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, 2001
-------------
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 (LOGO)
(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 32,464,474
--------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of 08/03/01)
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 2001 and December 31, 2000................................1
Consolidated Statements of Income (unaudited)
Three months ended June 30, 2001 and June 30, 2000
and six months ended June 30, 2001 and June 30, 2000...............2
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 2001 and June 30, 2000...................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
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
------------------------------------------------------------------------------------------------
June 30, December 31,
--------------------------------
(dollars in thousands) 2001 2000
------------------------------------------------------------------------------------------------
Assets Cash and due from banks $502,814 $ 443,918
Federal funds sold 54,800 52,000
----------- -----------
Cash and cash equivalents 557,614 495,918
Loans held for sale 73,643 41,791
Trading securities 144,150 109,306
Securities available for sale 2,679,546 2,021,326
Securities held to maturity 1,310,277 1,513,456
(market value 06/01-$1,306,566; 12/00-$1,503,202)
Loans 4,111,949 3,687,260
Less allowance for loan losses 57,548 48,680
----------- -----------
4,054,401 3,638,580
Bank premises and equipment, net 299,457 276,097
Other assets 226,350 200,042
----------- -----------
$9,345,438 $8,296,516
=========== ===========
Liabilities Deposits:
Demand:
Interest-bearing $2,805,812 $2,628,358
Noninterest-bearing 2,025,801 1,789,371
Savings 1,628,410 1,436,800
Time 1,906,117 1,533,065
----------- -----------
Total deposits 8,366,140 7,387,594
Other borrowed money 126,061 283,714
Other liabilities 212,233 52,484
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
----------- -----------
8,784,934 7,804,292
Stockholders Common stock, 32,458,527 shares
Equity issued (31,761,453 shares in 2000) 50,716 49,627
Capital in excess of par or stated value 449,740 422,375
Retained earnings 58,025 27,083
Accumulated other comprehensive income 3,645 (5,239)
----------- -----------
562,126 493,846
Less treasury stock, at cost 1,622 1,622
----------- -----------
Total stockholders' equity 560,504 492,224
----------- -----------
$9,345,438 $8,296,516
=========== ===========
See accompanying notes.
1
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------
(dollars in thousands, except per share 2001 2000 2001 2000
amounts)
---------------------------------------------------------------------------------------------------------
Interest Interest and fees on loans $81,616 $ 70,301 $161,355 $133,479
income Interest on investments 64,643 51,224 126,093 100,054
Other interest 850 1,758 2,740 1,976
------------ ----------- ----------- -----------
Total interest income 147,109 123,283 290,188 235,509
------------ ----------- ----------- -----------
Interest Interest on deposits:
expense Demand 15,948 16,945 33,982 32,296
Savings 8,345 9,526 17,240 15,694
Time 25,103 15,671 52,345 31,534
------------ ----------- ----------- -----------
Total interest on deposits 49,396 42,142 103,567 79,524
Interest on other borrowed money 909 6,121 2,482 11,208
Interest on long-term debt 1,401 1,598 2,996 3,156
------------ ----------- ----------- -----------
Total interest expense 51,706 49,861 109,045 93,888
------------ ----------- ----------- -----------
Net interest income 95,403 73,422 181,143 141,621
Provision for loan losses 7,982 3,642 12,591 7,135
------------ ----------- ----------- -----------
Net interest income after provision for
loan losses 87,421 69,780 168,552 134,486
Noninterest Deposit charges and service fees 19,841 13,201 37,005 25,537
income Other operating income 27,540 22,400 53,504 44,908
Net investment securities gains 980 820
------------ ----------- ----------- -----------
Total noninterest income 47,381 35,601 91,489 71,265
------------ ----------- ----------- -----------
Noninterest Salaries 37,118 29,310 72,774 58,353
expense Benefits 8,456 6,411 16,727 12,603
Occupancy 9,129 7,606 17,927 14,684
Furniture and equipment 12,241 10,309 23,847 19,468
Office 6,589 5,756 12,655 11,554
Audit and regulatory fees and assessments 1,005 689 1,965 1,370
Marketing 4,211 2,698 6,475 4,962
Other real estate (net) 450 481 800 754
Other 18,741 13,285 35,124 25,656
------------ ----------- ----------- -----------
Total noninterest expenses 97,940 76,545 188,294 149,404
------------ ----------- ----------- -----------
Income before income taxes 36,862 28,836 71,747 56,347
Provision for federal and state income taxes 11,752 9,459 23,236 18,675
------------ ----------- ----------- -----------
Net income $25,110 $ 19,377 $48,511 $ 37,672
============ =========== =========== ===========
Net income per common and common
equivalent share:
Basic $0.78 $ 0.63 $1.51 $ 1.23
------------ ----------- ----------- -----------
Diluted $0.74 $ 0.61 $1.44 $ 1.20
------------ ----------- ----------- -----------
Average common and common equivalent
shares outstanding:
Basic 32,226 30,650 32,067 30,457
------------ ----------- ----------- -----------
Diluted 33,936 31,755 33,685 31,478
------------ ----------- ----------- -----------
Cash dividends declared, common stock $0.27 $ 0.25 $0.55 $ 0.49
============ =========== =========== ===========
See accompanying notes.
