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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 2003.
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 #333-78445
PENNSYLVANIA COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1834776
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 Senate Avenue, P.O. Box 8599, Camp Hill, Pennsylvania 17001-8599
(Address of principal executive offices)
Registrant's telephone number, including area code: (717) 975-5630
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X ]
1
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes No X
The aggregate market value of voting stock held by non-affiliates of
the registrant as of the last business day of the Company's most recently
completed second fiscal quarter, June 30, 2003, was $60,053,127.
The number of shares of the registrant's common stock, par value $1.00
per share, outstanding as of February 28, 2004 was 2,303,166.
DOCUMENTS INCORPORATED BY REFERENCE:
Part II incorporates certain information by reference from the
registrant's Annual Report to Shareholders for the fiscal year ended December
31, 2003 (the "Annual Report"). Part III incorporates certain information by
reference from the registrant's Proxy Statement for the 2004 Annual Meeting of
Shareholders.
2
PENNSYLVANIA COMMERCE BANCORP, INC.
FORM 10-K CROSS-REFERENCE INDEX
Page
Part I.
Item 1. Business....................................................................................4
Item 2. Properties.................................................................................11
Item 3. Legal Proceedings..........................................................................11
Item 4. Submission of Matters to a Vote of Security Holders........................................11
Part II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................................................11
Item 6. Selected Financial Data....................................................................13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................14
(The information required by this item is incorporated by reference from the
Company's 2003 Annual Report.)
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................14
(The information required by this item is incorporated by reference from the
Company's 2003 Annual Report.)
Item 8. Financial Statements and Supplementary Data................................................14
(The information required by this item is incorporated by
reference from the Company's 2003 Annual Report.)
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure (This item is omitted since it is not
applicable.)
Item 9A. Controls and Procedures....................................................................14
Part III.
Item 10. Directors and Executive Officers of the Registrant.........................................14
Item 11. Executive Compensation.....................................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................15
Item 13. Certain Relationships and Related Transactions.............................................15
Item 14. Principal Accountant Fees and Services.....................................................15
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................15
Signatures
3
Part I.
Item 1. Business
- ------------------------
Forward-Looking Statements
Pennsylvania Commerce Bancorp, Inc. (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 this Form 10-K and the exhibits hereto and
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 policies, including interest rate policies of the Board of
Governors of the Federal Reserve System (the "FRB"); changes in policies of the
FRB that could affect the classification of capital; 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 ability to maintain the growth and
further development of the Company's community-based retail branching
networks;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.
General
Pennsylvania Commerce Bancorp, Inc. (the "Company") is a Pennsylvania
business corporation, which is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). The
Company was incorporated on April 23, 1999 and became an active bank holding
company on July 1, 1999 through the acquisition of 100% of the outstanding
shares of Commerce Bank/Harrisburg, N.A. On June 15, 2000, the Company issued $5
4
million of 11.00% Trust Capital Securities through Commerce Harrisburg Capital
Trust I, a newly formed Delaware business trust subsidiary of the Company.
Proceeds of this offering were invested in Commerce Bank/Harrisburg, N.A., the
company's wholly owned banking subsidiary. All $5 million of the Trust Capital
Securities qualify as Tier 1 capital for regulatory capital purposes. On
September 28, 2001, the Company issued $8 million of 10.00% Trust Capital
Securities through Commerce Harrisburg Capital Trust II ("Trust II"), a newly
formed Delaware business trust subsidiary of the Company. Proceeds of this
offering were invested in Commerce Bank/Harrisburg, N.A., the company's wholly
owned banking subsidiary. All $8 million of the Trust Capital Securities qualify
as Tier 1 capital for regulatory capital purposes. Except as otherwise
indicated, all references herein to the Company include Commerce
Bank/Harrisburg, N.A. (also referred to as "Commerce" or the "Bank"), Commerce
Harrisburg Capital Trust I and Commerce Harrisburg Capital Trust II.
