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, 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
COMMERCE BANCORP, INC. [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 67,487,871
- --------------------------------------------------------------------------------
(Title of Class) (No. of Shares Outstanding
as of 11/11/02)
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 2002 and December 31, 2001.............................1
Consolidated Statements of Income (unaudited) Three months ended
September 30, 2002 and September 30, 2001 and
nine months ended September 30, 2002 and September 30, 2001..........2
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2002 and September 30, 2001..........3
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) Nine months ended September 30, 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
Item 4. Controls and Procedures.............................................17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................18
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
------------------------------------------------------------------------------------------------
September 30, December 31,
------------------------------------
(dollars in thousands) 2002 2001
------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 740,604 $ 557,738
Federal funds sold 87,900 0
------------ --------------
Cash and cash equivalents 828,504 557,738
Loans held for sale 66,612 73,261
Trading securities 197,386 282,811
Securities available for sale 7,093,561 4,152,704
Securities held to maturity
(market value 09/02-$927,930; 12/01-$1,146,345) 898,532 1,132,172
Loans 5,542,626 4,583,412
Less allowance for loan losses 85,479 66,981
------------ --------------
5,457,147 4,516,431
Bank premises and equipment, net 449,677 362,992
Other assets 382,850 285,594
------------ --------------
$15,374,269 $11,363,703
============ ==============
Liabilities Deposits:
Demand:
Interest-bearing $ 5,162,886 $ 3,608,709
Noninterest-bearing 3,060,273 2,403,637
Savings 2,705,202 1,925,919
Time 2,951,275 2,247,329
------------ --------------
Total deposits 13,879,636 10,185,594
Other borrowed money 142,468 264,554
Other liabilities 281,099 196,485
Trust Capital Securities - Commerce Capital Trust I 0 57,500
Convertible Trust Capital Securities - Commerce Capital
Trust II 200,000 0
Long-term debt 0 23,000
------------ --------------
14,503,203 10,727,133
Stockholders' Common stock, 67,487,755 shares
Equity issued (65,832,559 shares in 2001) 67,488 65,833
Capital in excess of par or stated value 512,081 461,897
Retained earnings 169,125 94,698
Accumulated other comprehensive income 123,993 15,764
------------ --------------
872,687 638,192
Less treasury stock, at cost, 200,018 shares
(200,118 shares in 2001) 1,621 1,622
------------ --------------
Total stockholders' equity 871,066 636,570
------------ --------------
$15,374,269 $11,363,703
============ ==============
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 2002 2001 2002 2001
amounts)
---------------------------------------------------------------------------------------------------------
Interest Interest and fees on loans $ 91,843 $ 83,679 $260,625 $245,034
Income Interest on investments 104,528 67,037 292,038 193,130
Other interest 404 2,265 684 5,005
------------ ----------- ----------- -----------
Total interest income 196,775 152,981 553,347 443,169
------------ ----------- ----------- -----------
Interest Interest on deposits:
Expense Demand 14,504 16,371 42,119 50,353
Savings 7,912 8,465 23,123 25,705
Time 20,374 23,469 63,193 75,814
------------ ----------- ----------- -----------
Total interest on deposits 42,790 48,305 128,435 151,872
Interest on other borrowed money 403 737 1,111 3,219
Interest on long-term debt 3,028 1,226 10,542 4,222
------------ ----------- ----------- -----------
Total interest expense 46,221 50,268 140,088 159,313
------------ ----------- ----------- -----------
Net interest income 150,554 102,713 413,259 283,856
Provision for loan losses 8,000 6,335 25,150 18,926
------------ ----------- ----------- -----------
Net interest income after provision for