2
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
---------------------------------
(dollars in thousands) 2001 2000
------------------------------------------------------------------------------------------------------
Operating Net income $48,511 $ 37,672
activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 12,591 7,135
Provision for depreciation, amortization and accretion 20,518 13,696
Gains on sales of securities available for sale (980) (820)
Proceeds from sales of mortgages held for sale 265,608 6,241
Originations of mortgages held for sale (297,460) (537)
Net loan chargeoffs (3,723) (1,513)
Net (increase) decrease in trading securities (34,844) 26,109
Increase in other assets (31,542) (13,295)
Increase in other liabilities 159,749 12,838
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 138,428 87,526
Investing Proceeds from the sales of securities available for sale 275,444 167,134
activities Proceeds from the maturity of securities available for sale 358,552 132,097
Proceeds from the maturity of securities held to maturity 175,158 75,517
Purchase of securities available for sale (1,213,555) (411,555)
Purchase of securities held to maturity (36,485) (100,879)
Net increase in loans (432,081) (496,598)
Proceeds from sales of loans 7,392 7,372
Purchases of premises and equipment (42,933) (45,830)
------------------------------------------------------------------------------------------------------
Net cash used by investing activities (908,508) (672,742)
Financing Net increase in demand and savings deposits 605,494 820,380
activities Net increase in time deposits 373,052 110,790
Net decrease in other borrowed money (157,653) (152,322)
Dividends paid (17,563) (14,511)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 28,789 24,326
Other (343) (5,515)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 831,776 783,148
Increase in cash and cash equivalents 61,696 197,932
Cash and cash equivalents at beginning of year 495,918 322,924
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $557,614 $ 520,856
======================================================================================================
Supplemental disclosures of cash flow information: Cash paid
during the period for:
Interest $106,186 $ 93,224
Income taxes 21,901 20,361
See accompanying notes.
3
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, 2000.
The results for the three months ended June 30, 2001 and the six months ended
June 30, 2001 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2001.
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/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. Effective April 1, 2001, Commerce Bank/Central, N.A. was merged into
Commerce NJ.
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 $14.5 million and $23.5 million, respectively, for the three months
ended June 30, 2001 and 2000. For the six months ended June 30, 2001 and 2000,
total comprehensive income was $57.4 million and $32.3 million, respectively.
4
COMMERCE BANCORP, INC. AND SUBSIDIARIES
D. Segment Information
The Company operates one reportable segment of business, Community Banks, which
includes Commerce NJ, Commerce PA, Commerce Shore, Commerce North, 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 includes the holding company, Commerce National Insurance, CCMI,
and Commerce Capital Trust I.
