SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 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 #1-12069
COMMERCE BANCORP (LOGO)
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400
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(Address of Principal Executive Offices) (Zip Code)
(856) 751-9000
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(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 32,688,053
--------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of 11/5/01)
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 2001 and December 31, 2000............................1
Consolidated Statements of Income (unaudited) Nine months ended
September 30, 2001 and September 30, 2000
and three months ended September 30, 2001 and September 30, 2000....2
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2001 and September 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 6. Exhibits and Reports on Form 8-K...................................14
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
------------------------------------------------------------------------------------------------
September 30, December 31,
----------------------------------
(dollars in thousands) 2001 2000
------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 458,454 $ 443,918
Federal funds sold 195,600 52,000
---------------- --------------
Cash and cash equivalents 654,054 495,918
Loans held for sale 37,446 41,791
Trading securities 184,985 109,306
Securities available for sale 3,372,318 2,021,326
Securities held to maturity 1,229,294 1,513,456
(market value 09/01-$1,249,073; 12/00-$1,503,202)
Loans 4,322,326 3,687,260
Less allowance for loan losses 61,386 48,680
---------------- --------------
4,260,940 3,638,580
Bank premises and equipment, net 311,425 276,097
Other assets 337,470 200,042
---------------- --------------
$10,387,932 $8,296,516
================ ==============
Liabilities Deposits:
Demand:
Interest-bearing $3,275,292 $2,628,358
Noninterest-bearing 2,197,555 1,789,371
Savings 1,759,711 1,436,800
Time 2,179,657 1,533,065
---------------- --------------
Total deposits 9,412,215 7,387,594
Other borrowed money 84,673 283,714
Other liabilities 173,861 52,484
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Long-term debt 23,000 23,000
---------------- --------------
9,751,249 7,804,292
Stockholders' Common stock, 32,675,538 shares
Equity issued (31,761,453 shares in 2000) 51,056 49,627
Capital in excess of par or stated value 461,114 422,375
Retained earnings 75,437 27,083
Accumulated other comprehensive income 50,698 (5,239)
---------------- --------------
638,305 493,846
Less treasury stock, at cost 1,622 1,622
---------------- --------------
Total stockholders' equity 636,683 492,224
---------------- --------------
$10,387,932 $8,296,516
================ ==============
See accompanying notes.
1
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
---------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------
(dollars in thousands,
except per share amounts) 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------
Interest Interest and fees on loans $ 83,679 $ 76,601 $245,034 $210,080
Income Interest on investments 67,037 52,871 193,130 152,925
Other interest 2,265 1,713 5,005 3,689
------------- ------------ ------------ ------------
Total interest income 152,981 131,185 443,169 366,694
------------- ------------ ------------ ------------
Interest Interest on deposits:
Expense Demand 16,371 19,641 50,353 51,937
Savings 8,465 10,652 25,705 26,346
Time 23,469 20,614 75,814 52,148
------------- ------------ ------------ ------------
Total interest on deposits 48,305 50,907 151,872 130,431
Interest on other borrowed money 737 3,115 3,219 14,323
Interest on long-term debt 1,226 1,599 4,222 4,755
------------- ------------ ------------ ------------
Total interest expense 50,268 55,621 159,313 149,509
------------- ------------ ------------ ------------
Net interest income 102,713 75,564 283,856 217,185
Provision for loan losses 6,335 3,668 18,926 10,803
------------- ------------ ------------ ------------
Net interest income after provision for
loan losses 96,378 71,896 264,930 206,382
Noninterest Deposit charges and service fees 22,121 14,758 59,126 40,295
Income Other operating income 29,653 22,930 83,157 67,838
Net investment securities gains 980 820
------------- ------------ ------------ ------------
Total noninterest income 51,774 37,688 143,263 108,953
------------- ------------ ------------ ------------
Noninterest Salaries 42,199 30,685 114,973 89,038
Expense Benefits 9,956 6,131 26,683 18,734
Occupancy 9,639 7,651 27,566 22,335
Furniture and equipment 12,657 9,943 36,504 29,411
Office 6,726 6,204 19,381 17,758
Audit and regulatory fees and assessments 1,011 947 2,976 2,317
Marketing 6,443 3,147 12,918 8,109
Other real estate (net) 450 104 1,250 858
Other 20,512 13,689 55,636 39,345
------------- ------------ ------------ ------------
Total noninterest expenses 109,593 78,501 297,887 227,905
------------- ------------ ------------ ------------
Income before income taxes 38,559 31,083 110,306 87,430
Provision for federal and state income taxes 12,278 10,092 35,514 28,767
------------- ------------ ------------ ------------
Net income $ 26,281 $ 20,991 $ 74,792 $ 58,663
============= ============ ============ ============
Net income per common and common
equivalent share:
Basic $ 0.81 $ 0.68 $ 2.32 $ 1.91
------------- ------------ ------------ ------------
Diluted $ 0.77 $ 0.64 $ 2.21 $ 1.84
------------- ------------ ------------ ------------
Average common and common equivalent
shares outstanding:
Basic 32,479 31,109 32,206 30,676
------------- ------------ ------------ ------------
Diluted 34,253 32,752 33,878 31,965
------------- ------------ ------------ ------------
Cash dividends declared, common stock $ 0.28 $ 0.25 $ 0.83 $ 0.74
============= ============ ============ ============
See accompanying notes.