The Company is a member of the Commerce Bancorp, Inc. Network (the
"Network") and has the exclusive right to use the "Commerce Bank" name and the
"America's Most Convenient Bank" logo within its primary service area. The
Network provides certain marketing and support services to the Bank.
As of December 31, 2003, the Company had approximately $1.05 billion in
assets, $907 million in deposits, $479 million in total loans (including loans
held for sale), and $50 million in stockholders' equity. The Bank is a member of
the Federal Reserve System and substantially all of the Bank's deposits are
insured up to applicable limits by the Bank Insurance Fund (BIF) of the Federal
Deposit Insurance Corporation (FDIC) to the fullest extent permitted by law. The
Company's total revenues (net interest income plus noninterest income) were
$43.9 million and the Company recorded $6.6 million in net income for the year
ended December 31, 2003.
The Company's principal executive offices are located at 100 Senate
Avenue, Camp Hill, Pennsylvania 17011, and its telephone number is (717)
975-5630.
As of December 31, 2003, the Company had 623 employees, of which 514
were full-time employees. Management believes the Company's relationship with
its employees is good.
Commerce Bank/Harrisburg
The Company has one reportable segment, consisting of Commerce
Bank/Harrisburg, N.A., as described in Note 1of the Notes to Consolidated
Financial Statements included at Item 8 of this Report.
On July 13, 1984, Commerce Bank/Harrisburg filed an application to
establish a state-chartered banking institution with the Pennsylvania Department
of Banking. On September 7, 1984, Commerce was granted preliminary approval of
its application, and on September 11, 1984, was incorporated as a Pennsylvania
state-chartered banking institution under the laws of the Commonwealth of
Pennsylvania. The Bank opened for business on June 1, 1985.
On October 7, 1994, Commerce was converted from a Pennsylvania
state-chartered banking institution to a national banking association under the
laws of the United States of America and changed its name to "Commerce
Bank/Harrisburg, National Association." The Bank's conversion was consummated
pursuant to preliminary and conditional approval of the conversion granted by
the Office of the Comptroller of the Currency (OCC) on July 5, 1994 in response
to a letter of intent to convert to a national bank filed by the Bank with the
OCC on April 6, 1994.
Commerce provides a full range of retail and commercial banking
5
services for consumers and small and mid-sized companies. The Bank's lending and
investment activities are funded principally by retail deposits gathered through
its retail branch office network.
Service Area
The Bank offers its lending and depository services from its Corporate
Office in Camp Hill, Pennsylvania, and its twenty-three full-service branch
offices located in Cumberland, Dauphin, York, Berks, and Lebanon Counties,
Pennsylvania.
Retail and Commercial Banking Activities
The Bank provides a broad range of retail banking services and products
including free personal checking accounts and business checking accounts
(subject to a minimum balance), regular savings accounts, money market accounts,
interest checking accounts, fixed rate certificates of deposit, individual
retirement accounts, club accounts, debit card services, and safe deposit
facilities. Its services also include a full range of lending activities
including commercial construction and real estate loans, land development and
business loans, business lines of credit, consumer loan programs (including
installment loans for home improvement and the purchase of consumer goods and
automobiles), home equity and Visa Gold card revolving lines of credit,
overdraft checking protection, student loans and automated teller facilities.
The Bank also offers construction loans and permanent mortgages for homes.
Commerce is a participant in the Small Business Administration Loan Program and
is an approved lender for qualified applicants.
The Bank directs its commercial lending principally toward businesses
that require funds within the Bank's legal lending limit, as determined from
time to time, and that otherwise do business and/or are depositors with
Commerce. The Bank also participates in inter-bank credit arrangements in order
to take part in loans for amounts that are in excess of its lending limit or to
limit the concentration of lending to any individual. In consumer lending, the
Bank offers various types of loans, including revolving credit lines, automobile
loans, and home improvement loans.
