the balance of the
shopping center.
ARTICLE IV
Rent
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times.
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly installments in
advance on the first (1st) day of each month beginning on the Commencement Date.
In addition to the base annual fixed rent, TENANT shall pay as and when the same
become due and owing as additional rents, all other monies provided for in the
Lease. It is the parties intention that all charges and assessments charged to
or assessed against the Premises shall be the responsibility of the TENANT, such
that the Lease shall be "net, net, net" to the LANDLORD, excepting only interest
and principal on any mortgage made by the LANDLORD and effecting the Premises.
(b) For purposes of this Lease, the scheduled increases in the base annual
fixed rate shall occur on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th) years of the Initial Term as same is determined pursuant to
Paragraph 2.2 and on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th), years of the Option Terms.
(c) If any installment under this Lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD
may, at its option, declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all real
estate taxes levied upon the Premises, improvements located on the Premises, the
leasehold estate, or any sublease hold estate of any nature including special
assessments. The obligation for payment by TENANT of all real estate taxes shall
commence simultaneously with the payment of rent hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon rents and personal
property, including trade fixtures and inventory, kept on the demised Premises,
covered by Section 5.1 after presentation to TENANT by LANDLORD of statements
from the taxing jurisdiction in which said property is located. TENANT, however,
will pay only the lowest discounted amount and will not be required to pay
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any penalty, interest or cost occurring by reason of LANDLORD'S failure to
secure said tax statements in a timely fashion from the taxing authorities for
any tax required to be paid by TENANT.
LANDLORD may, however, direct the taxing authorities to send the statements
directly to TENANT. "In the event LANDLORD directs the taxing authorities to
send a statement directly to TENANT, TENANT shall make all such payments
directly to the taxing authority at least ten (10) days before any delinquency
and before any fine, interest or penalty shall become due or imposed by
operation of law for their non-payment. Further, TENANT shall furnish to
LANDLORD within ten (10) days of the date when any tax, assessment or charge
would become delinquent, receipts or other satisfactory evidence establishing
the timely payment of said taxes or charges." LANDLORD further agrees that
TENANT, in the name of LANDLORD, but at TENANT'S sole expense, may protest any
assessment before any taxing authority or board or maintain any necessary legal
action in reference to said assessment or for the recovery of any taxes paid
thereon. Nothing herein contained shall require TENANT to pay any income or
excess profits, taxes assessed against LANDLORD or any corporation, capital
stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising TENANT
of the amount of real estate taxes, together with a copy of the tax bill, and
TENANT shall pay such amount to LANDLORD within thirty (30) days after receipt
of such notice. If this Lease shall terminate during a tax year, TENANT shall
pay to LANDLORD, a prorated portion of the amount that would have been due for
the full tax year based on the number of days of said tax year expired on the
date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to the
authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone connection and
standby fees and other utilities used or consumed in the Premises and shall make
its own arrangements for such utilities. In the event any such services cannot
be reasonably procured from any public agency, and LANDLORD provides any such
services, TENANT shall reimburse LANDLORD for its proportionate share of any
such services used or consumed in the demised premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenant
7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
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7.1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, for any other lawful commercial purposes
which do not conflict with existing primary uses in the Shopping Center which
forms part of the common area, with such uses to be approved by the LANDLORD,
which approval shall not be unreasonably withheld. Neither TENANT nor its
subtenants, if any, shall commit any nuisance, nor permit the emission of any
objectionable noise or odor, nor bring on, deposit or allow to be brought on or
deposited on the Premises any asbestos materials or any other Hazardous
Substance or materials as the same may be defined by Federal, State or local
laws, rules, statutes or regulations or in the Environmental Rider annexed
hereto, nor use the property in such a manner which negatively effects the
reversion.
7.1.2 Compliance with Law - To make all repairs, alterations,
additions or replacements to the Premises required by any law or ordinance or
any order or regulation of any public authority because of TENANT'S use of the
Premises, to keep the Premises equipped with all safety appliances so required
because of such use; to pay all municipal, county or state taxes assessed
against the personal property of any kind owned by or placed in, upon or about
the premises by TENANT; and to comply with the orders and regulations of all
governmental authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems unduly burdensome or inappropriate
and TENANT shall not be in default for failure to comply with such law until the
legally permitted time following final determination of TENANT'S contest
expires; provided, however, if LANDLORD gives notice of request, TENANT shall
first furnish LANDLORD with a bond, satisfactory to LANDLORD in form and
insurer, guaranteeing compliance by TENANT with the contested law and
indemnifying LANDLORD against all liability that LANDLORD may sustain by reason
of TENANT'S failure or delay in complying with the law. LANDLORD may, but is not
required to, contest any such law independent of TENANT. On TENANT'S notice of
request, LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANT'S Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises
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unless arising from any omission, fault, negligence or other misconduct of
LANDLORD, and from all claims or damage to or of any person or property
occasioned by any omission, fault, neglect or other misconduct of TENANT; to
maintain in responsible companies qualified to do business in the state in which
the premises is located and in good standing therein, public liability insurance
covering the premises insuring LANDLORD, as well as TENANT, with limits at least
equal to those stated in Section 1.1, workmen's compensation insurance with
statutory limits, covering all of TENANT'S employees working in the premises,
and to deposit promptly with LANDLORD certificates for such insurance and all
renewals thereof, bearing the endorsement that the policies will not be canceled
until after ten (10) days written notice to LANDLORD. TENANT'S obligations
hereunder may be satisfied through a blanket insurance policy covering other
interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANT'S operation and conduct of its business in the demised premises or
compromise security.
7.1.6 Personal Property at TENANT'S Risk - That all of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of TENANT and of all persons claiming under TENANT, may be on the
premises, shall be at the sole risk and hazard of TENANT, and if the whole or
any part thereof shall be destroyed or damaged by fire, water, or otherwise, or
by the leakage or bursting of water pipes, steam pipes or other pipes, by theft
or from any other cause, no part of said loss or damage is to charged to or be
borne by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease, TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the premises and yield up
the premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds therefrom, all of which shall become the property of LANDLORD. Any
holdover by TENANT will not be deemed an
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extension of this Lease, and TENANT shall indemnify LANDLORD against all losses
and damages from a failure to surrender.
7.1.9 Maintenance - Throughout the term, TENANT shall, at TENANT'S
sole cost and expense maintain the premises and all improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) federal,
state, county, municipal and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting board or insurance inspection bureau
having or claiming jurisdiction; and (3) all insurance companies insuring all or
any part of the premises of the improvements located thereon, or both except as
provided below and subject only to the provisions of Paragraph 9.2, TENANT shall
promptly and diligently repair, restore and replace as required to maintain the
premises and the improvements in the condition set forth above, or to remedy all
damage to or destruction of all or any part of the improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality and use to the condition of the
improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the premises, LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together will endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement parts value above foundation walls. All insurance policies shall
name the LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the Lease
term and such further times as TENANT occupies the premises or any part thereof:
7.2.1 Overloading Nuisance, etc. - Not to injure, overload, deface or
otherwise harm the premises; nor commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation, Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not be
unreasonable withheld. No consent shall be required for nonstructural
alterations not exceeding $100,000 in cost. No
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addition will be allowed which increases the building size to more than 4,000
square feet, or which violates the terms of Paragraph 2.1 of this Lease.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B". LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANT'S sole and conclusive remedy for a breach of this warranty
shall be its right, at its election, to terminate the Lease prior to
commencement of construction.
8.2 Competing Use - During the term of this Lease, provided TENANT is not
in default, LANDLORD agrees not to lease or sell any portion of the project, of
which the leased premises is a part, to a commercial bank, savings bank, savings
and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this Article shall include a sale in lieu of the exercise of the
right of eminent domain) or ordered to be demolished by the action of any public
authority in consequence of a fire or other casualty, this Lease shall, unless
it is terminated as provided below in Section 9.2 or 9.3, remain in full force
and effect and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this Lease.
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TENANT reserves the unto itself the right to prosecute its claim for an award
based upon its leasehold interest for such taking, without impairing any rights
of LANDLORD for the taking of or injury to the reversion.
In the event that a part of the demised premises shall be taken or
condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof, or (c) the
part so taken shall consist of 25% or more of the total parking area, or (d)
such partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the date when possession of the premises shall be required by the
condemning authority elect to terminate this Lease, or if any option to purchase
the premises is conferred upon the TENANT by any other provision of this Lease,
may as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purpose option. In the event that
TENANT shall fail to exercise any such option to terminate this Lease or to
purchase the premises or in the event that a part of the demised premises shall
be taken or condemned under circumstances under which the TENANT will have no
such option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to an economic
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, to the extent that may have been necessary by
such condemnation, subject to a pro-rata reduction in rental. Any dispute
resulting from Section 9.3 of this Lease shall be submitted to the American
Arbitration Society, whose decision shall be binding on the parties hereto.
ARTICLE X
Defaults
10.1 Events of Default - If (a) Tenant shall default in the performance of
any of its obligations to pay rent or additional rent hereunder and if such
default shall continue for ten (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such corrective action to completion, or
(b) any assignment shall be made by TENANT for the benefit of credits, or (c) if
TENANT'S leasehold interest shall be taken on execution, attached, levied upon
or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or for
reorganization or an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights
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available to it under law, including repossession of the leased property,
termination of the lease, acceleration of all future rental payments, and such
other rights as may be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of the
provisions contained in Section 10.1 or shall be otherwise terminated for breach
of any obligation of TENANT, TENANT covenants to pay punctually to LANDLORD all
the sums and perform all the obligations which TENANT covenants in this Lease to
pay and to perform in the same manner and to the same extent at the same time as
if this Lease had not been terminated so long as such obligations shall have not
been rendered unnecessary or impossible of performance by the subsequent
re-letting or other occupancy permitted by LANDLORD. In calculating the amounts
to be paid by TENANT under the foregoing covenant, TENANT shall be credited with
the net proceeds of any rent or the value of other considerations obtained by
LANDLORD by re-letting the premises, after deducting all LANDLORD'S expenses in
connection with such re-letting, including, without limitation, all repossession
costs, brokerage commissions, reasonable fees for legal services and expenses of
preparing the premises for re-letting, it being agreed by TENANT that LANDLORD
may (i) re-let the premises or any part or parts thereof, for a term or terms
which may at LANDLORD'S option be equal to or less than or exceed the period
which would otherwise have constituted the balance of the Lease term, and (ii)
make such alterations, repairs and decorations in the premises as LANDLORD in
its sole judgement considers advisable or necessary to re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which LANDLORD
may have under this Lease, and at law and equity, shall be cumulative and shall
not be deemed inconsistent with each other, and any two or more of all such
rights and remedies may be exercised at the same time insofar as permitted by
law.
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
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10.5 Effect of Waivers on Default - No consent or waiver, expressed or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
11.1 Assignment, Subletting, etc. - LANDLORD'S written consent shall be
required for any assignment, transfer or subletting except to another financial
institution which consent shall not be unreasonably withheld.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed, if to TENANT, at the original address of TENANT or such other
addresses as TENANT shall have last designated by notice in writing to LANDLORD,
and if to LANDLORD, at the original address of LANDLORD or such other address as
LANDLORD shall have last designated by notice in writing to TENANT.
11.3 Quiet Employment - LANDLORD agrees that upon TENANT'S paying the rent
and performing and observing the agreements, conditions and other provisions on
its part to be performed and observed, TENANT shall and may peaceably and
quietly have, hold and enjoy the demised premises during the Lease term without
any manner or hindrance or molestation from LANDLORD or anyone claiming under
LANDLORD, subject to the covenants and conditions of this Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with applicable statutes, and reasonably
satisfactory to LANDLORD'S and TENANT'S attorneys. In no event shall such
document set forth the rental or other charges payable by TENANT under this
Lease; and any such document shall expressly state that it is executed pursuant
to the provisions contained in this Lease, and is not intended to vary the terms
and conditions of this Lease. In the event LANDLORD and/or TENANT believe that
the Lease has been lawfully terminated, abandoned or otherwise of no force and
effect and the other party will not voluntarily execute a Discharge of
Memorandum of Lease, the party seeking the Discharge of Memorandum of Lease may
move summarily before the Superior Court of New Jersey for a determination of
whether or not the Memorandum of Lease should be discharged. The other party
consents to the jurisdiction of the Superior Court of New Jersey and agrees to
proceed in a summary manner. It is expressly understood and agreed that in
addition to the relief provided herein, the parties will have such additional
cumulative remedies as are available to it at law or in equity for damages
suffered by reason of a wrongful refusal to execute and deliver a Discharge of
Memorandum of Lease.
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11.5 Acts of God - In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations, or other causes beyond such party's
reasonable control shall not be counted in determining the time during which
work shall be completed, whether or such time be designated by a fixed date, a
fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All insurance which is carried by either party
with respect to the demised premises, whether or not required, shall include
provisions which either designates the other party as one of the insured or deny
to the insurer acquisition by subrogation of rights of recovery against the
other party. Each party shall be entitled to have duplicates or certificates of
any policies containing such provisions. Each party hereby waives all rights of
recovery against the other for loss or injury against which the waiving party is
protected by insurance containing such provisions.
11.7 Rights of Mortgagee and Subordination -
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
premises or the property of which said premises are a part; provided, however,
that an agreement or instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provisions of
this Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the premises by foreclosing or otherwise, TENANT'S use, occupancy
and quiet enjoyment of the premises shall not be disturbed by any such
proceedings; (iii) in the event the premises are sold or otherwise disposed of
pursuant to any right or power contained in the mortgage or other security
agreement, or the bond or note secured thereby, or as a result of proceedings
thereon, the purchaser shall take title subject to this Agreement of Non
Disturbance, and all of the rights of the TENANT hereunder; (iv) in the event
the buildings and improvements upon the premises are damaged by fire and other
casualty, for which loss the proceeds payable under any insurance policy or
policies are payable to the mortgagee, such insurance funds, when paid, shall be
made available for the purpose of repair and restoration as provided in this
Lease; and (v) the agreement shall be binding upon the LANDLORD, mortgagee and
their respective heirs, executors, administrators, successors and assigns. The
TENANT agrees to execute, at no expense to the LANDLORD, any instrument which
may be deemed necessary or desirable by the LANDLORD to further effect the
subordination of this Lease to any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of
lesser sum than the rent or any other charges then due shall be deemed to be
other than on account of the earliest
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installment of such rent or charge due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed an accord and satisfaction, and LANDLORD may accept such check
or payment without prejudice to LANDLORD'S right to recover and balance of such
installments or pursue any other remedy in this Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by and
construed in accordance with the laws of the State of New Jersey, and if any
provisions of this Lease shall to any extent be invalid, the remainder of this
Lease shall not be affected thereby. There are no oral or written agreements
between LANDLORD and TENANT affecting this Lease. This Lease may be amended only
by instruments in writing executed by LANDLORD and TENANT. LANDLORD shall not be
deemed in any way or for any purpose, to have become, by the execution of this
Lease or any action taken thereunder, a partner of TENANT in its business or
otherwise a joint venturer or member of any enterprises of TENANT. The titles of
the several Articles and Sections contained herein are for convenience only and
shall not be considered in construing this Lease. Unless repugnant to the
context, the words "LANDLORD and TENANT" appearing in this Lease shall be
construed to mean those names above and their respective heirs, administrators,
successors and assigns, and those claiming through or under them respectively.
ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon final approval by the bank's Board of Directors of this
transaction and upon TENANT securing on or before January 1, 1999 the following
unconditional and unappealable approvals:
A. All state and federal regulatory approvals for the
construction and operation of a branch bank on the leased
premises.
B. All municipal and governmental approvals required for the
construction of TENANT'S proposed building including the
issuance of a building permit ("Permit and Approvals").
12.2 Approvals - TENANT shall diligently pursue all required approvals.
12.3 Easements - TENANT shall have absolutely no right to grant any
easement with regard to the premises other than such easements to public
entities or public service corporations for the purpose of serving only the
premises, rights-of-way or easements on or over the premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
LANDLORD shall cooperate with TENANT to permit the creation of all necessary
easements.
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ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease - It is the intention of LANDLORD and TENANT that
the rental herein specified shall be net to LANDLORD in each lease year, that
all costs, expenses, and obligations of every kind relating to the TENANT'S use
and occupancy of the premises which may arise during the term of this Lease
shall be paid by TENANT, and that LANDLORD shall be indemnified by TENANT
against any such costs, expenses and obligations.
ARTICLE XIV
Right of First Refusal
14.1 Right of First Refusal to Lease - Prior to or within one hundred
eighty (180) days prior and after the conclusion of this Lease and all options
to extend the term thereof, LANDLORD shall desire to accept a bona fide offer
received by it to lease any part of the Premises, LANDLORD shall notify TENANT
of such a desire in the manner provided in this Lease for the giving of notice,
and TENANT shall have the right of first refusal to lease said premises
exercisable within ten (10) days of said written notice upon the terms contained
in the notice. This provision shall only be effective after the termination,
expiration or conclusion of the original lease term and all options to extend
the Lease, and shall not affect the premises during the term of this Lease or
any option to extend the term thereof.
14.2 Right of First Refusal to Purchase - TENANT shall have the right of
first refusal to purchase the demised premises as hereinafter set forth. If at
any time during the term as extended, LANDLORD shall receive a bona fide offer
from a third person for the purchase of the demised premises, which offer
LANDLORD shall desire to accept, LANDLORD shall promptly deliver to TENANT a
copy of such offer, and TENANT may, within fifteen (15) days thereafter, elect
to purchase the demised premises on the same terms as those set forth in such
offer, excepting that TENANT shall be credited against the purchase price to be
paid by TENANT, with a sum equal to the amount of any brokerage commissions, if
any, which LANDLORD shall save by a sale to TENANT. If LANDLORD shall receive an
offer for the purchase of the demised premises, which is not consummated by
delivering a deed to the offerer, the TENANT'S right of first refusal to
purchase shall remain applicable to subsequent offers. If LANDLORD shall sell
the demised premises after a failure of TENANT to exercise its right of first
refusal, such shall be subject to the Lease and shall continue to be applicable
to subsequent sales of the demised premises. Notwithstanding the foregoing,
TENANT'S right of first refusal shall not apply or extend to any sales or
transfers between LANDLORD and any affiliates in which the principals of the
LANDLORD are the majority shareholders to any family trusts or to the heirs of
the principals of LANDLORD. LANDLORD shall be entitled to net the same amount
under any right of first refusal exercise.
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ARTICLE XV
Holdover
15.1 Holdover - In the event that TENANT continues in use and occupancy and
holds over in possession of the premises after the expiration of the Initial
Term or, properly exercised, the Option Term, in addition to all other damages
to which LANDLORD may be entitled, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
ARTICLE XVI
Common Area
16.1 Common Area - LANDLORD hereby grants to TENANT, in common with
LANDLORD and other tenants, with respective invitees and licensees, the right to
use the parking and public areas in the project of which the Leased Premises is
a part, subject to the conditions hereinafter provided. TENANT hereby agrees
that:
(a) LANDLORD may designate an area for TENANT'S employee parking
(b) Said parking area will not be used for permanent garaging or
overnight parking
(c) TENANT will conform with the reasonable rules and
regulations of the Shopping Center common area
(d) LANDLORD agrees that it will permit construction of the
parking area in substantial conformance with the attached
plan.
16.2 Common Area Charges - As additional rental, TENANT agrees to pay its
pro rata share of the common area maintenance costs which shall include
maintenance, landscaping, illumination, cleaning, snow and ice removals, common
sewerage disposal costs, common signs, and all other common area costs.
16.3 Determination and Payment of Common Area Charges - All such common
area charges shall be deemed additional rental and shall be paid in monthly
installments equal to 1/12th of TENANT'S estimated common are contribution.
TENANT'S common area pro rata shall be determined pursuant to the following
formula:
Total Common Area Charges x TENANT Net Square Ft = TENANT Common Area
Total Shopping Center Square Ft Charges
16.4 Construction Cost - TENANT shall construct its own building at its own
costs and bear all construction within its demised premises, as identified in
Exhibit A.
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ARTICLE XVII
Environmental
17.1 Environmental Matters -
A. LANDLORD represents and warrants that any handling, transportation,
storage, treatment or usage of hazardous or toxic substances (as defined by any
applicant government authority and hereinafter being referred to as "Hazardous
Materials") that has occurred or will occur on the Demised Premises shall be in
compliance with all applicable federal, state and local laws, regulations and
ordinances. TENANT represents and warrants that any handling, transportation,
storage, treatment or usage of Hazardous Materials by TENANT at the Demised
Premises shall be in compliance with applicable federal, state and local laws.
