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
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File 333-78445
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PENNSYLVANIA COMMERCE BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1834776
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
100 Senate Avenue, P.O. Box 8599, Camp Hill, PA 17001-8599
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(Address of principal executive offices)
(717) 975-5630
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
2,004,777 Common shares outstanding at 10/31/02
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Transitional Small Business Disclosure Format (check one): Yes No X
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PENNSYLVANIA COMMERCE BANCORP, INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)...............................3
September 30, 2002, and December 31, 2001
Consolidated Statements of Income (Unaudited).........................4
Three months ended September 30, 2002 and September 30, 2001
Nine months ended September 30, 2002 and September 30, 2001
Consolidated Statements of Stockholders' Equity (Unaudited)..........5
Nine months ended September 30, 2002 and September 30, 2001
Consolidated Statements of Cash Flows (Unaudited).....................6
Nine months ended September 30, 2002, and September 30, 2001
Notes to Consolidated Financial Statements (Unaudited)................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........20
Item 4. Controls and Procedures..............................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................21
Item 2. Changes in Securities and Use of Proceeds............................21
Item 3. Defaults Upon Senior Securities......................................21
Item 4. Submission of Matters to a Vote of Securities Holders................21
Item 5. Other Information....................................................21
Item 6a. Exhibits.............................................................22
Item 6b. Reports on Form 8-K..................................................22
Signatures...........................................................23
Certifications.......................................................24
2
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
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September 30, December 31,
( in thousands, except share amounts) 2002 2001
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Assets Cash and due from banks $ 29,210 $ 21,555
Federal funds sold 71,200 4,300
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Cash and cash equivalents 100,410 25,855
Securities, available for sale at fair value 173,553 107,315
Securities, held to maturity at cost
(fair value 2002: $113,759; 2001: $102,427 ) 110,556 103,349
Loans, held for sale
(fair value 2002: $9,534; 2001: $7,733 ) 9,471 7,661
Loans receivable :
Real estate:
Commercial mortgage 147,784 142,969
Construction and land development 32,779 32,863
Residential mortgage 62,130 48,415
Tax-exempt 4,199 2,676
Commercial business 49,083 42,399
Consumer 34,292 36,551
Lines of credit 36,481 36,801
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366,748 342,674
Less: Allowance for loan losses 5,270 4,544
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Net loans receivable 361,478 338,130
Premises and equipment, net 25,130 21,587
Accrued interest receivable 3,828 3,542
Other assets 5,385 2,451
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Total assets $ 789,811 $ 609,890
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Liabilities Deposits :
Noninterest-bearing $ 132,722 $ 105,171
Interest-bearing 598,781 456,567
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Total deposits 731,503 561,738
Accrued interest payable 789 837
Other liabilities 3,486 1,722
Long term debt 13,000 13,000
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Total liabilities 748,778 577,297
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Stockholders' Preferred stock - Series A noncumulative; $10.00 par value
Equity 1,000,000 shares authorized; 40,000 shares issued and outstanding 400 400
Common stock - $1.00 par value; 10,000,000 shares authorized;
issued and outstanding - 2002: 2,000,112; 2001: 1,881,960 2,000 1,882
Surplus 27,826 25,263
Retained earnings 9,186 5,159
Accumulated other comprehensive income (loss) 1,621 (111)
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Total stockholders' equity 41,033 32,593
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Total liabilities and stockholders' equity $ 789,811 $ 609,890
=============================================================================================================================
See accompanying notes .
3
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (Unadutied)
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Three Months Nine Months
Ended September 30, Ended September 30,
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(in thousands, except per share amounts) 2002 2001 2002 2001
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Interest Loans receivable, including fees:
Income Taxable $ 6,769 $ 6,728 $ 19,968 $19,838
Tax - exempt 31 28 72 98
Securities :
Taxable 3,776 2,824 10,535 7,833
Tax - exempt 26 27 80 67
Federal funds sold 186 106 348 509
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Total interest income 10,788 9,713 31,003 28,345
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Interest Deposits 3,276 3,831 9,774 11,899
Expense Other borrowed money 0 2 0 13
Long-term debt 339 145 1,015 422
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Total interest expense 3,615 3,978 10,789 12,334
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Net interest income 7,173 5,735 20,214 16,011
Provision for loan losses 375 405 1,090 1,005
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Net interest income after provision for loan losses 6,798 5,330 19,124 15,006
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Noninterest Service charges and other fees 1,747 1,420 4,875 4,182
Income Other operating income 105 124 359 369
Gain on sale of securities available for sale 0 0 0 52
Gain on sale of loans 142 52 331 314
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Total noninterest income 1,994 1,596 5,565 4,917
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Noninterest Salaries and employee benefits 3,336 2,411 8,918 7,143
Expenses Occupancy 653 542 1,739 1,608
Furniture and equipment 417 335 1,123 1,043
Advertising and marketing 560 410 1,733 1,190
Data processing 462 351 1,411 973
Postage and supplies 202 228 614 638
Audits, regulatory fees and assessments 112 102 330 299
Other 842 774 2,645 2,271
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Total noninterest expenses 6,584 5,153 18,513 15,165
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Income before income taxes 2,208 1,773 6,176 4,758
Provision for federal income taxes 741 592 2,072 1,586
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Net income $ 1,467 $ 1,181 $ 4,104 $ 3,172
================================================================================================================================
Net income per common share : Basic $ 0.72 $ 0.63 $ 2.07 $ 1.68
Diluted 0.66 0.56 1.89 1.52
================================================================================================================================
See accompanying notes .
