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 March 31, 2002
--------------
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
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COMMERCE BANCORP
(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 66,503,433
--------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of 5/8/02)
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
March 31, 2002 and December 31, 2001..................................1
Consolidated Statements of Income (unaudited)
Three months ended March 31, 2002 and
March 31, 2001........................................................2
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2002 and
March 31, 2001........................................................3
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) Three months ended March 31, 2002.........................4
Notes to Consolidated Financial Statements (unaudited)................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation....................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................17
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
------------------------------------------------------------------------------------------------
March 31, December 31,
---------------------------------
(dollars in thousands) 2002 2001
------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 495,519 $ 557,738
Loans held for sale 39,616 73,261
Trading securities 243,186 282,811
Securities available for sale 5,193,533 4,152,704
Securities held to maturity
(market value 03/02-$1,024,964; 12/01-$1,146,345) 1,013,692 1,132,172
Loans 4,902,410 4,583,412
Less allowance for loan losses 72,253 66,981
------------- ---------------
4,830,157 4,516,431
Bank premises and equipment, net 389,117 362,992
Other assets 279,813 285,594
------------- ---------------
$12,484,633 $11,363,703
============= ===============
Liabilities Deposits:
Demand:
Interest-bearing $ 3,879,973 $ 3,608,709
Noninterest-bearing 2,539,171 2,403,637
Savings 2,201,908 1,925,919
Time 2,699,811 2,247,329
------------- ---------------
Total deposits 11,320,863 10,185,594
Other borrowed money 81,567 264,554
Other liabilities 151,453 196,485
Trust Capital Securities - Commerce Capital Trust I 57,500 57,500
Convertible Trust Capital Securities - Commerce Capital
Trust II 200,000 0
Long-term debt 23,000 23,000
------------- ---------------
11,834,383 10,727,133
Stockholders' Common stock, 66,490,526 shares
Equity issued (65,832,559 shares in 2001) 66,491 65,833
Capital in excess of par or stated value 478,188 461,897
Retained earnings 116,601 94,698
Accumulated other comprehensive income (9,408) 15,764
------------- ---------------
651,872 638,192
Less treasury stock, at cost, 200,118 shares 1,622 1,622
------------- ---------------
Total stockholders' equity 650,250 636,570
------------- ---------------
$12,484,633 $11,363,703
============= ===============
See accompanying notes.
1
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
-----------------------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------------------
(dollars in thousands, except per share amounts) 2002 2001
-----------------------------------------------------------------------------------------------
Interest Interest and fees on loans $ 81,823 $ 79,739
income Interest on investments 86,217 61,450
Other interest 164 1,890
-------------- --------------
Total interest income 168,204 143,079
-------------- --------------
Interest Interest on deposits:
expense Demand 12,908 18,034
Savings 7,078 8,895
Time 21,281 27,242
-------------- --------------
Total interest on deposits 41,267 54,171
Interest on other borrowed money 426 1,573
Interest on long-term debt 2,432 1,595
-------------- --------------
Total interest expense 44,125 57,339
-------------- --------------
Net interest income 124,079 85,740
Provision for loan losses 6,900 4,609
-------------- --------------
Net interest income after provision for loan losses 117,179 81,131
Noninterest Deposit charges and service fees 25,057 17,164
income Other operating income 30,833 25,964
Net investment securities gains 0 980
-------------- --------------
Total noninterest income 55,890 44,108
-------------- --------------
Noninterest Salaries and benefits 60,145 43,927
expense Occupancy 12,098 8,798
Furniture and equipment 15,105 11,606
Office 6,916 6,066
Audit and regulatory fees and assessments 1,205 960
Marketing 4,861 2,264
Other 25,591 16,733
-------------- --------------
Total noninterest expenses 125,921 90,354
-------------- --------------
Income before income taxes 47,148 34,885
Provision for federal and state income taxes 15,398 11,484
-------------- --------------
Net income $ 31,750 $ 23,401
============== ==============
Net income per common and common equivalent share:
Basic $ 0.48 $ 0.37
-------------- --------------
Diluted $ 0.45 $ 0.35
-------------- --------------
Average common and common equivalent shares outstanding:
Basic 65,995 63,814
-------------- --------------
Diluted 70,033 66,876
-------------- --------------
Cash dividends, common stock $ 0.15 $ 0.13
============== ==============
See accompanying notes.