loan losses 142,554 96,378 388,109 264,930
Noninterest Deposit charges and service fees 33,802 25,871 94,394 72,901
Income Other operating income 35,830 25,903 92,857 69,382
Net investment securities gains 0 0 0 980
------------ ----------- ----------- -----------
Total noninterest income 69,632 51,774 187,251 143,263
------------ ----------- ----------- -----------
Noninterest Salaries and benefits 74,164 52,155 198,487 141,656
Expense Occupancy 15,215 9,639 40,396 27,566
Furniture and equipment 17,012 12,657 47,705 36,504
Office 8,173 6,726 22,543 19,381
Audit and regulatory fees and assessments 1,438 1,011 3,824 2,976
Marketing 7,850 6,443 18,823 12,918
Other 30,976 20,962 86,511 56,886
------------ ----------- ----------- -----------
Total noninterest expenses 154,828 109,593 418,289 297,887
------------ ----------- ----------- -----------
Income before income taxes 57,358 38,559 157,071 110,306
Provision for federal and state income taxes 19,669 12,278 52,830 35,514
------------ ----------- ----------- -----------
Net income $ 37,689 $ 26,281 $104,241 $ 74,792
============ =========== =========== ===========
Net income per common and common
equivalent share:
Basic $ 0.56 $ 0.40 $ 1.56 $ 1.16
------------ ----------- ----------- -----------
Diluted $ 0.53 $ 0.38 $ 1.47 $ 1.10
------------ ----------- ----------- -----------
Average common and common equivalent
shares outstanding:
Basic 67,065 64,958 66,541 64,412
------------ ----------- ----------- -----------
Diluted 71,084 68,506 70,704 67,756
------------ ----------- ----------- -----------
Cash dividends, common stock $ 0.15 $ 0.14 $ 0.45 $ 0.41
============ =========== =========== ===========
See accompanying notes.
2
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------------
(dollars in thousands) 2002 2001
------------------------------------------------------------------------------------------------------
Operating Net income $ 104,241 $ 74,792
Activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 25,150 18,926
Provision for depreciation, amortization and accretion 42,623 31,542
Gains on sales of securities available for sale (980)
Proceeds from sales of loans held for sale 998,966 488,079
Originations of loans held for sale (992,317) (483,734)
Net loan chargeoffs (6,651) (6,220)
Net increase (decrease) in trading securities 85,425 (75,679)
Increase in other assets (158,069) (168,367)
Increase in other liabilities 84,614 121,377
-----------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 183,982 (264)
Investing Proceeds from the sales of securities available for sale 1,020,605 374,528
activities Proceeds from the maturity of securities available for sale 1,280,991 580,919
Proceeds from the maturity of securities held to maturity 338,551 267,249
Purchase of securities available for sale (5,076,572) (2,155,383)
Purchase of securities held to maturity (106,083) (48,068)
Net increase in loans (971,090) (643,787)
Proceeds from sales of loans 11,877 8,721
Purchases of premises and equipment (124,977) (65,089)
-----------------------------------------------------------------------------------------------------
Net cash used by investing activities (3,626,698) (1,680,910)
Financing Net increase in demand and savings deposits 2,990,096 1,378,029
activities Net increase in time deposits 703,946 646,592
Net decrease in other borrowed money (122,086) (199,041)
Issuance of Convertible Trust Capital Securities 200,000
Redemption of Trust Capital Securities (57,500)
Decrease in long-term debt (23,000) -
Dividends paid (29,814) (26,431)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 47,090 40,502
Other 4,750 (342)
-----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,713,482 1,839,309
Increase in cash and cash equivalents 270,766 158,135
Cash and cash equivalents at beginning of year 557,738 495,918
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 828,504 $ 654,053
=====================================================================================================
Supplemental disclosures of cash flow information: Cash paid
during the period for:
Interest $ 142,450 $ 158,898
Income taxes 39,978 34,353
See accompanying notes.