LANDLORD further represents and warrants that no leak, spill, discharge,
emission or disposal of Hazardous Materials has occurred or will occur on the
Demised Premises and that the soil, groundwater, soil vapor on or under the
Demised Premises is or will be free of Hazardous Materials as of the date
hereof. LANDLORD agrees to indemnify, defend and hold TENANT and its officers,
from any claims, judgments, damages, fines, penalties, costs, liabilities
(including sums paid in settlement of claims) or loss including attorney's fees,
consultants fees, and expert fees which arise during or after the Primary Term
or any Renewal Term, or in connection with the presence of suspected presence of
Hazardous Materials in the soil, groundwater, or soil vapor on or under the
Demised Premises, unless such Hazardous Materials are present solely as the
result of the acts of TENANT, its officers, employees or agents. Without
limiting the generality of the foregoing, this indemnification shall survive the
expiration of this Lease and does specifically cover costs incurred in
connection with any investigation of site conditions or any cleanup, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence or suspected presence of
Hazardous Materials in the soil, groundwater or soil vapor odor under the
Demised Premises, unless the hazardous Materials are present solely as the
result of the acts of TENANT, its officers, agents or employees. Without
limiting the generality of the foregoing, this indemnification shall also
specifically cover costs in connection with:
1. Hazardous Materials present or suspected
to be present in the soil, groundwater
or soil vapor on or under the Demised
Premises before the date hereof; or
2. Hazardous Materials that migrate, flow,
percolate, diffuse or in any move onto
or under the Demised Premises after the
date hereof; or
3. Hazardous Materials present on or under
the Demised Premises as a result of any
discharge, dumping, spilling (accidental
or otherwise) onto the Demised Premises
during or after the Primary Term or any
Renewal Term by any person or entity.
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B. TENANT agrees to indemnify LANDLORD and its officers, employees and
agents harmless from any claims, judgments, damages, fines, penalties, costs,
liabilities (including sums paid in settlement of claims) or loss including
attorney's fees, consultants fees and expert fees which arise during or after
the Primary Term or any Renewal Term in connection with the presence of toxic or
hazardous substances in the soil, groundwater, or soil vapor on or under the
Demised Premises to the extent such presence is caused by the acts of Tenant,
its officers, employees and agents.
C. A condition precedent to this Lease shall be TENANT's satisfactory
review of the report (the "Phase I Environmental Survey") on the environmental
condition of the land on which the Demised Premises is located. LANDLORD agrees
to provide TENANT with a Phase I Environmental Survey of the land on which the
Demised Premises is located. In the event that TENANT shall discover in its
review of the Phase I Environmental Survey that any Hazardous Materials may be
present in the soil, ground water or soil vapor on or under the Demised
Premises, TENANT may, upon written notice to LANDLORD within ten (10) days after
the date TENANT receives the Phase I Environmental Survey, terminate this Lease.
D. If during the term of this Lease any governmental authority
requires the remediation of Hazardous Materials from the Demised Premises or the
Shopping Center and such remediation materially affects TENANT's business
operations or poses a safety threat to TENANT's employees or customers, then
TENANT shall be entitled to an equitable abatement of rent from the date such
interference or safety hazard occurs to the date such interference and safety
hazard are no longer present.
ARTICLE XVIII
18.1 Title - This lease shall be subject and subordinate to the lien of any
bank or institution or other mortgage or mortgages now or hereafter in force
against LANDLORD's property, and to all advances made upon the security thereof,
provided the holder of any such mortgage shall execute and deliver to TENANT an
agreement, in the form of Exhibit D attached hereto, or as otherwise agreed to
by TENANT, LANDLORD and such holder, providing that such holder will recognize
this lease and not disturb TENANT's possession of the premises in the event of
foreclosure if TENANT is not then in default hereunder beyond any applicable
cure period. TENANT agrees, upon receipt of such agreement, to execute such
further instrument(s) as may be necessary to subordinate this lease to the lien
of any such mortgage. The term "mortgage" shall include deeds of trust or any
other similar hypothecations.
18.2 Ownership - LANDLORD warrants that it owns in fee the subject premises
subject only to the liens, mortgages and encumbrances listed on the attached
schedule, evidenced by a title report provided by LANDLORD to TENANT within
forty-five (45) days of the execution of this lease, which shall be subject to
TENANT's reasonable approval. TENANT'S lease hereunder shall be subordinate only
to
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such liens where the holder of such liens has executed and delivered to TENANT
in the form attached hereto a Subordination and Non-Disturbance Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first above written.
COMMERCE BANK {N.A., PA, SHORE or NORTH}
/s/ Jacqueline Watson BY: /s/ Thomas H. Arasz
- --------------------------- -----------------------------------------
Attest Thomas H. Arasz
Senior Vice President/Real Estate Officer
HAMILTON/WASH PROPERTIES, L.C.C.
/s/ Jacqueline Watson BY: /s/ John P. Silvestri
- --------------------------- -----------------------------------------
Attest John P. Silvestri
Managing Member
20
LEASE
from
ABINGTON EQUITIES, LLC
to
COMMERCE BANK, PA
Article 1
Reference Date and Exhibits
1.1 Data
DATE : April 2, 1999
LOCATION OF PREMISES : 710 Old York Road
Abington Township
Montgomery County, PA
LANDLORD : Abington Equities, LLC
ORIGINAL ADDRESS OF : 17000 Horizon Way
Suite 200
Mount Laurel, NJ 08054
TENANT : COMMERCE BANK, PA
ORIGINAL ADDRESS OF : c/o Commerce Bancorp, Inc.
1701 Route 70 East
Cherry Hill, NJ 08034
LEASE TERM : Twenty Years
ANNUAL FIXED RENT RATE : Year 1-5 $100,000.00
6-10 $110,000.00
11-15 $121,000.00
16-20 $133,100.00
INSURANCE LIMITS : $2,000,000 Single Action
$4,000,000 Aggregate
1
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1.2 Table of Contents
ARTICLE I - Reference Data and Exhibits Page
1.1 Data 1
1.2 Table of Contents 2
ARTICLE II - Premises and Term
2.1 Premises 4
2.2 Term 4
2.3 Option to Extend 4
ARTICLE III - Improvements
3.1 Construction of Improvements 4
3.2 Contractor 5
3.3 Signs 5
ARTICLE IV - Rent
4.1 The Rent, Minimum Fixed and Percentage 5
ARTICLE V - Real Estate Taxes
5.1 Real Estate Taxes 5
5.2 Taxes 5
5.3 Method of Payment 6
ARTICLE VI - Utilities and Services
6.1 Utilities and Charges Therefore 6
ARTICLE VII - TENANT'S Additional Covenants
7.1 Affirmative Covenants 7
7.1.1 Use 7
7.1.2 Compliance with Law 7
7.1.3 Payment of TENANT'S Work 7
7.1.4 Indemnity and Liability Insurance 8
7.1.5 LANDLORD'S Right to Enter 8
7.1.6 Personal Property at TENANT'S Risk 8
7.1.7 Payment of LANDLORD'S Cost of Enforcement 8
7.1.8 Yield Up 8
7.1.9 Maintenance 9
7.1.10 Insurance 9
7.2 Negative Comments 9
7.2.1 Overloading, Nuisance, etc. 9
7.2.2 Installation, Alteration or Additions 10
ARTICLE VIII - LANDLORD'S Additional Covenants
8.1 Warranty on Use 10
8.2 Competing Use 10
ARTICLE IX - Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty 10
9.2 Right to Terminate in Event of Casualty 10
9.3 Eminent Domain 11
<PAGE>
Page
ARTICLE X - Defaults
10.1 Events of Default 11
10.2 Remedies 12
10.3 Remedies Cumulative 12
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults 12
10.5 Effect of Waivers of Default 13
ARTICLE XI - Miscellaneous Provisions
11.1 Assignment, Subletting, etc. 13
11.2 Notice from One Party to Other 13
11.3 Quiet Employment 13
11.4 Recording 13
11.5 Acts of God 14
11.6 Waiver of Subrogation 14
11.7 Rights of Mortgagee and Subordination 14
11.7.1 14
11.7.2 No Accord and Satisfaction 15
11.8 Applicable Law and Construction 15
ARTICLE XII - Permits and Approvals
12.1 Tenant Obligations 15
12.2 Approvals 15
12.3 Easements 15
ARTICLE XIII - Net, Net, Net Lease
13.1 Net, Net, Net Lease 16
ARTICLE XIV - Right of First Refusal
14.1 Right of First Refusal to Lease 16
14.2 Right of First Refusal to Purchase 16
ARTICLE XV - Holdover
15.1 Holdover 17
ARTICLE XVI - Common Area
16.1 Construction Cost 17
ARTICLE XVII - Environmental
17.1 Environmental Matters 17
ARTICLE XVIII -
18.1 Title 18
18.2 Ownership 19
<PAGE>
ARTICLE II
Premises and Term
2.1 Premises - LANDLORD hereby leases to TENANT and TENANT hereby leases
from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the premises shown on Exhibit "A" and
described in Exhibit "B", both annexed hereto and made a part hereof, together
with any and all improvements, appurtenances, rights, privileges and easements
befitting, belonging or pertaining thereto and a building no greater than 4,000
square feet, so long as such building is within the perimeter of the leased
premises as shown on Exhibit "A".
2.2 Term - TO HAVE AND TO HOLD for a term beginning at the earlier of (a)
Ninety (90) days (inclusive of the time for objectors to appeal for any
approval) after LANDLORD has obtained approval for the construction of the
branch bank as set forth in Article 12 (notwithstanding TENANT may not have
commenced construction) and continuing for the Lease term of twenty (20) years
unless sooner terminated as hereinafter provided. When dates of the beginning
and end of the Lease term have been determined, such dates shall be evidenced by
a document in form for recording, executed by LANDLORD and TENANT and delivered
each to the other.
2.3 Option to Extend - So long as TENANT is not in default hereunder,
TENANT shall have the right to extend this Lease for four (4) five (5) year
terms under the same terms, conditions and provisions as in the original term,
at the following rentals:
Option Years 1 - 5 $ 146,410.00
6 -10 $ 161,051.00
11-15 $ 177,156.10
16-20 $ 194,871.71
TENANT shall give written notice of its intention to exercise each
extension option not less than Ninety (90) days prior to the expiration of the
then current term. Lack of written notice by TENANT of its intention to exercise
any option prior to ninety (90) days before the expiration of the then current
term shall be deemed to constitute exercise of that option by the TENANT.
ARTICLE III
Improvements
3.1 Construction of Improvements - TENANT agrees to construct, at its sole
cost, a branch banking facility, pursuant to the attached Site Plan, subject to
reasonable approval by the LANDLORD of the building plans and specifications.
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3.2 Contractor - TENANT shall have the right to select and approve the
contractor to complete the construction, which shall be subject to the approval
of the LANDLORD. Approval by LANDLORD shall not be unreasonably withheld.
3.3 Signs - TENANT shall have the right to erect such signs as permitted by
applicable zoning ordinances within the leased area.
ARTICLE IV
Rent
4.1 The Rent, Minimum Fixed - TENANT covenants and agrees to pay rent to
LANDLORD at the original address of LANDLORD or such other place as LANDLORD may
by notice in writing to TENANT from time to time direct, at the following rates
and times.
(a) TENANT agrees to pay to LANDLORD base annual fixed rent for the
Premises in accordance with and in the amount set forth in Paragraph 1.1 "Data".
The base annual fixed rent shall be paid in equal monthly installments in
advance on the first (1st) day of each month beginning on the Commencement Date.
In addition to the base annual fixed rent, TENANT shall pay as and when the same
become due and owing as additional rents, all other monies provided for in the
Lease. It is the parties intention that all charges and assessments charged to
or assessed against the Premises shall be the responsibility of the TENANT, such
that the Lease shall be "net, net, net" to the LANDLORD, excepting only interest
and principal on any mortgage made by the LANDLORD and effecting the Premises.
(b) For purposes of this Lease, the scheduled increases in the base annual
fixed rate shall occur on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th) years of the Initial Term as same is determined pursuant to
Paragraph 2.2 and on the first day of the sixth (6th), eleventh (11th) and
sixteenth (16th), years of the Option Terms.
(c) If any installment under this Lease is not paid within fifteen (15)
days of the time and at the place and in the manner specified, then LANDLORD
may, at its option, declare TENANT in default.
ARTICLE V
Real Estate Taxes
5.1 Real Estate Taxes - As additional rent, TENANT agrees to pay all real
estate taxes levied upon the Premises, improvements located on the Premises, the
leasehold estate, or any sublease hold estate of any nature including special
assessments. The obligation for payment by TENANT of all real estate taxes shall
commence simultaneously with the payment of rent hereunder.
5.2 Taxes - TENANT agrees to pay all taxes levied upon rents and personal
property, including trade fixtures and inventory, kept on the demised Premises,
covered by Section 5.1 after
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presentation to TENANT by LANDLORD of statements from the taxing jurisdiction in
which said property is located. TENANT, however, will pay only the lowest
discounted amount and will not be required to pay any penalty, interest or cost
occurring by reason of LANDLORD'S failure to secure said tax statements in a
timely fashion from the taxing authorities for any tax required to be paid by
TENANT.
LANDLORD may, however, direct the taxing authorities to send the statements
directly to TENANT. "In the event LANDLORD directs the taxing authorities to
send a statement directly to TENANT, TENANT shall make all such payments
directly to the taxing authority at least ten (10) days before any delinquency
and before any fine, interest or penalty shall become due or imposed by
operation of law for their non-payment. Further, TENANT shall furnish to
LANDLORD within ten (10) days of the date when any tax, assessment or charge
would become delinquent, receipts or other satisfactory evidence establishing
the timely payment of said taxes or charges." LANDLORD further agrees that
TENANT, in the name of LANDLORD, but at TENANT'S sole expense, may protest any
assessment before any taxing authority or board or maintain any necessary legal
action in reference to said assessment or for the recovery of any taxes paid
thereon. Nothing herein contained shall require TENANT to pay any income or
excess profits, taxes assessed against LANDLORD or any corporation, capital
stock, or franchise tax imposed upon LANDLORD.
5.3 Method of Payment - LANDLORD shall give written notice advising TENANT
of the amount of real estate taxes, together with a copy of the tax bill, and
TENANT shall pay such amount to LANDLORD within thirty (30) days after receipt
of such notice. If this Lease shall terminate during a tax year, TENANT shall
pay to LANDLORD, a prorated portion of the amount that would have been due for
the full tax year based on the number of days of said tax year expired on the
date of termination.
ARTICLE VI
Utilities and Services
6.1 Utilities and Charges Therefore - TENANT agrees to pay directly to the
authority charged with the collection thereof, all charges for water, gas,
electricity, sanitary sewer and sprinkler changes, telephone connection and
standby fees and other utilities used or consumed in the Premises and shall make
its own arrangements for such utilities. In the event any such services cannot
be reasonably procured from any public agency, and LANDLORD provides any such
services, TENANT shall reimburse LANDLORD for its proportionate share of any
such services used or consumed in the demised premises as additional rental.
ARTICLE VII
TENANT'S Additional Covenants
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7.1 Affirmative Covenants - TENANT covenants at its expense at all times
during the Lease term and such further time as TENANT occupies the Premises or
any part thereof.
7.1.1 Use - TENANT shall use and permit the use of the Premises and
the improvements to be constructed thereon primarily for the operation of a
branch bank, provided that (subject to the other terms and conditions of this
Lease), TENANT may at any time use the Premises and the building and other
improvements to be constructed thereon, for any other lawful commercial
purposes. Neither TENANT nor its subtenants, if any, shall commit any nuisance,
nor permit the emission of any objectionable noise or odor, nor bring on,
deposit or allow to be brought on or deposited on the Premises any asbestos
materials or any other Hazardous Substance or materials as the same may be
defined by Federal, State or local laws, rules, statutes or regulations or in
the Environmental Rider annexed hereto, nor use the property in such a manner
which negatively effects the reversion.
7.1.2 Compliance with Law - To make all repairs, alterations,
additions or replacements to the Premises required by any law or ordinance or
any order or regulation of any public authority because of TENANT'S use of the
Premises, to keep the Premises equipped with all safety appliances so required
because of such use; to pay all municipal, county or state taxes assessed
against the personal property of any kind owned by or placed in, upon or about
the premises by TENANT; and to comply with the orders and regulations of all
governmental authorities, as well as all Insurance Carriers and Underwriters.
7.1.2 (A) TENANT has the right to contest by appropriate judicial or
administrative proceeding, without cost or expense to the LANDLORD, the validity
or application of any law, ordinance, order, rule, regulation or requirement
("law") which the TENANT legitimately deems unduly burdensome or inappropriate
and TENANT shall not be in default for failure to comply with such law until the
legally permitted time following final determination of TENANT'S contest
expires; provided, however, if LANDLORD gives notice of request, TENANT shall
first furnish LANDLORD with a bond, satisfactory to LANDLORD in form and
insurer, guaranteeing compliance by TENANT with the contested law and
indemnifying LANDLORD against all liability that LANDLORD may sustain by reason
of TENANT'S failure or delay in complying with the law. LANDLORD may, but is not
required to, contest any such law independent of TENANT. On TENANT'S notice of
request, LANDLORD may join in TENANT'S contest.
7.1.3 Payment for TENANT'S Work - To pay promptly when due the entire
cost of any work to the Premises undertaken by TENANT and to bond against or
discharge any liens for labor or materials within ten (10) days after written
request by LANDLORD; to procure all necessary permits before undertaking such
work; and to do all of such work in a good and workmanlike manner, employing new
materials of good quality and complying with all governmental requirements.
7.1.4 Indemnity and Liability Insurance - To defend with counsel, save
harmless and indemnify LANDLORD from all claims or damage to or of any person or
property while on the premises
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unless arising from any omission, fault, negligence or other misconduct of
LANDLORD, and from all claims or damage to or of any person or property
occasioned by any omission, fault, neglect or other misconduct of TENANT; to
maintain in responsible companies qualified to do business in the state in which
the premises is located and in good standing therein, public liability insurance
covering the premises insuring LANDLORD, as well as TENANT, with limits at least
equal to those stated in Section 1.1, workmen's compensation insurance with
statutory limits, covering all of TENANT'S employees working in the premises,
and to deposit promptly with LANDLORD certificates for such insurance and all
renewals thereof, bearing the endorsement that the policies will not be canceled
until after ten (10) days written notice to LANDLORD. TENANT'S obligations
hereunder may be satisfied through a blanket insurance policy covering other
interests of the TENANT.
7.1.5 LANDLORD'S Right to Enter - To permit LANDLORD and its agents to
examine the premises at reasonable times and to show the premises to prospective
purchasers and lenders, provided such entry shall not unreasonably interfere
with TENANT'S operation and conduct of its business in the demised premises or
compromise security.
7.1.6 Personal Property at TENANT'S Risk - That all of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of TENANT and of all persons claiming under TENANT, may be on the
premises, shall be at the sole risk and hazard of TENANT, and if the whole or
any part thereof shall be destroyed or damaged by fire, water, or otherwise, or
by the leakage or bursting of water pipes, steam pipes or other pipes, by theft
or from any other cause, no part of said loss or damage is to charged to or be
borne by LANDLORD, except that LANDLORD shall in no event be indemnified or held
harmless or exonerated from any liability resulting from its sole negligence,
failure to perform any of its obligations under this Lease or to any extent
prohibited by law.
7.1.7 Payment of LANDLORD'S Cost of Enforcement - To pay on demand
LANDLORD'S expenses, including reasonable attorney's fees, incurred in enforcing
any obligation of TENANT under this Lease or in curing any default by TENANT
under this Lease as provided in Section 10.4, provided LANDLORD shall prevail in
any judicial proceedings in respect to such enforcement.
7.1.8 Yield Up - At the expiration of the Lease term or earlier
termination of this Lease, TENANT shall remove all trade fixtures and personal
property, to repair any damage caused by such removal, to remove all TENANT'S
signs wherever located and to surrender all keys to the premises and yield up
the premises, broom clean and in the same good order and repair in which TENANT
is obligated to keep and maintain the premises by the provisions of this Lease,
reasonable wear and tear and insured damage by fire, casualty or taking
excepted. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by LANDLORD in such manner as LANDLORD shall determine,
without any obligation on the part of LANDLORD to account to TENANT for any
proceeds therefrom, all of which shall become the property of LANDLORD. Any
holdover by TENANT will not be deemed an
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extension of this Lease, and TENANT shall indemnify LANDLORD against all losses
and damages from a failure to surrender.