4
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (Unaudited)
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Accumulated
Other
Preferred Common Retained Comprehensive
( in thousands ) Stock Stock Surplus Earnings Income (Loss) Total
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Balance : December 31, 2000 $ 400 $ 1,749 $ 20,861 $ 4,334 $ (676) $ 26,668
Comprehensive income:
Net income - - - 3,172 - 3,172
Change in unrealized gains
(losses) on securities, net of
reclassification adjustment - - - - 1,588 1,588
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Total comprehensive income 4,760
Dividends declared on preferred stock - - - (60) - (60)
Common stock issued under stock option plans - 14 133 - - 147
Income tax benefit of stock options exercised - - 75 - - 75
Common stock issued under employee stock purchase plan - - 8 - - 8
Proceeds from issuance of common stock in connection
with dividend reinvestment and stock purchase plan - 10 337 - - 347
Other - - 12 (12) - -
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September 30, 2001 $ 400 $ 1,773 $ 21,426 $ 7,434 $ 912 $ 31,945
==================================================================================================================================
Accumulated
Other
Preferred Common Retained Comprehensive
( in thousands ) Stock Stock Surplus Earnings Income (Loss) Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance : December 31, 2001 $ 400 $ 1,882 $ 25,263 $ 5,159 $ (111) $ 32,593
Comprehensive income:
Net income - - - 4,104 - 4,104
Change in unrealized gains
(losses) on securities, net of
reclassification adjustment - - - - 1,732 1,732
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Total comprehensive income 5,836
Dividends declared on preferred stock - - - (60) - (60)
Common stock issued under stock option plans - 100 1,475 - - 1,575
Income tax benefit of stock options exercised - - 332 - - 332
Common stock issued under employee stock purchase plan - - 16 - - 16
Proceeds from issuance of common stock in connection
with dividend reinvestment and stock purchase plan - 18 723 - - 741
Other - - 17 (17) - -
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September 30, 2002 $ 400 $ 2,000 $ 27,826 $ 9,186 $ 1,621 $ 41,033
==================================================================================================================================
See accompanying notes .
5
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
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Nine Months Ended
September 30,
( in thousands ) 2002 2001
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Operating
Activities Net income $ 4,104 $ 3,172
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,090 1,005
Provision for depreciation and amortization 1,106 1,055
Deferred income taxes (146) (194)
Amortization of securities premiums and accretion of discounts, net 478 164
Net gain on sale of securities available for sale 0 (52)
Proceeds from sale of loans 39,563 39,619
Loans originated for sale (41,039) (40,509)
Gain on sales of loans (331) (314)
Stock granted under stock purchase plan 16 8
Increase in accrued interest receivable and other assets (3,627) (622)
Increase in accrued interest payable and other liabilities 1,716 470
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Net cash provided by operating activities 2,930 3,802
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Investing
Activities Securities held to maturity :
Proceeds from principal repayments and maturities 21,797 13,169
Purchases (29,121) (59,750)
Securities available for sale :
Proceeds from principal repayments and maturities 45,146 28,899
Proceeds from sales 0 7,497
Purchases (109,121) (49,965)
Proceeds from sale of loans receivable 0 3,255
Net increase in loans receivable (24,438) (37,928)
Purchases of premises and equipment (4,649) (4,404)
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Net cash used by investing activities (100,386) (99,227)
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Financing
Activities Net increase in demand deposits, interest checking,
money market and savings deposits 160,082 90,165
Net increase in time deposits 9,683 1,290
Proceeds from issuance of long-term debt 0 8,000
Proceeds from common stock options exercised 1,575 147
Proceeds from common stock purchase and dividend reinvestment plans 741 347
Cash dividends on preferred stock and cash in lieu of fractional shares (70) (60)
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Net cash provided by financing activities 172,011 99,889
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Increase in cash and cash equivalents 74,555 4,464
Cash and cash equivalents at beginning of year 25,855 39,649
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Cash and cash equivalents at end of period $ 100,410 $ 44,113
========================================================================================================
See accompanying notes .
6
PENNSYLVANIA COMMERCE BANCORP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
Note 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pennsylvania
Commerce Bancorp, Inc. ("the Company") and its wholly owned subsidiaries
Commerce Bank/Harrisburg, N.A. ("the Bank"), Commerce Capital Harrisburg Trust
I, and Commerce Capital Harrisburg Trust II. All material intercompany accounts
and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal,
recurring nature. Operating results for the nine-month period ended September
30, 2002, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002.
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 the annual report and Form 10-K
and the exhibits thereto), 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
policy, including interest rate policies of the Board of the Federal Reserve
System; inflation; interest rate, 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 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.
7
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements, whether written or oral, that may be made from time to time by or on
behalf of the Company. For further information, refer to the financial
statements and footnotes thereto included in the Pennsylvania Commerce Bancorp,
Inc., Annual Report for the year ended December 31, 2001.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Stock Dividends and Per Share Data
On January 30, 2002, the Board of Directors declared a 5% stock dividend on
common stock outstanding, paid on February 25, 2002, to stockholders of record
on February 11, 2002. Payment of the stock dividend resulted in the issuance of
89,805 additional common shares and cash of $9,870 in lieu of fractional shares.
The effect of the 5% common stock dividend has been recorded as of December 31,
2001.
Recently Issued FASB Statements
In July of 2001, the Financial Accounting Standards Board issued Statement No.
143, "Accounting for Asset Retirement Obligations", which addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
This Statement will become effective for the Company on January 1, 2003.