3
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Nine months ended September 30, 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 104,241 104,241
Other Comprehensive Income, net of tax
Unrealized gain on securities (pre-tax $168,572) 108,229 108,229
---------
Total comprehensive income 212,470
Cash dividends paid (29,814) (29,814)
Shares issued under dividend reinvestment
and compensation and benefit plans (1,543 shares) 1,543 45,551 47,094
Acquisition of insurance brokerage agency
(113 shares) 113 4,633 4,746
Other (1) 1
- -------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2002 $67,488 $512,081 $169,125 $(1,621) $123,993 $871,066
===============================================================================================================================
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 nine months ended September 30, 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.
On August 1, 2002 the Company completed the acquisition of Sanford and Purvis,
Inc., an insurance brokerage agency which will operate as a wholly-owned
subsidiary of Commerce National Insurance. The Company issued approximately
113,000 shares in connection with this acquisition.
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 $89.7 million and $73.3 million, respectively, for the three months
ended September 30, 2002 and 2001. For the nine months ended September 30, 2002
and 2001, total comprehensive income was $212.5 and $130.7 million,
respectively.
5
COMMERCE BANCORP, INC. AND SUBSIDIARIES
D. Segment Information
Selected segment information is as follows:
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
--------------------------------------------------------------------------------
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
- ----------------------------------------------------------------------------------------------------------------------
Net interest income $ 152,148 $ (1,594) $ 150,554 $ 103,136 $ (423) $ 102,713
Provision for loan losses 8,000 - 8,000 6,335 - 6,335
--------------------------------------------------------------------------------
Net interest income after provision 144,148 (1,594) 142,554 96,801 (423) 96,378
Noninterest income 43,031 26,601 69,632 33,278 18,496 51,774
Noninterest expense 133,219 21,609 154,828 93,896 15,697 109,593
--------------------------------------------------------------------------------
Income before income taxes 53,960 3,398 57,358 36,183 2,376 38,559
Income tax expense 18,507 1,162 19,669 11,711 567 12,278
--------------------------------------------------------------------------------
Net income $ 35,453 $ 2,236 $ 37,689 $ 24,472 $ 1,809 $ 26,281
================================================================================
Average assets (in billions) $ 12,763 $ 1,597 $ 14,360 $ 8,774 $ 1,014 $ 9,788
================================================================================
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
--------------------------------------------------------------------------------
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
- ----------------------------------------------------------------------------------------------------------------------
Net interest income $ 419,909 $ (6,650) $ 413,259 $ 284,528 $ (672) $ 283,856
Provision for loan losses 25,150 - 25,150 18,926 - 18,926
--------------------------------------------------------------------------------
Net interest income after provision 394,759 (6,650) 388,109 265,602 (672) 264,930
Noninterest income 118,972 68,279 187,251 89,557 53,706 143,263
Noninterest expense 359,366 58,923 418,289 253,297 44,590 297,887
--------------------------------------------------------------------------------
Income before income taxes 154,365 2,706 157,071 101,862 8,444 110,306
Income tax expense 52,797 33 52,830 33,276 2,238 35,514
--------------------------------------------------------------------------------
Net income $ 101,568 $ 2,673 $ 104,241 $ 68,586 $ 6,206 $ 74,792
================================================================================
Average assets (in billions) $ 11,596 $ 1,486 $ 13,082 $ 8,143 $ 960 $ 9,103
================================================================================
E. Recent Accounting Statements
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.
6
COMMERCE BANCORP, INC. AND SUBSIDIARIES
F. Trust Capital Securities
On June 9, 1997, the Company issued $57.5 million of 8.75% Trust Capital
Securities through Commerce Capital Trust I, a Delaware business trust
subsidiary of the Company. All of these Trust Capital Securities were redeemed
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. All $200 million of the Convertible Trust Capital
Securities qualify as Tier 1 capital for regulatory capital purposes. The
Convertible Trust Capital Securities are not currently convertible. The net
proceeds of this offering were used for general corporate purposes, including
the redemption of the Company's $57.5 million of 8.75% Capital Trust I
securities on July 1, 2002 and the repayment of the Company's $23.0 million of 8
3/8% subordinated notes on May 20, 2002.