7.1.9 Maintenance - Throughout the term, TENANT shall, at TENANT'S
sole cost and expense maintain the premises and all improvements thereon in good
condition and repair, ordinary wear and tear excepted, and in accordance with
all applicable laws, rules, ordinances, orders and regulations of (1) federal,
state, county, municipal and other governmental agencies and bodies having or
claiming jurisdiction and all of their respective departments, bureaus and
officials; (2) the insurance underwriting board or insurance inspection bureau
having or claiming jurisdiction; and (3) all insurance companies insuring all or
any part of the premises of the improvements located thereon, or both except as
provided below and subject only to the provisions of Paragraph 9.2, TENANT shall
promptly and diligently repair, restore and replace as required to maintain the
premises and the improvements in the condition set forth above, or to remedy all
damage to or destruction of all or any part of the improvements.
(A) The completed work of maintenance, compliance, repair, restoration
or replacement shall be equal in value, quality and use to the condition of the
improvements before the event giving rise to the work, unless otherwise provided
for in this Lease. LANDLORD shall not be required to furnish any services or
facilities or to make any repairs or alterations of any kind in or upon or on
the premises, LANDLORD'S election to perform any obligations of the TENANT under
this provision on TENANT'S failure or refusal to do so shall not constitute a
waiver of any right or remedy for TENANT'S default and TENANT shall promptly
reimburse, defend and indemnify LANDLORD against all liability, loss, cost and
expense arising from it.
7.1.10 Insurance - TENANT shall maintain in full force and effect, at
its own cost, full replacement cost coverage insurance covering the demised
premises (and all improvements for the full insurable value) against loss or
damage by fire or casualty, with the usual extended coverage endorsements,
together will endorsements protecting against loss or damage resulting from
malicious mischief, sprinkler leakage and vandalism all in amounts not less than
replacement parts value above foundation walls. All insurance policies shall
name the LANDLORD as its interest may appear.
7.2 Negative Covenants - TENANT covenants at all times during the Lease
term and such further times as TENANT occupies the premises or any part thereof:
7.2.1 Overloading Nuisance, etc. - Not to injure, overload, deface or
otherwise harm the premises; nor commit any nuisance; nor make any use of the
premises which is improper, offensive or contrary to any law or ordinance.
7.2.2 Installation, Alteration or Additions - Not to make any
installations, alterations or additions (except only the installation of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of LANDLORD, LANDLORD'S consent not be
unreasonable withheld. No consent shall be required for nonstructural
alterations not exceeding $100,000 in cost. No
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addition will be allowed which increases the building size to more than 4,000
square feet, or which violates the terms of Paragraph 2.1 of this Lease.
ARTICLE VIII
LANDLORD'S Additional Covenants
8.1 Warranty on Use - LANDLORD warrants and represents that at the
commencement of construction it will be the Owner in Fee of the Land shown on
Exhibit "A" and described in Exhibit "B". LANDLORD has no knowledge of and
TENANT requires that there be no zoning regulations, restrictive agreements,
leases or other instruments which prevent the use of the premises for the
purpose intended herein, nor otherwise conflict with any of the provisions of
this Lease. TENANT'S sole and conclusive remedy for a breach of this warranty
shall be its right, at its election, to terminate the Lease prior to
commencement of construction.
8.2 Competing Use - During the term of this Lease, provided TENANT is not
in default, LANDLORD agrees not to lease or sell any portion of the project, of
which the leased premises is a part, to a commercial bank, savings bank, savings
and loan or credit union.
ARTICLE IX
Casualty or Taking
9.1 TENANT to Repair or Rebuild in the Event of Casualty - In case the
Premises or any part thereof shall be damaged or destroyed by fire other
casualty, taken (which term or reference to eminent domain action generally, for
the purposes of this Article shall include a sale in lieu of the exercise of the
right of eminent domain) or ordered to be demolished by the action of any public
authority in consequence of a fire or other casualty, this Lease shall, unless
it is terminated as provided below in Section 9.2 or 9.3, remain in full force
and effect and TENANT shall, at its expense, proceed with all reasonable
dispatch, to repair or rebuild the premises and the improvements, or what may
remain thereof, so as to restore them as nearly as practicable to the condition
they were in immediately prior to such damage or destruction.
9.2 Right to Terminate in Event of Casualty - In case of any damage or
destruction occurring in the last five years of the original term of this Lease
or during any extension of the term, to the extent of 50% or more of the
insurable value of the building, TENANT may at its option, to be evidenced by
notice in writing given to the LANDLORD within seven (7) days after the
occurrence of such damage or destruction, in lieu of repairing or replacing the
building, elect to terminate this Lease as of the date of said damage or
destruction. In the event the TENANT shall so terminate the lease all insurance
proceeds shall become the property of the LANDLORD.
9.3 Eminent Domain - If the whole, or any part of the demised premises
shall be taken or condemned by any competent authority for any public use or
purpose during the term of this Lease.
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TENANT reserves the unto itself the right to prosecute its claim for an award
based upon its leasehold interest for such taking, without impairing any rights
of LANDLORD for the taking of or injury to the reversion.
In the event that a part of the demised premises shall be taken or
condemned that (a) the part so taken includes the building on the demised
premises or any part thereof or (b) the part so taken shall remove from the
premises 20% or more of the front depth of the parking areas thereof, or (c) the
part so taken shall consist of 25% or more of the total parking area, or (d)
such partial taking shall result in cutting off direct access from the demised
premises to any adjacent public street or highway, then and in any such event,
the TENANT may at any time either prior to or within a period of sixty (60) days
after the date when possession of the premises shall be required by the
condemning authority elect to terminate this Lease, or if any option to purchase
the premises is conferred upon the TENANT by any other provision of this Lease,
may as an alternative to such termination of this Lease elect to purchase the
demised premises in accordance with such purpose option. In the event that
TENANT shall fail to exercise any such option to terminate this Lease or to
purchase the premises or in the event that a part of the demised premises shall
be taken or condemned under circumstances under which the TENANT will have no
such option, then and in either such event the LANDLORD shall, with reasonable
promptness, make necessary repairs to and alterations of the improvements on the
demised premises for the purpose of restoring the same to an economic
architectural unit, susceptible to the same use as that which was in effect
immediately prior to such taking, to the extent that may have been necessary by
such condemnation, subject to a pro-rata reduction in rental. Any dispute
resulting from Section 9.3 of this Lease shall be submitted to the American
Arbitration Society, whose decision shall be binding on the parties hereto.
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ARTICLE X
Defaults
10.1 Events of Default - If (a) Tenant shall default in the performance of
any of its obligations to pay rent or additional rent hereunder and if such
default shall continue for ten (10) days after written notice from LANDLORD
designating such default or if within thirty (30) days after written notice from
LANDLORD to TENANT specifying any other non-monetary default or defaults, TENANT
has not commenced diligently to correct the default or defaults so specified or
has not thereafter diligently pursued such corrective action to completion, or
(b) any assignment shall be made by TENANT for the benefit of creditors, or (c)
if TENANT'S leasehold interest shall be taken on execution, attached, levied
upon or (d) if a petition is filed by TENANT for adjudication as a bankrupt, or
for reorganization or an arrangement under any provision of the Bankruptcy Act
as then in force and effect, or (e) if an involuntary petition under any of the
provisions of said Bankruptcy Act is filed against TENANT and such involuntary
petition is not dismissed within sixty (60) days thereafter, then, and in any of
such cases, LANDLORD lawfully may exercise all defaults rights available to it
under law, including repossession of the leased property, termination of the
lease, acceleration of all future rental payments, and such other rights as may
be lawfully permitted.
10.2 Remedies - In the event that this Lease is terminated under any of the
provisions contained in Section 10.1 or shall be otherwise terminated for breach
of any obligation of TENANT, TENANT covenants to pay punctually to LANDLORD all
the sums and perform all the obligations which TENANT covenants in this Lease to
pay and to perform in the same manner and to the same extent and at the same
time as if this Lease had not been terminated so long as such obligations shall
have not been rendered unnecessary or impossible of performance by the
subsequent re-letting or other occupancy permitted by LANDLORD. In calculating
the amounts to be paid by TENANT under the foregoing covenant, TENANT shall be
credited with the net proceeds of any rent or the value of other considerations
obtained by LANDLORD by re-letting the premises, after deducting all LANDLORD'S
expenses in connection with such re-letting, including, without limitation, all
repossession costs, brokerage commissions, reasonable fees for legal services
and expenses of preparing the premises for such re-letting, it being agreed by
TENANT that LANDLORD may (i) re-let the premises or any part or parts thereof,
for a term or terms which may at LANDLORD'S option be equal to or less than or
exceed the period which would otherwise have constituted the balance of the
Lease term, and (ii) make such alterations, repairs and decorations in the
premises as LANDLORD in its sole judgment considers advisable or necessary to
re-let the same.
Nothing contained in this Lease shall, however, limit or prejudice the
right of LANDLORD to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
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governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amounts of the loss or damages
referred to above.
10.3 Remedies Cumulative - Any and all rights and remedies which LANDLORD
may have under this Lease, and at law and equity, shall be cumulative and shall
not be deemed inconsistent with each other, and any two or more of all such
rights and remedies may be exercised at the same time insofar as permitted by
law.
10.4 LANDLORD'S and TENANT'S Right to Cure Defaults - LANDLORD may, but
shall not be obligated to, cure at any time, following ten (10) days prior
written notice to TENANT, except in cases of emergency when no notice shall be
required, any default by TENANT under this Lease; and whenever LANDLORD so
elects, all costs and expenses incurred by LANDLORD, including reasonable
attorney's fees, in curing a default shall be paid by TENANT to LANDLORD as
additional rent on demand. TENANT shall have a like right to cure any default of
LANDLORD, and TENANT may reimburse itself for the cost thereof out of succeeding
rental payments.
10.5 Effect of Waivers on Default - No consent or waiver, expressed or
implied, by either party to or of any breach of any covenants, conditions or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same of any other covenant, condition or duty.
ARTICLE XI
Miscellaneous Provisions
11.1 Assignment, Subletting, etc. - LANDLORD'S written consent shall be
required for any assignment, transfer or subletting except to another financial
institution which consent shall not be unreasonably withheld.
11.2 Notice from One Party to the Other - Any notice from LANDLORD to
TENANT or from TENANT to LANDLORD shall be deemed duly served if mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed, if to TENANT, at the original address of TENANT or such other
addresses as TENANT shall have last designated by notice in writing to LANDLORD,
and if to LANDLORD, at the original address of LANDLORD or such other address as
LANDLORD shall have last designated by notice in writing to TENANT.
11.3 Quiet Employment - LANDLORD agrees that upon TENANT'S paying the rent
and performing and observing the agreements, conditions and other provisions on
its part to be performed and observed, TENANT shall and may peaceably and
quietly have, hold and enjoy the demised premises during the Lease term without
any manner or hindrance or molestation from LANDLORD or anyone claiming under
LANDLORD, subject to the covenants and conditions of this Lease.
11.4 Recording - TENANT agrees not to record this Lease, but each party
hereto agrees on request of the other, to execute a Notice or Short Form of this
Lease in recordable form in compliance with
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applicable statutes, and reasonably satisfactory to LANDLORD'S and TENANT'S
attorneys. In no event shall such document set forth the rental or other charges
payable by TENANT under this Lease; and any such document shall expressly state
that it is executed pursuant to the provisions contained in this Lease, and is
not intended to vary the terms and conditions of this Lease. In the event
LANDLORD and/or TENANT believe that the Lease has been lawfully terminated,
abandoned or otherwise of no force and effect and the other party will not
voluntarily execute a Discharge of Memorandum of Lease, the party seeking the
Discharge of Memorandum of Lease may move summarily before the Superior Court of
New Jersey for a determination of whether or not the Memorandum of Lease should
be discharged. The other party consents to the jurisdiction of the Superior
Court of New Jersey and agrees to proceed in a summary manner. It is expressly
understood and agreed that in addition to the relief provided herein, the
parties will have such additional cumulative remedies as are available to it at
law or in equity for damages suffered by reason of a wrongful refusal to execute
and deliver a Discharge of Memorandum of Lease.
11.5 Acts of God - In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations, or other causes beyond such party's
reasonable control shall not be counted in determining the time during which
work shall be completed, whether or such time be designated by a fixed date, a
fixed time or "a reasonable time".
11.6 Waiver of Subrogation - All insurance which is carried by either party
with respect to the demised premises, whether or not required, shall include
provisions which either designates the other party as one of the insured or deny
to the insurer acquisition by subrogation of rights of recovery against the
other party. Each party shall be entitled to have duplicates or certificates of
any policies containing such provisions. Each party hereby waives all rights of
recovery against the other for loss or injury against which the waiving party is
protected by insurance containing such provisions.
11.7 Rights of Mortgagee and Subordination -
11.7.1 This Lease is subject and is hereby subordinated to all present
and future mortgages, deeds of trust, and other encumbrances affecting the
premises or the property of which said premises are a part; provided, however,
that an agreement or instrument affecting such subordination shall be executed
by the mortgagee or other Lender, be recorded with such mortgage or other
security agreement, and a copy delivered to the TENANT and contain provisions,
to the effect that (i) so long as TENANT observes the terms and provisions of
this Lease and notwithstanding the Lease may be foreclosed, TENANT will not be
effected or disturbed by the mortgagee in the exercise of any of its rights
under the mortgage or other security agreement, or the bond, note or debt
secured thereby; (ii) in the event the mortgagee comes into possession or
ownership of the premises by foreclosing or otherwise, TENANT'S use, occupancy
and quiet enjoyment of the premises shall not be disturbed by any such
proceedings; (iii) in the event the premises are sold or otherwise disposed of
pursuant to any right or
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power contained in the mortgage or other security agreement, or the bond or note
secured thereby, or as a result of proceedings thereon, the purchaser shall take
title subject to this Agreement of Non Disturbance, and all of the rights of the
TENANT hereunder; (iv) in the event the buildings and improvements upon the
premises are damaged by fire and other casualty, for which loss the proceeds
payable under any insurance policy or policies are payable to the mortgagee,
such insurance funds, when paid, shall be made available for the purpose of
repair and restoration as provided in this Lease; and (v) the agreement shall be
binding upon the LANDLORD, mortgagee and their respective heirs, executors,
administrators, successors and assigns. The TENANT agrees to execute, at no
expense to the LANDLORD, any instrument which may be deemed necessary or
desirable by the LANDLORD to further effect the subordination of this Lease to
any such mortgage, deed of trust or encumbrance.
11.7.2 No Accord and Satisfaction - No acceptance by LANDLORD of
lesser sum than the rent or any other charges then due shall be deemed to be
other than on account of the earliest installment of such rent or charge due,
nor shall any endorsement or statement on any check or any letter accompanying
any check or payment as rent or other charge be deemed an accord and
satisfaction, and LANDLORD may accept such check or payment without prejudice to
LANDLORD'S right to recover and balance of such installments or pursue any other
remedy in this Lease provided.
11.8 Applicable Law and Construction - This Lease shall be governed by and
construed in accordance with the laws of the State of Pennsylvania, and if any
provisions of this Lease shall to any extent be invalid, the remainder of this
Lease shall not be affected thereby. There are no oral or written agreements
between LANDLORD and TENANT affecting this Lease. This Lease may be amended only
by instruments in writing executed by LANDLORD and TENANT. LANDLORD shall not be
deemed in any way or for any purpose, to have become, by the execution of this
Lease or any action taken thereunder, a partner of TENANT in its business or
otherwise a joint venturer or member of any enterprises of TENANT. The titles of
the several Articles and Sections contained herein are for convenience only and
shall not be considered in construing this Lease. Unless repugnant to the
context, the words "LANDLORD and TENANT" appearing in this Lease shall be
construed to mean those names above and their respective heirs, administrators,
successors and assigns, and those claiming through or under them respectively.
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ARTICLE XII
Permits and Approvals
12.1 TENANT'S Obligations - The obligations of TENANT hereunder are
contingent upon final approval by the bank's Board of Directors of this
transaction and upon TENANT securing on or before June 30, 1998 the following
unconditional and unappealable approvals:
A. All state and federal regulatory approvals for the construction
and operation of a branch bank on the leased premises.
B. All municipal and governmental approvals required for the
construction of TENANT'S proposed building including the issuance
of a building permit ("Permit and Approvals") and approvals for a
free standing sign and other prototype signage as necessary to
properly identify the building.
12.2 Approvals - TENANT shall diligently pursue all required approvals.
12.3 Easements - TENANT shall have absolutely no right to grant any
easement with regard to the premises other than such easements to public
entities or public service corporations for the purpose of serving only the
premises, rights-of-way or easements on or over the premises for poles or
conduits, or both, for telephone, electricity, water, sanitary or storm sewers
or both and for other utilities and municipal or special district services.
LANDLORD shall cooperate with TENANT to permit the creation of all necessary
easements.
ARTICLE XIII
Net, Net, Net Lease
13.1 Net, Net, Net Lease - It is the intention of LANDLORD and TENANT that
the rental herein specified shall be net to LANDLORD in each lease year, that
all costs, expenses, and obligations of every kind relating to the TENANT'S use
and occupancy of the premises which may arise during the term of this Lease
shall be paid by TENANT, and that LANDLORD shall be indemnified by TENANT
against any such costs, expenses and obligations.
ARTICLE XIV
Right of First Refusal
14.1 Right of First Refusal to Lease - Prior to or within one hundred
eighty (180) days after the conclusion of this Lease and all options to extend
the term thereof, LANDLORD shall desire to accept a bona fide offer received by
it to lease any part of the Premises, LANDLORD shall notify TENANT of such a
desire in the manner provided in this Lease for the giving of notice, and TENANT
shall have the right of first refusal to lease said premises exercisable within
ten (10) days of said written notice upon the terms contained in the notice.
This provision shall only be effective after the termination, expiration or
conclusion
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of the original lease term and all options to extend the Lease, and shall not
affect the premises during the term of this Lease or any option to extend the
term thereof.
14.2 Right of First Refusal to Purchase - TENANT shall have the right of
first refusal to purchase the demised premises as hereinafter set forth. If at
any time during the term as extended, LANDLORD shall receive a bona fide offer
from a third person for the purchase of the demised premises, which offer
LANDLORD shall desire to accept, LANDLORD shall promptly deliver to TENANT a
copy of such offer, and TENANT may, within fifteen (15) days thereafter, elect
to purchase the demised premises on the same terms as those set forth in such
offer, excepting that TENANT shall be credited against the purchase price to be
paid by TENANT, with a sum equal to the amount of any brokerage commissions, if
any, which LANDLORD shall save by a sale to TENANT. If LANDLORD shall receive an
offer for the purchase of the demised premises, which is not consummated by
delivering a deed to the offerer, the TENANT'S right of first refusal to
purchase shall remain applicable to subsequent offers. If LANDLORD shall sell
the demised premises after a failure of TENANT to exercise its right of first
refusal, such shall be subject to the Lease and shall continue to be applicable
to subsequent sales of the demised premises. Notwithstanding the foregoing,
TENANT'S right of first refusal shall not apply or extend to any sales or
transfers between LANDLORD and any affiliates in which the principals of the
LANDLORD are the majority shareholders to any family trusts or to the heirs of
the principals of LANDLORD. LANDLORD shall be entitled to net the same amount
under any right of first refusal exercise.
ARTICLE XV
Holdover
15.1 Holdover - In the event that TENANT continues in use and occupancy and
holds over in possession of the premises after the expiration of the Initial
Term or, properly exercised, the Option Term, in addition to all other damages
to which LANDLORD may be entitled, the monthly rent during the period of
holdover shall be in a sum equal to double the amount of the monthly installment
of base annual fixed rent during the last month of the term which has just
expired. Said holdover rent shall be in addition to all additional rents for
which the TENANT shall be responsible during the holdover period.
ARTICLE XVI
Construction Cost
16.1 Construction Cost - TENANT shall construct its own building at its own
costs and bear all construction within its demised premises, as identified in
Exhibit A.
17
<PAGE>
ARTICLE XVII
Environmental
17.1 Environmental Matters -
A. LANDLORD represents and warrants that any handling, transportation,
storage, treatment or usage of hazardous or toxic substances (as defined by any
applicant government authority and hereinafter being referred to as "Hazardous
Materials") that has occurred or will occur on the Demised Premises shall be in
compliance with all applicable federal, state and local laws, regulations and
ordinances. TENANT represents and warrants that any handling, transportation,
storage, treatment or usage of Hazardous Materials by TENANT at the Demised
Premises shall be in compliance with applicable federal, state and local laws.