In June 2002, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", which
nullifies EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit an Activity (including certain
costs incurred in a restructuring)." This statement delays recognition of these
costs until liabilities are incurred and requires fair value measurement. It
does not impact the recognition of liabilities incurred in connection with a
business combination or the disposal of long-lived assets. The provisions of
this statement are effective for exit or disposal activities initiated after
December 31, 2002.
In October 2002, the Financial Accounting Standards Board issued Statement No.
147, "Acquisitions of Certain Financial Institutions." This statement provides
guidance on accounting for the acquisition of a financial institution, including
the acquisition of part of a financial institution. The statement defines
criteria for determining whether the acquired financial institution meets the
conditions for a "business combination". If the acquisition meets the conditions
of a "business combination", the specialized accounting guidance under Statement
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions"
will not apply after September 30, 2002 and the amount of the unidentifiable
intangible asset will be reclassified to goodwill upon adoption of Statement No.
147. The transition provisions were effective on October 1, 2002.
8
Adoption of these statements will not have a material impact on the Company's
financial condition or results of operations.
Note 3. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain routine legal proceedings and claims arising
in the ordinary course of business. It is management's opinion that the ultimate
resolution of these claims will not have a material adverse effect on the
Company's financial position and results of operations.
Future Branch Facilities
The Company entered into a land lease for the premises located in front of the
Carlisle Commons at Noble Boulevard and South Hanover Street in the Borough of
Carlisle, Cumberland County, Pennsylvania. The land lease has a term of 30 years
with annual rent payments beginning in September 2003 or upon the opening of the
branch for business. Rent is subject to change on terms set forth in the lease
agreement.
Note 4. COMPREHENSIVE INCOME
Comprehensive income for the Company consists of net income and unrealized gains
or losses on available for sale securities and is presented in the consolidated
statement of stockholders' equity. Unrealized securities gains or losses and the
related tax impact included in comprehensive income are as follows:
Three Months Ended Nine months Ended
(in thousands) September 30, September 30,
2002 2001 2002 2001
------- ------- ------- -------
Unrealized holding gains
on available for sale
securities occurring
during the period $ 636 $ 1,606 $ 2,624 $ 2,458
Reclassification adjustment for
gains included in net income 0 0 0 (52)
------- ------- ------- -------
Net Unrealized Gains 636 1,606 2,624 2,406
Tax effect (216) (546) (892) (818)
------- ------- ------- -------
Other Comprehensive
Income $ 420 $ 1,060 $ 1,732 $ 1,588
======= ======= ======= =======
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This section should be read in conjunction with the
Company's financial statements and accompanying notes.
OVERVIEW
Net income for the quarter increased 24% to $1.5 million as compared to $1.2
million for the third quarter of 2001 and total revenues (net interest income
plus other income) increased by 25% to $9.2 million for the quarter. Diluted net
income per common share increased 18% to $0.66 from $0.56 per share in the third
quarter a year ago (after adjusting for a 5% common stock dividend paid in
February 2002). At September 30, 2002, the Company had total assets of $789.8
million, total loans (including loans held for sale) of $376.2 million, and
total deposits of $731.5 million.
RESULTS OF OPERATIONS
Average Balances and Average Interest Rates
Interest earning assets averaged $665.3 million for the third quarter of 2002 as
compared to $505.6 million for the same period in 2001. Approximately $47.5
million, or 30%, of this increase was in average loans outstanding and $112.2
million, or 70%, was in average investment securities and federal funds sold.
The yield on earning assets for the third quarter of 2002 was 6.43%, a decrease
of 118 basis points (bps) from the comparable period in 2001. This decrease was
mainly the result of eleven decreases in short-term interest rates totaling 475
bps by the Federal Reserve Board during 2001.
The growth in interest earning assets was funded primarily by an increase in the
average balance of deposits of $130.1 million. Interest-bearing liabilities
increased from $419.1 million during the third quarter of 2001 to $554.1 million
during the third quarter of 2002. Average savings deposits increased $57.6
million over third quarter a year ago, average public funds deposits increased
$57.9 million and average non-interest bearing demand deposits increased by
$24.7 million. Average time deposits decreased $2.2 million during the quarter
as compared to the third quarter one year ago.
The average rate paid on these liabilities for the third quarter of 2002 was
2.59%, a decrease of 118 basis points from the comparable period in 2001. The
Company's aggregate cost of funding sources was 2.15% for the third quarter of
2002, a decrease of 97 basis points from the prior year. This is the result of a
decrease in the average rates paid on all interest bearing deposits partially
offset by the issuance of $8.0 million of long-term debt in September 2001,
which bears interest at a higher rate than the Company's deposits.
Interest earning assets for the first nine months averaged $620.9 million versus
$483.6 million for the comparable period in 2001. The yield on earning assets
decreased to 6.67% during the first nine months of 2002, from 7.84% for the
first nine months of 2001.
The level of average interest-bearing liabilities increased from $401.8 million
for the first nine months of 2001 to $516.2 million for the first nine months of
2002. The Company's cost of funds for the first nine months of 2002 was 2.32%,
down 109 basis points from 3.41% for the comparable period in the prior year.
10
Net Interest Income and Net Interest Margin
Net interest income is the difference between interest income earned on assets
and interest expense incurred on liabilities used to fund those assets. Interest
earning assets primarily include loans and securities. Liabilities used to fund
such assets include deposits, borrowed funds, and long-term debt. Changes in net
interest income and margin result from the interaction between the volume and
composition of earning assets, interest bearing liabilities, related yields and
associated funding costs.
