SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File #0-12874
COMMERCE BANCORP, INC
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400
(Address of Principal Executive Offices) (Zip Code)
(856) 751-9000
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practical date.
Common Stock 31,094,561
--------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of 8/04/00)
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 2000 and December 31, 1999...................................1
Consolidated Statements of Income (unaudited) Three months
ended June 30, 2000 and June 30, 1999 and six months ended
June 30, 2000 and June 30, 1999.......................................2
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 2000 and
June 30, 1999.........................................................3
Notes to Consolidated Financial Statements (unaudited)................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation....................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
June 30, December 31,
--------------------------------
(dollars in thousands) 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and due from banks $365,356 $317,624
Federal funds sold 155,500 5,300
------------- --------------
Cash and cash equivalents 520,856 322,924
Loans held for sale 5,704
Trading securities 91,728 117,837
Securities available for sale 1,769,209 1,664,257
Securities held to maturity 1,227,073 1,201,892
(market value 06/00-$1,177,757; 12/99-$1,155,447)
Loans 3,450,314 2,961,088
Less allowance for loan losses 44,004 38,382
------------- --------------
3,406,310 2,922,706
Bank premises and equipment, net 230,928 198,515
Other assets 217,982 201,958
------------- --------------
$7,464,086 $6,635,793
============= ==============
Liabilities Deposits:
Demand:
Interest-bearing $2,254,915 $2,063,899
Noninterest-bearing 1,616,369 1,420,865
Savings 1,488,651 1,054,791
Time 1,180,155 1,069,365
------------- --------------
Total deposits 6,540,090 5,608,920
Other borrowed money 405,770 558,092
Other liabilities 44,363 31,525
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
------------- --------------
7,070,723 6,279,037
Stockholders' Common stock, 30,917,148 shares
Equity issued (29,844,314 shares 12/99) 48,308 44,418
Capital in excess of par or stated value 391,831 321,443
Retained earnings (42) 32,263
Accumulated other comprehensive income (45,110) (39,744)
------------- --------------
394,987 358,380
Less treasury stock, at cost 1,624 1,624
------------- --------------
Total stockholders' equity 393,363 356,756
------------- --------------
$7,464,086 $6,635,793
============= ==============
</TABLE>
See accompanying notes
1
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------
(dollars in thousands, except per share 2000 1999 2000 1999
amounts)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Interest and fees on loans $70,301 $52,561 $133,479 $100,564
income Interest on investments 51,224 40,767 100,054 79,774
Other interest 1,758 228 1,976 384
------------- ------------ ------------ ------------
Total interest income 123,283 93,556 235,509 180,722
------------- ------------ ------------ ------------
Interest Interest on deposits:
expense Demand 16,945 10,068 32,296 19,693
Savings 9,526 5,120 15,694 9,915
Time 15,671 14,678 31,534 29,685
------------- ------------ ------------ ------------
Total interest on deposits 42,142 29,866 79,524 59,293
Interest on other borrowed money 6,121 2,080 11,208 2,855
Interest on long-term debt 1,598 1,781 3,156 3,563
------------- ------------ ------------ ------------
Total interest expense 49,861 33,727 93,888 65,711
------------- ------------ ------------ ------------
Net interest income 73,422 59,829 141,621 115,011
Provision for loan losses 3,642 2,274 7,135 4,458
------------- ------------ ------------ ------------
Net interest income after provision for
loan losses 69,780 57,555 134,486 110,553
Noninterest Deposit charges and service fees 13,201 10,812 25,537 20,552
income Other operating income 22,400 16,249 44,908 33,377
Net investment securities gains 400 820 1,265
------------- ------------ ------------ ------------
Total noninterest income 35,601 27,461 71,265 55,194
------------- ------------ ------------ ------------
Noninterest Salaries 29,310 24,063 58,353 47,850
expense Benefits 6,411 4,841 12,603 9,897
Occupancy 7,606 5,207 14,684 10,300
Furniture and equipment 10,309 7,611 19,468 14,554
Office 5,756 4,853 11,554 10,151
Audit and regulatory fees and assessments 689 632 1,370 1,204
Marketing 2,698 2,503 4,962 4,166
Other real estate (net) 481 495 754 969
Other 13,285 11,069 25,656 19,935
------------- ------------ ------------ ------------
Total noninterest expenses 76,545 61,274 149,404 119,026
------------- ------------ ------------ ------------
Income before income taxes 28,836 23,742 56,347 46,721