LANDLORD further represents and warrants that no leak, spill, discharge,
emission or disposal of Hazardous Materials has occurred or will occur on the
Demised Premises and that the soil, groundwater, soil vapor on or under the
Demised Premises is or will be free of Hazardous Materials as of the date
hereof. LANDLORD agrees to indemnify, defend and hold TENANT and its officers,
from any claims, judgments, damages, fines, penalties, costs, liabilities
(including sums paid in settlement of claims) or loss including attorney's fees,
consultants fees, and expert fees which arise during or after the Primary Term
or any Renewal Term, or in connection with the presence of suspected presence of
Hazardous Materials in the soil, groundwater, or soil vapor on or under the
Demised Premises, unless such Hazardous Materials are present solely as the
result of the acts of TENANT, its officers, employees or agents. Without
limiting the generality of the foregoing, this indemnification shall survive the
expiration of this Lease and does specifically cover costs incurred in
connection with any investigation of site conditions or any cleanup, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence or suspected presence of
Hazardous Materials in the soil, groundwater or soil vapor odor under the
Demised Premises, unless the hazardous Materials are present solely as the
result of the acts of TENANT, its officers, agents or employees. Without
limiting the generality of the foregoing, this indemnification shall also
specifically cover costs in connection with:
1. Hazardous Materials present or suspected to be
present in the soil, groundwater or soil vapor on
or under the Demised Premises before the date
hereof; or
2. Hazardous Materials that migrate, flow, percolate,
diffuse or in any move onto or under the Demised
Premises after the date hereof; or
3. Hazardous Materials present on or under the
Demised Premises as a result of any discharge,
dumping, spilling (accidental or otherwise) onto
the Demised Premises during or after the Primary
Term or any Renewal Term by any person or entity.
18
<PAGE>
B. TENANT agrees to indemnify LANDLORD and its officers, employees and
agents harmless from any claims, judgments, damages, fines, penalties, costs,
liabilities (including sums paid in settlement of claims) or loss including
attorney's fees, consultants fees and expert fees which arise during or after
the Primary Term or any Renewal Term in connection with the presence of toxic or
hazardous substances in the soil, groundwater, or soil vapor on or under the
Demised Premises to the extent such presence is caused by the acts of Tenant,
its officers, employees and agents.
C. A condition precedent to this Lease shall be TENANT's satisfactory
review of the report (the "Phase I Environmental Survey") on the environmental
condition of the land on which the Demised Premises is located. LANDLORD agrees
to provide TENANT with a Phase I Environmental Survey of the land on which the
Demised Premises is located. In the event that TENANT shall discover in its
review of the Phase I Environmental Survey that any Hazardous Materials may be
present in the soil, ground water or soil vapor on or under the Demised
Premises, TENANT may, upon written notice to LANDLORD within ten (10) days after
the date TENANT receives the Phase I Environmental Survey, terminate this Lease.
D. If during the term of this Lease any governmental authority
requires the remediation of Hazardous Materials from the Demised Premises or the
Shopping Center and such remediation materially affects TENANT's business
operations or poses a safety threat to TENANT's employees or customers, then
TENANT shall be entitled to an equitable abatement of rent from the date such
interference or safety hazard occurs to the date such interference and safety
hazard are no longer present.
ARTICLE XVIII
18.1 Title - This lease shall be subject and subordinate to the lien of any
bank or institution or other mortgage or mortgages now or hereafter in force
against LANDLORD's property, and to all advances made upon the security thereof,
provided the holder of any such mortgage shall execute and deliver to TENANT an
agreement, in the form of Exhibit D attached hereto, or as otherwise agreed to
by TENANT, LANDLORD and such holder, providing that such holder will recognize
this lease and not disturb TENANT's possession of the premises in the event of
foreclosure if TENANT is not then in default hereunder beyond any applicable
cure period. TENANT agrees, upon receipt of such agreement, to execute such
further instrument(s) as may be necessary to subordinate this lease to the lien
of any such mortgage. The term "mortgage" shall include deeds of trust or any
other similar hypothecations.
18.2 Ownership - LANDLORD warrants that it owns in fee the subject premises
subject only to the liens, mortgages and encumbrances listed on the attached
schedule, evidenced by a title report provided by LANDLORD to TENANT within
forty-five (45) days of the execution of this lease, which shall be subject to
TENANT's reasonable approval. TENANT's lease hereunder shall be subordinate only
to
19
<PAGE>
such liens where the holder of such liens has executed and delivered to TENANT
in the form attached hereto a Subordination and Non-Disturbance Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day and year first above written.
COMMERCE BANK, PA
/s/ Jacqueline Watson BY: /s/ Thomas H. Arasz
- -------------------------- -----------------------------------------
Attest Thomas H. Arasz
Senior Vice President/Real Estate Officer
/s/ Jacqueline Watson BY: /s/ John P. Silvestri
- -------------------------- -----------------------------------------
Attest
20
Commerce Bancorp, Inc. and Subsidiaries Selected Financial Data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income $ 244,367 $ 194,661 $ 165,322 $ 139,959 $ 121,855
Provision for loan losses 9,175 8,762 5,805 5,798 3,453
Noninterest income 114,596 96,277 62,410 36,129 25,094
Noninterest expense 252,523 213,950 153,804 121,285 99,261
Income before income taxes 97,265 68,226 68,123 49,005 44,235
Net income 65,960 42,155 44,432 31,149 28,299
Balance Sheet Data:
Total assets $6,635,793 $5,424,190 $4,387,851 $3,592,972 $3,021,565
Loans (net) 2,922,706 2,249,061 1,638,836 1,463,933 1,210,485
Securities available for sale 1,664,257 1,305,004 1,330,684 779,630 583,490
Securities held to maturity 1,201,892 1,220,874 985,676 919,149 825,008
Trading securities 117,837 85,359 7,911 15,327 8,843
Federal funds sold 5,300 10,395 15,813 36,625 54,345
Deposits 5,608,920 4,928,808 3,784,576 3,251,865 2,789,084
Long-term debt 23,000 24,282 25,308 26,333 27,359
Trust preferred securities 57,500 57,500 57,500
Stockholders' equity 356,756 323,552 279,900 228,543 200,017
Per Share Data:
Net income-basic $ 2.26 $ 1.49 $ 1.64 $ 1.24 $ 1.15
Net income-diluted 2.17 1.42 1.56 1.16 1.10
Cash dividends 0.83 0.87 0.55 0.46 0.40
Book value 11.99 11.28 10.27 8.54 8.05
Average shares outstanding:
Basic 29,155 28,254 26,715 24,450 23,730
Diluted 30,465 29,662 28,386 26,850 25,641
Selected Ratios:
Performance
Return on average assets 1.12% 0.87% 1.12% 0.95% 0.98%
Return on average equity 19.63 13.57 17.87 15.17 15.88
Net interest margin 4.65 4.42 4.59 4.65 4.62
Liquidity and Capital
Average loans to average deposits 50.31% 44.71% 45.07% 45.64% 44.73%
Dividend payout 36.64 58.55 33.31 36.71 35.01
Stockholders' equity to total assets 5.38 5.96 6.38 6.36 6.62
Risk-based capital:
Tier 1 11.40 12.09 14.91 12.36 12.43
Total 12.72 13.71 17.06 14.71 15.06
Leverage capital 7.02 7.05 7.69 6.53 6.59
Asset Quality
Non-performing assets to total
year-end assets 0.18% 0.27% 0.43% 0.56% 0.74%
Net charge-offs to average loans
outstanding 0.08 0.08 0.13 0.24 0.15
Non-performing loans to total
year-end loans 0.29 0.38 0.78 0.80 0.86
Allowance for loan losses to total
end of year loans 1.30 1.37 1.45 1.37 1.46
Allowance for loan losses to non-
performing loans 442.09 364.86 187.35 170.74 169.32
</TABLE>
23
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's
consolidated balance sheets and statements of income. This section should be
read in conjunction with the Company's consolidated financial statements and
accompanying notes. Effective January 15, 1999, the Company acquired Community
First Banking Company (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 Prestige Financial Corporation
(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. The Company's
originally reported financial position and results of operations have been
restated herein to include CFBC's and PFC's results of operations for all
periods presented.
1999 Overview
In 1999, the Company posted increases in net income, deposits, loans, and
assets. The increase in net income was due to increases in net interest income
and noninterest income, which offset increased noninterest expenses. Loan growth
totaled 30% for 1999, and deposit growth totaled 14%. At December 31, 1999, the
Company had total assets of $6.6 billion, total loans of $3.0 billion, total
investment securities of $3.0 billion, and total deposits of $5.6 billion.
Segment Reporting
The Company operates one reportable segment of business, Community Banks, as
more fully described in Note 19 to the Consolidated Financial Statements on page
60. The following table summarizes net income by segment for each of the last
three years:
- --------------------------------------------------------------------------------
Net Income
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Community Banks $66,313 $43,627 $45,948
Parent/Other (353) (1,472) (1,516)
- --------------------------------------------------------------------------------
Consolidated total $65,960 $42,155 $44,432
- --------------------------------------------------------------------------------
Average Balances and Net Interest Income
The table on page 26 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1999, 1998, and 1997 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on
liabilities for such periods. During 1999, average interest earning assets
totaled $5.4 billion, an increase of $898.7 million, or 20% over 1998. This
increase resulted primarily from the increase in the average balance of loans,
which rose $691.3 million, and the average balance of investment securities,
which rose $236.6 million during 1999. The growth in the average balance of
interest earning assets was funded primarily by an increase in the average
balance of deposits (including noninterest-bearing demand deposits) of $889.2
million. The growth in interest earning assets was also partly funded by an
increase in other borrowed money, which rose $114.8 million to an average
balance of $183.6 million during 1999.
Net Interest Income and Net Interest Margin
Net interest margin on a tax-equivalent basis was 4.65% for 1999, an increase of
23 basis points from 1998.
Net interest income on a tax-equivalent basis (which adjusts for the tax-exempt
status of income earned on certain loans and investments to express such income
as if it were taxable) for 1999 was $249.6 million, an increase of $52.0
million, or 26%, over 1998. Interest income on a tax-equivalent basis increased
to $391.6 million from $327.6 million, or 20%. This increase was primarily
related to volume increases in the loan and investment portfolios. Interest
expense for 1999 rose $12.1 million to $142.1 million from $130.0 million in
1998. This increase was primarily related to increases in the Company's levels
of deposits and other borrowed money.
The tax-equivalent yield on interest earning assets during 1999 was 7.29%, a
slight decrease of three basis points from 7.32% in 1998.
24
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's
consolidated balance sheets and statements of income. This section should be
read in conjunction with the Company's consolidated financial statements and
accompanying notes. Effective January 15, 1999, the Company acquired Community
First Banking Company (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 Prestige Financial Corporation
(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. The Company's
originally reported financial position and results of operations have been
restated herein to include CFBC's and PFC's results of operations for all
periods presented.
1999 Overview
In 1999, the Company posted increases in net income, deposits, loans, and
assets. The increase in net income was due to increases in net interest income
and noninterest income, which offset increased noninterest expenses. Loan growth
totaled 30% for 1999, and deposit growth totaled 14%. At December 31, 1999, the
Company had total assets of $6.6 billion, total loans of $3.0 billion, total
investment securities of $3.0 billion, and total deposits of $5.6 billion.
Segment Reporting
The Company operates one reportable segment of business, Community Banks, as
more fully described in Note 19 to the Consolidated Financial Statements on page
60. The following table summarizes net income by segment for each of the last
three years:
- -------------------------------------------------------------------------------
Net Income
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
Community Banks $66,313 $43,627 $45,948
Parent/Other (353) (1,472) (1,516)
- -------------------------------------------------------------------------------
Consolidated total $65,960 $42,155 $44,432
- -------------------------------------------------------------------------------
Average Balances and Net Interest Income
The table on page 26 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1999, 1998, and 1997 and presents the daily average
interest rates earned on assets and the daily average interest rates paid on
liabilities for such periods. During 1999, average interest earning assets
totaled $5.4 billion, an increase of $898.7 million, or 20% over 1998. This
increase resulted primarily from the increase in the average balance of loans,
which rose $691.3 million, and the average balance of investment securities,
which rose $236.6 million during 1999. The growth in the average balance of
interest earning assets was funded primarily by an increase in the average
balance of deposits (including noninterest-bearing demand deposits) of $889.2
million. The growth in interest earning assets was also partly funded by an
increase in other borrowed money, which rose $114.8 million to an average
balance of $183.6 million during 1999.
Net Interest Income and Net Interest Margin
Net interest margin on a tax-equivalent basis was 4.65% for 1999, an increase of
23 basis points from 1998.
Net interest income on a tax-equivalent basis (which adjusts for the tax-exempt
status of income earned on certain loans and investments to express such income
as if it were taxable) for 1999 was $249.6 million, an increase of $52.0
million, or 26%, over 1998. Interest income on a tax-equivalent basis increased
to $391.6 million from $327.6 million, or 20%. This increase was primarily
related to volume increases in the loan and investment portfolios. Interest
expense for 1999 rose $12.1 million to $142.1 million from $130.0 million in
1998. This increase was primarily related to increases in the Company's levels
of deposits and other borrowed money.
The tax-equivalent yield on interest earning assets during 1999 was 7.29%, a
slight decrease of three basis points from 7.32% in 1998.
24
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The cost of interest-bearing liabilities decreased 34 basis points in 1999 to
3.29% from 3.63% in 1998. The decrease resulted primarily from the level and
timing of changes in general market interest rates during 1999 as compared to
1998. The cost of total funding sources decreased 26 basis points in 1999 to
2.64% from 2.90%.
The following table presents the major factors that contributed to the changes
in net interest income for the years ended December 31, 1999 and 1998 as
compared to the respective previous periods.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1)
- ---------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest on
investments:
Taxable $12,294 $1,724 $14,018 $28,358 $(5,536) $22,822
Tax-exempt 387 99 486 (226) 725 499
Trading 2,552 253 2,805 1,561 83 1,644
Federal
funds sold (1,474) (114) (1,588) 530 (77) 453
Interest on loans:
Commercial
real estate 18,805 (3,994) 14,811 10,832 (1,428) 9,404
Commercial 10,824 (1,869) 8,955 5,638 (1,348) 4,290
Consumer 23,752 (2,315) 21,437 12,059 (1,917) 10,142
Tax-exempt 3,279 (121) 3,158 1,645 (65) 1,580
- ---------------------------------------------------------------------------------------------------
Total interest
income 70,419 (6,337) 64,082 60,397 (9,563) 50,834
- ---------------------------------------------------------------------------------------------------
Interest expense:
Regular
savings 2,952 (2,900) 52 3,246 (1,013) 2,233
N.O.W.
accounts 285 808 1,093 1,618 (198) 1,420
Money
market plus 10,487 (1,671) 8,816 6,393 313 6,706
Time
deposits 3,415 (3,479) (64) 4,376 495 4,871
Public funds (1,843) (1,765) (3,608) 4,043 (194) 3,849
Other
borrowed
money 6,177 (311) 5,866 (1,323) 201 (1,122)
Long-term
debt 0 (56) (56) 2,217 22 2,239
- ---------------------------------------------------------------------------------------------------
Total interest
expense 21,473 (9,374) 12,099 20,570 (374) 20,196
- ---------------------------------------------------------------------------------------------------
Net increase $48,946 $3,037 $51,983 $39,827 $(9,189) $30,638
- ---------------------------------------------------------------------------------------------------
<FN>
(1) Changes due to both volume and rate have been allocated to volume or rate
changes in proportion to the absolute dollar amounts of the change in
each.
</FN>
</TABLE>
Noninterest Income
For 1999, noninterest income totaled $114.6 million, an increase of $18.3
million or 19% from 1998. The increase was due primarily to increased other
operating income, which rose $9.8 million from 1998, including an increase of
$7.1 million in revenues from Commerce National Insurance Services, Inc.
(Commerce Insurance), the Company's insurance brokerage subsidiary. In addition,
deposit charges and service fees increased $8.8 million over 1998 due primarily
to higher transaction volumes, and net investment securities gains were $310
thousand lower in 1999 than the prior year.
Noninterest Expenses
Noninterest expenses totaled $252.5 million for 1999, an increase of $38.6
million, or 18% over 1998. Contributing to this increase was the addition of 24
new branches and the expansion of Commerce Insurance. With the addition of these
new offices, staff, facilities, marketing, and related expenses rose
accordingly. Other noninterest expenses rose $4.8 million to $40.7 million in
1999. This increase resulted primarily from higher bank-card related service
charges, increased business development expenses, and increased provisions for
non-credit-related losses.
A key industry productivity measure is the operating efficiency ratio. This
ratio expresses the relationship of noninterest expenses (excluding other real
estate expenses) to net interest income plus noninterest income (excluding
non-recurring gains). Over the last three years, this ratio equaled 70.36%,
73.81% and 67.42% in 1999, 1998 and 1997, respectively. The Company's efficiency
ratio remains above its peer group primarily due to its aggressive growth
expansion activities.
25
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Average Average Average Average Average Average
Earning Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Taxable $2,583,530 $164,712 6.38 % $2,390,688 $150,693 6.30 % $1,940,797 $127,872 6.59 %
Tax-exempt 58,503 3,828 6.54 52,592 3,342 6.35 56,156 2,843 5.06
Trading 70,800 4,769 6.74 32,921 1,965 5.97 6,766 321 4.74
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,712,833 173,309 6.39 2,476,201 156,000 6.30 2,003,719 131,036 6.54
Federal funds sold 19,419 978 5.04 48,691 2,566 5.27 38,640 2,113 5.47
Loans
Commercial real estate 963,679 81,985 8.51 742,644 67,174 9.05 622,888 57,770 9.27
Commercial 519,963 45,615 8.77 396,578 36,660 9.24 335,582 32,370 9.65
Consumer 1,086,487 83,525 7.69 777,518 62,088 7.99 626,506 51,946 8.29
Tax-exempt 71,926 6,222 8.65 34,018 3,064 9.01 15,758 1,484 9.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 2,642,055 217,347 8.23 1,950,758 168,986 8.66 1,600,734 143,570 8.97
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets $5,374,307 391,634 7.29 % $4,475,650 $327,552 7.32 % $3,643,093 $276,719 7.60 %
- ------------------------------------------------------------------------------------------------------------------------------------
Sources of Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Regular savings $1,011,642 $20,834 2.06 % $ 886,311 $20,782 2.39 % $ 732,688 $18,549 2.53 %
N.O.W. accounts 240,409 6,070 2.52 229,109 4,977 2.17 154,620 3,557 2.30
Money market plus 1,594,602 39,204 2.46 1,168,045 30,388 2.60 922,325 23,683 2.57
Time deposits 882,081 42,995 4.87 812,028 43,060 5.30 729,507 38,189 5.23
Public funds 320,768 16,026 5.00 357,663 19,634 5.49 284,019 15,785 5.56
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 4,049,502 125,129 3.09 3,435,156 118,841 3.46 2,823,159 99,763 3.53
Other borrowed money 183,554 9,880 5.38 68,795 4,014 5.83 91,470 5,136 5.61
Long-term debt 80,500 7,071 8.78 80,500 7,127 8.85 55,452 4,887 8.81
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
bearing liabilities 4,313,556 142,080 3.29 3,584,451 129,982 3.63 2,970,081 109,786 3.70
Noninterest-bearing funds
(net) 1,060,751 891,199 673,013
- ------------------------------------------------------------------------------------------------------------------------------------
Total sources to fund
earning assets $5,374,307 142,080 2.64 $4,475,650 129,982 2.90 $3,643,093 109,786 3.01
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
margin tax-equivalent
basis 249,554 4.65 197,570 4.42 166,933 4.59
Tax-exempt adjustment 5,187 2,909 1,611
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
margin $244,367 4.55 % $194,661 4.35 % $165,322 4.54 %
- ------------------------------------------------------------------------------------------------------------------------------------
Other Balances
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks $251,438 $ 197,282 $ 168,708
Other assets 312,652 220,142 182,980
Total assets 5,903,869 4,866,005 3,971,495
Demand deposits
(noninterest-bearing) 1,202,412 927,601 728,426
Other liabilities 51,921 43,248 24,314
Stockholders' equity 335,982 310,705 248,674
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes--Weighted average yields on tax-exempt obligations have been computed on a
tax-equivalent basis assuming a federal tax rate of 35%.
--Non-accrual loans have been included in the average loan balance.
--Investment securities includes investments available for sale.
--Consumer loans include loans held for sale.
</FN>
</TABLE>
26
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Income Taxes
The provision for federal and state income taxes for 1999 was $31.3 million
compared to $26.1 million in 1998 and $23.7 million in 1997. The effective tax
rate was 32.2%, 38.2% and 34.8% in 1999, 1998, and 1997, respectively.
Net Income
Net income for 1999 was $66.0 million, an increase of $23.8 million, or 56% over
the $42.2 million recorded for 1998. The increase in net income was due to
increases in net interest income and noninterest income, which offset increased
noninterest expenses.
Diluted net income per share of common stock for 1999 was $2.17 compared to
$1.42 per common share for 1998.