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
-------------------------------------------------------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Basic:
Net income $37,689 $26,281 $104,241 $74,792
============= ============= ============= =============
Average common shares outstanding 67,065 64,958 66,541 64,412
============= ============= ============= =============
Net income per share of common stock $ 0.56 $ 0.40 $ 1.56 $ 1.16
============= ============= ============= =============
Diluted:
Net income $37,689 $26,281 $104,241 $74,792
============= ============= ============= =============
Average common shares outstanding 67,065 64,958 66,541 64,412
Additional shares considered in diluted
computation assuming:
Exercise of stock options 4,019 3,548 4,163 3,344
------------- ------------- ------------- -------------
Average common shares outstanding
on a diluted basis 71,084 68,506 70,704 67,756
============= ============= ============= =============
Net income per common share - diluted $ 0.53 $ 0.38 $ 1.47 $ 1.10
============= ============= ============= =============
7
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
---------------------------------------------------------------
Capital Resources
- -----------------
At September 30, 2002, stockholders' equity totaled $871.1 million or 5.67% 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 September 30, 2002 and 2001:
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------
September 30, 2002
Company
Risk based capital ratios:
Tier 1 $ 938,603 11.54% $325,260 4.00% $487,890 6.00%
Total capital 1,024,082 12.59 650,519 8.00 813,149 10.00
Leverage ratio 938,603 6.59 569,878 4.00 712,347 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $ 492,564 10.05% $196,119 4.00% $294,179 6.00%
Total capital 554,007 11.30 392,238 8.00 490,298 10.00
Leverage ratio 492,564 6.25 315,059 4.00 393,824 5.00
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
At September 30, 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 September 30, 2002, the
Company and its subsidiaries meet all capital adequacy requirements to which
they are subject.
Deposits
- --------
Total deposits at September 30, 2002 were $13.9 billion, up $4.5 billion, or 47%
over total deposits of $9.4 billion at September 30, 2001, and up by $3.7
billion, or 36% from year-end 2001. Deposit growth during the first nine 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
31% at September 30, 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
8
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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, 2002, the Company's income simulation model indicates net income
would decrease by 8.34% and by 17.56% in the first year and over a two year time
frame, respectively, if rates decreased as described above, as compared to an
increase of 1.99% and decrease of 4.28%, respectively, at September 30, 2001. At
September 30, 2002, the model projects that net income would increase by 4.61%
and increase 11.81% in the first year and over a two year time frame,
respectively, if rates increased as described above, as compared to a decrease
by 4.59% and 2.27%, respectively, at September 30, 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 September 30, 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 September 30, 2002 the Company
had in excess of $6.7 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
nine months of 2002, deposit growth was 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 nine months of 2002, the
Company significantly reduced its short-term borrowings, primarily through
increased deposits. At September 30, 2002, short-term borrowings aggregated
$142.5 million and had an average rate of 1.20%, as compared to $264.6 million
at an average rate of 1.78% at December 31, 2001.
Interest Earning Assets
- -----------------------
For the nine month period ended September 30, 2002, interest earning assets
increased $3.7 billion from $10.2 billion to $13.9 billion. This increase was
primarily in investment securities and the loan portfolio as described below.
Loans
- -----
During the first nine months of 2002, loans increased $959.2 million from $4.6
billion to $5.5 billion. At September 30, 2002, loans represented 40% of total
deposits and 36% of total assets. All segments of the loan portfolio experienced
growth in the first nine 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.