Provision for federal and state income taxes 9,459 7,726 18,675 15,224
------------- ------------ ------------ ------------
Net income $19,377 $ 16,016 $37,672 $31,497
============= ============ ============ ============
Net income per common and common
equivalent share:
Basic $0.63 $0.55 $1.23 $1.09
------------- ------------ ------------ ------------
Diluted $0.61 $0.53 $1.20 $1.04
------------- ------------ ------------ ------------
Average common and common equivalent
shares outstanding:
Basic 30,650 29,009 30,457 28,777
------------- ------------ ------------ ------------
Diluted 31,755 30,122 31,478 30,063
------------- ------------ ------------ ------------
Cash dividends declared, common stock $0.25 $0.21 $0.49 $0.41
============= ============ ============ ============
</TABLE>
See accompanying notes
2
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
---------------------------------
(dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Net income $37,672 $31,497
activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 7,135 4,458
Provision for depreciation, amortization and accretion 13,696 15,194
Gains on sales of securities available for sale (820) (1,265)
Proceeds from sales of mortgages held for sale 6,241 67,111
Originations of mortgages held for sale (537) (53,394)
Net loan chargeoffs (1,513) (855)
Net decrease (increase) in trading securities 26,109 (20,425)
Increase in other assets (13,295) (10,816)
Increase (decrease) in other liabilities 12,838 (2,924)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 87,526 28,581
Investing Proceeds from the sales of securities available for sale 167,134 201,469
activities Proceeds from the maturity of securities available for sale 132,097 180,020
Proceeds from the maturity of securities held to maturity 75,517 153,592
Purchase of securities available for sale (411,555) (552,775)
Purchase of securities held to maturity (100,879) (49,759)
Net increase in loans (496,598) (415,169)
Proceeds from sales of loans 7,372 5,906
Purchases of premises and equipment (45,830) (30,560)
------------------------------------------------------------------------------------------------------
Net cash used by financing activities (672,742) (507,276)
Financing Net increase in demand and savings deposits 820,380 245,546
activities Net increase in time deposits 110,790 31,870
Net (decrease) increase in other borrowed money (152,322) 216,716
Dividends paid (14,511) (11,228)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 24,326 11,486
Other (5,515) 143
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 783,148 494,533
Increase (decrease) in cash and cash equivalents 197,932 15,838
Cash and cash equivalents at beginning of year 322,924 277,615
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $520,856 $293,453
======================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $93,224 $65,543
Income taxes 20,361 12,553
Other noncash activities:
Transfer of securities to securities available for sale 91,010
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
3
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated Financial Statements
The consolidated financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The accompanying condensed consolidated financial statements
reflect all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature.
These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and the notes thereto included in the
registrant's Annual Report on Form 10-K for the period ended December 31, 1999.
The results for the three months ended June 30, 2000 and the six months ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000.
The consolidated financial statements include the accounts of Commerce Bancorp,
Inc. and all of its subsidiaries, including Commerce Bank, N.A. (Commerce NJ),
Commerce Bank/Pennsylvania, N.A., Commerce Bank/Shore, N.A., Commerce
Bank/North, Commerce Bank/Central, N.A., Commerce Bank/Delaware, N.A., Commerce
National Insurance Services, Inc. (Commerce National Insurance), Commerce
Capital Trust I, and Commerce Capital Markets, Inc. (CCMI). All material
intercompany transactions have been eliminated.
B. Commitments
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit and unadvanced loan commitments, which
are not reflected in the accompanying consolidated financial statements.
Management does not anticipate any material losses as a result of these
transactions.
C. Comprehensive Income
Total comprehensive income, which for the Company included net income and
unrealized gains and losses on the Company's available for sale securities,
amounted to $14.1 million and $(5.4) million, respectively, for the three months
ended June 30, 2000 and 1999. For the six months ended June 30, 2000 and 1999,
total comprehensive income was $43.0 million and $4.2 million, respectively.