Return on Average Equity and Average Assets
Two industry measures of the performance by a banking institution are its return
on average assets and return on average equity. Return on average assets ("ROA")
measures net income in relation to total average assets and indicates a
company's ability to employ its resources profitably. For 1999, the Company's
ROA was 1.12% compared to 0.87% for 1998. Return on average equity ("ROE") is
determined by dividing annual net income by average stockholders' equity and
indicates how effectively a company can generate net income on the capital
invested by its stockholders. For 1999, the Company's ROE was 19.63% compared to
13.57% for 1998.
Loan Portfolio
The following table summarizes the loan portfolio of the Company by type of loan
as of December 31, for each of the years 1995 through 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
December 31,
- ---------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial real estate:
Owner-occupied $ 475,700 $ 397,933 $ 316,057 $ 244,995 $ 207,429
Other 431,473 358,600 287,510 288,733 250,782
Construction 185,712 122,797 64,948 60,434 57,911
- -------------------------------------------------------------------------------------------------
1,092,885 879,330 668,515 594,162 516,122
Commercial:
Term 393,953 282,556 211,827 205,990 172,283
Line of credit 277,917 192,485 118,631 106,326 78,469
Demand 1,328 417 617 708 603
- -------------------------------------------------------------------------------------------------
673,198 475,458 331,075 313,024 251,355
Consumer:
Mortgages
(1-4 family
residential) 428,453 322,310 184,479 171,102 150,358
Installment 125,856 96,188 89,150 83,953 75,017
Home equity 621,597 494,047 377,437 311,122 225,425
Credit lines 19,099 12,993 12,330 10,967 10,127
- -------------------------------------------------------------------------------------------------
1,195,005 925,538 663,396 577,144 460,927
- -------------------------------------------------------------------------------------------------
Total loans $2,961,088 $2,280,326 $1,662,986 $1,484,330 $1,228,404
- -------------------------------------------------------------------------------------------------
</TABLE>
The Company manages risk associated with its loan portfolio through
diversification, underwriting policies and procedures, and ongoing loan
monitoring efforts. The commercial real estate portfolio includes owner-occupied
(owner occupies greater than 50% of the property), other commercial real estate,
and construction loans. Owner-occupied and other commercial real estate loans
generally have five year call provisions and bear the personal guarantees of the
principals involved. Construction loans are primarily used for single family
residential properties. Financing is provided against firm agreements of sale,
with speculative construction limited to one sample per project. The commercial
loan portfolio is comprised primarily of amortizing loans to small businesses in
the New Jersey/Southeastern Pennsylvania market area. These loans are generally
secured by business assets, personal guarantees, and/or personal assets of the
borrower. The consumer loan portfolio is comprised primarily of loans secured by
first and second mortgage liens on residential real estate. Such loans comprised
approximately 88% of consumer loans at December 31, 1999.
27
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The maturity ranges of the loan portfolio and the amount of loans with
predetermined interest rates and floating rates in each maturity range, as of
December 31, 1999, are summarized in the following table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
December 31, 1999
- -------------------------------------------------------------------------------------------------
Due in One Year Due in One to Due in Over Five
or Less Five Years Years Total
- -------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial real
estate:
Owner
Occupied/other $137,255 $ 643,498 $126,420 $ 907,173
Construction 134,997 50,368 347 185,712
- -------------------------------------------------------------------------------------------------
272,252 693,866 126,767 1,092,885
Commercial:
Term 124,036 201,514 68,403 393,953
Line of credit 266,522 11,395 0 277,917
Demand 1,289 39 0 1,328
- -------------------------------------------------------------------------------------------------
391,847 212,948 68,403 673,198
Consumer:
Mortgages
(1-4 family
Residential) 12,508 51,218 364,727 428,453
Installment 63,869 58,178 3,809 125,856
Home equity 74,173 270,802 276,622 621,597
Credit lines 7,074 12,025 0 19,099
- -------------------------------------------------------------------------------------------------
157,624 392,223 645,158 1,195,005
- -------------------------------------------------------------------------------------------------
Total loans $821,723 $1,299,037 $840,328 $2,961,088
- -------------------------------------------------------------------------------------------------
Interest rates:
Predetermined $312,139 $1,045,872 $630,463 $1,988,474
Floating 509,584 253,165 209,865 972,614
- -------------------------------------------------------------------------------------------------
Total loans $821,723 $1,299,037 $840,328 $2,961,088
- -------------------------------------------------------------------------------------------------
</TABLE>
During 1999, loans increased $680.8 million, or 30% from $2.3 billion to $3.0
billion. During the third quarter of 1999, the Company securitized $129.8
million of residential mortgage loans, and included the securities in its held
to maturity investment portfolio. At December 31, 1999, loans represented 52% of
total deposits and 44% of total assets. All segments of the loan portfolio
experienced growth in 1999, including loans secured by commercial real estate,
commercial loans, and consumer loans.
The Company has traditionally been an active provider of commercial real estate
loans to creditworthy local borrowers, with such loans secured by properties
within the Company's primary trade area. At December 31, 1999, $475.7 million,
or 52%, of commercial real estate loans (other than construction) were secured
by owner-occupied properties. Commercial loan growth was led by activity in the
middle market and healthcare sectors. Growth in consumer loans was due primarily
to loans secured by one to four family residential properties, including home
equity loans and home equity lines of credit.
Commercial real estate construction loans increased $62.9 million to $185.7
million in 1999. At December 31, 1999, construction loans for 1-4 family
residential dwellings totaled $5.5 million and construction loans secured by
commercial properties amounted to $50.0 million. The balance of $130.2 million
was for land development, of which $84.6 million was residential. As of December
31, 1999, there were no concentrations of loans to any one type of industry
exceeding 10% of total loans nor were there any loans classified as highly
leveraged transactions.
Non-Performing Loans and Assets
Non-performing assets (non-performing loans and other real estate, excluding
loans past due 90 days or more and still accruing interest) at December 31, 1999
were $12.2 million or .18% of total assets, as compared to $14.7 million or .27%
of total assets at December 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 December 31, 1999
were $8.7 million as compared to $8.6 million a year ago. The Company generally
places a loan on non-accrual status and ceases accruing interest when loan
payment performance is deemed unsatisfactory. Generally loans past due 90 days
are placed on non-accrual status, unless the loan is both well secured and in
the process of collection. At December 31, 1999, loans past due 90 days or more
and still accruing interest amounted to $499 thousand, compared to $1.0 million
at December 31, 1998. Additional loans considered as potential problem loans
($26.6 million at December 31, 1999) by the Company's internal loan review
department have been evaluated as to risk exposure in determining the adequacy
of the allowance for loan losses.
Other real estate (ORE) totaled $3.5 million at December 31, 1999 as compared to
$6.1 million at December 31, 1998. These properties have been written down to
the lower of cost or fair value less disposition costs.
The Company has on an ongoing basis updated appraisals on loans secured by real
estate, particularly those categorized as non-performing loans and potential
problem loans. In those instances where updated appraisals reflect reduced
collateral values, an evaluation of the borrowers' overall financial condition
is made to determine the need, if any, for possible writedowns or appropriate
additions to the allowance for loan losses.
28
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following summary presents information regarding non-performing loans and
assets as of December 31, 1995 through 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1):
Commercial $ 2,254 $ 2,655 $ 2,937 $ 1,746 $ 1,877
Consumer 674 831 703 1,164 1,026
Real estate
Construction 55 0 1,345 2,156 1,787
Mortgage 5,230 4,849 7,886 6,378 5,431
- -------------------------------------------------------------------------------------------------
Total non-accrual
Loans 8,213 8,335 12,871 11,444 10,121
- -------------------------------------------------------------------------------------------------
Restructured loans (1):
Commercial 277 17 19 21 161
Consumer
Real estate
Construction
Mortgage 192 217 0 481 301
- -------------------------------------------------------------------------------------------------
Total restructured
Loans 469 234 19 502 462
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total non-performing
Loans 8,682 8,569 12,890 11,946 10,583
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Other real estate 3,523 6,081 5,845 8,252 11,862
- -------------------------------------------------------------------------------------------------
Total non-performing
Assets $12,205 $14,650 $18,735 $20,198 $22,445
- -------------------------------------------------------------------------------------------------
Non-performing
assets as a percent
of total assets 0.18% 0.27% 0.43% 0.56% 0.74%
- -------------------------------------------------------------------------------------------------
Loans past due 90
days or more and still
accruing interest $ 499 $ 1,029 $ 818 $ 948 $ 626
- -------------------------------------------------------------------------------------------------
<FN>
(1) Interest income of approximately $986,000, $1,030,000, $1,434,000,
$1,263,000, and $1,080,000 would have been recorded in 1999, 1998, 1997,
1996 and 1995 respectively, on non-performing loans in accordance with
their original terms. Actual interest recorded on these loans amounted
to $255,000 in 1999, $266,000 in 1998, $323,000 in 1997, $262,000 in
1996, and $299,000 in 1995.
</FN>
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to expense and
reduced by loan charge-offs net of recoveries. Management has established a loan
loss reserve which it believes is adequate for estimated losses in its loan
portfolio. Based on an evaluation of the loan portfolio, management presents a
quarterly review of the loan loss reserve to the Board of Directors, indicating
any changes in the reserve since the last review and any recommendations as to
adjustments in the reserve. In making its evaluation, management considers the
results of recent regulatory examinations, the effects on the loan portfolio of
current economic indicators and their probable impact on borrowers, the amount
of charge-offs for the period, the amount of non-performing loans and related
collateral security, the evaluation of its loan portfolio by the internal loan
review department and the annual examination of the Company's financial
statements by its independent auditors. Charge-offs occur when loans are deemed
to be uncollectible.
Through an internal loan review function that operates independently of the
lending function, management employs several methodologies to measure the
appropriate level of loan loss reserves. Those methodologies include migration
analyses based on historical experience and the related internal ratings of
loans charged off, and an allocation methodology based on the review of
individual loans, individual loan classifications, and collateral values. When
utilizing the allocation methodology, an unallocated portion of the reserve is
determined based on management's assessment of general national, regional, and
local economic conditions. This determination inherently involves a higher
degree of subjectivity, and considers risk factors that may not have yet
manifested themselves in the Company's historical loss experience or other
methodology criteria.
During 1999, net charge-offs amounted to $2.1 million, or .08% of average loans
outstanding for the year, compared to $1.6 million or .08% of average loans
outstanding for 1998. During 1999, the Company recorded provisions of $9.2
million to the allowance for loan losses compared to $8.8 million for 1998. At
December 31, 1999, the allowance aggregated $38.4 million or 1.30% of total
loans and provided coverage of 442% of non-performing loans.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $31,265 $24,150 $20,397 $17,919 $16,214
Provisions charged to
operating expenses 9,175 8,762 5,805 5,798 3,453
- -------------------------------------------------------------------------------------------------
40,440 32,912 26,202 23,717 19,667
- -------------------------------------------------------------------------------------------------
Recoveries of loans
previously charged-off:
Commercial 551 418 360 378 488
Consumer 286 305 415 276 245
Commercial real
estate 132 764 144 95 292
- -------------------------------------------------------------------------------------------------
Total recoveries 969 1,487 919 749 1,025
- -------------------------------------------------------------------------------------------------
Loans charged-off:
Commercial (1,599) (1,281) (1,481) (1,647) (1,522)
Consumer (1,078) (1,352) (1,344) (1,119) (811)
Commercial real
estate (350) (501) (146) (1,303) (440)
- -------------------------------------------------------------------------------------------------
Total charged-off (3,027) (3,134) (2,971) (4,069) (2,773)
- -------------------------------------------------------------------------------------------------
Net charge-offs (2,058) (1,647) (2,052) (3,320) (1,748)
- -------------------------------------------------------------------------------------------------
Balance at end of period $38,382 $31,265 $24,150 $20,397 $17,919
- -------------------------------------------------------------------------------------------------
Net charge-offs as a
percentage of average
loans outstanding 0.08% 0.08% 0.13% 0.24% 0.15%
- -------------------------------------------------------------------------------------------------
Allowance for loan losses
as a percentage of
year-end loans 1.30% 1.37% 1.45% 1.37% 1.46%
- -------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Allocation of the Allowance for Loan Losses
The following table details the allocation of the allowance for loan losses to
the various categories. The allocation is made for analytical purposes and it is
not necessarily indicative of the categories in which future loan losses may
occur. The total allowance is available to absorb losses from any segment of
loans.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses at December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
% Gross % Gross % Gross % Gross % Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $14,268 23% $ 7,738 21% $ 5,236 20% $ 4,108 21% $ 3,529 20%
Consumer 4,120 40 7,800 41 6,406 40 4,808 39 4,622 38
Commercial real
estate 19,994 37 15,727 38 12,508 40 11,481 40 9,768 42
- ------------------------------------------------------------------------------------------------------------------------------------
$38,382 100% $31,265 100% $24,150 100% $20,397 100% $17,919 100%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Securities
The following table summarizes the book value of securities available for sale
and securities held to maturity by the Company as of the dates shown.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
U.S. Government agency
and mortgage-backed
obligations $1,582,933 $1,154,765 $1,267,784
Obligations of state and
political subdivisions 42,182 26,041 23,515
Equity securities 9,107 15,397 11,364
Other 30,035 108,801 28,021
- ------------------------------------------------------------------------------------
Securities available
for sale $1,664,257 $1,305,004 $1,330,684
- ------------------------------------------------------------------------------------
U.S. Government agency
and mortgage-backed
obligations $1,134,115 $1,165,290 $ 937,324
Obligations of state and
political subdivisions 35,667 30,654 29,103
Other 32,110 24,930 19,249
- ------------------------------------------------------------------------------------
Securities held to
maturity $1,201,892 $1,220,874 $ 985,676
- ------------------------------------------------------------------------------------
</TABLE>
Consistent with accounting and regulatory pronouncements, the Company has
segregated a portion of its investment portfolio as securities available for
sale. The balance of the investment portfolio (excluding trading securities) is
categorized as securities held to maturity. Investment securities are classified
as available for sale if they might be sold in response to changes in interest
rates, prepayment risk, the Company's income tax position, the need to increase
regulatory capital, liquidity needs or other similar factors. These securities
are carried at fair market value. Investment securities are classified as held
to maturity when the Company has the intent and ability to hold those securities
to maturity. Securities held to maturity are carried at cost and adjusted for
accretion of discounts and amortization of premiums. Trading securities are
carried at market value, with gains and losses, both realized and unrealized,
included in other operating income.
In total, investment securities increased $372.7 million from $2.6 billion to
$3.0 billion at December 31, 1999. Deposit growth and other funding sources were
used to increase the Company's investment portfolio. The available for sale
portfolio increased $359.3 million to $1.7 billion, and the securities held to
maturity portfolio decreased $19.0 million to $1.2 billion at year-end 1998. In
connection with the acquisition of CFBC and PFC, management reclassified $91.0
million of investment securities from held to maturity to available from sale in
the first quarter of 1999. Unrealized losses on those securities transferred
were approximately $330 thousand. The portfolio of trading securities increased
$32.5 million from year-end 1998 to $117.8 million at year-end 1999. At December
31, 1999, the average life and duration of the investment portfolio were
approximately 6.3 years and 4.5 years, respectively, as compared to 4.4 years
and 3.2 years, respectively, at December 31, 1998. At December 31, 1999 the
yield on the portfolio was 6.53%, up from 6.23% at December 31, 1998.
The Company's investment portfolio consists primarily of U.S. Government agency
and mortgage-backed obligations. These securities have little, if any, credit
risk since they are either backed by the full faith and credit of the U.S.
Government, or are guaranteed by an agency of the U.S. Government, or are AAA
rated. These investment securities carry fixed coupons whose rate does not
change over the life
30
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of the securities. Certain securities are purchased at premiums or discounts.
Their yield will change depending on any change in the estimated rate of
prepayments. The Company amortizes premiums and accretes discounts over the
estimated average life of the securities. Changes in the estimated average life
of the investment portfolio will lengthen or shorten the period in which the
premium or discount must be amortized or accreted, thus affecting the Company's
investment yields. For the year ended December 31, 1999, the yield on the
investment portfolio was 6.39%, an increase of nine basis points from 6.30% in
fiscal 1998.
At December 31, 1999, the unrealized depreciation in securities available for
sale included in stockholders' equity totaled $39.7 million, net of tax,
compared to unrealized appreciation of $7.0 million, net of tax, at December 31,
1998.
The contractual maturity distribution and weighted average yield of the
Company's investment portfolio (excluding equity and trading securities) at
December 31, 1999, are summarized in the following table. Weighted average yield
is calculated by dividing income within each maturity range by the outstanding
amount of the related investment and has been tax effected on tax-exempt
obligations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Due Under 1 Year Due 1-5 Years Due 5-10 Years Due Over 10 Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Government agency and
mortgage-backed obligations $34,975 3.67% $59,035 6.10% $24,556 6.22% $1,464,367 6.58% $1,582,933 6.49%
Obligations of state and
political subdivisions 3,485 5.79 11,449 6.99 20,309 7.58 6,939 7.81 42,182 7.31
Other securities 13,188 4.56 476 7.29 5,851 7.20 10,520 7.52 30,035 6.16
- ------------------------------------------------------------------------------------------------------------------------------------
$51,648 4.04% $70,960 6.25% $50,716 6.88% $1,481,826 6.59% $1,655,150 6.51%
- ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
mortgage-backed obligations $59,168 6.44% $48,413 5.95% $1,026,534 6.64% $1,134,115 6.60%
Obligations of state and
political subdivisions $32,287 6.14% 2,505 7.04 875 11.24 35,667 6.33
Other securities 31,110 6.00 830 9.50 170 5.63 32,110 6.09
- ------------------------------------------------------------------------------------------------------------------------------------
$63,397 6.07% $62,503 6.51% $48,413 5.95% $1,027,579 6.64% $1,201,892 6.57%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Deposits
Total deposits at December 31, 1999 were $5.6 billion, an increase of $680.1
million or 14% above total deposits of $4.9 billion at December 31, 1998. The
Company remains a deposit-driven financial institution with emphasis on core
deposit accumulation and retention as a basis for sound growth and
profitability. The Company regards core deposits as all deposits other than
certificates of deposit, retail and public, in excess of $100 thousand.
Certificates of deposit in excess of $100 thousand decreased $18.3 million from
year-end 1998 to year-end 1999, and all of the 1999 growth in deposits was in
the various core categories.
Total deposits averaged $5.3 billion for 1999, an increase of $889.2 million or
20% above the 1998 average. The average balance of noninterest-bearing demand
deposits in 1999 was $1.2 billion, a $274.8 million or 30% increase over the
average balance for 1998. The average total balance of passbook and statement
savings accounts increased $143.3 million, or 17% compared to the prior year.
The average balance of interest-bearing demand accounts (money market and N.O.W.
accounts) for 1999 was $1.8 billion, a $437.9 million or 31% increase over the
average balance for the prior year. The average balance of time deposits for
1999 was $1.2 billion, a $33.2 million increase over the average balance for
1998. For 1999, the cost of total deposits was 2.38% as compared to 2.72% in
1998.
The Company believes that its record of sustaining core deposit growth is
reflective of the Company's retail approach to banking which emphasizes a
combination of free checking accounts (subject to a small minimum balance
requirement), convenient branch locations, extended hours of operation, quality
service, and active marketing.
The average balances and weighted average rates of deposits for each of the
years 1999, 1998, and 1997 are presented below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Noninterest-bearing $1,202,412 $ 927,601 $ 728,426
Interest-bearing (money market and
N.O.W. accounts) 1,835,011 2.47% 1,397,154 2.53% 1,076,945 2.53%
Savings deposits 1,011,642 2.06 868,311 2.39 732,688 2.53
Time deposits/public funds 1,202,849 4.91 1,169,691 5.36 1,013,526 5.33
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits $5,251,914 $4,362,757 $3,551,585
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The remaining maturity of certificates of deposit for $100,000 or more as of
December 31, 1999, 1998, and 1997 is presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Maturity 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
3 months or less $323,029 $332,300 $287,226
3 to 6 months 49,983 47,123 40,745
6 to 12 months 22,733 33,077 24,268
Over 12 months 7,628 9,172 7,857
- -----------------------------------------------------------------------------------------------------------
Total $403,373 $421,672 $360,096
- -----------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest Rate Sensitivity and Liquidity
The Company's risk of loss arising from adverse changes in the fair 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 those
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
An interest rate sensitive asset or liability is one that, within a defined time
period, either matures or experiences an interest rate change in line with
general market interest rates. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time ("GAP"), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-earning assets
within the one year horizon. However, assets and liabilities with similar
repricing characteristics may not reprice at the same time or to the same
degree. As a result, the Company's GAP does not necessarily predict the impact
of changes in general levels of interest rates on net interest income.