Interest income increased by $1.1 million, or 11%, over the third quarter of
2001. Interest expense for the third quarter of 2002 decreased by $363,000, or
9%, compared to the third quarter of 2001.
Net interest income for the third quarter of 2002 increased by $1.4 million, or
25%, over the same period in 2001. Changes in net interest income are frequently
measured by two statistics: net interest rate spread and net interest margin.
Net interest rate spread is the difference between the average rate earned on
earning assets and the average rate incurred on interest-bearing liabilities.
Net interest margin represents the difference between interest income, including
net loan fees earned, and interest expense, reflected as a percentage of average
earning assets. The Company's net interest rate spread was 3.84% during the
third quarter of 2002 compared to 3.84% during the same period of the previous
year. The net interest margin decreased by 21 basis points from 4.49% for the
third quarter 2001 to 4.28% during the third quarter of 2002.
For the first nine months ended September 30, 2002, interest income increased by
$2.7 million, or 9%, over the same period in 2001. Interest expense for the
first nine months of 2002 totaled $10.8 million, a decrease of $1.5 million, or
13%, from the first nine months of 2001.
Net interest income for the first nine months of 2002 increased by $4.2 million,
or 26%, over the same period in 2001. The Company's net interest margin
decreased from 4.42% for the first nine months of 2001 to 4.35% for the first
nine months of 2002.
Noninterest Income
Noninterest income for the third quarter of 2002 increased by $398,000, or 25%,
over the same period in 2001. The increase is attributable to service charges
and fees associated with servicing a higher volume of deposit accounts and
transactions.
Included in noninterest income for the first nine months of 2002 is nonrecurring
income of $95,000, as a result of a gain on the sale of student loans. Included
in noninterest income for the first nine months of 2001 is nonrecurring income
of $233,000, comprised of a $102,000 gain on the sale of student loans, a
$79,000 gain from the sale of Small Business Administration loans, and a $52,000
gain on sale of securities available for sale. Excluding these transactions,
recurring core noninterest income for the first nine months of 2002 totaled $5.5
million as compared to $4.7 million for the first nine months of 2001, an
increase of 17%. The increase is mainly attributable to additional service
charges and fees associated with servicing a higher volume of deposit accounts
and transactions.
11
Noninterest Expenses
For the third quarter of 2002, noninterest expenses increased by $1.4 million,
or 28%, over the same period in 2001. Staffing levels and related expenses
increased as a result of servicing more deposit and loan customers and
processing a higher volume of transactions. Staffing and occupancy expenses also
increased as a result of opening three additional branch offices, one each in
October 2001, June 2002, and August 2002, respectively. A comparison of
noninterest expense for certain categories for the three months ended September
30, 2002, and September 30, 2001, is presented in the following paragraphs.
Salary expenses and employee benefits, which represent the largest component of
noninterest expenses, increased by $925,000, or 38%, for the third quarter of
2002 over the third quarter of 2001. This increase is consistent with increases
in staff levels necessary to handle Company growth from third quarter 2001 to
third quarter 2002, including the additional staff of the branch offices opened
in October 2001, June 2002, and August 2002.
Occupancy expenses of $653,000 were $111,000 higher for the third quarter of
2002 than for the three months ended September 30, 2001. Increased occupancy
expenses primarily are a result of the branch offices opened in October 2001,
June 2002, and August 2002 offset by rental income earned at the Downtown
Harrisburg location.
Furniture and equipment expenses of $417,000 were $82,000, or 24% higher for the
third quarter of 2002 then the three months ended September 30, 2001. This
increase was the result of higher levels of depreciation costs for furniture and
equipment incurred with the addition of three new branches opened during the
last 12 months.
Advertising and marketing expenses totaled $560,000 for the three months ended
September 30, 2002, an increase of $150,000, or 37% from the third quarter of
2001. This increase was primarily the result of increased advertising efforts in
each of the Company's markets along with grand opening celebrations at the newly
opened branches in Red Lion, PA, downtown Harrisburg, and Camp Hill. The
Company's markets will continue to expand as the branch network grows.
Data processing expenses of $462,000 were $111,000, or 32%, higher in the third
quarter of 2002 than the three months ended September 30, 2001. The increase was
due to a combination of increased costs associated with processing additional
transactions (due to growth in number of accounts) and an increase in data
processing support costs. Also, during the first quarter 2002, Commerce
converted its check statement processing function to an image system as an added
convenience for our customers. The increased data processing costs to implement
this system are expected to result in lower supplies expense and postage expense
in the future than would have been incurred with continued paper checking
statement processing.
Audits and regulatory fees increased by $10,000, or 10%, from $102,000 for the
third quarter of 2001 to $112,000 for the third quarter of 2002. This increase
is a result of higher Federal Deposit Insurance Corporation (FDIC) and Office of
the Comptroller of the Currency (OCC) assessments. Both assessment calculations,
which are based upon deposit size, continue to increase as the Company's deposit
balances grow.
Other noninterest expenses increased by $68,000, or 9%, for the three-month
period ended September 30, 2002, as compared to the same period in 2001.
12
Components of the increase include increase in volume and service costs of coin
and currency delivery, and higher loan related expenses due to an increase in
loan volume.
For the first nine months of 2002, total noninterest expenses increased by $3.3
million, or 22% over the comparable period in 2001. A comparison of noninterest
expense for certain categories for these two periods is discussed below.