September 30,
---------------------------------
2002 2001
---------------------------------
Commercial real estate:
Owner-occupied $1,182,886 $ 756,563
Investor developer 731,784 618,063
Construction 409,929 410,136
---------------------------------
2,324,599 1,784,762
Commercial loans:
Term 745,069 547,269
Line of credit 606,814 508,233
Demand 348 7,337
---------------------------------
1,352,231 1,062,839
Consumer:
Mortgages (1-4 family residential) 568,931 457,501
Installment 147,126 163,201
Home equity 1,098,098 818,566
Credit lines 51,641 35,457
---------------------------------
1,865,796 1,474,725
---------------------------------
$5,542,626 $4,322,326
=================================
Investments
- -----------
For the first nine months of 2002, total securities increased $2.6 billion from
$5.6 billion to $8.2 billion. The available for sale portfolio increased $2.9
billion to $7.1 billion at September 30, 2002 from $4.2 billion at December 31,
2001, and the securities held to maturity portfolio decreased $233.6 million to
$898.5 million at September 30, 2002 from $1.1 billion at year-end 2001. The
portfolio of trading securities decreased $85.4 million from year-end 2001 to
$197.4 million at September 30, 2002. At September 30, 2002, the average life of
the investment portfolio was approximately 2.9 years, and the duration was
approximately 2.4 years. At September 30, 2002, total securities represented 53%
of total assets.
10
COMMERCE BANCORP, INC. AND SUBSIDIARIES
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.
September 30, December 31,
---------------------------------
2002 2001
---------------------------------
(dollars in thousands)
U.S. Government agency and mortgage backed obligations $6,836,144 $3,994,523
Obligations of state and political subdivisions 24,946 82,922
Equity securities 17,008 16,325
Other 215,463 58,934
--------------------------------
Securities available for sale $7,093,561 $4,152,704
================================
U.S. Government agency and mortgage backed obligations $ 758,799 $1,044,266
Obligations of state and political subdivisions 93,728 50,602
Other 46,005 37,304
--------------------------------
Securities held to maturity $ 898,532 $1,132,172
================================
Net Income
- ----------
Net income for the third quarter of 2002 was $37.7 million, an increase of $11.4
million or 43% over the $26.3 million recorded for the third quarter of 2001.
Net income for the first nine months of 2002 totaled $104.2 million, an increase
of $29.4 million or 39% from $74.8 million in the first nine months of 2001. On
a per share basis, diluted net income for the third quarter and first nine
months of 2002 was $0.53 and $1.47 per common share compared to $0.38 and $1.10
per common share for the 2001 periods.
Return on average assets (ROA) and return on average equity (ROE) for the third
quarter of 2002 were 1.05% and 17.95%, respectively, compared to 1.07% and
17.46%, respectively, for the same 2001 period. ROA and ROE for the first nine
months of 2002 were 1.06% and 18.59%, respectively, compared to 1.10% and 17.82%
a year ago.
Net Interest Income
- -------------------
Net interest income totaled $150.6 million for the third quarter of 2002, an
increase of $47.8 million or 47% from $102.7 million in the third quarter of
2001. Net interest income for the first nine months of 2002 was $413.3 million,
up $129.4 million or 46% from 2001. The improvement in net interest income was
due primarily to volume increases in the loan and investment portfolios.
The net interest margin for the third quarter of 2002 was 4.65% down 10 basis
points from the 4.75% margin from the second quarter. Approximately five (5)
basis points was related to management's conscious decision to shorten the
duration of the portfolio and approximately five (5) basis points of the decline
in the margin was attributed to lower reinvestment rates caused by a flattening
yield curve. Shortening the duration of the portfolio provides for less market
price volatility and positions the Company advantageously for an anticipated
rise in interest rates in 2003. While the net interest margin rate has
contracted as a result, the Company's volume increase in its net interest income
has more than offset the effect of the net interest margin rate decline.