2
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------------
(dollars in thousands) 2001 2000
------------------------------------------------------------------------------------------------------
Operating Net income $ 74,792 $ 58,663
Activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 18,926 10,803
Provision for depreciation, amortization and accretion 31,542 23,645
Gains on sales of securities available for sale (980) (820)
Proceeds from sales of mortgages held for sale 488,079 6,241
Originations of mortgages held for sale (483,734) (537)
Net loan chargeoffs (6,220) (1,828)
Net increase in trading securities (75,679) (66,058)
Increase in other assets (168,367) (21,364)
Increase in other liabilities 121,377 43,564
------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (264) 52,309
Investing Proceeds from the sales of securities available for sale 374,528 167,134
activities Proceeds from the maturity of securities available for sale 580,919 226,414
Proceeds from the maturity of securities held to maturity 267,249 132,086
Purchase of securities available for sale (2,155,383) (577,900)
Purchase of securities held to maturity (48,068) (110,698)
Net increase in loans (643,787) (810,224)
Proceeds from sales of loans 8,721 9,019
Purchases of premises and equipment (65,089) (74,386)
------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,680,910) (1,038,555)
Financing Net increase in demand and savings deposits 1,378,029 1,039,528
activities Net increase in time deposits 646,592 447,582
Net decrease in other borrowed money (199,041) (469,525)
Dividends paid (26,431) (22,071)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 40,502 40,715
Other (343) (5,514)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,839,310 1,030,715
Increase in cash and cash equivalents 158,136 44,469
Cash and cash equivalents at beginning of year 495,918 322,924
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 654,054 $ 367,393
======================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $158,898 $146,517
Income taxes 34,353 27,681
Other noncash activities:
Securitization of loans $106,481
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 accounting principles generally
accepted in the United States has 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 September 30, 2001 and the nine months
ended September 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 $73.3 million and $39.0 million, respectively, for the three months
ended September 30, 2001 and 2000. For the nine months ended September 30, 2001
and 2000, total comprehensive income was $130.7 million and $71.3 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
September 30, 2001 September 30, 2000
-----------------------------------------------------------------------------------
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
Net interest income $ 103,136 $ (423) $ 102,713 $ 75,738 $ (174) $ 75,564
Provision for loan losses 6,335 - 6,335 3,668 - 3,668
-----------------------------------------------------------------------------------
Net interest income after provision 96,801 (423) 96,378 72,070 (174) 71,896
Noninterest income 33,278 18,496 51,774 22,529 15,159 37,688
Noninterest expense 93,896 15,697 109,593 65,800 12,701 78,501
-----------------------------------------------------------------------------------
Income before income taxes 36,183 2,376 38,559 28,799 2,284 31,083
Income tax expense 11,711 567 12,278 9,466 626 10,092
-----------------------------------------------------------------------------------
Net income $ 24,472 $ 1,809 $ 26,281 $ 19,333 $ 1,658 $ 20,991
===================================================================================
Average assets (in millions) $ 8,773,668 $ 1,014,304 $ 9,787,972 $ 6,820,784 $ 761,746 $ 7,582,530
===================================================================================
-------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
-----------------------------------------------------------------------------------
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
Net interest income $ 284,528 $ (672) $ 283,856 $ 219,253 $ (2,068) $ 217,185
Provision for loan losses 18,926 - 18,926 10,803 - 10,803
-----------------------------------------------------------------------------------
Net interest income after provision 265,602 (672) 264,930 208,450 (2,068) 206,382
Noninterest income 89,557 53,706 143,263 63,777 45,176 108,953
Noninterest expense 253,297 44,590 297,887 188,770 39,135 227,905
-----------------------------------------------------------------------------------
Income before income taxes 101,862 8,444 110,306 83,457 3,973 87,430
Income tax expense 33,276 2,238 35,514 27,495 1,272 28,767
-----------------------------------------------------------------------------------
Net income $ 68,586 $ 6,206 $ 74,792 $ 55,962 $ 2,701 $ 58,663
===================================================================================
Average assets (in millions) $ 8,142,990 $ 959,589 $ 9,102,579 $ 6,448,989 $ 699,681 $ 7,148,670