2
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
---------------------------------
(dollars in thousands) 2002 2001
------------------------------------------------------------------------------------------------------
Operating Net income $31,750 $ 23,401
activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 6,900 4,609
Provision for depreciation, amortization and accretion 13,531 9,915
Gains on sales of securities available for sale 0 (980)
Proceeds from sales of loans held for sale 290,945 112,515
Originations of loans held for sale (257,300) (98,847)
Net loan chargeoffs (1,628) (1,132)
Net decrease (increase) in trading securities 39,625 (65,682)
Decrease (increase) in other assets 19,401 (27,927)
(Decrease) increase in other liabilities (45,032) 98,808
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 98,192 54,680
Investing Proceeds from the sales of securities available for sale 275,325 185,229
activities Proceeds from the maturity of securities available for sale 396,716 158,954
Proceeds from the maturity of securities held to maturity 135,619 82,281
Purchase of securities available for sale (1,752,379) (687,657)
Purchase of securities held to maturity (17,823) (18,843)
Net increase in loans (325,675) (162,873)
Proceeds from sales of loans 6,677 3,093
Purchases of premises and equipment (38,257) (19,322)
------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,319,797) (459,138)
Financing Net increase in demand and savings deposits 682,787 288,476
activities Net increase in time deposits 452,482 434,381
Net decrease in other borrowed money (182,987) (217,304)
Issuance of Convertible Trust Capital Securities 200,000 0
Dividends paid (9,846) (8,747)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 16,950 14,069
Other 0 (343)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,159,386 510,532
(Decrease) increase in cash and cash equivalents (62,219) 106,074
Cash and cash equivalents at beginning of year 557,738 495,918
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $495,519 $601,992
======================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $43,053 $ 52,597
Income taxes 0 0
------------------------------------------------------------------------------------------------------
See accompanying notes.
3
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Three months ended March 31, 2002
(in thousands, except per share amounts)
-----------------------------------------------------------------------------------------------------------------------------------
Capital in Accumulated
Excess of Other
Common Par or Retained Treasury Comprehensive
Stock Stated Value Earnings Stock Income Total
-----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001 $65,833 $461,897 $ 94,698 $(1,622) $ 15,764 $636,570
Net income 31,750 31,750
Other Comprehensive Income, net of tax
Unrealized loss on securities (pre-tax
($38,921)) (25,172) (25,172)
Reclassification adjustment (pre-tax $0) 0 0
---------------
Other comprehensive income (25,172)
Total comprehensive income 6,578
Cash dividends paid (9,846) (9,846)
Shares issued under dividend reinvestment
and compensation and benefit plans (658 shares) 658 16,292 16,950
Other (1) (1) (2)
-----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2002 $66,491 $478,188 $116,601 $(1,622) $ (9,408) $650,250
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
4
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, 2001.
The results for the three months ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002.
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, Commerce Capital
Trust II, and Commerce Capital Markets, Inc. (CCMI). All material intercompany
transactions have been eliminated. Certain amounts from prior years have been
reclassified to conform with 2002 presentation. All common stock and per share
amounts have been adjusted to reflect the 2 for 1 stock split with a record date
of December 3, 2001.
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 $6.6 million and $42.9 million, respectively, for the three months
ended March 31, 2002 and 2001.