Selected segment information is as follows:
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-----------------------------------------------------------------------------------------------------------------------
Net interest income $ 95,512 $ (109) $ 95,403 $ 73,714 $ (292) $ 73,422
Provision for loan losses 7,982 7,982 3,642 3,642
---------------------------------------------------------------------------------
Net interest income after provision 87,530 (109) 87,421 70,072 (292) 69,780
Noninterest income 29,901 17,480 47,381 20,903 14,698 35,601
Noninterest expense 83,293 14,647 97,940 63,288 13,257 76,545
---------------------------------------------------------------------------------
Income before income taxes 34,138 2,724 36,862 27,687 1,149 28,836
Income tax expense 11,270 482 11,752 9,104 355 9,459
---------------------------------------------------------------------------------
Net income $ 22,868 $2,242 $ 25,110 $ 18,583 $ 794 $ 19,377
=================================================================================
Average assets (in millions) $8,058,400 $ 961,619 $ 9,020,019 $6,500,137 $700,501 $7,200,638
=================================================================================
-----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-----------------------------------------------------------------------------------------------------------------------
Net interest income $ 181,392 $ (249) $ 181,143 $ 143,515 $ (1,894) $ 141,621
Provision for loan losses 12,591 12,591 7,135 7,135
---------------------------------------------------------------------------------
Net interest income after provision 168,801 (249) 168,552 136,380 (1,894) 134,486
Noninterest income 56,279 35,210 91,489 41,248 30,017 71,265
Noninterest expense 159,401 28,893 188,294 122,970 26,434 149,404
---------------------------------------------------------------------------------
Income before income taxes 65,679 6,068 71,747 54,658 1,689 56,347
Income tax expense 21,565 1,671 23,236 18,029 646 18,675
---------------------------------------------------------------------------------
Net income $ 44,114 $ 4,397 $ 48,511 $ 36,629 $ 1,043 $ 37,672
=================================================================================
Average assets (in millions) $ 7,822,423 $ 931,779 $ 8,754,202 $6,262,245 $668,308 $6,930,553
=================================================================================
E. Recent Accounting Statements
In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 requires 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. The Company adopted FAS 133 on January 1, 2001. Due to the Company's
minimal use of derivatives, adoption did not have a significant effect on the
results of operations or the financial position of the Company. Future
5
COMMERCE BANCORP, INC. AND SUBSIDIARIES
impact of FAS 133 will depend on the nature and purpose of the derivative
instruments in use by the Company at that time.
In June 2001, the FASB issued Statements No. 141 "Business Combinations" and No.
142 "Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment
tests in accordance with the Statements. Other intangible assets will continue
to be amortized over their useful lives. The Company will apply the new rules
beginning in the first quarter of 2002. Due to the immaterial amount of goodwill
and intangible assets recorded on the Company's balance sheet, adoption of the
Statements is not expected to have a significant impact on the results of
operations or the financial position of the Company.
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):
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------------------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------
Basic:
Net income applicable to common stock $25,110 $ 19,377 $48,511 $ 37,672
============= ============= ============= =============
Average common shares outstanding 32,226 30,650 32,067 30,457
============= ============= ============= =============
Net income per common share - basic $0.78 $ 0.63 $1.51 $ 1.23
============= ============= ============= =============
Diluted:
Net income applicable to common stock
on a diluted basis $25,110 $ 19,377 $48,511 $ 37,672
============= ============= ============= =============
Average common shares outstanding 32,226 30,650 32,067 30,457
Additional shares considered in diluted
computation assuming:
Exercise of stock options 1,710 1,105 1,618 1,021
------------- ------------- ------------- -------------
Average common shares outstanding
on a diluted basis 33,936 31,755 33,685 31,478
============= ============= ============= =============
Net income per common share - diluted $0.74 $ 0.61 $1.44 $ 1.20
============= ============= ============= =============
6
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
---------------------------------------------------------------
Capital Resources
-----------------
At June 30, 2001, stockholders' equity totaled $560.5 million or 6.00% of total
assets, compared to $492.2 million or 5.93% of total assets at December 31,
2000.
The table below presents the Company's and Commerce NJ's risk-based and leverage
ratios at June 30, 2001 and 2000:
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------
June 30, 2001
Company
Risk based capital ratios:
Tier 1 $610,816 10.77% $226,758 4.00% $340,138 6.00%
Total capital 677,564 11.95 453,517 8.00 566,896 10.00
Leverage ratio 610,816 6.78 360,420 4.00 450,525 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $353,611 9.88% $143,215 4.00% $214,822 6.00%
Total capital 391,832 10.94 286,430 8.00 358,037 10.00
Leverage ratio 353,611 6.53 216,581 4.00 270,726 5.00
June 30, 2000
Company
Risk based capital ratios:
Tier 1 $491,924 10.98% $179,140 4.00% $268,710 6.00%
Total capital 549,728 12.27 358,280 8.00 447,850 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
At June 30, 2001, 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, 2001, the Company
and its subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
--------
Total deposits at June 30, 2001 were $8.37 billion, up $1.83 billion, or 28%
over total deposits of $6.54 billion at June 30, 2000, and up by $978.5 million,
or 13% from year-end 2000. Deposit growth during the first six months of 2001
included core deposit growth in all categories as well as growth from the public
sector. The Company experienced "same-store core deposit growth" of 16.5% at
June 30, 2001 as compared to deposits a year ago for those branches open for
more than two years.