===================================================================================
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 material 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 material
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 Nine Months Ended
September 30 September 30
-------------------------------------------------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------
Basic:
Net income applicable to common stock $26,281 $20,991 $74,792 $58,663
============== ============== ============== ==============
Average common shares outstanding 32,479 31,109 32,206 30,676
============== ============== ============== ==============
Net income per common share - basic $0.81 $0.68 $2.32 $1.91
============== ============== ============== ==============
Diluted:
Net income applicable to common stock
on a diluted basis $26,281 $20,991 $74,792 $58,663
============== ============== ============== ==============
Average common shares outstanding 32,479 31,109 32,206 30,676
Additional shares considered in diluted
Computation assuming:
Exercise of stock options 1,774 1,643 1,672 1,289
-------------- -------------- -------------- --------------
Average common shares outstanding
On a diluted basis 34,253 32,752 33,878 31,965
============== ============== ============== ==============
Net income per common share - diluted $0.77 $0.64 $2.21 $1.84
============== ============== ============== ==============
6
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Capital Resources
At September 30, 2001, stockholders' equity totaled $636.7 million or 6.13% 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 September 30, 2001 and 2000:
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------
September 30, 2001
Company
Risk based capital ratios:
Tier 1 $640,068 10.37% $246,880 4.00% $370,319 6.00%
Total capital 706,054 11.44 493,759 8.00 617,199 10.00
Leverage ratio 640,068 6.56 390,325 4.00 487,906 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $360,781 9.52% $151,642 4.00% $227,463 6.00%
Total capital 402,049 10.61 303,284 8.00 379,105 10.00
Leverage ratio 360,781 6.31 228,676 4.00 285,846 5.00
September 30, 2000
Company
Risk based capital ratios:
Tier 1 $521,871 10.88% $191,813 4.00% $287,719 6.00%
Total capital 578,428 12.06 383,625 8.00 479,531 10.00
Leverage ratio 521,871 6.85 304,648 4.00 380,810 5.00
Commerce NJ Risk based capital ratios:
Tier 1 $259,538 9.26% $112,055 4.00% $168,083 6.00%
Total capital 287,271 10.25 224,110 8.00 280,138 10.00
Leverage ratio 259,538 6.15 168,758 4.00 210,947 5.00
At September 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 September 30, 2001, the
Company and its subsidiaries meet all capital adequacy requirements to which
they are subject.
Deposits
Total deposits at September 30, 2001 were $9.41 billion, up $2.3 billion, or 33%
over total deposits of $7.10 billion at September 30, 2000, and up by $ 2.02
billion, or 27% from year-end 2000. Deposit growth during the first nine 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
21% at September 30, 2001 as compared to deposits a year ago for those branches
open for more than two years.
7
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Interest Rate Sensitivity and Liquidity
The Company's risk of loss arising from adverse changes in the fair market value
of financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income, while maintaining acceptable
levels of interest rate risk. The Company's Asset/Liability Committee (ALCO) is
responsible for establishing policies to limit exposure to interest rate risk,
and to ensure procedures are established to monitor compliance with these
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
Management considers the simulation of net interest income in different interest
rate environments to be the best indicator of the Company's interest rate risk.
Income simulation analysis captures not only the potential of all assets and
liabilities to mature or reprice, but also the probability that they will do so.
Income simulation also attends to the relative interest rate sensitivities of
these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net income over the next 24 months in a flat rate scenario versus net
income in alternative interest rate scenarios. Management continually reviews
and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate 200 basis point change during the next year, with rates remaining
constant in the second year. The Company's ALCO policy has established that
interest income sensitivity will be considered acceptable if net income in the
above interest rate scenario is within 15% of net income in the flat rate
scenario in the first year and within 30% over the two year time frame. At
September 30, 2001, the Company's income simulation model indicates net income
would increase by 1.99% and decrease by 4.28% in the first year and over a two
year time frame, respectively, if rates decreased as described above, as
compared to an increase of 7.61% and 4.80%, respectively, at September 30, 2000.