The Company has focused its strategy for growth primarily on the
further development of its community-based retail-banking network. The objective
of this corporate strategy is to build earnings growth potential for the future
as the retail branch office network matures. The Company's branch concept uses a
prototype or standardized branch office building, convenient locations and
active marketing, all designed to attract retail deposits. Using this prototype
branch concept, the Company plans to open two or three new branch offices next
year and will continue to open multiple branches over the next five years. It
has been the Company's experience that each newly opened branch office incurs
operating losses during the first 12 to 15 months of operations and becomes
profitable thereafter. The Company's retail approach to banking emphasizes a
combination of long-term customer relationships, quick responses to customer
needs, active marketing, convenient locations, free checking for customers
maintaining certain minimum balances and extended hours of operation.
Incorporated by reference in this report is information regarding
Liquidity that appears on Page 34 of the 2003 Annual Report, which is attached
to this Form 10-K as Exhibit 13.
The Company is not dependent on any one or more major customers.
6
Competitive Business Conditions / Competitive Position
The Company's current primary service area, the south central
Pennsylvania area, including portions of Cumberland, Dauphin, York, Berks, and
Lebanon Counties, is characterized by intense competition for banking business.
The Bank competes with local commercial banks as well as numerous regionally
based commercial banks, most of which have assets, capital, and lending limits
larger than that of Commerce. The Bank competes with respect to its lending
activities as well as in attracting demand, savings, and time deposits with
other commercial banks, savings banks, insurance companies, regulated small loan
companies, credit unions, and with issuers of commercial paper and other
securities such as shares in money market funds.
Other institutions may have the ability to finance wide-ranging
advertising campaigns, and to allocate investment assets to regions of highest
yield and demand. Many institutions offer services such as trust services and
international banking which Commerce does not directly offer (but which the Bank
may offer indirectly through other institutions). Many institutions, by virtue
of their greater total capital, can have substantially higher lending limits
than Commerce.
In commercial transactions, the Bank's legal lending limit to a single
borrower (approximately $10.1 million as of December 31, 2003) enables it to
compete effectively for the business of smaller companies. However, this legal
lending limit is considerably lower than that of various competing institutions
and thus may act as a constraint on the Bank's effectiveness in competing for
financing in excess of these limits.
In consumer transactions, the Bank believes it is able to compete on a
substantially equal basis with larger financial institutions because it offers
longer hours of operation, personalized service and competitive interest rates
on savings and time accounts with low minimum deposit requirements.
In order to compete with other financial institutions both within and
beyond its primary service area, the Bank uses, to the fullest extent possible,
the flexibility which independent status permits. This includes an emphasis on
specialized services for the small businessperson and professional contacts by
the Bank's officers, directors and employees, and the greatest possible efforts
to understand fully the financial situation of relatively small borrowers. The
size of such borrowers, in management's opinion, often inhibits close attention
to their needs by larger institutions. The Bank may seek to arrange for loans in
excess of its lending limit on a participation basis with other financial
institutions. As of the end of 2003, all participations totaled approximately
$9.6 million. Participations are used to more fully service customers whose loan
demands exceed the Bank's lending limit.
The Bank endeavors to be competitive with all competing financial
institutions in its primary service area with respect to interest rates paid on
time and savings deposits, its overdraft charges on deposit accounts, and
interest rates charged on loans.
Supervision and Regulation
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to bank holding companies and their
subsidiaries and provides certain specific information relevant to the Company.
The regulatory framework is intended primarily for the protection of depositors,
other customers and the Federal Deposit Insurance Funds and not for the
7
protection of security holders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. A change in
applicable statutes, regulations or regulatory policy may have a material effect
on the business of the company.
The Company
The Company is subject to the jurisdiction of the Securities and
Exchange Commission ("SEC") and of state securities commissions for matters
relating to the offering and sale of its securities and is subject to the SEC's
rules and regulations relating to periodic reporting, reporting to shareholders,
proxy solicitation and insider trading.