The following table illustrates the GAP position of the Company as of December
31, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gaps
December 31, 1999
- ---------------------------------------------------------------------------------------------------
1-90 91-180 181-365 1-5 Beyond
Days Days Days Years 5 Years Total
- ---------------------------------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Rate sensitive:
Interest-earning
Loans $1,120.8 $ 55.2 $ 99.8 $1,053.3 $629.1 $2,958.2
Investment
securities 89.8 16.3 36.8 164.8 2,676.3 2,984.0
Federal funds sold 5.3 5.3
- ---------------------------------------------------------------------------------------------------
Total interest-
earning assets 1,215.9 71.5 136.6 1,218.1 3,305.4 5,947.5
- ---------------------------------------------------------------------------------------------------
Interest-bearing
liabilities
Transaction
accounts 979.0 2,139.6 3,118.6
Time deposits 527.0 177.6 165.7 199.1 1,069.4
Other borrowed
money 558.1 558.1
Long-term debt 23.0 57.5 80.5
- ---------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities 2,064.1 177.6 165.7 222.1 2,197.1 4,826.6
- ---------------------------------------------------------------------------------------------------
Period gap (848.2) (106.1) (29.1) 996.0 1,108.3 $1,120.9
- ---------------------------------------------------------------------------------------------------
Cumulative gap $(848.2) $(954.3) $(983.4) $12.6 $1,120.9
- ---------------------------------------------------------------------------------------
Cumulative gap as a
percentage of total
interest-earning
assets (14.3)% (16.0)% (16.5)% 0.2% 18.8%
- -------------------------------------------------------------------------------------------
</TABLE>
Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will do
so. Income simulation also attends to the relative interest rate sensitivities
of these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net income over the next 24 months in a flat rate scenario versus net
income in alternative interest rate scenarios. Management continually reviews
and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate 200 basis point change during the next year, with rates remaining
constant in the second year.
33
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company's Asset/Liability Committee (ALCO) policy has established that
interest income sensitivity will be considered acceptable if net income in the
above interest rate scenario is within 15% of net income in the flat rate
scenario in the first year and within 30% over the two year time frame. At
December 31, 1999, the Company's income simulation model indicates net income
would increase by 4.8% and 1.0% in the first year and over a two year time
frame, respectively, if rates decreased as described above, as compared to a
decrease of 1.0% and 6.3%, respectively, at December 31, 1998. The model
projects that net income would decrease by 6.7% and 5.6% in the first year and
over a two year time frame, respectively, if rates increased as described above,
as compared to a decrease of 2.9% and 2.0%, respectively, at December 31, 1998.
All of these forecasts are within an acceptable level of interest rate risk per
the policies established by ALCO.
In the event the model indicates an unacceptable level of risk, the Company
could undertake a number of actions that would reduce this risk, including the
sale of a portion of its available for sale portfolio, the use of risk
management strategies such as interest rate swaps and caps, or the extension of
the maturities of its short-term borrowings.
Management also monitors interest rate risk by utilizing a market value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the Company's assets and liabilities, as well as any off
balance sheet items. The model calculates the market value of the Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate 200
basis point change in rates. The Company's ALCO policy indicates that the level
of interest rate risk is unacceptable if the immediate 200 basis point change
would result in the loss of 60% or more of the excess of market value over book
value in the current rate scenario. At December 31, 1999, the market value of
equity indicates an acceptable level of interest rate risk.
The market value of equity model reflects certain estimates and assumptions
regarding the impact on the market value of the Company's assets and liabilities
given an immediate 200 basis point change in interest rates. One of the key
assumptions is the market value assigned to the Company's core deposits, or the
core deposit premium. The Company has completed and updated comprehensive core
deposit studies in order to assign its own core deposit premiums as permitted by
regulation. The studies have consistently confirmed management's assertion that
the Company's core deposits have stable balances over long periods of time, and
are generally insensitive to changes in interest rates. Thus, these core deposit
balances provide an internal hedge to market value fluctuations in the Company's
fixed rate assets. Management believes the core deposit premiums produced by its
core deposit study and utilized in its market value of equity model at December
31, 1999 provide an accurate assessment of the Company's interest rate risk.
Liquidity involves the Company's ability to raise funds to support asset growth
or reduce assets to meet deposit withdrawals and other borrowing needs, to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis. The Company's liquidity needs are primarily met by growth in core
deposits, its cash and federal funds sold position, and cash flow from its
amortizing investment and loan portfolios. If necessary, the Company has the
ability to raise liquidity through collateralized borrowings, FHLB advances, or
the sale of its available for sale investment portfolio. During 1999, deposit
growth and short-term borrowings were used to fund growth in the loan portfolio
and purchase additional investment securities.
Short-Term Borrowings
Short-term borrowings, or other borrowed money, which consist primarily of
securities sold under agreement to repurchase, federal funds purchased, and
lines of credit, including Federal Home Loan Bank advances, were used in 1999 to
meet short-term liquidity needs. For 1999, short-term borrowings averaged $183.6
million as compared to $68.8 million in 1998. The average rate on the Company's
short-term borrowings was 5.38% and 5.83% during 1999 and 1998, respectively. As
of December 31, 1999, short-term borrowings included $292.3 million of
securities sold under agreements to repurchase at an average rate of 5.88%,
$20.0 million of federal funds purchased at an average rate of 4.50%, and $245.8
million of borrowings under lines of credit at an average rate of 5.67%.
Long-Term Debt
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. All $57.5 million of the Trust Capital
Securities qualify as Tier I capital for regulatory capital purposes. Proceeds
of this offering were earmarked for general corporate purposes, including
additional capitalization of existing banking subsidiaries.
34
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Stockholders' Equity and Dividends
At December 31, 1999, stockholders' equity totaled $356.8 million, up $33.2
million or 10% over stockholders' equity of $323.6 million at December 31, 1998.
This increase was primarily due to the Company's net income for the year.
Stockholders' equity as a percent of total assets was 5.38% at December 31,
1999, as compared to 5.96% at December 31, 1998.
Risk-based capital standards issued by bank regulatory authorities in the United
States attempt to relate a banking company's capital to the risk profile of its
assets and provide the basis for which all banking companies and banks are
evaluated in terms of capital adequacy. The risk-based capital standards require
all banks to have Tier 1 capital of at least 4% and total capital, including
Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes
stockholders' equity (adjusted for goodwill, other intangibles, and the
unrealized appreciation/depreciation in securities available for sale) plus the
Trust Capital Securities. Total capital is comprised of all of the components of
Tier 1 capital plus qualifying subordinated debt instruments and the reserve for
possible loan losses.
Banking regulators have also issued leverage ratio requirements. The leverage
ratio requirement is measured as the ratio of Tier 1 capital to adjusted average
assets. The following table provides a comparison of the Company's risk-based
capital ratios and leverage ratio to the minimum regulatory requirements for the
periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Minimum
December 31, Regulatory Requirements
- -------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk based capital ratios:
Tier 1 11.40% 12.09% 4.00% 4.00%
Total capital 12.72 13.71 8.00 8.00
Leverage ratio 7.02 7.05 4.00 3.00
- -------------------------------------------------------------------------------------------------
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
which became law in December of 1991, required each federal banking agency
including the Board of Governors of the Federal Reserve System ("FRB"), to
revise its risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risks of non-traditional activities, as well as reflect the actual performance
and expected risk of loss on multi-family mortgages. This law also requires each
federal banking agency, including the FRB, to specify, by regulation, the levels
at which an insured institution would be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized, "
or "critically undercapitalized." At December 31, 1999, the Company's
consolidated capital levels and each of the Company's banking subsidiaries met
the regulatory definition of a "well capitalized" financial institution, i.e., a
leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding
6%, and a total risk-based capital ratio exceeding 10%.
The Company's common stock is listed for trading on the New York Stock Exchange
under the symbol CBH. The quarterly market price ranges and dividends declared
per common share for each of the last two years are shown in the table below.
The prices and dividends per share have been adjusted to reflect common stock
dividends of 5% with record dates of January 7, 2000, January 7, 1999, and
January 7, 1998, as well as the 5-for-4 stock split in the form of a 25% stock
dividend with a record date of July 13, 1998. As of February 29, 2000, there
were approximately 19,000 holders of record of the Company's common stock.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Common Share Data
- -----------------------------------------------------------------------------------------
Market Prices
------------------------------ Cash Dividends
High Low Per Share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 Quarter Ended
December 31 $44.34 $38.16 $0.20952
September 30 43.63 38.45 0.20952
June 30 43.58 37.80 0.20952
March 31 47.50 39.28 0.19955
1998 Quarter Ended
December 31 $47.95 $31.63 $0.17687
September 30 43.03 31.86 0.35556
June 30 44.17 38.64 0.17415
March 31 39.95 31.25 0.16586
- -----------------------------------------------------------------------------------------
</TABLE>
The Company offers a Dividend Reinvestment and Stock Purchase Plan by which
dividends on the Company's Common Stock and optional monthly cash payments may
be invested in Common Stock at a 3% discount (subject to change) to the market
price and without payment of brokerage commissions.
Results of Operations - 1998 versus 1997
Net income for 1998 was $42.2 million compared to $44.4 million in 1997. Diluted
net income per common share was $1.42 compared to $1.56 per common share for the
prior year.
Net interest income on a tax-equivalent basis for 1998 amounted to $197.6
million, an increase of $30.6 million, or 18% over 1997.
Interest income on a tax-equivalent basis increased $50.8 million or 18% to
$327.6 million in 1998. This increase was primarily related to volume increases
in the loan and investment portfolios. Interest expense for 1998 rose $20.2
35
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
million to $130.0 million from $109.8 million in 1997. This increase was
primarily related to increases in the Company's levels of deposits.
The provision for loan losses was $8.8 million in 1998 compared to $5.8 million
in the prior year.
For 1998, noninterest income totaled $96.3 million, an increase of $33.9 million
or 54% from 1997. The increase was due primarily to increased other operating
income, which rose $26.5 million from 1997, including an increase of $8.7
million in revenues (to $25.2 million in 1998) from Commerce Insurance, and an
increase of $10.8 million in revenues from CCMI, which was formed in the first
quarter of 1998. In addition, deposit charges and service fees increased $6.8
million over 1997 due to higher transaction volumes, and net investment
securities gains were $597 thousand higher in 1998 than the prior year.
Noninterest expenses totaled $214.0 million for 1998, an increase of $60.1
million, or 39% over 1997. Contributing to this increase was the addition of
eight new branches during 1998, the expansion of Commerce Insurance, and the
formation of CCMI. With the addition of these new offices and CCMI, staff,
facilities, marketing and related expenses rose accordingly. Salaries included
$7.5 million paid in 1998 under imminent change in control provisions of
employment contracts. Other noninterest expenses rose $13.4 million to $35.8
million in 1998. Higher bank- card related service charges, increased business
development expenses, and higher provisions for non-credit-related losses
contributed to the increase. In addition, in 1998 the Company paid approximately
$2.2 million in directors compensation under imminent change in control
provisions of a benefit plan.
Impact of 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 and non-information 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).
Mergers and Acquisitions
In January, 2000, Traber and Vreeland, Inc., an insurance brokerage agency, was
merged with and into Commerce Insurance. The Company issued approximately
284,000 shares of common stock in exchange for all of the outstanding shares of
this agency. The transaction was accounted for as a pooling of interests.
However, the Company does not expect to restate the financial statements of the
periods prior to the acquisition as the changes, in the aggregate, would be
immaterial.
36
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Cash and due from banks $ 317,624 $ 267,220
Federal funds sold 5,300 10,395
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents 322,924 277,615
Loans held for sale 5,704 22,418
Trading securities 117,837 85,359
Securities available for sale 1,664,257 1,305,004
Securities held to maturity 1,201,892 1,220,874
(market value 1999-$1,155,447; 1998-$1,223,667)
Loans 2,961,088 2,280,326
Less allowance for loan losses 38,382 31,265
---------------------------------------------------------------------------------------------------------
2,922,706 2,249,061
Bank premises and equipment, net 198,515 147,448
Other assets 201,958 116,411
---------------------------------------------------------------------------------------------------------
$6,635,793 $5,424,190
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities Deposits:
Demand:
Interest-bearing $2,063,899 $1,682,958
Noninterest-bearing 1,420,865 1,162,126
Savings 1,054,791 973,324
Time 1,069,365 1,110,400
---------------------------------------------------------------------------------------------------------
Total deposits 5,608,920 4,928,808
Other borrowed money 558,092 27,845
Other liabilities 31,525 62,203
Obligation to Employee Stock Ownership Plan (ESOP) 1,282
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
---------------------------------------------------------------------------------------------------------
6,279,037 5,100,638
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' Common stock, 29,844,314 shares issued 44,418 40,988
Equity (28,790,949 shares in 1998)
Capital in excess of par or stated value 321,443 236,928
Retained earnings 32,263 41,536
Accumulated other comprehensive income (39,744) 7,006
---------------------------------------------------------------------------------------------------------
358,380 326,458
Less commitment to ESOP 1,282
Less treasury stock, at cost 1,624 1,624
---------------------------------------------------------------------------------------------------------
Total stockholders' equity 356,756 323,552
---------------------------------------------------------------------------------------------------------
$6,635,793 $5,424,190
---------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
37
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Interest and fees on loans $215,170 $167,914 $143,050
Income Interest on investment securities 170,300 154,164 129,945
Other interest 978 2,565 2,113
----------------------------------------------------------------------------------------------------------------
Total interest income 386,448 324,643 275,108
----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Interest Interest on deposits:
Expense Demand 45,274 35,477 27,218
Savings 20,835 20,672 18,571
Time 59,021 62,692 53,974
----------------------------------------------------------------------------------------------------------------
Total interest on deposits 125,130 118,841 99,763
Interest on other borrowed money 9,880 4,014 5,136
Interest on long-term debt 7,071 7,127 4,887
----------------------------------------------------------------------------------------------------------------
Total interest expense 142,081 129,982 109,786
----------------------------------------------------------------------------------------------------------------
Net interest income 244,367 194,661 165,322
Provision for loan losses 9,175 8,762 5,805
----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 235,192 185,899 159,517
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest Deposit charges and service fees 44,196 35,343 28,555
Income Other operating income 67,818 58,042 31,560
Net investment securities gains 2,582 2,892 2,295
----------------------------------------------------------------------------------------------------------------
Total noninterest income 114,596 96,277 62,410
----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest Salaries 101,650 87,078 58,577
Expense Benefits 20,232 18,475 13,840
Occupancy 22,407 18,565 15,835
Furniture and equipment 31,659 24,995 19,934
Office 21,356 16,974 13,091
Audit and regulatory fees and assessments 2,623 2,246 1,745
Marketing 10,155 8,451 6,563
Other real estate (net) 1,786 1,348 1,814
Other 40,655 35,818 22,405
----------------------------------------------------------------------------------------------------------------
Total noninterest expenses 252,523 213,950 153,804
----------------------------------------------------------------------------------------------------------------
Income before income taxes 97,265 68,226 68,123
Provision for federal and state income taxes 31,305 26,071 23,691
----------------------------------------------------------------------------------------------------------------
Net income 65,960 42,155 44,432
Dividends on preferred stocks 563
----------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 65,960 $ 42,155 $ 43,869
----------------------------------------------------------------------------------------------------------------
Net income per common and common equivalent share:
Basic $ 2.26 $ 1.49 $ 1.64
----------------------------------------------------------------------------------------------------------------
Diluted $ 2.17 $ 1.42 $ 1.56
----------------------------------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding:
Basic 29,155 28,254 26,715
----------------------------------------------------------------------------------------------------------------
Diluted 30,465 29,662 28,386
----------------------------------------------------------------------------------------------------------------
Cash dividends declared, common stock $ 0.83 $ 0.87 $ 0.55
----------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
38
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Net income $ 65,960 $ 42,155 $ 44,432
Activities Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Provision for loan losses 9,175 8,762 5,805
Provision for depreciation, amortization
and accretion 28,186 26,640 19,285
Gains on sales of securities available for sale (2,582) (2,892) (2,295)
Proceeds from sales of mortgages held for sale 111,055 67,125 59,571
Originations of mortgages held for sale (94,341) (61,629) (67,950)
Net loan (chargeoffs) (2,058) (1,647) (2,051)
Net (increase) decrease in trading securities (32,478) (77,448) 7,416
Increase in other assets (60,142) (44,022) (17,628)
(Decrease) increase in other liabilities (23,064) 48,226 3,544
Deferred income tax benefit (3,468) (3,115) (2,499)
----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (3,757) 2,155 47,630
Investing Proceeds from the sales of securities available for sale 398,274 435,488 231,190
Activities Proceeds from the maturity of securities available for sale 313,373 404,927 163,433
Proceeds from the maturity of securities held to maturity 241,690 374,540 165,336
Purchase of securities available for sale (1,002,738) (807,276) (846,919)
Purchase of securities held to maturity (236,623) (616,780) (316,945)
Net increase in loans (820,299) (626,307) (189,091)
Proceeds from sales of loans 9,769 8,966 10,020
Purchases of premises and equipment (73,303) (48,320) (33,108)
----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,169,857) (874,762) (816,084)
Financing Net increase in demand and savings deposits 721,147 976,959 491,681
Activities Net (decrease) increase in time deposits (41,035) 167,272 41,029
Net increase (decrease) in other borrowed money 530,247 (195,455) 153,300
Issuance of common stock 1,795 1,432
Dividends paid (23,476) (23,062) (13,693)
Proceeds from issuance of Trust Capital Securities 57,500
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 31,428 9,428 6,876
Other 612 8,509 1,553
----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,218,923 945,446 739,678
Increase (decrease) in cash and cash equivalents 45,309 72,839 (28,776)
Cash and cash equivalents at beginning of year 277,615 204,776 233,552
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 322,924 $ 277,615 $ 204,776
----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 141,810 $ 124,535 $ 107,218
Income taxes 26,753 29,755 25,538
Other noncash activities:
Transfer of securities to securities available for sale 91,010 83,773
Securitization of loans 129,768
----------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
39
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999, 1998 and 1997
Capital in
Excess Accumulated
of Par Commitment Other Compre-
(in thousands, except per share amounts) Common Preferred or Stated Retained to Treasury hensive
Stock Stock Value Earnings ESOP Stock Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $27,329 $7,536 $164,493 $42,860 $(4,403) $(3,352) $ (5,919) $228,544
Acquisition of insurance brokerage agencies
(308 shares) 332 (55) 277
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1997 27,661 7,536 164,438 42,860 (4,403) (3,352) (5,919) 228,821
Net income 44,432 44,432
Other comprehensive income, net of tax
Unrealized gain on securities (pre-tax $14,880) 10,643 10,643
Reclassification adjustment (pre-tax ($1,494)) (971) (971)
----------
Other comprehensive income 9,672
----------
Total comprehensive income 54,104
Common stock dividend and cash paid in lieu of
fractional shares (925 shares) 1,446 19,398 (20,868) (24)
Cash dividends paid (13,669) (13,669)
Shares issued under dividend reinvestment and
compensation and benefit plans (477 shares) 746 7,592 8,338
Other (201) (30) (1,262) 2,095 1,728 2,330
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 $29,652 $7,506 $190,166 $52,755 $(2,308) $(1,624) $ 3,753 $279,900
Acquisition of investment firm/insurance
brokerage agency (735 shares) 794 (552) 7,997 8,239
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1998 30,446 7,506 189,614 60,752 (2,308) (1,624) 3,753 288,139
Net income 42,155 42,155
Other comprehensive income, net of tax
Unrealized gain on securities (pre-tax $5,005) 3,157 3,157
Reclassification adjustment (pre-tax $147) 96 96
----------
Other comprehensive income 3,253
----------
Total comprehensive income 45,408
Common stock dividends and cash paid in lieu of
fractional shares (5,671 shares) 8,860 29,449 (38,395) (86)
Cash dividends paid (22,976) (22,976)
Shares issued under dividend reinvestment and
compensation and benefit plans (429 shares) 671 10,629 11,300
Convert preferred C stock to common stock
(647 shares) 1,011 (7,506) 6,495 0
Other 741 1,026 1,767
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 $40,988 $ 0 $236,928 $41,536 $(1,282) $(1,624) $ 7,006 $323,552
Acquisition of insurance brokerage agencies
(74 shares) 110 212 322
- ------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1999 41,098 0 237,140 41,536 (1,282) (1,624) 7,006 323,874
Net income 65,960 65,960
Other comprehensive income, net of tax
Unrealized loss on securities (pre-tax ($71,923)) (45,431) (45,431)
Reclassification adjustment (pre-tax ($1,919)) (1,319) (1,319)
----------
Other comprehensive income (46,750)
----------
Total comprehensive income 19,210
Common stock dividend and cash paid in lieu of
fractional shares (1,145 shares) 1,790 49,968 (51,890) (132)
Cash dividends paid (23,343) (23,343)
Shares issued under dividend reinvestment and
compensation and benefit plans (980 shares) 1,530 29,897 31,427
Other 4,438 1,282 5,720
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999 $44,418 $ 0 $321,443 $32,263 $ 0 $(1,624) $(39,744) $356,756
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
40
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Commerce
Bancorp, Inc. (the Company) and its wholly-owned subsidiaries, Commerce
Bank, N.A. (Commerce NJ), Commerce Bank/Pennsylvania, N.A. (Commerce PA),
Commerce Bank/Shore, N.A. (Commerce Shore), Commerce Bank/North (Commerce
North), Commerce Bank/Central, N.A. (Commerce Central), Commerce
Bank/Delaware, N.A. (Commerce Delaware), Commerce National Insurance
Services, Inc. (Commerce Insurance), Commerce Capital Trust I, and Commerce
Capital Markets, Inc. (CCMI). All material intercompany transactions have
been eliminated. Certain amounts from prior years have been reclassified to
conform with 1999 presentation. All common stock and per share information
has been adjusted for the 5% common stock dividend declared on December 21,
1999.