4
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
D. Segment Information
Selected segment information is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $73,714 $(292) $73,422 $61,535 $(1,706) $59,829
Provision for loan losses 3,642 3,642 2,274 2,274
-----------------------------------------------------------------------------------
Net interest income after provision 70,072 (292) 69,780 59,261 (1,706) 57,555
Noninterest income 20,903 14,698 35,601 15,459 12,002 27,461
Noninterest expense 63,288 13,257 76,545 50,228 10,771 60,999
-----------------------------------------------------------------------------------
Income before income taxes 27,687 1,149 28,836 24,492 (475) 24,017
Income tax expense 9,104 355 9,459 8,004 (3) 8,001
-----------------------------------------------------------------------------------
Net income $18,583 $794 $19,377 $16,488 $(472) $16,016
===================================================================================
Average assets (in millions) $7,145,142 $555,496 $7,700,638 $5,166,133 $594,205 $5,760,338
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $143,515 $(1,894) $141,621 $118,334 $(3,323) $115,011
Provision for loan losses 7,135 7,135 4,458 4,458
-----------------------------------------------------------------------------------
Net interest income after provision 136,380 (1,894) 134,486 113,876 (3,323) 110,553
Noninterest income 41,248 30,017 71,265 30,247 24,947 55,194
Noninterest expense 122,970 26,434 149,404 97,322 21,154 118,476
-----------------------------------------------------------------------------------
Income before income taxes 54,658 1,689 56,347 46,801 470 47,271
Income tax expense 18,029 646 18,675 15,333 441 15,774
-----------------------------------------------------------------------------------
Net income $36,629 $1,043 $37,672 $31,468 $29 $31,497
===================================================================================
Average assets (in millions) $6,538,494 $662,144 $7,200,638 $4,970,813 $628,795 $5,599,608
===================================================================================
</TABLE>
E. Recent Accounting Statement
In June 1998, the Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133 will require the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset or liability through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. FAS 133, as amended, becomes effective for
the Company beginning January 1, 2001. Although early adoption is allowed in any
quarterly period after June 1998, the Company has no plans to adopt FAS 133
prior to the effective date. Based on the Company's minimal use of derivatives
at the current time, management does not expect the adoption of FAS 133 to have
a significant effect on results of operations or the financial position of the
Company. However, the impact from adopting FAS 133 will depend on the nature and
purpose of the derivative instruments in use by the Company at that time.
5
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
F. Trust Capital Securities
On June 9, 1997, the Company issued $57.5 million of 8.75% Trust Capital
Securities through Commerce Capital Trust I, a newly formed Delaware business
trust subsidiary of the Company. The net proceeds of the offering will be used
for general corporate purposes, which may include contributions to subsidiary
banks to fund their operations, the financing of one or more future
acquisitions, repayment of indebtedness of the Company or of its subsidiary
banks, investments in or extensions of credit to its subsidiaries, or the
repurchase of shares of the Company's outstanding common stock. All $57.5
million of the Trust Capital Securities qualify as Tier 1 capital for regulatory
capital purposes.
G. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net income applicable to common stock $ 19,377 $ 16,016 $37,672 $31,497
============== ============== ============== ==============
Average common shares outstanding 30,650 29,009 30,457 28,777
============== ============== ============== ==============
Net income per common share - basic $ 0.63 $ 0.55 $ 1.23 $ 1.09
============== ============== ============== ==============
Diluted:
Net income applicable to common stock
on a diluted basis $ 19,377 $ 16,016 $37,672 $31,497
============== ============== ============== ==============
Average common shares outstanding 30,650 29,009 30,457 28,777
Additional shares considered in diluted
computation assuming:
Exercise of stock options 1,105 1,113 1,021 1,286
============== ============== ============== ==============
Average common shares outstanding
on a diluted basis 31,755 30,122 31,478 30,063
============== ============== ============== ==============
Net income per common share - diluted $ 0.61 $ 0.53 $ 1.20 $ 1.04
============== ============== ============== ==============
</TABLE>
6
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
-----------------------------------------------------------------------
Capital Resources
-----------------
At June 30, 2000, stockholders' equity totaled $393.4 million or 5.27% of total
assets, compared to $356.8 million or 5.38% of total assets at December 31,
1999.