The Company is subject to the provisions of the Bank Holding Company
Act of 1956, as amended and to supervision and examination by the FRB. Under the
Bank Holding Company Act, the Company must secure the prior approval of the FRB
before it may own or control, directly or indirectly, more than 5% of the voting
shares or substantially all of the assets of any institution, including another
bank (unless it already owns a majority of the voting stock of the bank).
Satisfactory financial condition, particularly with regard to capital
adequacy, and satisfactory Community Reinvestment Act ratings are generally
prerequisites to obtaining federal regulatory approval to make acquisitions.
Commerce is currently rated "satisfactory" under the Community Reinvestment Act.
The Company is required to file an annual report with the Federal
Reserve Board and any additional information that the Federal Reserve Board may
require pursuant to the Bank Holding Company Act. The Federal Reserve Board may
also make examinations of the Company and any or all of its subsidiaries.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tying arrangements in connection with the extension of
credit or provision for any property or service. Thus, an affiliate of the
Company, such as the Bank, may not condition the extension of credit, the lease
or sale of property or furnishing of any services on (i) the customer's
obtaining or providing some additional credit, property or services from or to
the Bank or other subsidiaries of the Company, or (ii) the customer's refraining
from doing business with a competitor of the Bank, the Company or of its
subsidiaries. The Company or the Bank may impose conditions to the extent
necessary to reasonably assure the soundness of credit extended.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on (i) any extension of credit
to the bank holding company or any of its subsidiaries, (ii) investments in the
stock or other securities of the bank holding company, and (iii) taking the
stock or securities of the bank holding company as collateral for loans to any
borrower.
The Bank
As a nationally chartered commercial banking association, the Bank is
subject to regulation, supervision and regular examination by the Office of the
Comptroller of the Currency (OCC) and is required to furnish quarterly reports
to the OCC. The Bank is a member of the Federal Reserve System. The Bank's
deposits are insured by the FDIC up to applicable legal limits. Some of the
aspects of the lending and deposit business of the Bank that are regulated by
these agencies include personal lending, mortgage lending and reserve
8
requirements. The Bank is also subject to numerous federal, state and local laws
and regulations which set forth specific restrictions and procedural
requirements with respect to the extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit transactions.
The approval of the OCC is required for the establishment of additional
branch offices. Since March 4, 1990, the Bank has been able to establish
branches within any county in Pennsylvania.
Under the Change in Banking Control Act of 1978, subject to certain
exceptions, no person may acquire control of the Bank without giving at least
sixty days' prior written notice to the OCC. Under this Act and its regulations,
control of the Bank is generally presumed to be the power to vote ten percent
(10%) or more of the Common Stock. The OCC is empowered to disapprove any such
acquisition of control.
The amount of funds that Commerce may lend to a single borrower is
limited generally under the National Bank Act to 15% of the aggregate of its
capital, surplus and undivided profits and capital securities (all as defined by
statute and regulation).
The OCC has authority under the Financial Institutions Supervisory Act
to prohibit national banks from engaging in any activity, which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to the
Company.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the Company's business is particularly
susceptible to being affected by federal and state legislation and regulations,
which may affect the cost of doing business.
Recent Legislation
On November 12, 1999, the Gramm-Leach-Bliley Act (better known as the
Financial Services Modernization Act of 1999) became law. The law permits bank
holding companies to become financial holding companies and thereby affiliate
with securities firms and insurance companies and engage in other activities
that are financial in nature. A bank holding company may become a financial
holding company if each of its subsidiary banks is well capitalized, is well
managed and has at least a satisfactory rating under the Community Reinvestment
Act, by filing a declaration that the bank holding company wishes to become a
financial holding company. Also, no regulatory approval is required for a
financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve
Board. The Financial Services Modernization Act defines "financial in nature" to
include: securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency; merchant
banking activities; and activities that the Federal Reserve Board has determined
to be closely related to banking. A national bank also may engage, subject to
limitations on investment, in activities that are financial in nature, other
than insurance underwriting, insurance company portfolio investment, real estate
development and real estate investment, through a financial subsidiary of the
bank, if the bank is well capitalized, well managed and has at least a
satisfactory Community Reinvestment Act rating. Except for the increase in
competitive pressures faced by all banking organizations that is a likely
consequence of the Act, the Company believes that the legislation and
9
implementing regulations are likely to have a more immediate impact on large
regional and national institutions than on community-based institutions engaged
principally in traditional banking activities. Because the legislation permits
bank holding companies to engage in activities previously prohibited altogether
or severely restricted because of the risks they posed to the banking system,
implementing regulations impose strict and detailed prudential safeguards on
affiliations among banking and nonbanking companies in a holding company
organization.