Salary expense and employee benefits increased by $1.8 million, or 25%, over the
first nine months of 2001. The increase was due to normal increases and
additional salary and benefits costs due to an increase in the level of
full-time equivalent employees from 301 at September 30, 2001 to 404 at
September 30, 2002 as well as the addition of new staff to operate the new
branches opened in October 2001, June 2002, and August 2002.
Occupancy and furniture & equipment expenses for the first nine months of 2002
were $211,000, or 8%, higher for the first nine months of 2002 over the similar
period in 2001. The increase is the result of costs associate with the opening
of three new branch facilities during the last 12 months.
Advertising and marketing expenses totaled $1.7 million for the first nine
months of 2002, an increase of $543,000, or 46%, over the similar period of
2001. This increase was primarily the result of increased advertising efforts in
each of the Company's markets along with grand opening celebrations at the newly
opened branches in Red Lion, PA, downtown Harrisburg, and Camp Hill. The
Company's markets will continue to expand as the branch network grows.
Data processing expenses increased $438,000, or 45%, for the first nine months
of 2002 as compared to the first nine months of 2001. The increase is the result
of the previously mentioned higher data processing support costs and processing
higher volumes of customer transactions.
Audit and regulatory fees increased by $31,000, or 10%, for the first nine
months of 2002 over the same period in 2001. This increase is a result of higher
Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller
of the Currency (OCC) assessments, both of which are calculated on levels of
deposits.
Other noninterest expenses for the first nine months of 2002 were $2.6 million
compared to $2.3 million for the similar period in 2001. Components of the
increase include increase in volume and service costs of coin and currency
delivery, higher loan expenses due to an increase in loan volume, higher
provisions for non-credit related losses, and increased insurance costs offset
by a decrease in checkbook printing costs.
One key measure used to monitor progress in controlling overhead expenses is the
ratio of net noninterest expenses to average assets. Net noninterest expenses
equal noninterest expenses (excluding foreclosed real estate expenses) less
noninterest income (exclusive of nonrecurring gains), divided by average assets.
This ratio equaled 2.55% for the three months ended September 30, 2002, less
than the 2.58% reported for the three months ended September 30, 2001, and 2.60%
for the nine months of 2002 compared to 2.68% for the first nine months of 2001.
Another productivity measure is the operating efficiency ratio. This ratio
expresses the relationship of noninterest expenses (excluding foreclosed real
estate expenses) to net interest income plus noninterest income (excluding
nonrecurring gains). For the quarter ended September 30, 2002, the operating
efficiency ratio was 71.9%, compared to 70.3% for the similar period in 2001.
For the nine months ended September 30, 2002, this ratio was 71.9% compared to
73.3% for the nine months ended September 30, 2001.
13
Provision for Federal Income Taxes
The provision for federal income taxes was $741,000 for the third quarter of
2002 as compared to $592,000 for the same period in 2001. For the nine months
ended September 30, the provision was $2.1 million and $1.6 million for 2002 and
2001, respectively. The effective tax rate, which is the ratio of income tax
expense to income before income taxes, was 33.6% for the first nine months of
2002 and 33.3% for the same period in 2001.
Net Income and Net Income Per Share
Net income for the third quarter of 2002 was $1.5 million, an increase of
$286,000, or 24%, over the $1.2 million recorded in the third quarter of 2001.
The increase was due to an increase in net interest income of $1.4 million, an
increase in noninterest income of $398,000, offset partially by an increase in
noninterest expenses of $1.4 million, a decrease of $30,000 in the provision for
loan losses, and an increase of $149,000 in the provision for income taxes.
Net income for the first nine months of 2002 was $4.1 million as compared to
$3.2 million recorded in the first nine months of 2001.The increase was due to
an increase in net interest income of $4.2 million, an increase in noninterest
income of $648,000, offset partially by an increase in noninterest expenses of
$3.3 million, an increase of $85,000 in the provision for loan losses, and an
increase of $486,000 in the provision for income taxes.
Basic earnings per common share, after adjusting for a 5% common stock dividend
paid in February 2002, increased 23% to $2.07 per common share for the first
nine months of 2002 compared to $1.68 for the same period in 2001. Diluted
earnings per common share were $1.89 for the first nine months of 2002 and $1.52
for the same period in 2001, an increase of 24%.
Return on Average Assets and Average Equity
Return on average assets (ROA) measures the Company's net income in relation to
its total average assets. The Company's annualized ROA for the third quarter of
2002 was 0.81% as compared to 0.86% for the third quarter of 2001. The ROA for
the first nine months of 2002 and 2001 was 0.82% and 0.81%, respectively. For
purposes of calculating ROA, average assets have been adjusted to exclude gross
unrealized appreciation or depreciation on securities available for sale.
Return on average equity (ROE) indicates how effectively the Company can
generate net income on the capital invested by its stockholders. ROE is
calculated by dividing net income by average stockholders' equity. For purposes
of calculating ROE, average stockholders' equity includes the effect of
unrealized appreciation or depreciation, net of income taxes, on securities
available for sale. The annualized ROE for the third quarter of 2002 was 14.49%,
as compared to 15.30% for the third quarter of 2001. The annualized ROE for the
first nine months of 2002 was 14.82%, as compared to 14.62% for the first nine
months of 2001.
14
FINANCIAL CONDITION
Securities
During the first nine months of 2002, securities available for sale increased by
$66.2 million from $107.3 million at December 31, 2001 to $173.5 million at
September 30, 2002. This resulted from the purchase of $109.1 million in
securities, partially offset by $45.1 million in principal repayments.