5
COMMERCE BANCORP, INC. AND SUBSIDIARIES
D. Segment Information
Selected segment information is as follows:
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
Net interest income $ 125,470 $ (1,391) $ 124,079 $ 85,880 $ (140) $ 85,740
Provision for loan losses 6,900 - 6,900 4,609 - 4,609
---------------------------------------------------------------------------------
Net interest income after provision 118,570 (1,391) 117,179 81,271 (140) 81,131
Noninterest income 36,048 19,842 55,890 26,378 17,730 44,108
Noninterest expense 107,852 18,069 125,921 76,108 14,246 90,354
---------------------------------------------------------------------------------
Income before income taxes 46,766 382 47,148 31,541 3,344 34,885
Income tax expense 15,256 142 15,398 10,295 1,189 11,484
---------------------------------------------------------------------------------
Net income $ 31,510 $ 240 $ 31,750 $21,246 $ 2,155 $ 23,401
=================================================================================
Average assets (in millions) $ 10,495 $ 1,196 $ 11,691 $7,584 $ 901 $ 8,485
=================================================================================
E. Recent Accounting Statement
In conjunction with the issuance of the new guidance for business combinations,
the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" (FAS
142), which addresses the accounting and reporting for acquired goodwill and
other intangible assets and supersedes APB Opinion 17. Under the provisions of
FAS 142, goodwill and certain other intangible assets, which do not possess
finite useful lives, will no longer be amortized into net income over an
estimated life but rather will be tested at least annually for impairment based
on specific guidance provided in the new standard. Intangible assets determined
to have finite lives will continue to be amortized over their estimated useful
lives and also continue to be subject to impairment testing. The provisions of
FAS 142, which were adopted by the Company as required effective January 1,
2002, did not have a material impact on the results of operations of the
Company. It is anticipated there will not be any material categorical
reclassifications or adjustments to the useful lives of finite-lived intangible
assets as a result of adopting the new guidance.
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 formed Delaware business trust
subsidiary of the Company. The net proceeds of the offering were used for
general corporate purposes. All $57.5 million of the Trust Capital Securities
qualify as Tier 1 capital for regulatory capital purposes. All of these Trust
Capital Securities have been called for mandatory redemption on July 1, 2002 at
the stated liquidation amount ($25 per capital security) plus accrued and unpaid
distributions thereon to July 1, 2002.
On March 11, 2002 the Company issued $200 million of 5.95% convertible trust
preferred securities through Commerce Capital Trust II, a newly formed Delaware
business trust subsidiary of the Company. Holders of the convertible trust
preferred securities may convert each security into 0.9478 shares of Company
common stock, subject to adjustment, if (1) the closing sale price of Company
common stock for at least 20 trading days in a period of 30 consecutive trading
days ending on the last trading day of any calendar quarter beginning with the
quarter ending June 30, 2002 is more than 110% of the convertible trust
preferred securities conversion price then in effect on the last day of such
calendar quarter, (2) the assigned credit rating by Moody's of the convertible
trust preferred securities is at or below Bal, (3) the convertible trust
preferred securities are called for redemption, or (4) specified corporate
transactions have occurred. The net proceeds of this offering will be used for
general corporate purposes, including the redemption of the Company's $57.5
million of 8.75% Capital Trust I securities and the repayment of the Company's
$23.0 million of 8 3/8% subordinated notes.
6
COMMERCE BANCORP, INC. AND SUBSIDIARIES
G. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for per
share amounts):
Three Months Ended
March 31,
----------------------------------
2002 2001
--------------------------------------------------------------------------------------
Basic:
Net income $31,750 $23,401
==================================
Average common shares outstanding 65,995 63,814
==================================
Net income per share of common share $ 0.48 $ 0.37
==================================
Diluted:
Net income $31,750 $23,401
==================================
Average common shares outstanding 65,995 63,814
Additional shares considered in diluted
computation assuming:
Exercise of stock options 4,038 3,062
----------------------------------
Average number of shares outstanding
on a diluted basis 70,033 66,876
==================================
Net income per common share - diluted $ 0.45 $ 0.35
==================================
7
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
----------------------------------------------------------------
Capital Resources
-----------------
At March 31, 2002, stockholders' equity totaled $650.3 million or 5.21% of total
assets, compared to $636.6 million or 5.60% of total assets at December 31,
2001.