At September 30, 2001, the model projects that net income would decrease by
4.59% and 2.27% in the first year and over a two year time frame, respectively,
if rates increased as described above, as compared to a decrease of 7.52% and
5.31%, respectively, at September 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 September 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 nine months of 2001, the
Company reduced its short-term borrowings, primarily through increased deposits.
At September 30, 2001, short-term
8
COMMERCE BANCORP, INC. AND SUBSIDIARIES
borrowings aggregated $84.7 million and had an average rate of 2.83%, as
compared to $283.7 million at an average rate of 6.70% at December 31, 2000.
Interest Earning Assets
For the nine month period ended September 30, 2001, interest earning assets
increased $1.91 billion from $7.43 billion to $9.34 billion. This increase was
primarily in investment securities and the loan portfolio as described below.
Loans
During the first nine months of 2001, net loans increased $622.4 million from
$3.64 billion to $4.26 billion. At September 30, 2001, loans represented 45% of
total deposits and 41% of total assets. All segments of the loan portfolio
experienced growth in the first nine months of 2001, including loans secured by
commercial real estate properties, commercial loans, and consumer loans.
Investments
In total, for the first nine months of 2001, securities increased $1.15 billion
from $3.64 billion to $4.79 billion. The available for sale portfolio increased
$1.35 billion to $3.37 billion at September 30, 2001 from $2.02 billion at
December 31, 2000, and the securities held to maturity portfolio decreased
$284.2 million to $1.23 billion at September 30, 2001 from $1.51 billion at
year-end 2000. The portfolio of trading securities increased $75.7 million from
year-end 2000 to $185.0 million at September 30, 2001. At September 30, 2001,
the average life of the investment portfolio was approximately 5.7 years, and
the duration was approximately 4.2 years. At September 30, 2001, total
securities represented 46% of total assets.
Net Income
Net income for the third quarter of 2001 was $26.3 million, an increase of $5.3
million or 25% over the $21.0 million recorded for the third quarter of 2000.
Net income for the first nine months of 2001 was $74.8 million, an increase of
$16.1 million or 27% over the $58.7 million recorded for the first nine months
of 2000. On a per share basis, diluted net income for the third quarter of 2001
and the first nine months of 2001 were $0.77 and $2.21 per common share compared
to $0.64 and $1.84 per common share for the respective 2000 periods.
Return on average assets (ROA) and return on average equity (ROE) for the third
quarter of 2001 were 1.07% and 17.46%, respectively, compared to 1.11% and
20.02%, respectively, for the same 2000 period. ROA and ROE for the first nine
months of 2001 were 1.10% and 17.82%, respectively, compared to 1.09% and 20.38%
a year ago.
Net Interest Income
Net interest income totaled $102.7 million for the third quarter of 2001, an
increase of $27.1 million or 36% from $75.6 million in the third quarter of
2000. Net interest income for the first nine months of 2001 totaled $283.9
million, up $66.7 million or 31% from the first nine 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 $51.8 million for the third quarter of 2001, an
increase of $14.1 million or 37% from $37.7 million in the third quarter of
2000. The increase was due primarily to increased deposit charges and service
fees, which rose $7.4 million over the third quarter of 2000 primarily due to
higher transaction volumes. In addition, other operating income increased $6.7
million over the prior year, including increased revenues of $1.9 million from
CCMI, the Company's municipal public finance subsidiary, increased revenues of
$1.7 million from Commerce National Insurance, the Company's insurance brokerage
subsidiary, and increased bank card-related revenues of $1.5 million.
For the first nine months of 2001, noninterest income totaled $143.3 million, an
increase of $34.3 million or 31% from $109.0 million in the first nine months of
2000. Deposit charges and service fees rose $18.8 million over the prior year
9
COMMERCE BANCORP, INC. AND SUBSIDIARIES
primarily due to higher transaction volumes. Other operating income rose $15.3
million over the first nine months of 2000, including increased revenues of $5.2
million from CCMI, $3.0 million from Commerce National Insurance, and $3.7
million from bank card-related income. In addition, the Company recorded $980
thousand in net investment securities gains in the first nine months of 2001
versus $820 thousand a year ago.