The securities available for sale portfolio is comprised of U.S. Treasury Notes,
U.S. Government agency securities, mortgage-backed securities, AAA CMO
securities, corporate debt, and equity securities. The weighted average life of
the securities available for sale portfolio was 3.5 years at September 30, 2002
with a weighted average yield of 5.45%.
During the first nine months of 2002, securities held to maturity increased from
$103.3 million to $110.6 million primarily as a result of the purchase of $29.1
million in securities, offset by principal repayments of $21.8 million. The
securities held in this portfolio include U.S. Government agency securities,
tax-exempt municipal bonds, AAA CMO securities, corporate debt securities, and
mortgage-backed securities. The weighted average life of the securities held to
maturity portfolio was 6.1 years at September 30, 2002 with a weighted average
yield of 6.19%.
Federal funds sold increased by $66.9 million during the first nine months of
2002. Total securities and federal funds sold aggregated $355.3 million at
September 30, 2002, and represented 45% of total assets.
The average yield on the combined securities portfolio for the first nine months
of 2002 was 6.08%, as compared to 6.61% for the similar period of 2001. The
average yield earned on federal funds sold during the first nine months of 2002
was 1.65%, down 296 basis points from 4.61% earned during the first nine months
of 2001. The decrease in the yield in the investment securities portfolio and on
federal funds sold is a result of eleven decreases in short-term interest rates
by the Federal Reserve Bank for a total of 475 bps between January 1, 2001 and
December 31, 2001.
Loans Held for Sale
Loans held for sale are comprised of student loans, Small Business
Administration loans, and residential mortgage loans, which the Company
originates with the intention of selling in the future. During the first nine
months of 2002, total loans held for sale increased by $1.8 million, from $7.7
million at December 31, 2001 to $9.5 million at September 30, 2002. The change
was the result of the sale of $6.3 million of student loans and the sale of
$32.9 million of residential loans, offset by originations of $41.0 million in
new loans held for sale. Loans held for sale represented 1.2% of total assets at
December 31, 2001 and at September 30, 2002.
Loans Receivable
During the first nine months of 2002, total loans receivable increased by $24.0
million from $342.7 million at December 31, 2001, to $366.7 million at September
30, 2002. Loans receivable represented 50% of total deposits and 46% of total
assets at September 30, 2002, as compared to 61% and 56%, respectively, at
December 31, 2001.
Loan and Asset Quality and Allowance for Loan Losses
Total nonperforming assets (nonperforming loans and foreclosed real estate,
excluding loans past due 90 days or more and still accruing interest) at
September 30, 2002, were $2.2 million, or 0.27%, of total assets as compared to
$888,000, or 0.15%, of total assets at December 31, 2001. Foreclosed real estate
totaled $138,000 at September 30, 2002, and $12,000 as of December 31, 2001.
15
The summary table below presents information regarding nonperforming loans and
assets as of September 30, 2002 and 2001 and December 31, 2001.
Nonperforming Loans and Assets
- -------------------------------------------------------------------------------------------------
(dollars in thousands) September 30, December 31, September 30,
2002 2001 2001
- -------------------------------------------------------------------------------------------------
Nonaccrual loans:
Commercial $ 1,261 $ 127 $ 348
Consumer 43 116 61
Real estate:
Construction 0 0 0
Mortgage 716 633 808
- -------------------------------------------------------------------------------------------------
Total nonaccrual loans 2,020 876 1,217
Restructured loans 0 0 0
- -------------------------------------------------------------------------------------------------
Total nonperforming loans 2,020 876 1,217
Foreclosed real estate 138 12 12
- -------------------------------------------------------------------------------------------------
Total nonperforming assets 2,158 888 1,229
Loans past due 90 days or more 23 0 4
- -------------------------------------------------------------------------------------------------
Total nonperforming assets and
Loans past due 90 days or more $ 2,181 $ 888 $ 1,233
- -------------------------------------------------------------------------------------------------
Nonperforming loans to total loans 0.55% 0.26% 0.37%
Nonperforming assets to total assets 0.27% 0.15% 0.21%
=================================================================================================
Nonaccrual commercial loans are comprised of seven loans including one loan for
approximately $660,000 at September 30, 2002. The Allowance for Loan Loss
Committee has reviewed the composition of the nonaccrual loans and believes
adequate collateralization exists.
16
The following table sets forth information regarding the Company's provision and
allowance for loan losses.
Allowance for Loan Losses
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 9 Months Year Ending
Ending December 31,
September 30, 2001
2002
- ----------------------------------------------------------------------------------------------
Balance at beginning of period $ 4,544 $ 3,732
Provisions charged to operating expenses 1,090 1,469
- ----------------------------------------------------------------------------------------------
5,634 5,201
Recoveries of loans previously charged-off:
Commercial 89 3
Consumer 2 21
Real estate 20 0
- ----------------------------------------------------------------------------------------------
Total recoveries 111 24
Loans charged-off:
Commercial 205 475
Consumer 66 85
Real estate 204 121
- ----------------------------------------------------------------------------------------------
Total charged-off 475 681
- ----------------------------------------------------------------------------------------------
Net charge-offs 364 657
- ----------------------------------------------------------------------------------------------
Balance at end of period $ 5,270 $ 4,544
- ----------------------------------------------------------------------------------------------
Net charge-offs as a percentage of
Average loans outstanding 0.10% 0.21%
Allowance for loan losses as a percentage of
Period-end loans 1.44% 1.33%
==============================================================================================
Deposits
Total deposits at September 30, 2002 were $731.5 million, up $169.8 million, or
30%, over total deposits of $561.7 million at December 31, 2001. The average
balances and weighted average rates paid on deposits for the first nine months
of 2002 and 2001 are presented in the following table.