The table below presents the Company's and Commerce NJ's risk-based and leverage
ratios at March 31, 2002 and 2001:
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------
March 31, 2002
Company
Risk based capital ratios:
Tier 1 $883,431 12.94% $273,067 4.00% $409,601 6.00%
Total capital 990,846 14.51 546,135 8.00 682,668 10.00
Leverage ratio 883,431 7.57 466,568 4.00 583,210 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $406,225 9.70% $167,498 4.00% $251,247 6.00%
Total capital 452,595 10.81 334,996 8.00 418,744 10.00
Leverage ratio 406,225 6.00 270,739 4.00 338,424 5.00
March 31, 2001
Company
Risk based capital ratios:
Tier 1 $579,674 10.80% $214,618 4.00% $321,927 6.00%
Total capital 641,031 11.95 429,236 8.00 536,545 10.00
Leverage ratio 579,674 6.84 339,013 4.00 423,766 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $302,796 10.00% $121,071 4.00% $181,607 6.00%
Total capital 333,115 11.01 242,143 8.00 302,678 10.00
Leverage ratio 302,796 6.62 182,973 4.00 228,716 5.00
At March 31, 2002, 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 March 31, 2002, the Company
and its subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
--------
Total deposits at March 31, 2002 were $11.3 billion, up $3.21 billion, or 40%
over total deposits of $8.11 billion at March 31, 2001, and up by $1.14 billion,
or 11% from year-end 2001. Deposit growth during the first three months of 2002
included core deposit growth in all categories as well as growth from the public
sector. The Company experienced "same-store core deposit growth" of 28% at March
31, 2002 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
8
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 March
31, 2002, the Company's income simulation model indicates net income would
decrease by 2.64% and by 10.97% in the first year and over a two year time
frame, respectively, if rates decreased as described above, as compared to an
increase of 3.60% and decrease of 0.27%, respectively, at March 31, 2001. At
March 31, 2002, the model projects that net income would decrease by 0.88% and
increase 4.88% in the first year and over a two year time frame, respectively,
if rates increased as described above, as compared to a decrease by 5.77% and
4.79%, respectively, at March 31, 2001. 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 50% or more of the excess of market value over book
value in the current rate scenario. At March 31, 2002, 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. If necessary, the Company has the ability to raise
liquidity through collateralized borrowings, FHLB advances, or the sale of its
available for sale investment portfolio. As of March 31, 2002 the Company had in
excess of $4.7 billion in immediately available liquidity which includes
securities that could be sold or used for collateralized borrowings, cash on
hand, and borrowing capacities under existing lines of credit. During the first
three months of 2002, deposit growth and long-term borrowings (Commerce Capital
Trust II) were used to fund growth in the loan portfolio and purchase additional
investment securities.
9
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. During the first three months of 2002, the
Company significantly reduced its short-term borrowings, primarily through
increased deposits. At March 31, 2002, short-term borrowings aggregated $81.6
million and had an average rate of 1.55%, as compared to $264.6 million at an
average rate of 1.78% at December 31, 2001.
Interest Earning Assets
-----------------------
For the three month period ended March 31, 2002, interest earning assets
increased $1.17 billion from $10.2 billion to $11.4 billion. This increase was
primarily in investment securities and the loan portfolio as described below.
Loans
-----
During the first three months of 2002, loans increased $313.7 million from $4.5
billion to $4.8 billion. At March 31, 2002, loans represented 43% of total
deposits and 39% of total assets. All segments of the loan portfolio experienced
growth in the first three months of 2002, including loans secured by commercial
real estate properties, commercial loans, and consumer loans.
The following table summarizes the loan portfolio of the Company by type of loan
as of the dates shown.
March 31, December 31,
---------------------------------------
2002 2001
---------------------------------------
(dollars in thousands)
Commercial real estate:
Owner-occupied $ 833,121 $ 750,562
Investor developer 720,964 664,605
Construction 477,089 460,957
---------------------------------------
2,031,174 1,876,124
Commercial:
Term 635,939 600,374
Line of credit 552,858 556,977
Demand 410 440
---------------------------------------
1,189,207 1,157,791
Consumer:
Mortgages (1-4 family residential) 539,360 471,680
Installment 158,535 161,647
Home equity 938,444 872,974
Credit lines 45,690 43,196
---------------------------------------
1,682,029 1,549,497
---------------------------------------
Total loans $4,902,410 $4,583,412
=======================================
10
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Investments
-----------
In total, for the first three months of 2002, securities increased $882.7
million from $5.6 billion to $6.4 billion. The available for sale portfolio
increased $1.04 billion to $5.2 billion at March 31, 2002 from $4.2 billion at
December 31, 2001, and the securities held to maturity portfolio decreased
$118.5 million to $1.0 billion at March 31, 2002 from $1.1 billion at year-end
2001. The portfolio of trading securities decreased $39.6 million from year-end
2001 to $243.2 million at March 31, 2002. At March 31, 2002, the average life of
the investment portfolio was approximately 5.8 years, and the duration was
approximately 4.3 years. At March 31, 2002, total securities represented 52% of
total assets.