The following table sets forth balance sheet items on a daily average basis for
the three months ended September 30, 2002, June 30, 2002 and September 30, 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
---------------------------------------------------------------------------------------------------
September 2002 June 2002 September 2001
----------------------------------- -------------------------------- ------------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------------------------------- -------------------------------- ------------------------------
Earning Assets
- ------------------------------
Investment securities
Taxable $ 7,281,082 $102,306 5.57% $ 6,484,728 $ 97,970 6.06% $4,074,097 $ 64,491 6.28%
Tax-exempt 88,711 1,325 5.92 128,237 2,043 6.39 74,851 1,205 6.38
Trading 168,668 2,095 4.93 225,231 3,069 5.47 174,507 2,503 5.69
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
Total investment securities 7,538,461 105,726 5.56 6,838,196 103,082 6.05 4,323,455 68,199 6.26
Federal funds sold 95,341 403 1.68 27,592 116 1.69 272,366 2,265 3.30
Loans
Commercial mortgages 2,131,809 36,868 6.86 1,928,153 33,683 7.01 1,615,533 31,752 7.80
Commercial 1,253,565 19,230 6.09 1,194,310 17,952 6.03 976,232 18,653 7.58
Consumer 1,865,040 33,252 7.07 1,787,395 32,026 7.19 1,489,014 30,427 8.11
Tax-exempt 178,956 3,835 8.50 241,226 5,073 8.43 194,665 4,380 8.93
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
Total loans 5,429,370 93,185 6.81 5,151,084 88,734 6.91 4,275,444 85,212 7.91
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
Total earning assets $13,063,172 $199,314 6.05% $12,016,872 $191,932 6.41% $8,871,265 $155,676 6.96%
=========== =========== ==========
Sources of Funds
- ------------------------------
Interest-bearing liabilities
Regular savings $ 2,498,700 $ 7,912 1.26% $ 2,304,839 $ 8,133 1.42% $1,692,181 $ 8,465 1.98%
N.O.W. accounts 352,234 1,031 1.16 331,878 1,152 1.39 245,052 1,288 2.09
Money market plus 4,389,903 13,472 1.22 3,858,362 13,555 1.41 2,855,251 15,082 2.10
Time deposits 1,958,165 15,021 3.04 1,840,499 15,992 3.49 1,276,374 15,530 4.83
Public funds 1,001,570 5,353 2.12 984,503 5,546 2.26 743,954 7,940 4.23
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
Total deposits 10,200,572 42,789 1.66 9,320,081 44,378 1.91 6,812,812 48,305 2.81
Other borrowed money 99,819 403 1.60 70,078 282 1.61 75,097 737 3.89
Long-term debt 200,000 3,029 6.01 269,885 5,082 7.55 80,500 1,227 6.05
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
Total deposits and
interest-bearing
liabilities 10,500,391 46,221 1.75 9,660,044 49,742 2.07 6,968,409 50,269 2.86
Noninterest-bearing funds (net) 2,562,781 2,356,828 1,902,856
----------- -------- ---- ----------- -------- ---- ---------- -------- ----
Total sources to fund earning
assets $13,063,172 46,221 1.40 $12,016,872 49,742 1.66 $8,871,265 50,269 2.25
=========== -------- ---- =========== -------- ---- ========== -------- ----
Net interest income and
margin tax-equivalent basis $153,093 4.65% $142,190 4.75% $105,407 4.71%
======== ==== ======== ==== ======== ====
Other Balances
- ---------------------------------
Cash and due from banks $ 671,394 $ 547,088 $ 427,361
Other assets 708,005 677,551 548,941
Total assets 14,359,739 13,166,040 9,787,972
Total deposits 12,970,854 11,885,164 8,840,491
Demand deposits (noninterest-
bearing) 2,770,282 2,565,083 2,027,679
Other liabilities 248,999 207,939 189,745
Stockholders' equity 840,067 732,974 602,139
Allowance for loan losses 82,832 75,471 59,595
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 include investments available for sale.
- Consumer loans include mortgage loans held for sale.