The USA Patriot Act imposes additional obligations on U.S. financial
institutions, including banks, to implement policies, procedures and controls,
which are reasonably designed to detect and report instances of money laundering
and the financing of terrorism. In addition, provisions of the USA Patriot Act
require the federal financial institution regulatory agencies to consider the
effectiveness of a financial institution's anti-money laundering activities when
reviewing bank applications.
The Sarbanes-Oxley Act of 2002, which President Bush signed into law on
July 30, 2002, addresses accounting oversight and corporate governance matters,
including increased penalties for financial crimes, expanded disclosure of
corporate operations and certification as to the effectiveness of disclosure
controls, enhanced controls on and reporting of insider trading and annual
management assessment of internal controls over financial reporting and their
effectiveness. The Company has addressed the requirements imposed by regulations
relating to the Sarbanes-Oxley Act, including forming a Nominating and Corporate
Governance Committee (and establishing its charter), adopting a Code of Ethics
applicable to the Company's CEO, Chief Financial Officer and principal
accounting officer (in addition to the Code of Conduct already in place for all
employees of the Company), and meeting NASDAQ's and the SEC's procedural and
disclosure requirements.
National Monetary Policy
In addition to being affected by general economic conditions, the
earnings and growth of the Company are affected by the policies of regulatory
authorities, including the OCC, the FRB and the FDIC. An important function of
the FRB is to regulate the money supply and credit conditions. Among the
instruments used to implement these objectives are open market operations in
U.S. Government securities, setting the discount rate, and changes in reserve
requirements against bank deposits. These instruments are used in varying
combinations to influence overall growth and distribution of credit, bank loans,
investments and deposits, and their use may also affect interest rates charged
on loans or paid on deposits.
The monetary policies and regulations of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. The effects of such policies upon the future
business, earnings, and growth of the Company cannot be predicted.
Environmental Laws
The costs and effects of compliance with environmental laws, federal,
state and local, on the Company are minimal.
10
Available Information
The Company makes available free of charge on the Company's website,
www.commercepc.com, its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after the Company electronically files such material
with, or furnishes to, the SEC. Additionally, the SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at the web address,
www.sec.gov.
Item 2. Properties
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As of December 31, 2003, the Company owns 10 properties and leases 18
other properties. The properties owned are not subject to any liens,
encumbrances, or collateral assignments. The principal office of the Company is
leased and located at 100 Senate Avenue, Camp Hill, Pennsylvania 17011. The Bank
presently has 23 stores located in the following Pennsylvania counties:
Cumberland, Berks, Dauphin, Lebanon, and York.
Item 3. Legal Proceedings
- ---------------------------------
The Company is subject to certain 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.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------------
There were no matters submitted to a vote of security holders in the
fourth quarter of 2003.
Item 5. Market For Registrant's Common Equity and Related Stockholder
- -----------------------------------------------------------------------------
Matters
-------
The Company's common stock trades on the NASDAQ Small Cap Market tier
of The NASDAQ Stock Market under the symbol COBH. The following table sets forth
the prices for which common stock has traded during the last two fiscal years on
the NASDAQ Small Cap Market. The prices per share have been adjusted to reflect
common stock dividends of 5% with record dates of February 6, 2004 and February
7, 2003. As of February 28, 2004, there were approximately 650 holders of record
of the Company's common stock.