The table below presents the Company's and Commerce NJ's risk-based and leverage
ratios at June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000
Company
Risk based capital ratios:
Tier 1 $491,924 11.13% $176,780 4.00% $265,170 6.00%
Total capital 549,728 12.44 353,560 8.00 441,950 10.00
Leverage ratio 491,924 6.78 290,042 4.00 362,553 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $256,616 9.98% $ 102,831 4.00% $154,246 6.00%
Total capital 281,801 10.96 205,661 8.00 257,077 10.00
Leverage ratio 256,616 6.49 158,065 4.00 197,581 5.00
June 30, 1999
Company
Risk based capital ratios:
Tier 1 $404,078 11.41% $ 141,636 4.00% $212,453 6.00%
Total capital 457,346 12.92 283,271 8.00 354,089 10.00
Leverage ratio 404,078 7.01 230,516 4.00 288,146 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $208,291 10.68% $ 77,981 4.00% $116,972 6.00%
Total capital 227,489 11.67 155,962 8.00 194,953 10.00
Leverage ratio 208,291 6.43 129,570 4.00 161,963 5.00
</TABLE>
At June 30, 2000, the Company's consolidated capital levels and each of the
Company's bank subsidiaries met the regulatory definition of a "well
capitalized" financial institution, i.e., a leverage capital ratio exceeding 5%,
a Tier 1 risk-based capital ratio exceeding 6%, and a total risk-based capital
ratio exceeding 10%. Management believes that as of June 30, 2000, the Company
and its subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
--------
Total deposits at June 30, 2000 were $6.54 billion, up $1.33 billion, or 26%
over total deposits of $5.21 billion at June 30, 1999, and up by $931.2 million,
or 17% from year-end 1999. Deposit growth during the first six months of 2000
included core deposit growth in all categories as well as growth from the public
sector. The Company experienced "same-store core deposit growth" of 13.8% at
June 30, 2000 as compared to deposits a year ago for those branches open for
more than two years.
7
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Interest Rate Sensitivity and Liquidity
---------------------------------------
The Company's risk of loss arising from adverse changes in the fair market value
of financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income, while maintaining acceptable
levels of interest rate risk. The Company's Asset/Liability Committee (ALCO) is
responsible for establishing policies to limit exposure to interest rate risk,
and to ensure procedures are established to monitor compliance with these
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
Management considers the simulation of net interest income in different interest
rate environments to be the best indicator of the Company's interest rate risk.
Income simulation analysis captures not only the potential of all assets and
liabilities to mature or reprice, but also the probability that they will do so.
Income simulation also attends to the relative interest rate sensitivities of
these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net income over the next 24 months in a flat rate scenario versus net
income in alternative interest rate scenarios. Management continually reviews
and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate 200 basis point change during the next year, with rates remaining
constant in the second year. The Company's ALCO policy has established that
interest income sensitivity will be considered acceptable if net income in the
above interest rate scenario is within 15% of net income in the flat rate
scenario in the first year and within 30% over the two year time frame. At June
30, 2000, the Company's income simulation model indicates net income would
increase by 5.12% and 2.69% in the first year and over a two year time frame,
respectively, if rates decreased as described above, as compared to an increase
of 0.70% and a decrease of 6.04%, respectively, at June 30, 1999. At June 30,
2000, the model projects that net income would decrease by 6.30% and 4.87% in
the first year and over a two year time frame, respectively, if rates increased
as described above, as compared to a decrease of 4.38% and 2.76%, respectively,
at June 30, 1999. All of these net income projections are within an acceptable
level of interest rate risk pursuant to the policy established by ALCO.
In the event the Company's interest rate risk models indicate an unacceptable
level of risk, the Company could undertake a number of actions that would reduce
this risk, including the sale of a portion of its available for sale portfolio,
the use of risk management strategies such as interest rate swaps and caps, or
the extension of the maturities of its short-term borrowings.
Management also monitors interest rate risk by utilizing a market value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the Company's assets and liabilities, as well as any off
balance sheet items. The model calculates the market value of the Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate 200
basis point change in rates. The Company's ALCO policy indicates that the level
of interest rate risk is unacceptable if the immediate 200 basis point change
would result in the loss of 60% or more of the excess of market value over book
value in the current rate scenario. At June 30, 2000, the market value of equity
model indicates an acceptable level of interest rate risk.
Liquidity involves the Company's ability to raise funds to support asset growth
or decrease assets to meet deposit withdrawals and other borrowing needs, to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis. The Company's liquidity needs are primarily met by growth in core
deposits, its cash and federal funds sold position, cash flow from its
amortizing investment and loan portfolios, as well as the use of short-term
borrowings, as required.
8
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Short-Term Borrowings
---------------------
Short-term borrowings, or other borrowed money, consist primarily of securities
sold under agreements to repurchase and overnight lines of credit, and are used
to meet short term funding needs. At June 30, 2000, short-term borrowings
aggregated $405.8 million and had an average rate of 6.56%, as compared to
$558.1 million at an average rate of 5.38% at December 31, 1999.