The following table summarizes the book value of securities available for sale
and securities held to maturity by the Company as of the dates shown.
March 31, December 31,
---------------------------------
2002 2001
---------------------------------
(dollars in thousands)
U.S. Government agency and mortgage backed obligations $5,055,481 $3,994,523
Obligations of state and political subdivisions 93,210 82,922
Equity securities 27,274 16,325
Other 17,568 58,934
---------------------------------
Securities available for sale $5,193,533 $4,152,704
=================================
U.S. Government agency and mortgage backed obligations $925,196 $1,044,266
Obligations of state and political subdivisions 46,848 50,602
Other 41,648 37,304
---------------------------------
Securities held to maturity $1,013,692 $1,132,172
=================================
Net Income
----------
Net income for the first quarter of 2002 was $31.8 million, an increase of $8.3
million or 36% over the $23.4 million recorded for the first quarter of 2001. On
a per share basis, diluted net income for the first quarter of 2002 was $0.45
per common share compared to $0.35 per common share for the first quarter of
2001.
Return on average assets (ROA) and return on average equity (ROE) for the first
quarter of 2002 were 1.09% and 19.00%, respectively, compared to 1.10% and
17.92%, respectively, for the same 2001 period.
Net Interest Income
-------------------
Net interest income totaled $124.1 million for the first quarter of 2002, an
increase of $38.3 million or 45% from $85.7 million in the first quarter of
2001. The improvement in net interest income was due primarily to volume
increases in the loan and investment portfolios.
The following table sets forth balance sheet items on a daily average basis for
the three months ended March 31, 2002, December 31, 2001 and March 31, 2001 and
presents the daily average interest earned on assets and paid on liabilities for
such periods.
11
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Average Balances and Net Interest Income
--------------------------------------------------------------------------------------------------
March 2002 December 2001 March 2001
----------------------------------- ------------------------------- -----------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------------------------------- ------------------------------- -----------------------------
Earning Assets
------------------------------
Investment securities
Taxable $ 5,511,447 $ 83,211 6.12% $4,897,180 $ 75,980 6.16% $3,545,486 $ 58,985 6.75%
Tax-exempt 110,293 1,665 6.12 85,937 1,287 5.94 73,331 1,271 7.03
Trading 189,651 2,960 6.33 212,892 2,708 5.05 173,457 2,522 5.90
------------ ---------- --------- ---------- -------- -------- ---------- -------- --------
Total investment securities 5,811,391 87,836 6.13 5,196,009 79,975 6.11 3,792,274 62,777 6.71
Federal funds sold 40,672 164 1.64 177,235 932 2.09 139,640 1,890 5.49
Loans
Commercial mortgages 1,828,586 31,304 6.94 1,719,681 31,403 7.24 1,447,861 30,935 8.67
Commercial 1,087,048 16,338 6.10 1,024,931 17,047 6.60 859,824 19,277 9.09
Consumer 1,656,000 30,936 7.58 1,533,966 30,215 7.81 1,301,795 26,777 8.34
Tax-exempt 233,669 4,992 8.66 211,435 4,654 8.73 182,872 4,231 9.38
------------ ---------- --------- ---------- -------- -------- ---------- -------- --------
Total loans 4,805,303 83,570 7.05 4,490,013 83,319 7.36 3,792,352 81,220 8.69
------------ ---------- --------- ---------- -------- -------- ---------- -------- --------
Total earning assets $10,657,366 $171,570 6.53% $9,863,257 $164,226 6.61% $7,724,266 $145,887 7.66%
============ ========== ==========
Sources of Funds
------------------------------
Interest-bearing liabilities
Regular savings $ 2,044,873 $ 7,078 1.40% $1,840,806 $ 6,942 1.50% $1,458,658 $ 8,895 2.47%
N.O.W. accounts 300,742 1,053 1.42 284,453 1,071 1.49 234,575 1,821 3.15
Money market plus 3,459,619 11,855 1.39 3,235,319 12,130 1.49 2,353,708 16,213 2.79
Time deposits 1,673,580 16,004 3.88 1,473,557 15,996 4.31 1,073,283 14,817 5.60
Public funds 874,379 5,277 2.45 801,453 6,274 3.11 833,738 12,425 6.04
------------ ---------- --------- ---------- -------- -------- ---------- -------- --------
Total deposits 8,353,193 41,267 2.00 7,635,588 42,413 2.20 5,953,962 54,171 3.69