- ----------------------------------------------------------------------------------------------
Nine months Ended September 30,
2002 2001
- ----------------------------------------------------------------------------------------------
Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------
Demand deposits:
Noninterest-bearing $ 111,921 $ 88,738
Interest-bearing (money
market and checking) 138,287 1.36% 101,300 2.50%
Savings 190,300 2.09 134,303 3.20
Time deposits 174,557 4.13 160,667 5.65
- ----------------------------------------------------------------------------------------------
Total deposits $ 615,065 $ 485,008
==============================================================================================
Interest Rate Sensitivity
The management of interest rate sensitivity seeks to avoid fluctuating net
interest margins and to provide consistent net interest income through periods
of changing interest rates.
The Company's risk of loss arising from adverse changes in the fair 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
17
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 those
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
An interest rate sensitive asset or liability is one that, within a defined
period, either matures or experiences an interest rate change in line with
general market interest rates. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time (GAP), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-earning assets
within the one year horizon. However, assets and liabilities with similar
repricing characteristics may not reprice at the same time or to the same
degree. As a result, the Company's GAP does not necessarily predict the impact
of changes in general levels of interest rates on net interest income.
Management believes the simulation of net interest income in different interest
rate environments provides a more meaningful measure of 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 200 basis
point increase and a 100 basis point decrease during the next year, with rates
remaining constant in the second year.
Historically, the Company's Asset/Liability Committee (ALCO) policy has
established that income sensitivity will be considered acceptable if overall net
income volatility in a plus 200 or minus 200 basis point scenario is within 15%
of net income in a flat rate scenario in the first year and 30% using a two year
planning window. At September 30, 2002, the Company projected its interest rate
risk using a plus 200 and minus 100 basis point scenario. During 2001, the
Federal Reserve lowered short-term interest rates by 475 basis points, pushing
the Federal Funds rate down to 1.75% from 6.5% at year-end 2000, the lowest
level in over 40 years. The Company's ALCO believed it was more realistic to
measure current risk assuming a minus 100 point scenario, as a minus 200 basis
point reduction would be unlikely given that current short-term market interest
rates are already below 2.00%. At September 30, 2002, the Company's income
simulation model indicates net income would increase 0.38% in the first year and
decrease 4.21% over a two-year time frame, respectively, if rates decreased 100
basis points. The model projects that net income would increase by 3.91% in the
first year and increase 13.35% over a two-year time frame, respectively, if
rates increased by 200 basis points. Subsequent to the quarter ended September
30, 2002, the Federal Reserve Board decreased the overnight federal funds rate
by 50 basis points from 1.75% to 1.25%. The effect of this rate decrease has
been captured in the Company's Income Simulation modeling as of September 30,
2002. All of these forecasts are within an acceptable level of interest rate
risk per the policies established by ALCO.
The market value of equity model reflects certain estimates and assumptions
regarding the impact on the market value of the Company's assets and liabilities
given an immediate 200 basis point change in interest rates. One of the key
18
assumptions is the market value assigned to the Company's core deposits, or the
core deposit premium. The studies have consistently confirmed management's
assertion that the Company's core deposits have stable balances over long
periods of time, and are generally insensitive to changes in interest rates.
Thus, these core deposit balances provide an internal hedge to market
fluctuations in the Company's fixed rate assets. Management believes the core
deposit premiums produced by its market value of equity model at September 30,
2002 provide an accurate assessment of the Company's interest rate risk.
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 increase in rates and a 100 basis point decrease in rates. The
Company's ALCO policy indicates that the level of interest rate risk is
unacceptable if the immediate change would result in the loss of 60% or more of
the excess of market value over book value in the current rate scenario. At
September 30, 2002, the market value of equity indicates an acceptable level of
interest rate risk.
Liquidity
Liquidity management involves the ability to generate cash or otherwise obtain
funds at reasonable rates to support asset growth and reduce assets to meet
deposit withdrawals, to maintain reserve requirements, and to otherwise operate
the Company on an ongoing basis. Liquidity needs are generally met by converting
assets into cash or obtaining sources of additional funding, mainly deposits.
Liquidity sources from asset categories are provided primarily by cash and
federal funds sold, and the cash flow from the amortizing securities and loan
portfolios. The primary source of liquidity from liability categories is the
generation of additional core deposit balances.
The Company experienced a significant increase in cash and cash equivalents
during the third quarter of 2002 in the form of federal funds sold. During the
second half of September, the Company experienced exceptionally strong growth in
public fund deposits, some of which are short-term in nature. Management has
earmarked a certain amount of these funds to be deployed into new loan growth
and investment purchases during the fourth quarter of 2002. The amount
established as short-term deposits will remain in federal funds sold.
Additionally, the Company has established secondary sources of liquidity
consisting of federal funds lines of credit, repurchase agreements, and
borrowing capacity at the Federal Home Loan Bank, which can be drawn upon if
needed. As of September 30, 2002, the total potential liquidity for the Company
through these secondary sources was $230 million. In view of the primary and
secondary sources as previously mentioned, management believes that the Company
is capable of meeting its anticipated liquidity needs.