Interest Earning Assets
-----------------------
For the six month period ended June 30, 2000, interest earning assets increased
$737.7 million from $5.96 billion to $6.69 billion. This increase was primarily
in investment securities and the loan portfolio as described below.
Loans
-----
During the first six months of 2000, loans increased $483.6 million from $2.92
billion to $3.41 billion. At June 30, 2000, loans represented 52% of total
deposits and 46% of total assets. All segments of the loan portfolio experienced
growth in the first six months of 2000, including loans secured by commercial
real estate properties, commercial loans, and consumer loans.
Investments
-----------
In total, for the first six months of 2000, securities increased $104.0 million
from $2.98 billion to $3.09 billion. Deposit growth and other funding sources
were used to increase the Company's investment portfolio. The available for sale
portfolio increased $105.0 million to $1.77 billion at June 30, 2000 from $1.66
billion at December 31, 1999, and the securities held to maturity portfolio
increased $25.2 million to $1.23 billion at June 30, 2000 from $1.20 billion at
year-end 1999. The portfolio of trading securities decreased $26.1 million from
year-end 1999 to $91.7 million at June 30, 2000. At June 30, 2000, the average
life of the investment portfolio was approximately 6.8 years, and the duration
was approximately 4.8 years. At June 30, 2000, total securities represented 41%
of total assets.
Net Income
----------
Net income for the second quarter of 2000 was $19.4 million, an increase of $3.4
million or 21% over the $16.0 million recorded for the second quarter of 1999.
Net income for the first six months of 2000 was $37.7 million, an increase of
$6.2 million or 20% over the $31.5 million recorded in the first six months of
1999. On a per share basis, diluted net income for the second quarter of 2000
and the first six months of 2000 were $0.61 and $1.20 per common share compared
to $0.53 and $1.04 per common share for the respective 1999 periods.
Return on average assets (ROA) and return on average equity (ROE) for the second
quarter of 2000 were 1.08% and 20.59%, respectively, compared to 1.11% and
18.98%, respectively, for the same 1999 period. ROA and ROE for the first six
months of 2000 were 1.09% and 20.60%, respectively, compared to 1.12% and 18.87%
a year ago.
Net Interest Income
-------------------
Net interest income totaled $73.4 million for the second quarter of 2000, an
increase of $13.6 million or 23% from $59.8 million in the second quarter of
1999. Net interest income for the first six months of 2000 totaled $141.6
million, up $26.6 million or 23% from the first six months of 1999. The
improvement in net interest income for both periods was due primarily to volume
increases in the loan and investment portfolios.
9
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Noninterest Income
------------------
Noninterest income totaled $35.6 million for the second quarter of 2000, an
increase of $8.1 million or 30% from $27.5 million in the second quarter of
1999. The increase was due primarily to increased other operating income, which
rose $6.2 million over the prior year, including increased revenues of $2.8
million from Commerce National Insurance, the Company's insurance brokerage
subsidiary. In addition, deposit charges and service fees increased $2.4 million
over the second quarter of 1999 primarily due to higher transaction volumes. The
Company did not record any net investment securities gains in the second quarter
of 2000, as compared to $400 thousand a year ago.
For the first six months of 2000, noninterest income totaled $71.3 million, an
increase of $16.1 million or 29% from $55.2 million in the first six months of
1999. Other operating income rose $11.5 million over the first six months of
1999, including increased revenues of $7.1 million from Commerce National
Insurance. Deposit charges and service fees rose $5.0 million over the prior
year primarily due to higher transaction volumes, and the Company recorded $820
thousand in net investment securities gains in the first six months of 2000 as
compared to $1.3 million a year ago.
Noninterest Expense
-------------------
For the second quarter of 2000, noninterest expense totaled $76.5 million, an
increase of $15.3 million or 25% over the same period in 1999. Contributing to
this increase was new branch activity over the past twelve months, with the
number of branches increasing from 105 at June 30, 1999 to 129 at June 30, 2000,
and the growth of Commerce National Insurance. With the addition of these new
offices, staff, facilities, and related expenses rose accordingly. Other
noninterest expenses rose $2.2 million over the second quarter of 1999. This
increase resulted primarily from higher bank card-related service charges,
increased business development expenses, and increased provisions for
non-credit-related losses.