Other borrowed money 102,611 426 1.68 120,910 289 0.95 102,372 1,573 6.23
Long-term debt 127,167 2,432 7.76 80,500 1,026 5.06 80,500 1,595 8.04
------------ ---------- --------- ---------- -------- -------- ---------- -------- --------
Total deposits and
interest-bearing
liabilities 8,582,971 44,125 2.08 7,836,998 43,728 2.21 6,136,834 57,339 3.79
Noninterest-bearing funds (net) 2,074,395 2,026,259 1,587,432
------------ ---------- --------- ---------- -------- -------- ---------- -------- --------
Total sources to fund earning
assets $10,657,366 44,125 1.68 $9,863,257 43,728 1.76 $7,724,266 57,339 3.01
============ ---------- --------- ---------- -------- -------- ========== -------- --------
Net interest income and
margin tax-equivalent basis $127,445 4.85% $120,498 4.85% $ 88,548 4.65%
========== ========= ======== ======= ======== =======
Other Balances
------------------------------
Cash and due from banks $510,269 $482,378 $365,099
Other assets 592,129 583,257 446,313
Total assets 11,690,615 10,864,953 8,485,496
Total deposits 10,684,272 9,837,053 7,682,834
Demand deposits
(noninterest-bearing) 2,331,079 2,201,465 1,728,872
Other liabilities 108,125 169,174 97,506
Stockholders' equity 668,440 657,316 522,285
Allowance for loan losses 69,149 63,939 50,182
Notes - Weighted average yields on tax-exempt obligations have been computed on a tax-equivalent basis assuming a federal tax rate
of 35%.
- Non-accrual loans have been included in the average loan balance
- Investment securities includes investments available for sale.
- Consumer loans include mortgage loans held for sale.
12
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Noninterest Income
------------------
Noninterest income totaled $55.9 million for the first quarter of 2002, an
increase of $11.8 million or 27% from $44.1 million in the first quarter of
2001. The increase was due primarily to increased deposit charges and service
fees, which rose $7.9 million over the first quarter of 2001 primarily due to
higher transaction volumes. In addition, other operating income increased $4.9
million over the prior year, including increased revenues of $974 thousand from
CCMI, the Company's municipal public finance subsidiary and increased revenues
of $845 thousand from CNIS, the Company's insurance brokerage subsidiary.
Noninterest Expense
-------------------
For the first quarter of 2002, noninterest expense totaled $125.9 million, an
increase of $35.6 million or 39% over the same period in 2001. Contributing to
this increase was new branch activity over the past twelve months, with the
number of branches increasing from 152 at March 31, 2001 to 187 at March 31,
2002. With the addition of these new offices, staff, facilities, and related
expenses rose accordingly. Other noninterest expenses rose $8.9 million over the
first quarter of 2001. This increase resulted primarily from higher bank
card-related service charges, increased business development expenses, and
increased provisions for non-credit-related losses.
The Company's operating efficiency ratio (noninterest expenses, less other real
estate expense, divided by net interest income plus noninterest income excluding
non-recurring gains) was 69.80% for the first three months of 2002 as compared
to 69.84% for the same 2001 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 March
31, 2002 were $19.5 million, or 0.16% of total assets compared to $18.4 million
or 0.16% of total assets at December 31, 2001 and $20.9 million or 0.23% of
total assets at March 31, 2001.
Total non-performing loans (non-accrual loans and restructured loans, excluding
loans past due 90 days or more and still accruing interest) at March 31, 2002
were $16.9 million or 0.34% of total loans compared to $16.8 million or 0.37% of
total loans at December 31, 2001 and $19.4 million or 0.50% of total loans at
March 31, 2001. At March 31, 2002, loans past due 90 days or more and still
accruing interest amounted to $484 thousand compared to $519 thousand at
December 31, 2001 and $537 thousand at March 31, 2001. Additional loans
considered as potential problem loans by the Company's internal loan review
department ($21.9 million at March 31, 2002) have been evaluated as to risk
exposure in determining the adequacy of the allowance for loan losses.