The Company is a multi-bank holding company headquartered in Cherry Hill,
New Jersey, operating primarily in the metropolitan Philadelphia, New
Jersey, and Delaware markets. Through its subsidiaries, the Company
provides retail and commercial banking services, corporate trust services,
municipal bond underwriting services, and insurance brokerage services.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Investment Securities
Trading account securities are carried at market value. Gains and losses,
both realized and unrealized, are included in other operating income.
Trading gains were $6,499,000, $5,584,000, and $1,112,000 in 1999, 1998,
and 1997, respectively.
Investment securities are classified as held to maturity when the Company
has the intent and ability to hold those securities to maturity. Securities
held to maturity are stated at cost and adjusted for accretion of discounts
and amortization of premiums.
Those securities that might be sold in response to changes in market
interest rates, prepayment risk, the Company's income tax position, the
need to increase regulatory capital, or similar other factors are
classified as available for sale. Available for sale securities are carried
at fair value, with unrealized gains and losses, net of tax, reported as a
component of stockholders' equity. The amortized cost of debt securities in
this category is adjusted for accretion of discounts and amortization of
premiums. Realized gains and losses are determined on the specific
certificate method and are included in noninterest income.
Loans
Loans are stated at principal amounts outstanding, net of deferred loan
origination fees and costs. Interest income on loans is accrued and
credited to interest income monthly as earned. Loan origination fees are
generally considered as adjustments of interest rate yields and are
amortized into interest income on loans over the terms of the related
loans.
Loans are placed on a non-accrual status and cease accruing interest when
loan payment performance is deemed unsatisfactory. However, all loans past
due 90 days are placed on non-accrual status, unless the loan is both well
secured and in the process of collection.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to expense
and reduced by loan charge-offs net of recoveries. Based upon management's
evaluation of the loan portfolio, the allowance is maintained at a level
considered adequate to absorb estimated inherent losses in the loan
portfolio. The level of the allowance is based on an evaluation of the risk
characteristics included in the loan portfolio, including such factors as
the
41
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
volume and composition of the portfolio, historical loan loss experience,
present and prospective financial condition of borrowers, general national
and local economic conditions, and other relevant factors.
Bank Premises and Equipment
Bank premises and equipment are carried at cost less accumulated
depreciation. Depreciation and amortization are determined on the
straight-line method for financial reporting purposes, and accelerated
methods for income tax purposes.
Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan is reported in other assets
at the lower of cost or fair value less disposition costs. Properties
acquired by foreclosure or deed in lieu of' foreclosure are transferred to
ORE and recorded at the lower of cost or fair value less disposition costs
based on their appraised value at the date actually or constructively
received. Losses arising from the acquisition of such property are charged
against the allowance for loan losses. Subsequent adjustments to the
carrying values of ORE properties are charged to operating expense.
Intangible Assets
The excess of cost over fair value of net assets acquired (goodwill) is
included in other assets and is being amortized on a straight-line basis
over the period of expected benefit, which approximates 15 years. Goodwill
amounted to $2,494,000 and $2,788,000 at December 31, 1999 and 1998,
respectively. Other intangible assets are amortized on a straight-line
basis over 10 to 15 year lives. Other intangibles amounted to $1,808,000
and $2,019,000 at December 31, 1999 and 1998, respectively.
Income Taxes
The provision for income taxes is based on current taxable income. When
income and expenses are recognized in different periods for book purposes,
deferred taxes are provided.
Restriction on Cash and Due From Banks
The Banks are required to maintain reserve balances with the Federal
Reserve Bank. The weighted average amount of the reserve balances for 1999
and 1998 were approximately $13,596,000 and $12,242,000, respectively.
Recent Accounting Statements
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, 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.
2. Mergers and Acquisitions
In January 1997, Colkate, Inc., t/a The Morrissey Agency, Mt. Laurel, New
Jersey, was merged with and into Commerce Insurance. In December 1997,
Joseph J. Reinhart and Associates, Inc., Cherry Hill, NJ, a risk/loss
management and loss investigation consulting firm, and Associated Insurance
Management, Inc., Haddonfield, NJ, an employee and executive benefit
consulting firm, were merged with and into Commerce
42
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Insurance. The Company issued approximately 308,000 shares of common stock
in exchange for all of the outstanding shares of the agencies acquired in
1997. In August 1998, J.A. Montgomery, Inc., Wilmington, DE, an insurance
brokerage agency, was merged with and into Commerce Insurance. The Company
issued approximately 211,000 shares of common stock in exchange for all of
the outstanding shares of this agency. In November, 1999, Mullaney
Insurance Associates, Oakhurst, NJ, an insurance brokerage agency was
merged with and into Commerce Insurance. The Company issued approximately
67,000 shares of common stock in exchange for all of the outstanding shares
of this agency. All of these transactions were accounted for as poolings of
interests. However, financial statements of the periods prior to the
acquisitions have not been restated, as the changes, in the aggregate,
would be immaterial.
In the first quarter of 1998, the Company completed the acquisition of A.
H. Williams & Co., Inc., (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 436,000 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.
The former Independence Bancorp, Inc. ("Independence"), Bergen County, New
Jersey, was merged into Commerce Bancorp, Inc. on January 21, 1997 and its
wholly-owned subsidiary bank, Independence Bank of New Jersey, was
thereafter renamed Commerce Bank/North. The Company issued approximately
3,849,000 shares of common stock to effect the merger. The transaction was
accounted for as a pooling of interests.
Effective January 15, 1999, the Company acquired Community First Banking
Company (CFBC), and CFBC's wholly-owned bank subsidiary, Tinton Falls State
Bank, was merged with and into Commerce Shore. The Company issued
approximately 1,428,000 shares of common stock to effect the merger. Also
effective January 15, 1999, the Company acquired Prestige Financial Corp.
(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
Company issued approximately 1,950,000 shares of common stock to effect the
merger. The transactions were accounted for as poolings of interests. The
Company's originally reported financial position and results of operations
have been restated herein to include CFBC's and PFC's results of operations
for all periods presented.
In January 2000, Traber and Vreeland, Inc., Randolph, NJ, an insurance
brokerage agency, was merged with and into Commerce Insurance. The Company
issued approximately 284,000 shares of common stock in exchange for all of
the outstanding shares of this agency. The transaction was accounted for as
a pooling of interests. However, the Company does not expect to restate the
financial statements of the periods prior to the acquisition, as the
changes, in the aggregate, would be immaterial.
43
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Investment Securities
A summary of the amortized cost and market value of securities available
for sale and securities held to maturity (in thousands) at December 31,
1999 and 1998 follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agency
and mortgage-backed
obligations $1,644,698 $ 7 $(61,772) $1,582,933 $1,147,931 $ 9,254 $(2,420) $1,154,765
Obligations of state and
political subdivisions 43,379 87 (1,284) 42,182 25,338 703 26,041
Equity securities 7,655 2,206 (754) 9,107 11,988 3,584 (175) 15,397
Other 30,209 71 (245) 30,035 108,770 50 (19) 108,801
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available
for sale $1,725,941 $2,371 $(64,055) $1,664,257 $1,294,027 $13,591 $(2,614) $1,305,004
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency
and mortgage-backed
obligations $1,134,115 $ 87 $(46,527) $1,087,675 $1,165,290 $ 8,640 $(5,983) $1,167,947
Obligations of state and
political subdivisions 35,667 35,667 30,654 158 (21) 30,791
Other 32,110 (5) 32,105 24,930 (1) 24,929
- ------------------------------------------------------------------------------------------------------------------------------------
Securities held to
maturity $1,201,892 $ 87 $(46,532) $1,155,447 $1,220,874 $ 8,798 $(6,005) $1,223,667
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities (in
thousands) at December 31, 1999, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because
obligors have the right to repay obligations without prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Available for Sale Held to Maturity
- -----------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 51,665 $ 51,648 $ 63,397 $ 63,397
Due after one year through five years 32,219 32,094 28,335 27,397
Due after five years through ten years 26,658 26,160
Due after ten years 19,363 18,459 1,045 1,040
Mortgage backed securities 1,588,381 1,526,789 1,109,115 1,063,613
Equity securities 7,655 9,107
- -----------------------------------------------------------------------------------------------------------------
$1,725,941 $1,664,257 $1,201,892 $1,155,447
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Proceeds from sales of securities available for sale during 1999, 1998 and
1997 were $398,274,000, $435,488,000 and $231,190,000, respectively. Gross
gains of $2,609,000, $3,268,000 and $2,696,000 were realized on the sales
in 1999, 1998 and 1997, respectively, and gross losses of $27,000, $376,000
and $401,000 were realized in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, investment securities with a carrying value
of $564,836,000 and $610,905,000, respectively, were pledged to secure
deposits of public funds.
In connection with the acquisition of CFBC and PFC, management reclassified
$91.0 million of investment securities from held to maturity to available
for sale in the first quarter of 1999. Unrealized losses on those
securities transferred were approximately $330,000.
4. Loans
The following is a summary of loans outstanding (in thousands) at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial real estate:
Owner-occupied $ 475,700 $ 397,933
Other 431,473 358,600
Construction 185,712 122,797
- ------------------------------------------------------------------------------------------------------
1,092,885 879,330
Commercial loans:
Term 393,953 282,556
Line of credit 277,917 192,485
Demand 1,328 417
- ------------------------------------------------------------------------------------------------------
673,198 475,458
Consumer:
Mortgages (1-4 family residential) 428,453 322,310
Installment 125,856 96,188
Home equity 621,597 494,047
Credit lines 19,099 12,993
- ------------------------------------------------------------------------------------------------------
1,195,005 925,538
- ------------------------------------------------------------------------------------------------------
$2,961,088 $2,280,326
- ------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999 and 1998, loans of approximately $11,258,000 and
$10,836,000, respectively, were outstanding to certain of the Company's and
its subsidiaries' directors and officers, and approximately $22,467,000 and
$26,111,000, respectively, of loans were outstanding from companies with
which certain of the Company's and its subsidiaries' directors and officers
are associated, exclusive of loans to any such person and associated
companies which in aggregate did not exceed $60,000. The terms of these
loans are substantially the same as those prevailing at the time for
comparable unrelated transactions. A summary (in thousands) of the related
party loans outstanding at December 31, 1999 is as follows:
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Balance, January 1 $36,947
New loans 21,980
Loan payments 25,202
- --------------------------------------------------------------------------------
Balance, December 31 $33,725
- --------------------------------------------------------------------------------
45
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company engaged in certain activities with entities affiliated with
directors of the Company. The Company received real estate appraisal
services from a company owned by a director of the Company. Such real
estate appraisal services amounted to $334,000 in 1999, $304,000 in 1998,
and $183,000 in 1997. The Company received legal services from two law
firms of which two directors of the Company are partners. Such aggregate
legal services amounted to $1,594,000 in 1999, $1,554,000 in 1998, and
$1,439,000 in 1997.
5. Allowance for Loan Losses
The following is an analysis of changes in the allowance for loan losses
(in thousands) for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $31,265 $24,150 $20,397
Provision charged to operating expense 9,175 8,762 5,805
Recoveries of loans previously charged off 969 1,487 919
Loan charge-offs (3,027) (3,134) (2,971)
- ---------------------------------------------------------------------------------------------------------
Balance, December 31 $38,382 $31,265 $24,150
- ---------------------------------------------------------------------------------------------------------
</TABLE>
6. Non-accrual and Restructured Loans and Other Real Estate
The total of non-performing loans (non-accrual and restructured loans) was
$8,682,000 and $8,569,000 at December 31, 1999 and 1998, respectively.
Non-performing loans of $1,590,000, $3,361,000, and $2,320,000 net of
charge offs of $39,000, $0, and $47,000 were transferred to other real
estate during 1999, 1998, and 1997, respectively. Other real estate
($3,523,000 and $6,081,000 at December 31, 1999 and 1998, respectively) is
included in other assets.
At December 31, 1999 and 1998, the recorded investment in loans considered
to be impaired under FASB Statement No. 114 "Accounting by Creditors for
Impairment of a Loan" totaled $5,467,000 and $5,138,000, respectively, all
of which are included in non-performing loans. As permitted, all homogenous
smaller balance consumer and residential mortgage loans are excluded from
individual review for impairment. The majority of impaired loans were
measured using the fair market value of collateral. No portion of the
allowance for loan losses for 1999 or 1998 was allocated to these loans.
During 1999 and 1998, impaired loans averaged approximately $4,575,000 and
$7,419,000, respectively. Interest income of approximately $986,000 and
$1,030,000 would have been recorded on non-performing loans (including
impaired loans) in accordance with their original terms in 1999 and 1998,
respectively. Actual interest income recorded on these loans amounted to
$255,000 and $266,000 during 1999 and 1998, respectively.
46
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Bank Premises, Equipment, and Leases
A summary of bank premises and equipment (in thousands) is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31,
-------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 40,952 $ 28,763
Buildings 88,427 68,314
Leasehold improvements 9,657 10,351
Furniture, fixtures and equipment 128,642 91,206
Leased property under capital leases 124 124
- ----------------------------------------------------------------------------------------------
267,802 198,758
Less accumulated depreciation
and amortization 69,287 51,310
- ----------------------------------------------------------------------------------------------
$198,515 $147,448
- ----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, Commerce NJ leased one of its branches under a
capital lease with an unrelated party. All other branch leases are
accounted for as operating leases with the related rental payments being
expensed ratably over the life of the lease.
The Company leases its operations facilities from two limited partnerships
in which the Company is a limited partner at December 31, 1999. The leases
are accounted for as operating leases with an aggregate annual rent of $1.5
million, which escalates to $1.8 million in 2011. One lease expires in
2014, and the other expires in 2014 and is renewable for five additional
terms of five years each.
At December 31, 1999, the Company leased from related parties under
separate operating lease agreements the land on which it has constructed 14
branch offices. The aggregate annual rental under these related party
leases for 1999 was approximately $723,000, and was approximately $440,000
and $375,000 in 1998 and 1997, respectively. These leases expire
periodically through 2020 but are renewable through 2040. Aggregate annual
rentals escalate to $934,000 in 2005. The Company leases land to a limited
partnership partially comprised of the directors of Commerce PA and
Commerce NJ. The initial lease term is 25 years, with two successive
10-year options. As of December 31, 1999, the total future minimum lease
payments to be received by the Company amount to approximately $432,000 for
the remainder of the initial lease term. In accordance with the provision
of the land lease, the limited partnership constructed and owns the office
building located on the land. Commerce PA leases the building as a branch
facility through 2010. Commerce North leases one of its branches from a
director and its headquarters facility from a partnership in which a
director has a substantial interest. The aggregate annual rental under
these related party leases was approximately $432,000 for each of 1999,
1998, and 1997. The leases expire in 2007 and 2017. Commerce Central leases
one of its branches and its headquarters facility from partnerships in
which two directors have substantial interests. The aggregate annual rental
under these related party leases was approximately $484,000 in 1999 and
$474,000 in 1998 and 1997, respectively. The leases expire in 2004 and
2015.
Total rent expense charged to operations under operating leases was
approximately $7,836,000 in 1999, $6,328,000 in 1998, and $5,421,000 in
1997.
47
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The future minimum rental commitments, by year, under the non-cancelable
leases are as follows (in thousands) at December 31, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Capital Operating
- -----------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 12 $ 9,133
2001 12 8,877
2002 12 8,235
2003 12 7,981
2004 12 6,548
Later years 123 71,719
- -----------------------------------------------------------------------------------------
Net minimum lease payment $183 $112,493
- -----------------------------------------------------------------------------------------
Less amount representing interest 86
- -----------------------------------------------------------------------------------------
Present value of net minimum
lease payments $ 97
- -----------------------------------------------------------------------------------------
</TABLE>
The Company obtained interior design and general contractor services for
$2,498,000, $1,313,000, and $916,000 in 1999, 1998, and 1997, respectively,
from a business owned by the spouse of the Chairman of the Board of the
Company. Additionally, the business received commissions of approximately
$1,408,000, $814,000, and $1,464,000 in 1999, 1998 and 1997, respectively,
on furniture and facility purchases made directly by the Company.
8. Deposits
The aggregate amount of time certificates of deposits in denominations of
$100,000 or more was $403,373,000 and $421,672,000 at December 31, 1999 and
1998, respectively.
9. Other Borrowed Money
Other borrowed money consisted primarily of securities sold under
agreements to repurchase, with a weighted average maturity of 12 days,
federal funds purchased, and lines of credit, which included Federal Home
Loan Bank advances. The following table represents information for other
borrowed money.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------- ----------------------------
Average Average
Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities sold under
agreements to repurchase $292,266 5.88% $ 4,000 5.72%
Federal funds purchased 20,000 4.50 2,000 5.25
Lines of credit 245,826 5.67 21,845 4.82
- -------------------------------------------------------------------------------------------------------------------
$558,092 $ 27,845
- -------------------------------------------------------------------------------------------------------------------
Average amount outstanding $183,554 5.38% $ 68,795 5.83%
Maximum month-end balance 558,092 228,950
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, the Company had a line of credit of $409.3 million
from the Federal Home Loan Bank of New York, of which $359.3 million was
available, a line of credit of $100 million from the Federal Home Loan Bank
of Pittsburgh, none of which was available, and a line of credit of $25
million from another bank, all of which was available. In addition, CCMI
had a line of credit of $125 million from another bank, of which $29.2
million was available.
48
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Long-Term Debt
On July 15, 1993, the Company issued $23,000,000 of 8 3/8% subordinated
notes due 2003. Interest on the debt is payable semi-annually on January 15
and July 15 of each year. The notes may be redeemed in whole or in part at
the option of the Company after July 15, 2000 at a price from 102% to 100%
of the principal plus accrued interest, if any, to the date fixed for
redemption, subject to certain conditions. A portion of the notes qualify
for total risk-based capital for regulatory purposes, subject to certain
limitations.
On June 9, 1997, the Company issued $57,500,000 of 8 3/4% Trust Capital
Securities through Commerce Capital Trust 1, a newly formed Delaware
business trust subsidiary. The Trust Capital Securities evidence a
preferred ownership interest in the Trust, of which 100% of the common
equity is owned by the Company. The proceeds from the issuance of the Trust
Capital Securities were invested in substantially similar Junior
Subordinated Debt of the Company. The Trust Capital Securities are
unconditionally guaranteed by the Company. Interest on the debt is payable
quarterly in arrears on March 31, June 30, September 30, and December 31 of
each year. The Trust Capital Securities are scheduled to mature on June 30,
2027. The Trust Capital Securities may be redeemed in whole or in part at
the option of the Company on or after June 30, 2002 at 100% of the
principal plus accrued interest, if any, to the date fixed for redemption,
subject to certain conditions. All $57,500,000 of the Trust Capital
Securities qualify as Tier I capital for regulatory capital purposes.
11. Income Taxes
The provision for income taxes consists of the following (in thousands):
- ---------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------
Current:
Federal $34,339 $28,012 $24,208
State 434 1,174 1,982
Deferred:
Federal (2,368) (3,060) (2,146)
State (1,100) (55) (353)
- ---------------------------------------------------------------------------
$31,305 $26,071 $23,691
- ---------------------------------------------------------------------------
The above provision includes income taxes related to securities gains of
$904,000, $1,012,000 and $803,000 for 1999, 1998 and 1997, respectively.