For the first six months of 2000, noninterest expense totaled $149.4 million, an
increase of $30.4 million or 26% over $119.0 million in the first six months of
1999. Contributing to this increase was new branch activity and the growth of
Commerce National Insurance as noted above. Other noninterest expenses rose $5.7
million over the first six months of 1999. This increase resulted primarily from
higher bank card-related service charges, increased business development
expenses, and increased provisions for non-credit-related losses.
The Company's operating efficiency ratio (noninterest expenses, less other real
estate expense, divided by net interest income plus noninterest income excluding
non-recurring gains) was 70.10% for the first six months of 2000 as compared to
69.88% for the same 1999 period. The Company's efficiency ratio remains above
its peer group primarily due to its aggressive growth expansion activities.
Loan and Asset Quality
----------------------
Total non-performing assets (non-performing loans and other real estate,
excluding loans past due 90 days or more and still accruing interest) at June
30, 2000 were $14.5 million, or 0.19% of total assets compared to $12.2 million
or 0.18% of total assets at December 31, 1999 and $13.4 million or 0.23% of
total assets at June 30, 1999.
Total non-performing loans (non-accrual loans and restructured loans, excluding
loans past due 90 days or more and still accruing interest) at June 30, 2000
were $11.0 million or 0.32% of total loans compared to $8.7 million or 0.29% of
total loans at December 31, 1999 and $9.3 million or 0.34% of total loans at
June 30, 1999. At June 30, 2000, loans past due 90 days or more and still
accruing interest amounted to $473 thousand compared to $499 thousand at
December 31, 1999 and $693 thousand at June 30, 1999. Additional loans
considered as potential problem loans by the Company's internal loan review
department ($28.8 million at June 30, 2000) have been evaluated as to risk
exposure in determining the adequacy of the allowance for loan losses.
Other real estate (ORE) at June 30, 2000 totaled $3.4 million compared to $3.5
million at December 31, 1999 and $4.1 million at June 30, 1999. These properties
have been written down to the lower of cost or fair value less disposition
costs.
10
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
On pages 12 and 13 are tabular presentation showing detailed information about
the Company's non-performing loans and assets and an analysis of the Company's
allowance for loan losses and other related data for June 30, 2000, December 31,
1999, and June 30, 1999.
Year 2000
---------
In prior years, The Company discussed the nature and progress of its plans to
become Year 2000 ready. In 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information and technology systems, and believes those systems successfully
responded to the Year 2000 date change. The cumulative cost of the Year 2000
compliance process, including internal and external personnel and any required
hardware and software modifications, was less than $1.0 million. The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its internal systems, or the products and services of third parties (including
loan customers).
Forward-Looking Statements
--------------------------
The Company may from time to time make written or oral "forward-looking
statements", including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Form 10-Q), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties and are subject to change based on various factors (some of which
are beyond the Company's control). The words "may", "could", "should", "would",
believe", "anticipate", "estimate", "expect", "intend", "plan" and similar
expressions are intended to identify forward-looking statements. The following
factors, among others, could cause the Company's financial performance to differ
materially from that expressed in such forward-looking statements: the strength
of the United States economy in general and the strength of the local economies
in which the Company conducts operations; the effects of, and changes in, trade,
monetary and fiscal policies, including interest rate policies of the Board of
Governors of the Federal Reserve System (the "FRB"); inflation; interest rates,
market and monetary fluctuations; the timely development of competitive new
products and services by the Company and the acceptance of such products and
services by customers; the willingness of customers to substitute competitors'
products and services for the Company's products and services and vice versa;
the impact of changes in financial services' laws and regulations (including
laws concerning taxes, banking, securities and insurance); technological
changes; future acquisitions; the expense savings and revenue enhancements from
acquisitions being less than expected; the growth and profitability of the
Company's noninterest or fee income being less than expected; unanticipated
regulatory or judicial proceedings; changes in consumer spending and saving
habits; and the success of the Company at managing the risks involved in the
foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