Interest Rate Sensitivity and Liquidity
---------------------------------------
The Company's risk of loss arising from adverse changes in the fair market value
of financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income, while maintaining acceptable
levels of interest rate risk. The Company's
7
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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, 2001, the Company's income simulation model indicates net income would
increase by 2.33% and decrease by 3.32% in the first year and over a two year
time frame, respectively, if rates decreased as described above, as compared to
an increase of 5.12% and 2.69%, respectively, at June 30, 2000. At June 30,
2001, the model projects that net income would decrease by 5.14% and 3.78% in
the first year and over a two year time frame, respectively, if rates increased
as described above, as compared to a decrease of 6.30% and 4.87%, respectively,
at June 30, 2000. 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, 2001, the market value of equity
model indicates an acceptable level of interest rate risk.
Liquidity involves the Company's ability to raise funds to support asset growth
or decrease assets to meet deposit withdrawals and other borrowing needs, to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis. The Company's liquidity needs are primarily met by growth in core
deposits, its cash and federal funds sold position, cash flow from its
amortizing investment and loan portfolios, as well as the use of short-term
borrowings, as required.
Short-Term Borrowings
---------------------
Short-term borrowings, or other borrowed money, consist primarily of securities
sold under agreements to repurchase and overnight lines of credit, and are used
to meet short term funding needs. During the first six months of 2001, the
Company reduced its short-term borrowings, primarily through increased deposits.
At June 30, 2001, short-term borrowings aggregated $126.1 million and had an
average rate of 3.65%, as compared to $283.7 million at an average rate of 6.70%
at December 31, 2000.
8
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Interest Earning Assets
-----------------------
For the six month period ended June 30, 2001, interest earning assets increased
$949.2 million from $7.43 billion to $8.37 billion. This increase was primarily
in investment securities and the loan portfolio as described below.
Loans
-----
During the first six months of 2001, net loans increased $415.8 million from
$3.64 billion to $4.05 billion. At June 30, 2001, loans represented 48% of total
deposits and 43% of total assets. All segments of the loan portfolio experienced
growth in the first six months of 2001, including loans secured by commercial
real estate properties, commercial loans, and consumer loans.
Investments
-----------
In total, for the first six months of 2001, securities increased $489.9 million
from $3.64 billion to $4.13 billion. The available for sale portfolio increased
$658.2 million to $2.68 billion at June 30, 2001 from $2.02 billion at December
31, 2000, and the securities held to maturity portfolio decreased $203.2 million
to $1.31 billion at June 30, 2001 from $1.51 billion at year-end 2000. The
portfolio of trading securities increased $34.8 million from year-end 2000 to
$144.2 million at June 30, 2001. At June 30, 2001, the average life of the
investment portfolio was approximately 6.6 years, and the duration was
approximately 4.6 years. At June 30, 2001, total securities represented 44% of
total assets.
Net Income
----------
Net income for the second quarter of 2001 was $25.1 million, an increase of $5.7
million or 30% over the $19.4 million recorded for the second quarter of 2000.
Net income for the first six months of 2001 was $48.5 million, an increase of
$10.8 million or 29% over the $37.7 million recorded for the first six months of
2000. On a per share basis, diluted net income for the second quarter of 2001
and the first six months of 2001 were $0.74 and $1.44 per common share compared
to $0.61 and $1.20 per common share for the respective 2000 periods.
Return on average assets (ROA) and return on average equity (ROE) for the second
quarter of 2001 were 1.11% and 18.16%, respectively, compared to 1.08% and
20.59%, respectively, for the same 2000 period. ROA and ROE for the first six
months of 2001 were 1.11% and 18.04%, respectively, compared to 1.09% and 20.60%
a year ago.
Net Interest Income
-------------------
Net interest income totaled $95.4 million for the second quarter of 2001, an
increase of $22.0 million or 30% from $73.4 million in the second quarter of
2000. Net interest income for the first six months of 2001 totaled $181.1
million, up $39.5 million or 28% from the first six months of 2000. The
improvement in net interest income for both periods was due primarily to volume
increases in the loan and investment portfolios.