Other real estate (ORE) at March 31, 2002 totaled $2.6 million compared to $1.5
million at December 31, 2001 and $1.5 million at March 31, 2001. These
properties have been written down to the lower of cost or fair value less
disposition costs.
Following "Forward Looking Statements" are tabular presentations 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
March 31, 2002, December 31, 2001, and March 31, 2001.
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",
13
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.
14
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following summary presents information regarding non-performing loans and
assets as of March 31, 2002 and the preceding four quarters (dollar amounts in
thousands).
March 31, December 31, September 30, June 30, March 31,
2002 2001 2001 2001 2001
---------------------------------------------------------------------------
Non-accrual loans:
Commercial $ 9,473 $ 6,835 $ 9,196 $10,608 $10,681
Consumer 1,537 1,484 1,382 1,338 1,378
Real estate:
Construction 181 1,590 1,590 1,590 1,590
Mortgage 5,695 6,924 6,944 5,598 5,756
---------------------------------------------------------------------------
Total non-accrual loans 16,886 16,833 19,112 19,134 19,405
---------------------------------------------------------------------------
Restructured loans:
Commercial 7 8 9 10 11
Consumer
Real estate:
Construction
Mortgage
---------------------------------------------------------------------------
Total restructured loans 7 8 9 10 11
---------------------------------------------------------------------------
Total non-performing loans 16,893 16,841 19,121 19,144 19,416
---------------------------------------------------------------------------
Other real estate 2,602 1,549 1,671 1,552 1,452
---------------------------------------------------------------------------
Total non-performing assets 19,495 18,390 20,792 20,696 20,868
---------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing 484 519 964 1,416 537
---------------------------------------------------------------------------
Total non-performing assets and
loans past due 90 days or more $19,979 $18,909 $21,756 $22,112 $21,405
===========================================================================
Total non-performing loans as a
percentage of total period-end loans 0.34% 0.37% 0.44% 0.47% 0.50%
Total non-performing assets as a
percentage of total period-end assets 0.16% 0.16% 0.20% 0.22% 0.23%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.16% 0.17% 0.21% 0.24% 0.24%
Allowance for loan losses as a percentage
of total non-performing loans 428% 398% 321% 301% 269%
Allowance for loan losses as a percentage
of total period-end loans 1.47% 1.46% 1.42% 1.40% 1.36%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 3% 3% 3% 4% 4%
15
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)
Three Months Ended Year
------------------------------ Ended
03/31/02 03/31/01 12/31/01
----------- ----------- ----------
Balance at beginning of period $66,981 $48,680 $48,680
Provisions charged to operating expenses 6,900 4,609 26,384
----------- ----------- ----------
73,881 53,289 75,064
Recoveries on loans charged-off:
Commercial 190 9 552
Consumer 115 41 288
Commercial real estate 1 12 134
----------- ----------- ----------
Total recoveries 306 62 974
Loans charged-off:
Commercial (1,187) (358) (5,862)
Consumer (724) (659) (2,784)
Commercial real estate (23) (177) (411)
----------- ----------- ----------
Total charge-offs (1,934) (1,194) (9,057)
----------- ----------- ----------
Net charge-offs (1,628) (1,132) (8,083)
----------- ----------- ----------
Balance at end of period $72,253 $52,157 $66,981
=========== =========== ==========
Net charge-offs as a percentage of
Average loans outstanding 0.14% 0.12% 0.19%
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.
16
COMMERCE BANCORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The following Current Reports on Form 8-K were filed by the Company during the
first quarter ended March 31, 2002:
(a) Current Report on Form 8-K, dated February 27, 2002, announcing the
offering of Commerce Capital Trust II Convertible Trust Preferred Securities
(b) Current Report on Form 8-K, dated March 6, 2002, announcing the
pricing of the Commerce Capital Trust II Convertible Trust Preferred Securities
(c) Current Report on Form 8-K, dated March 11, 2002, announcing the
closing on the Commerce Capital Trust II Convertible Trust Preferred Securities
17
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)
May 14, 2002 /s/ DOUGLAS J. PAULS
-------------------------- ---------------------------------------------
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
18