Sales Price
Quarter Ended: High Low
-------------------------------------------------------------
December 31, 2003 $ 48.57 $ 39.49
September 30, 2003 39.37 35.12
June 30, 2003 37.83 33.50
March 31, 2003 38.10 32.38
-------------------------------------------------------------
December 31, 2002 $ 40.02 $ 31.42
September 30, 2002 43.91 33.79
June 30, 2002 48.98 37.46
March 31, 2002 38.10 32.18
11
Dividends and Dividend History
The Company distributed to stockholders 5% stock dividends in December
1992, and annually from February 1994 through February 2004, and anticipates the
possible distribution of stock dividends in the future. The Company also
distributed to stockholders a two-for-one stock split (payable in the form of a
100% stock dividend) on August 7, 1995. Neither the Company nor the Bank has
declared or paid cash dividends on its common stock since the Bank began
operations in June 1985. The Board of Directors intends to follow a policy of
retaining earnings for the purpose of increasing the Company's capital for the
foreseeable future. Although the Board of Directors anticipates establishing a
cash dividend policy in the future, no assurance can be given that cash
dividends will be paid.
The holders of Common Stock of the Company are entitled to receive
dividends as may be declared by the Board of Directors with respect to the
Common Stock out of funds of the Company. While the Company is not subject to
certain restrictions on dividends and stock redemptions applicable to a bank,
the ability of the Company to pay dividends to the holders of its Common Stock
will depend to a large extent upon the amount of dividends paid by the Bank to
the Company. Regulatory authorities restrict the amount of cash dividends the
Bank can declare without prior regulatory approval. Presently, the Bank cannot
declare a dividend in excess of its accumulated retained earnings.
The ability of the Company to pay dividends on its Common Stock in the
future will depend on the earnings and the financial condition of the Bank and
the Company. The Company's ability to pay dividends will be subject to the prior
payment by the Company of principal and interest on any debt obligations it may
incur in the future as well as other factors that may exist at the time.
12
Item 6. Selected Financial Data
- --------------------------------------
Pennsylvania Commerce Bancorp, Inc.
Selected Financial Data
Year Ended December 31,
(dollars in thousands, except per share data) 2003 2002 2001 2000 1999
BALANCE SHEET DATA:
===================================================================================================================================
Total Assets $ 1,051,989 $ 786,598 $ 609,890 $ 480,086 $ 378,913
Loans held for sale 9,164 10,514 7,661 5,329 5,301
Loans receivable (net) 469,937 363,735 338,130 286,520 213,264
Securities available for sale 275,400 205,436 104,722 90,633 82,522
Securities held to maturity 199,863 97,625 103,349 33,812 29,039
Federal funds sold 0 44,500 4,300 22,800 0
Deposits 906,527 726,955 561,738 446,583 348,546
Short-term borrowings and long-term debt 79,000 0 0 0 8,300
Trust capital securities 13,000 13,000 13,000 5,000 0
Stockholders' equity 49,724 42,812 32,593 26,668 20,378
INCOME STATEMENT DATA:
===================================================================================================================================
Net interest income $ 33,890 $ 27,701 $ 22,054 $ 17,477 $ 14,676
Provision for loan losses 1,695 1,435 1,469 1,050 762
Noninterest income 9,990 7,707 6,607 5,362 4,558
Noninterest operating expenses 32,510 25,428 20,512 16,189 13,756
Income before income taxes 9,675 8,545 6,680 5,600 4,716
Net income 6,557 5,674 4,448 3,714 3,103
PER COMMON SHARE DATA:
===================================================================================================================================
Net income: Basic $ 2.88 $ 2.58 $ 2.14 $ 1.81 $ 1.51
Diluted 2.68 2.37 1.94 1.69 1.42
Book Value 21.24 18.79 15.21 12.66 9.68
SELECTED PERFORMANCE RATIOS:
===================================================================================================================================
Return on average assets 0.74 % 0.82 % 0.82 % 0.88 % 0.89 %
Return on average stockholders' equity 14.27 14.86 14.85 16.59 15.18
Net interest margin 4.20 4.29 4.40 4.49 4.59
SELECTED LIQUIDITY AND CAPITAL RATIOS:
===================================================================================================================================
Average loans to average deposits 52.23 % 56.91 % 63.25 % 65.12 % 60.24 %
Average stockholders' equity to average total assets 5.22 5.49 5.54 5.29 5.86
Risk based capital: Tier 1 9.57 11.16 10.22 9.90 9.91
Total 10.49 12.22 11.78 11.04 11.12