Noninterest Income
------------------
Noninterest income totaled $47.4 million for the second quarter of 2001, an
increase of $11.8 million or 33% from $35.6 million in the second quarter of
2000. The increase was due primarily to increased deposit charges and service
fees, which rose $6.6 million over the second quarter of 2000 primarily due to
higher transaction volumes. In addition, other operating income increased $5.1
million over the prior year, including increased revenues of $1.5 million from
CCMI, the Company's municipal public finance subsidiary, increased revenues of
$1.3 million from Commerce National Insurance, the Company's insurance brokerage
subsidiary, and increased bank card-related revenues of $1.5 million.
For the first six months of 2001, noninterest income totaled $91.5 million, an
increase of $20.2 million or 28% from $71.3 million in the first six months of
2000. Deposit charges and service fees rose $11.5 million over the prior year
primarily due to higher transaction volumes. Other operating income rose $8.6
million over the first six months of 2000, including increased revenues of $3.2
million from CCMI, $1.3 million from Commerce National Insurance, and
9
COMMERCE BANCORP, INC. AND SUBSIDIARIES
$2.9 million from bank card-related income. In addition, the Company recorded
$980 thousand in net investment securities gains in the first six months of 2001
versus $820 thousand a year ago.
Noninterest Expense
-------------------
For the second quarter of 2001, noninterest expense totaled $97.9 million, an
increase of $21.4 million or 28% over the same period in 2000. Contributing to
this increase was new branch activity over the past twelve months, with the
number of branches increasing from 129 at June 30, 2000 to 159 at June 30, 2001.
With the addition of these new offices, staff, facilities, and related expenses
rose accordingly. Other noninterest expenses rose $5.5 million over the second
quarter of 2000. 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 2001, noninterest expense totaled $188.3 million, an
increase of $38.9 million or 26% over $149.4 million in the first six months of
2000. Contributing to this increase was new branch activity and the growth of
CCMI and Commerce National Insurance as noted above. Other noninterest expenses
rose $9.5 million over the first six months of 2000. The increase resulted
primarily from higher bank card-related service charges, increased business
development expenses, and increased provisions for non-credit-related losses.
The Company's operating efficiency ratio (noninterest expenses, less other real
estate expense, divided by net interest income plus noninterest income excluding
non-recurring gains) was 69.02% for the first six months of 2001 as compared to
70.10% for the same 2000 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, 2001 were $20.7 million, or 0.22% of total assets compared to $16.6 million
or 0.20% of total assets at December 31, 2000 and $14.5 million or 0.19% of
total assets at June 30, 2000.
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, 2001
were $19.1 million or 0.47% of total loans compared to $13.6 million or 0.37% of
total loans at December 31, 2000 and $11.0 million or 0.32% of total loans at
June 30, 2000. At June 30, 2001, loans past due 90 days or more and still
accruing interest amounted to $1.4 million compared to $489 thousand at December
31, 2000 and $473 thousand at June 30, 2000. Additional loans considered as
potential problem loans by the Company's internal loan review department ($40.7
million at June 30, 2001) have been evaluated as to risk exposure in determining
the adequacy of the allowance for loan losses.
Other real estate (ORE) at June 30, 2001 totaled $1.6 million compared to $3.0
million at December 31, 2000 and $3.4 million at June 30, 2000. These properties
have been written down to the lower of cost or fair value less disposition
costs.
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, 2001, December 31,
2000, and June 30, 2000.