The provision for income taxes differs from the expected statutory
provision as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected provision at statutory rate: 35.0% 35.0% 35.0%
Difference resulting from:
Tax-exempt interest on loans (0.7) (0.4) (0.3)
Tax-exempt interest on securities (1.0) (1.8) (1.1)
Purchase accounting adjustments 0.1 0.1 0.2
Other, including acquisition costs (1.2) 5.3 1.0
- ----------------------------------------------------------------------------------------------------
32.2% 38.2% 34.8%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
49
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The significant components of the Company's deferred tax liabilities and
assets as of December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $11,797 $11,067
Fair value adjustment, available for sale securities 21,940
Other reserves 1,546 178
Other 1,026 1,411
- ------------------------------------------------------------------------------------------------------
Total deferred tax assets 36,309 12,656
- ------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 677 464
Intangibles (336) 92
Fair value adjustment, available for sale securities 3,970
Other 2,053 1,729
- ------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 2,394 6,255
- ------------------------------------------------------------------------------------------------------
Net deferred assets $33,915 $6,401
- ------------------------------------------------------------------------------------------------------
</TABLE>
12. Commitments and Letters of Credit
In the normal course of business, there are various outstanding commitments
to extend credit, such as letters of credit, which are not reflected in the
accompanying financial statements. These arrangements have credit risk
essentially the same as that involved in extending loans to customers and
are subject to the Company's normal credit policies. Collateral is obtained
based on management's credit assessment of the borrower. At December 31,
1999, the Banks had outstanding standby letters of credit in the amount of
$108.0 million.
In addition, the Banks are committed as of December 31, 1999 to advance
$197.8 million on construction loans, $187.3 million on home equity lines
of credit and $354.8 million on lines of credit. All other commitments
total approximately $249.7 million. The Company anticipates no material
losses as a result of these transactions.
13. Common Stock and Preferred Stock
At December 31, 1999, the Company's common stock had a par value of
$1.5625. The Company had 50,000,000 shares authorized as of this date.
On December 21, 1999, the Board of Directors declared a cash dividend of
$0.245 for each share of common stock outstanding and a 5% stock dividend
payable January 21, 2000 to stockholders of record on January 7, 2000.
Payment of the stock dividend resulted in the issuance of 1,416,966
additional common shares and cash of $83,684 in lieu of fractional shares.
50
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
14. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic:
Net income $65,960 $42,155 $44,432
Preferred stock dividends 563
- ----------------------------------------------------------------------------------------------------
Net income applicable to common stock $65,960 $42,155 $43,869
- ----------------------------------------------------------------------------------------------------
Average common shares outstanding 29,155 28,254 26,715
- ----------------------------------------------------------------------------------------------------
Net income per common share $ 2.26 $ 1.49 $ 1.64
- ----------------------------------------------------------------------------------------------------
Diluted:
Net income $65,960 $42,155 $44,432
Additional ESOP contribution
under the if-converted method 49
- -----------------------------------------------------------------------------------------------------
Net income applicable to common stock
on a diluted basis $65,960 $42,155 $44,383
- -----------------------------------------------------------------------------------------------------
Average common shares outstanding 29,155 28,254 26,715
Additional shares considered in diluted
computation assuming:
Exercise of stock options 1,310 1,303 1,024
Conversion of preferred stock 105 647
- -----------------------------------------------------------------------------------------------------
Average common and common equivalent
shares outstanding 30,465 29,662 28,386
- -----------------------------------------------------------------------------------------------------
Net income per common and common
equivalent share $ 2.17 $ 1.42 $ 1.56
- -----------------------------------------------------------------------------------------------------
</TABLE>
Effective March 1, 1998, the Trustees of the Company's Employee Stock
Ownership Plan exercised their right to convert all 417,000 shares of
Series C ESOP Cumulative Convertible Preferred Stock held by the ESOP into
891,515 shares of the Company's common stock.
15. Benefit Plans
Employee Stock Option Plan
The Company has the 1997 Employee Stock Option Plan (the Plan) for the
officers and employees of the Company and its subsidiaries as well as a
plan for its non-employee directors. The Plan authorizes the issuance of up
to 3,617,000 shares of common stock (as adjusted for stock dividends) upon
the exercise of options. 3,587,000 options have been issued under the Plan.
The option price for options issued under the Plan must be at least equal
to 100% of the fair market value of the Company's common stock as of the
date the option is granted. These options generally become exercisable to
the extent of 25% annually beginning one year from the date of grant,
although the amount exercisable beginning one year from the date of grant
may be greater depending on the employees' length of service. The options
expire not later than 10 years from the date of grant. In addition, there
are options outstanding from prior stock option plans of the Company which
were granted under similar terms. No additional options may be issued under
these plans.
51
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Information concerning option activity for the periods indicated is as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Shares Under Weighted Average
Option Exercise Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1998 3,032,906 $18.12
Options granted 1,922,573 41.46
Options exercised 291,142 10.44
Options canceled 109,976 37.01
Balance at December 31, 1998 4,554,361 27.71
- -------------------------------------------------------------------------------------------------
Balance at January 1, 1999 4,554,361 $27.71
Options granted 1,124,525 38.83
Options exercised 345,590 12.59
Options canceled 116,638 39.77
Balance at December 31, 1999 5,216,658 30.83
- -------------------------------------------------------------------------------------------------
</TABLE>
Information concerning options outstanding as of December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted- Exercisable Weighted
Range of Number Remaining Average as of Average
exercise prices Outstanding Contractual Life Exercise Price 12/31/1999 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.00 to $18.50 1,119,232 4.60 $10.90 1,093,984 $10.84
$18.51 and greater 4,097,426 8.30 36.29 2,195,936 34.10
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has elected not to adopt the recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123),
which requires a fair value based method of accounting for all employee
stock compensation plans. The Company will continue to follow APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations to account for its stock-based compensation plans. If the
Company had accounted for stock options granted after 1994 under the fair
value provisions of FAS 123, net income and net income per share would have
been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $57,619 $36,251 $42,643
Pro forma net income per share:
Basic $ 1.98 $ 1.28 $ 1.58
Diluted 1.91 1.23 1.50
- ---------------------------------------------------------------------------------------------------
</TABLE>
Due to the inclusion of only options granted after 1994, the pro forma
effects of applying FAS 123 in 1999, 1998 and 1997 may not be
representative of the pro forma impact in future years.
The fair value of options granted in 1999, 1998, and 1997 was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rates of 4.54%
to 6.35%, dividend yields of' 3% to 4%, volatility factors of the expected
market price of the Company's common stock of .215 to .316, and a weighted
average expected life of the options of' four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's
52
<PAGE>
stock options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its stock options.
Employee Stock Ownership Plan
As of December 31, 1999, the Company maintains an Employee Stock Ownership
Plan (ESOP) for the benefit of its officers and employees who meet age and
service requirements. The ESOP holds 922,610 shares of the Company's common
stock, all of which are allocated to participant accounts. Employer
contributions are determined at the discretion of the Board of Directors.
The total contribution expense associated with the Plan for 1999, 1998 and
1997 was $547,000, $1,134,000 and $1,177,000, respectively.
Post-employment or Post-retirement Benefits
The Company offers no post-employment or post-retirement benefits.
16. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments" (FAS 107), requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the
instrument. FAS 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following table represents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 322,924 $ 322,924 $ 277,615 $ 277,615
Loans held for sale 5,704 5,704 22,418 22,418
Trading securities 117,837 117,837 85,359 85,359
Investment securities 2,866,149 2,819,704 2,525,878 2,528,671
Loans (net) 2,922,706 2,960,855 2,249,061 2,293,118
Financial liabilities:
Deposits 5,608,920 5,618,204 4,928,808 4,942,234
Other borrowed money 558,092 558,092 27,845 27,845
Obligation to ESOP 1,282 1,282
Long-term debt 80,500 76,820 80,500 84,939
- --------------------------------------------------------------------------------------------------------------------
Off-balance sheet liabilities:
Standby letters of credit $ 1,080 $ 492
Commitments to extend credit 906 749
</TABLE>
53
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, loans held for sale and trading securities: The
carrying amounts reported approximate those assets' fair value.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for other loans receivable were estimated using
discounted cash flow analyses, using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. Loans
with significant collectibility concerns were fair valued on a loan-by-loan
basis utilizing a discounted cash flow method. The carrying amount of
accrued interest approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest-bearing and noninterest-bearing checking, passbook savings, and
certain types of money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying
amounts). Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on certificates of deposit to a schedule of
aggregated expected monthly maturities on time deposits.
Other borrowed money: The carrying amounts reported approximate fair value.
Obligation to ESOP: The fair value of the guarantee of the ESOP obligation
is estimated using a discounted cash flow calculation that applies interest
rates currently being offered to obligations of' a similar maturity.
Long-term debt: Current quoted market prices were used to estimate fair
value.
Off-balance sheet liabilities: Off-balance sheet liabilities of the Company
consist of letters of credit, loan commitments and unfunded lines of
credit. Fair values for the Company's off'-balance sheet liabilities are
based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the counterparties'
credit standing.
54
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
17. Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of
the Company which, in the opinion of management, reflects adjustments
(comprising only normal recurring accruals) necessary for fair presentation
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------
December 31 September 30 June 30 March 31
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Interest income $106,629 $99,097 $93,556 $87,166
Interest expense 40,252 36,118 33,727 31,984
Net interest income 66,377 62,979 59,829 55,182
Provision for loan losses 3,064 1,653 2,274 2,184
Net investment securities gains 1,047 270 400 865
Provision for federal and state
income taxes 8,377 7,704 7,726 7,498
Net income 17,623 16,840 16,016 15,481
Net income per common share:
Basic $ 0.59 $ 0.58 $ 0.55 $ 0.54
Diluted 0.57 0.56 0.53 0.51
1998
Interest income $ 84,927 $83,156 $80,314 $76,246
Interest expense 33,068 33,083 32,223 31,608
Net interest income 51,859 50,073 48,091 44,638
Provision for loan losses 3,321 2,053 1,951 1,437
Net investment securities gains 972 991 920 9
Provision for federal and state
income taxes 4,764 7,097 7,274 6,936
Net income 2,030 13,999 13,446 12,680
Net income per common share:
Basic $ 0.07 $ 0.49 $ 0.48 $ 0.45
Diluted 0.07 0.47 0.45 0.43
</TABLE>
55
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
18. Condensed Financial Statements of the Parent Company and Other Matters
Balance Sheets
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Assets
Cash $ 381 $ 20,840
Securities available for sale 36,137 14,575
Investment in subsidiaries 406,485 367,961
Other assets 11,588 10,253
- --------------------------------------------------------------------------------
$454,591 $413,629
- --------------------------------------------------------------------------------
Liabilities
Other liabilities $ 17,335 $ 8,295
Trust Capital Securities 57,500 57,500
Long-term debt 23,000 23,000
Obligation to Employee Stock
Ownership Plan (ESOP) 1,282
- --------------------------------------------------------------------------------
97,835 90,077
- --------------------------------------------------------------------------------
Stockholders' equity
Common stock 44,418 40,988
Capital in excess of par or stated value 321,443 236,928
Retained earnings 32,263 41,536
Accumulated other comprehensive income (39,744) 7,006
- --------------------------------------------------------------------------------
358,380 326,458
Less commitment to ESOP 1,282
Less treasury stock 1,624 1,624
- --------------------------------------------------------------------------------
Total stockholders' equity 356,756 323,552
- --------------------------------------------------------------------------------
$454,591 $413,629
- --------------------------------------------------------------------------------
Statements of Income
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Year Ended December 31
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $15,750 $18,357 $14,448
Interest income 507 293 248
Other 3,690 2,098 491
- ---------------------------------------------------------------------------------------------
19,947 20,748 15,187
- ---------------------------------------------------------------------------------------------
Expenses:
Interest expense 7,375 7,259 4,961
Operating expenses 2,508 3,053 3,051
- ---------------------------------------------------------------------------------------------
9,883 10,312 8,012
Income before income taxes and equity
in undistributed income of subsidiaries 10,064 10,436 7,175
Income tax benefit (2,636) (2,692) (2,354)
- ---------------------------------------------------------------------------------------------
12,700 13,128 9,529
Equity in undistributed income of subsidiaries 53,260 29,027 34,903
- ---------------------------------------------------------------------------------------------
Net income 65,960 42,155 44,432
Dividends on preferred stock 563
- ---------------------------------------------------------------------------------------------
Net income applicable to common stock $65,960 $42,155 $43,869
- ---------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Statements of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $65,960 $42,155 $44,432
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiaries (53,260) (29,027) (34,903)
Gains on sales of securities available for sale (639) (301)
Increase in other assets (1,335) (211) (1,329)
Increase in other liabilities 13,846 2,111 968
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,572 15,028 8,867
Investing activities:
Investment in subsidiaries (31,000) (40,253) (2,000)
Proceeds from sale of securities available for sale 5,733 1,090
Proceeds from the maturity of securities available for sale 26,980
Purchase of securities available for sale (54,723) (4,308) (5,636)
Other 27 51 (50)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (52,983) (44,510) (6,596)
Financing activities:
Proceeds from issuance of common stock
under dividend reinvestment plan 27,830 7,427 4,259
Cash dividends (23,476) (21,563) (12,484)
Proceeds from exercise of stock options 3,598 2,001 2,617
Proceeds from issuance of long-term debt 57,500
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing
activities 7,952 (12,135) 51,892
(Decrease) increase in cash and cash equivalents (20,459) (41,617) 54,163
Cash and cash equivalents at beginning of year 20,840 62,457 8,294
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 381 $20,840 $62,457
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,089 $ 7,089 $ 4,809
Income taxes 26,056 27,626 21,377
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Holders of common stock of the Company are entitled to receive dividends
when declared by the Board of Directors out of funds legally available.
Under the New Jersey Business Corporation Act, the Company may pay
dividends only if it is solvent and would not be rendered insolvent by the
dividend payment and only to the extent of surplus (the excess of the net
assets of the Company over its stated capital).
The approval of the Comptroller of the Currency is required for a national
bank to pay dividends if the total of all dividends declared in any
calendar year exceeds net profits (as defined) for that year combined with
its retained net profits for the preceding two calendar years. New Jersey
state banks are subject to similar dividend restrictions. Commerce NJ,
Commerce PA, Commerce Shore, Commerce North, and Commerce Central can
declare dividends in 2000 without additional approval of approximately
$53.6 million, $5.3 million, $12.9 million, $12.3 million, and $3.8
million, respectively, plus an additional amount equal to each bank's net
profit for 2000 up to the date of any such dividend declaration.
The Federal Reserve Act requires the extension of credit by any of the
Company's banking subsidiaries to certain affiliates, including Commerce
Bancorp, Inc. (parent), be secured by readily marketable securities, that
extension of credit to any one affiliate be limited to 10% of the capital
and capital in excess of par or stated value, as defined, and that
extensions of credit to all such affiliates be limited to 20% of capital
and capital in excess of par or stated value. At December 31, 1999 and
1998, the Company complies with these guidelines.
The Company and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to
risk-based assets (as defined) and of Tier I capital to average assets (as
defined), or leverage. Management believes, as of December 31, 1999, that
the Company and its subsidiaries meet all capital adequacy requirements to
which they are subject.
58
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the Company's and Commerce NJ's risk-based and
leverage capital ratios at December 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>
December 31, 1999
Company
Risk based capital ratios:
Tier I $449,698 11.40% $157,847 4.00% $236,771 6.00%
Total capital 501,879 12.72 315,694 8.00 394,618 10.00
Leverage ratio 449,698 7.02 256,362 4.00 320,453 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $225,189 10.35% $ 87,054 4.00% $130,582 6.00%
Total capital 246,263 11.32 174,109 8.00 217,636 10.00
Leverage ratio 225,189 6.33 142,233 4.00 177,791 5.00
December 31, 1998
Company
Risk based capital ratios:
Tier I $369,238 12.09% $122,180 4.00% $183,270 6.00%
Total capital 418,903 13.71 244,360 8.00 305,450 10.00
Leverage ratio 369,238 7.05 157,018 3.00 261,696 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $190,578 11.44% $66,657 4.00% $ 99,985 6.00%
Total capital 207,908 12.48 133,314 8.00 166,642 10.00
Leverage ratio 190,578 6.51 87,889 3.00 146,481 5.00
</TABLE>
59
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
19. Segment Reporting
The Company operates one reportable segment of business, Community Banks,
which includes Commerce NJ, Commerce PA, Commerce Shore, Commerce North,
Commerce Central, and Commerce Delaware. Through its Community Banks, the
Company provides a broad range of retail and commercial banking services,
and corporate trust services. Parent/Other and other includes the holding
company, Commerce Insurance (whose revenues of $32.4 million, $25.2
million, and $16.5 million in 1999, 1998, and 1997, respectively, were
reported in other operating income), CCMI, and Commerce Capital Trust I.
Selected segment information for each of the three years ended December 31
is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Community Parent/ Community Parent/ Community Parent/
Banks Other Total Banks Other Total Banks Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 251,132 $ (6,765) $ 244,367 $ 200,998 $ (6,337) $ 194,661 $ 170,035 $ (4,713) $ 165,322
Provision for loan
losses 9,175 9,175 8,762 8,762 5,805 5,805
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income
after provision 241,957 (6,765) 235,192 192,236 (6,337) 185,899 164,230 (4,713) 159,517
Noninterest income 66,127 48,469 114,596 58,426 37,851 96,277 45,390 17,020 62,410
Noninterest expense 209,808 42,715 252,523 180,736 33,214 213,950 138,974 14,830 153,804
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes 98,276 (1,011) 97,265 69,926 (1,700) 68,226 70,646 (2,523) 68,123
Income tax expense
(benefit) 31,963 (658) 31,305 26,299 (228) 26,071 24,698 (1,007) 23,691
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 66,313 $ (353) $ 65,960 $ 43,627 $ (1,472) $ 42,155 $ 45,948 $ (1,516) $ 44,432
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets
(in millions) $5,301,844 $602,025 $5,903,869 $4,395,127 $470,878 $4,866,005 $3,643,188 $328,307 $3,971,495
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial information for each segment is reported on the basis used
internally by the Company's management to evaluate performance. Measurement
of the performance of each segment is based on the management structure of
the Company and is not necessarily comparable with financial information
from other entities. The information presented is not necessarily
indicative of the segment's results of operations if each of the Community
Banks were independent entities.
60
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries Report of Independent Auditors
The Board of Directors and Stockholders
Commerce Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Commerce
Bancorp, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of two wholly-owned
subsidiaries, which statements reflect total assets constituting 9.8% in 1998,
and net interest income constituting 12.3% in 1998 and 11.8% in 1997 of the
related consolidated totals. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to data included for the two subsidiaries, is based solely on the reports of
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Commerce Bancorp, Inc. and Subsidiaries
at December 31, 1999 and 1998, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 28, 2000
61
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements and
related Prospectuses (Form S-3 No. 333-73421 and No. 33-40465, and Form S-4
No.333-10771) of Commerce Bancorp, Inc. and in the Registration Statements
(Forms S-8 No. 33-82742, No. 333-57497, and No. 33-82740) pertaining to the
Stock Option Plans and Employee Stock Purchase Plan of Commerce Bancorp, Inc. of
our report dated January 28, 2000 with respect to the consolidated financial
statements of Commerce Bancorp, Inc. and Subsidiaries included in this Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 317,624
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,300
<TRADING-ASSETS> 117,837
<INVESTMENTS-HELD-FOR-SALE> 1,201,892
<INVESTMENTS-CARRYING> 1,664,257
<INVESTMENTS-MARKET> 1,155,447
<LOANS> 2,961,088
<ALLOWANCE> 38,382
<TOTAL-ASSETS> 6,635,793
<DEPOSITS> 5,608,920
<SHORT-TERM> 558,092
<LIABILITIES-OTHER> 30,997
<LONG-TERM> 80,500
0
0
<COMMON> 44,418
<OTHER-SE> 312,866
<TOTAL-LIABILITIES-AND-EQUITY> 6,635,793
<INTEREST-LOAN> 215,170
<INTEREST-INVEST> 170,300
<INTEREST-OTHER> 978
<INTEREST-TOTAL> 386,448
<INTEREST-DEPOSIT> 125,130
<INTEREST-EXPENSE> 142,081
<INTEREST-INCOME-NET> 244,367
<LOAN-LOSSES> 9,175
<SECURITIES-GAINS> 2,582
<EXPENSE-OTHER> 251,423
<INCOME-PRETAX> 98,365
<INCOME-PRE-EXTRAORDINARY> 98,365
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,960
<EPS-BASIC> 2.26
<EPS-DILUTED> 2.17
<YIELD-ACTUAL> 4.65
<LOANS-NON> 8,213
<LOANS-PAST> 499
<LOANS-TROUBLED> 469
<LOANS-PROBLEM> 26,584
<ALLOWANCE-OPEN> 30,298
<CHARGE-OFFS> 2,058
<RECOVERIES> 967
<ALLOWANCE-CLOSE> 38,382
<ALLOWANCE-DOMESTIC> 38,382
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