11
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following summary presents information regarding non-performing loans and
assets as of June 30, 2000 and the preceding four quarters: (dollar amounts in
thousands)
<TABLE>
<CAPTION>
June 30, March 31, December 31, September 30, June 30,
2000 2000 1999 1999 1999
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $4,960 $5,272 $2,254 $2,827 $3,104
Consumer 891 709 674 748 787
Real estate:
Construction 55 55 55 55 115
Mortgage 4,720 5,458 5,230 5,539 5,144
--------------------------------------------------------------------------
Total non-accrual loans 10,626 11,494 8,213 9,169 9,150
--------------------------------------------------------------------------
Restructured loans:
Commercial 240 256 277 15 16
Consumer
Real estate:
Construction
Mortgage 183 189 192 108 110
--------------------------------------------------------------------------
Total restructured loans 423 445 469 123 126
--------------------------------------------------------------------------
Total non-performing loans 11,049 11,939 8,682 9,292 9,276
--------------------------------------------------------------------------
Other real estate 3,448 3,681 3,523 3,799 4,118
--------------------------------------------------------------------------
Total non-performing assets 14,497 15,620 12,205 13,091 13,394
--------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing 473 916 499 581 693
--------------------------------------------------------------------------
Total non-performing assets and
loans past due 90 days or more $14,970 $16,536 $12,704 $13,672 $14,087
==========================================================================
Total non-performing loans as a
percentage of total period-end loans 0.32% 0.37% 0.29% 0.34% 0.34%
Total non-performing assets as a
percentage of total period-end assets 0.19% 0.23% 0.18% 0.21% 0.23%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.20% 0.24% 0.19% 0.22% 0.24%
Allowance for loan losses as a percentage
of total non-performing loans 398% 341% 442% 387% 376%
Allowance for loan losses as a percentage
of total period-end loans 1.28% 1.27% 1.30% 1.31% 1.30%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 3% 4% 3% 4% 4%
</TABLE>
12
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data: (dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year
------------------------------ Ended
06/30/00 06/30/99 12/31/99
----------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of period $38,382 $31,265 $31,265
Provisions charged to operating expenses 7,136 4,458 9,175
----------- ----------- ----------
45,518 35,723 40,440
Recoveries on loans charged-off:
Commercial 167 366 544
Consumer 156 119 291
Real estate 2 68 132
----------- ----------- ----------
Total recoveries 325 553 967
Loans charged-off:
Commercial (1,305) (877) (1,597)
Consumer (534) (454) (1,028)
Real estate (77) (400)
----------- ----------- ----------
Total charge-offs (1,839) (1,408) (3,025)
----------- ----------- ----------
Net charge-offs (1,514) (855) (2,058)
----------- ----------- ----------
Balance at end of period $44,004 $34,868 $38,382
=========== =========== ==========
Net charge-offs as a percentage of
average loans outstanding 0.10% 0.07% 0.08%
</TABLE>
Item 3: Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
See Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation, Interest Rate Sensitivity and Liquidity.
13
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The Annual Meeting of the Registrant's Shareholders was held on June
20, 2000. The only items of business acted upon at the Annual Meeting
were (i) the election of 12 directors for one year terms; and (ii)
approval of the amendment to the Commerce Bancorp, Inc. 1997 Employee
Stock Option Plan to increase the number of shares issuable under the
1997 Plan by 5,000,000 shares. The number of votes cast for, against,
or withheld, as well as the number of abstentions and broker non-votes
was as follows:
(i) Election of directors:
Name of (Withhold Authority)
Nominee For Against
------- --- -------
Vernon W. Hill, II 25,416,446 419,717
David Baird, IV 25,489,792 346,371
Robert C. Beck 25,414,644 421,519
Jack R Bershad 25,241,155 595,008
Joseph M. Buckelew 25,432,134 404,029
C. Edward Jordan, Jr. 25,418,061 418,102
Morton N. Kerr 25,242,072 594,091
Steven M. Lewis 25,429,468 418,102
Daniel J. Ragone 25,473,374 362,789
William A. Schwartz, Jr. 25,491,028 345,135
Joseph T. Tarquini, Jr 25,490,054 346,109
Frank C. Videon, Sr. 25,472,117 364,046
(ii) Approval of the amendment to the Commerce Bancorp, Inc. 1997
Employee Stock Option Plan to increase the number of shares
issuable under the 1997 Plan by 5,000,000 shares:
Broker
For Against Abstain Non-Vote
--- ------- ------- --------
11,847,099 8,401,829 175,552 5,411,685
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter ended June
30, 2000.
14
<PAGE>
COMMERCE BANCORP, INC. AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
---------------------------------------------
(Registrant)
August 11, 2000 /s/ DOUGLAS J. PAULS
--------------- ---------------------------------------------
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
15