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",
10
COMMERCE BANCORP, INC. AND SUBSIDIARIES
"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
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following summary presents information regarding non-performing loans and
assets as of June 30, 2001 and the preceding four quarters: (dollar amounts in
thousands)
June 30, March 31, December 31, September 30, June 30,
2001 2001 2000 2000 2000
------------------------------------------------------------------------
Non-accrual loans:
Commercial $10,608 $10,681 $4,955 $5,771 $4,960
Consumer 1,338 1,378 1,295 1,296 891
Real estate:
Construction 1,590 1,590 1,459 50 55
Mortgage 5,598 5,756 5,840 5,979 4,720
------------------------------------------------------------------------
Total non-accrual loans 19,134 19,405 13,549 13,096 10,626
------------------------------------------------------------------------
Restructured loans:
Commercial 10 11 11 12 240
Consumer
Real estate:
Construction
Mortgage 82 85 183
------------------------------------------------------------------------
Total restructured loans 10 11 93 97 423
------------------------------------------------------------------------
Total non-performing loans 19,144 19,416 13,642 13,193 11,049
------------------------------------------------------------------------
Other real estate 1,552 1,452 2,959 2,941 3,448
------------------------------------------------------------------------
Total non-performing assets 20,696 20,868 16,601 16,134 14,497
------------------------------------------------------------------------
Loans past due 90 days or more
And still accruing 1,416 537 489 561 473
------------------------------------------------------------------------
Total non-performing assets and
Loans past due 90 days or more $22,112 $21,405 $17,090 $16,695 $14,970
========================================================================
Total non-performing loans as a
Percentage of total period-end loans 0.47% 0.50% 0.37% 0.36% 0.32%
Total non-performing assets as a
Percentage of total period-end assets 0.22% 0.23% 0.20% 0.21% 0.19%
Total non-performing assets and loans
Past due 90 days or more as a
Percentage of total period-end assets 0.24% 0.24% 0.21% 0.21% 0.20%
Allowance for loan losses as a percentage
Of total non-performing loans 301% 269% 357% 359% 398%
Allowance for loan losses as a percentage
Of total period-end loans 1.40% 1.36% 1.32% 1.30% 1.28%
Total non-performing assets and loans
Past due 90 days or more as a
Percentage of stockholders' equity and
Allowance for loan losses 4% 4% 3% 3% 3%
12
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)
Year
Three Months Ended Six Months Ended Ended
06/30/01 06/30/00 06/30/01 06/30/00 12/31/00
------------ ----------- ------------ ------------ ------------
Balance at beginning of period $52,157 $40,705 $48,680 $38,382 $38,382
Provisions charged to operating expenses 7,982 3,642 12,591 7,135 13,931
---------- --------- ---------- ---------- ----------
60,139 44,347 61,271 45,517 52,313
Recoveries on loans charged-off:
Commercial 150 71 159 167 276
Consumer 95 112 136 156 248
Real estate 2 1 14 2 52
---------- --------- ---------- ---------- ----------
Total recoveries 247 184 309 325 576
Loans charged-off:
Commercial (1,976) (268) (2,334) (1,304) (2,911)
Consumer (636) (259) (1,295) (534) (1,243)
Real estate (226) (403) (55)
---------- --------- ---------- ---------- ----------
Total charge-offs (2,838) (527) (4,032) (1,838) (4,209)
---------- --------- ---------- ---------- ----------
Net charge-offs (2,591) (343) (3,723) (1,513) (3,633)
---------- --------- ---------- ---------- ----------
Balance at end of period $57,548 $44,004 $57,548 $44,004 $48,680
========== ========= ========== ========== ==========
Net charge-offs as a percentage of
average loans outstanding 0.26% 0.04% 0.19% 0.10% 0.11%
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
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 May
15, 2001. 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 of Commerce Bancorp, Inc.'s Restated
Certificate of Incorporation to increase the number of shares of
common stock that the Company is authorized to issue by 100,000,000
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 26,704,247 1,796,781
David Baird, IV 27,991,580 509,448
Robert C. Beck 26,794,487 1,706,541
Jack R Bershad 26,981,699 1,519,329
Joseph M. Buckelew 26,863,947 1,637,081
C. Edward Jordan, Jr. 26,870,647 1,630,381
Morton N. Kerr 27,075,342 1,425,686
Steven M. Lewis 27,825,374 675,654
Daniel J. Ragone 27,975,737 525,291
William A. Schwartz, Jr. 27,991,584 509,444
Joseph T. Tarquini, Jr 27,984,423 516,605
Frank C. Videon, Sr. 27,973,414 527,614
(ii) Approval of the amendment of Commerce Bancorp, Inc.'s Restated
Certificate of Incorporation to increase the number of shares of
common stock that the Company is authorized to issue by
100,000,000 shares:
Broker
For Against Abstain Non-Vote
--- ------- ------- --------
21,537,001 6,842,651 121,374 0
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K were filed during the second quarter ended June 30, 2001.
14
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 9, 2001 /s/ DOUGLAS J. PAULS
-------------------------- ---------------------------------------------
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
15