Capital Adequacy
At September 30, 2002, stockholders' equity totaled $41.0 million, up 26% over
stockholders' equity of $32.6 million at December 31, 2001. Stockholders' equity
at September 30, 2002 included $1.6 million of gross unrealized gains, net of
income taxes, on securities available for sale. Excluding these unrealized
gains, gross stockholders' equity increased by $6.7 million from $32.7 million
19
at December 31, 2001, to $39.4 million at September 30, 2002 due to retained net
income and the proceeds from the stock option and stock purchase plans.
On June 15, 2000, the Company issued $5.0 million of 11.00% Trust Capital
Securities to Commerce Bancorp, Inc. through Commerce Harrisburg Capital Trust
I. Proceeds of this offering were downstreamed to the Bank to be used for
additional capitalization purposes. All $5.0 million of the Trust Capital
Securities qualify as Tier 1 capital for regulatory capital purposes.
On September 28, 2001, the Company issued $8.0 million of 10.00% Trust Capital
Securities to Commerce Bancorp, Inc. through Commerce Harrisburg Capital Trust
II. Proceeds of this offering were downstreamed to the Bank to be used for
additional capitalization purposes. All $8.0 million of the Trust Capital
Securities qualify as Tier 1 capital for regulatory capital purposes.
Risk-based capital provides the basis for which all banks are evaluated in terms
of capital adequacy. The risk-based capital standards require all banks to have
Tier 1 capital of at least 4% and total capital, including Tier 1 capital, of at
least 8% of risk-adjusted assets. Tier 1 capital includes common stockholders'
equity and qualifying perpetual preferred stock together with related surpluses
and retained earnings. Total capital may be comprised of total Tier 1 capital
plus limited life preferred stock, qualifying debt instruments, and the
allowance for loan losses.
The following table provides a comparison of the Company's risk-based capital
ratios and leverage ratios to the minimum regulatory requirements for the
periods indicated:
- -----------------------------------------------------------------------------------------------------------------------------
To Be Well Capitalized
September 30, December 31, For Capital Under Prompt Corrective
2002 2001 Adequacy Purposes Action Provisions
- -----------------------------------------------------------------------------------------------------------------------------
Risk-Based Capital Ratios:
Total 11.83% 11.78% 8.00% 10.00%
Tier 1 10.75 10.22 4.00 6.00
Leverage ratio 7.34 7.33 4.00 5.00
(to average assets)
- -----------------------------------------------------------------------------------------------------------------------------
At September 30, 2002, the consolidated capital levels of the Company and of the
Bank met the definition of a "well capitalized" institution.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk principally includes interest rate risk,
which is discussed in the Management's Discussion and Analysis section above.
While the federal funds rate and the National Prime Rate fell 475 basis points
between January 1, 2001 and December 31, 2001, the Company's net interest margin
has remained fairly stable. Commerce's net interest margin for the first nine
months of 2002 was 4.35%, a difference of 7 basis points over 4.42% for the
first nine months of 2001.
Currently, Commerce has 76% of its deposits in non-interest bearing, interest
checking, and saving accounts, which it considers core deposits. Because of
this, these accounts have historically contributed significantly to the net
interest margin.
20
Item 4. Controls and Procedures
Within the 90 days prior to the filing of this report, the Chief Financial
Officer, under the supervision of the Chief Executive Officer, has evaluated the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed in the Company's periodic reports is
accumulated and communicated to management as appropriate to allow timely
decisions by management regarding required disclosure.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the internal controls subsequent to the
date that the Company completed its evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to certain routine legal proceedings and claims arising
in the ordinary course of business. It is management's opinion the ultimate
resolution of these claims will not have a material adverse effect on the
Company's financial position and results of operations.
Item 2. Changes in Securities and Use of Proceeds
No items to report for the quarter ending September 30, 2002.
Item 3. Defaults Upon Senior Securities
No items to report for the quarter ending September 30, 2002.
Item 4. Submission of Matters to a Vote of Securities Holders
No items to report for the quarter ending September 30, 2002.
Item 5. Other Information
No items to report for the quarter ending September 30, 2002.
21
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
Computation of Net Income Per Share...................................Exhibit 11
(b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
2002.
22
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 be the
undersigned thereunto duly authorized.
PENNSYLVANIA COMMERCE BANCORP, INC.
(Registrant)
11/14/02 /s/ Gary L. Nalbandian
- ------------------------- ----------------------------------------
(Date) Gary L. Nalbandian
President/CEO
11/14/02 /s/ Mark A. Zody
- ------------------------- ----------------------------------------
(Date) Mark A. Zody
Executive Vice President
Chief Financial Officer
23
Certification of Chief Executive Officer and Chief Financial Officer of
Pennsylvania Commerce Bancorp, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:
o The report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended and
o The information contained in the report fairly represents, in all material
respects, the company's financial condition and results of operations.
/s/ Gary L. Nalbandian
- ------------------------------------------------
Gary L. Nalbandian,
Chief Executive Officer
/s/ Mark A. Zody
- ------------------------------------------------
Mark A. Zody,
Chief Financial Officer
Dated: November 14, 2002
24
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Gary L. Nalbandian, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pennsylvania 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 officers 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 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 officers 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 functions):
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 officers and I have indicated in this
quarterly report whether 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.
November 14, 2002 /s/ Gary L. Nalbandian
- ----------------- ---------------------------------------
Date Gary L. Nalbandian
President and Chief Executive Officer
25
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark A. Zody, Vice President and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pennsylvania 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 officers 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 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 annual 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 officers 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 functions):
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 officers and I have indicated in this
quarterly report whether 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.
November 14, 2002 /s/ Mark A. Zody
- ----------------- ------------------------------------------
Date Mark A. Zody
Vice President and Chief Financial Officer
26