12
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Noninterest Income
- ------------------
Noninterest income totaled $69.6 million for the third quarter of 2002, an
increase of $17.8 million or 34% from $51.8 million in the third quarter of
2001. Noninterest income for the first nine months of 2002 increased to $187.3
million from $143.3 million in the first nine months of 2001, a 31% increase The
growth in non-interest income for the third quarter and the first nine months of
2002 is more fully depicted below:
Three Months Ended Nine Months Ended
---------------------------------- -----------------------------------
9/30/02 9/30/01 % Increase 9/30/02 9/30/01 % Increase
---------------------------------- -----------------------------------
(Dollars in thousands) (Dollars in thousands)
Deposit charges & service fees $33,802 $25,871 31% $94,394 $72,901 29%
Other operating income:
Insurance 14,447 12,769 13 42,076 37,528 12
Capital markets 12,077 6,127 97 26,605 16,580 60
Loan brokerage fees 4,328 3,472 25 12,471 6,334 97
Other 4,978 3,535 41 11,705 9,920 18
--------- --------- -------- --------- ---------- ---------
Total other 35,830 25,903 38 92,857 70,362 32
--------- --------- -------- --------- ---------- ---------
Total non-interest income $69,632 $51,774 34% $187,251 $143,263 31%
========= ========= ======== ========= ========== =========
Noninterest Expense
- -------------------
For the third quarter of 2002, noninterest expense totaled $154.8 million, an
increase of $45.2 million or 41% 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 167 at September 30, 2001 to 203 at September
30, 2002. With the addition of these new offices, staff, facilities, and related
expenses rose accordingly. Other noninterest expenses rose $10.0 million over
the third 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.
For the first nine months of 2002, noninterest expense totaled $418.3 million,
an increase of $120.4 million or 40% over $297.9 million for the first nine
months of 2001. Contributing to this increase was the growth in branches as
noted above. Other noninterest expense rose $29.6 million over the first nine
months 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 69.50% for the first nine months of 2002 as compared to
69.61% 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
September 30, 2002 were $17.6 million, or 0.11% of total assets compared to
$18.4 million or 0.16% of total assets at December 31, 2001 and $20.8 million or
0.20% of total assets at September 30, 2001.
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,
2002 were $15.3 million or 0.28% of total loans compared to $16.8 million or
0.37% of total loans at December 31, 2001 and $19.1 million or 0.44% of total
loans at September 30, 2001. At September 30, 2002, loans past due 90 days or
more and still accruing interest amounted to $900 thousand compared to $519
thousand at December 31, 2001 and $964 thousand at September 30, 2001.
Additional loans considered as potential problem loans by the Company's internal
loan review department ($29.1 million at September 30, 2002) have been evaluated
as to risk exposure in determining the adequacy of the allowance for loan
losses.
13
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Other real estate (ORE) at September 30, 2002 totaled $2.4 million compared to
$1.5 million at December 31, 2001 and $1.7 million at September 30, 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
September 30, 2002 and the preceding four quarters.
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.
14
COMMERCE BANCORP, INC. AND SUBSIDIARIES
The following summary presents information regarding non-performing loans and
assets as of September 30, 2002 and the preceding four quarters (dollar amounts
in thousands).