Noninterest Expense
For the third quarter of 2001, noninterest expense totaled $109.6 million, an
increase of $31.1 million or 40% 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 140 at September 30, 2000 to 167 at September
30, 2001. With the addition of these new offices, staff, facilities, and related
expenses rose accordingly. Other noninterest expenses rose $6.8 million over the
third 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 nine months of 2001, noninterest expense totaled $297.9 million,
an increase of $70.0 million or 31% over $227.9 million in the first nine 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 $16.3 million over the first nine 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 69.61% for the first nine months of 2001 as compared to
69.79% 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
September 30, 2001 were $20.8 million, or 0.20% of total assets compared to
$16.6 million or 0.20% of total assets at December 31, 2000 and $16.1 million or
0.21% of total assets at September 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 September 30,
2001 were $19.1 million or 0.44% of total loans compared to $13.6 million or
0.37% of total loans at December 31, 2000 and $13.2 million or 0.36% of total
loans at September 30, 2000. At September 30, 2001, loans past due 90 days or
more and still accruing interest amounted to $964 thousand compared to $489
thousand at December 31, 2000 and $561 thousand at September 30, 2000.
Additional loans considered as potential problem loans by the Company's internal
loan review department ($41.3 million at September 30, 2001) have been evaluated
as to risk exposure in determining the adequacy of the allowance for loan
losses.
Other real estate (ORE) at September 30, 2001 totaled $1.7 million compared to
$3.0 million at December 31, 2000 and $2.9 million at September 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 September 30, 2001,
December 31, 2000, and September 30, 2000.
10
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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.
The following summary presents information regarding non-performing loans and
assets as of September 30, 2001 and the preceding four quarters: (dollar amounts
in thousands)
September 30, June 30, March 31, December 31, September 30,
2001 2001 2001 2000 2000
-------------------------------------------------------------------------
Non-accrual loans:
Commercial $09,196 $10,608 $10,681 $04,955 $05,771
Consumer 1,382 1,338 1,378 1,295 1,296
Real estate:
Construction 1,590 1,590 1,590 1,459 50
Mortgage 6,944 5,598 5,756 5,840 5,979
-------------------------------------------------------------------------
Total non-accrual loans 19,112 19,134 19,405 13,549 13,096
-------------------------------------------------------------------------
Restructured loans:
Commercial 9 10 11 11 12
Consumer
Real estate:
Construction
Mortgage 82 85
-------------------------------------------------------------------------
Total restructured loans 9 10 11 93 97
-------------------------------------------------------------------------
Total non-performing loans 19,121 19,144 19,416 13,642 13,193
-------------------------------------------------------------------------
Other real estate 1,671 1,552 1,452 2,959 2,941
-------------------------------------------------------------------------
Total non-performing assets 20,792 20,696 20,868 16,601 16,134
-------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing 964 1,416 537 489 561
-------------------------------------------------------------------------
Total non-performing assets and
loans past due 90 days or more $21,756 $22,112 $21,405 $17,090 $16,695
=========================================================================
Total non-performing loans as a
percentage of total period-end loans 0.44% 0.47% 0.50% 0.37% 0.36%
Total non-performing assets as a
percentage of total period-end assets 0.20% 0.22% 0.23% 0.20% 0.21%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.21% 0.24% 0.24% 0.21% 0.21%
Allowance for loan losses as a percentage
of total non-performing loans 321% 301% 269% 357% 359%
Allowance for loan losses as a percentage
of total period-end loans 1.42% 1.40% 1.36% 1.32% 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% 4% 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 Nine Months Ended Ended
09/30/01 09/30/00 09/30/01 09/30/00 12/31/00
------------ ----------- ------------ ------------ ------------
Balance at beginning of period $57,548 $44,004 $48,680 $38,382 $38,382
Provisions charged to operating expenses 6,335 3,668 18,926 10,803 13,931
------------ ----------- ------------ ------------ ------------
63,883 47,672 67,606 49,185 52,313
Recoveries on loans charged-off:
Commercial 20 85 179 251 313
Consumer 85 53 221 206 249
Real estate 102 9 116 12 14
------------ ----------- ------------ ------------ ------------
Total recoveries 207 147 516 469 576
Loans charged-off:
Commercial (2,016) (73) (4,350) (1,398) (2,936)
Consumer (680) (336) (1,975) (846) (1,220)
Real estate (8) (53) (411) (53) (53)
------------ ----------- ------------ ------------ ------------
Total charge-offs (2,704) (462) (6,736) (2,297) (4,209)
------------ ----------- ------------ ------------ ------------
Net charge-offs (2,497) (315) (6,220) (1,828) (3,633)
------------ ----------- ------------ ------------ ------------
Balance at end of period $61,386 $47,357 $61,386 $47,357 $48,680
============ =========== ============ ============ ============
Net charge-offs as a percentage of
average loans outstanding 0.23% 0.04% 0.21% 0.07% 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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended September 30,
2001.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
(Registrant)
November 13, 2001 /s/ DOUGLAS J. PAULS
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
15