September 30, June 30, March 31, December 31, September 30,
2002 2002 2002 2001 2001
---------------------------------------------------------------------------
Non-accrual loans:
Commercial $ 7,213 $ 7,581 $ 9,473 $ 6,835 $ 9,196
Consumer 2,147 1,557 1,537 1,484 1,382
Real estate:
Construction 131 181 181 1,590 1,590
Mortgage 5,754 5,778 5,695 6,924 6,944
-------------------------------------------------------------------------
Total non-accrual loans 15,245 15,097 16,886 16,833 19,112
-------------------------------------------------------------------------
Restructured loans:
Commercial 6 6 7 8 9
Consumer
Real estate:
Construction
Mortgage
-------------------------------------------------------------------------
Total restructured loans 6 6 7 8 9
-------------------------------------------------------------------------
Total non-performing loans 15,251 15,103 16,893 16,841 19,121
-------------------------------------------------------------------------
Other real estate 2,367 2,471 2,602 1,549 1,671
-------------------------------------------------------------------------
Total non-performing assets 17,618 17,574 19,495 18,390 20,792
-------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing 900 834 484 519 964
-------------------------------------------------------------------------
Total non-performing assets and
loans past due 90 days or more $18,518 $18,408 $19,979 $18,909 $21,756
=========================================================================
Total non-performing loans as a
percentage of total period-end loans 0.28% 0.29% 0.34% 0.37% 0.44%
Total non-performing assets as a
percentage of total period-end assets 0.11% 0.13% 0.16% 0.16% 0.20%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.12% 0.13% 0.16% 0.17% 0.21%
Allowance for loan losses as a percentage
of total non-performing loans 560% 530% 428% 398% 321%
Allowance for loan losses as a percentage
of total period-end loans 1.54% 1.52% 1.47% 1.46% 1.42%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 2% 2% 3% 3% 3%
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)
Year
Three Months Ended Nine Months Ended Ended
09/30/02 09/30/01 09/30/02 09/30/01 12/31/01
------------ ----------- ------------ ------------ ------------
Balance at beginning of period $80,098 $57,548 $66,981 $48,680 $48,680
Provisions charged to operating expenses 8,000 6,335 25,150 18,926 26,384
----------- ---------- ----------- ----------- -----------
88,098 63,883 92,131 67,606 75,064
Recoveries on loans charged-off:
Commercial 52 20 457 179 552
Consumer 61 85 281 221 288
Commercial real estate 22 102 23 116 134
----------- ---------- ----------- ----------- -----------
Total recoveries 135 207 761 516 974
Loans charged-off:
Commercial (1,926) (2,016) (4,987) (4,350) (5,862)
Consumer (828) (680) (2,393) (1,975) (2,784)
Commercial real estate - (8) (33) (411) (411)
----------- ---------- ----------- ----------- -----------
Total charge-offs (2,754) (2,704) (7,413) (6,736) (9,057)
----------- ---------- ----------- ----------- -----------
Net charge-offs (2,619) (2,497) (6,652) (6,220) (8,083)
----------- ---------- ----------- ----------- -----------
Balance at end of period $85,479 $61,386 $85,479 $61,386 $66,981
=========== ========== =========== =========== ===========
Net charge-offs as a percentage of
average loans outstanding 0.19% 0.23% 0.17% 0.21% 0.19%
Net reserve additions $ 5,381 $ 3,838 $18,498 $12,706 $18,301
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
Item 4. Controls and Procedures
-----------------------
Quarterly Evaluation of the Company's Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"). This evaluation
(the "Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that our Disclosure Controls and its
"internal controls and procedures for financial reporting" ("Internal Controls")
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded
that, subject to the limitations noted above, our Disclosure Controls are
effective to timely alert management to material information relating to the
Company during the period when its periodic reports are being prepared.
In accord with SEC requirements, the CEO and CFO note that, since the date of
the Controls Evaluation to the date of this Quarterly Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
17
COMMERCE BANCORP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits
- --------
Exhibit 99.1 - 906 Certification
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed during the third quarter ended September 30,
2002.
18
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CERTIFICATION
I, Vernon W. Hill, II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commerce Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Vernon W. Hill, II
---------------------------------
Vernon W. Hill, II
Chairman, President and Chief Executive Officer
(principal executive officer)
19
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CERTIFICATION
I, Douglas J. Pauls, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commerce Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Douglas J. Pauls
-----------------------------------------------
Douglas J. Pauls
Senior Vice President and Chief Financial
Officer (principal financial officer)
20
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)
November 14, 2002 /s/ DOUGLAS J. PAULS
- ----------------------- ---------------------------------------------
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
21