Leverage Capital 6.19 7.00 7.33 6.92 6.28
ASSET QUALITY RATIOS:
===================================================================================================================================
Net charge-offs to average loans outstanding 0.20 % 0.23 % 0.21 % 0.06 % 0.08 %
Non-performing loans to total year-end loans 0.25 0.45 0.26 0.29 0.32
Non-performing assets to total year-end assets 0.13 0.23 0.15 0.18 0.18
Allowance for loan losses to total year-end loans 1.26 1.40 1.33 1.29 1.31
Allowance for loan losses to non-performing loans 513 311 519 448 404
13
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
---------------------
The information required by this item is incorporated by reference from
the Company's 2003 Annual Report, which is attached to this Form 10-K as Exhibit
13.
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
The information required by this item is incorporated by reference from
the Company's 2003 Annual Report, which is attached to this Form 10-K as Exhibit
13.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The information required by this item is incorporated by reference from
the Company's 2003 Annual Report, which is attached to this Form 10-K as Exhibit
13.
Item 9. Changes and Disagreements with Accountants on Accounting and
- ---------------------------------------------------------------------
Financial Disclosure
--------------------
None.
Item 9A.Controls and Procedures
- ------------------------------------
Under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
the Company has evaluated the effectiveness of its disclosure controls and
procedures as of December 31, 2003. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
is made known to them by others within those entities, particularly during the
period in which this report was prepared. There have not been any changes in the
Company's internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Part III.
Item 10. Directors and Executive Officers of the Registrant
- ---------------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2004. In addition to a Code of Business Conduct and Ethics
applicable to all employees, the Company has adopted a Code of Ethics for Senior
Financial Officers that is specifically applicable to its Chief Executive
Officer, Chief Financial Officer and Principal Accounting Officer, a copy of
which is attached to this Annual Report on Form 10-K as Exhibit 14. Both of
these codes will be posted on the Company's website, www.commercepc.com.
Item 11. Executive Compensation
- -----------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2004.
14
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ---------------------------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2004.
Item 13. Certain Relationships and Related Transactions
- -----------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2004 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2004.
Item 14. Principal Accountant Fees and Services
- ---------------------------------------------------
Information responsive to this item is incorporated by reference to
the Company's definitive proxy statement for the 2004 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2004.
Part IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -----------------------------------------------------------------------------
(a)(1) The following financial statements are incorporated by reference in
Part II, Item 8 hereof:
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Income for the years ended December 31,
2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended December
31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) Financial Statement Schedules (This item is omitted since
information required is either not applicable or is included in
the footnotes to the Annual Financial Statements.)
(a)(3) List of Exhibits:
3.1. Articles of Incorporation, of the Company as amended (A)
15
3.2. By - Laws, of the Company as amended
4. Commerce Harrisburg Capital Trust I and Commerce Harrisburg
Capital Trust II (Instruments defining the rights of the holders
of trust capital securities issued and sold by the Company are
not attached, as the amount of such securities is less than 10%
of the consolidated assets of the Company and its subsidiaries,
and the securities have not been registered. The Company agrees
to provide copies of such instruments to the SEC upon request.)
10.1. The Company's 1990 Directors Stock Option Plan (B)
10.2. The Company's 1996 Employee Stock Option Plan (C)
10.3. Warrant Agreement and Warrant No. 1 of Commerce Bank/Harrisburg
dated October 7, 1988 (incorporated by reference on Form 10-K
filed with the SEC on March 30, 2000)
10.4. Amendment No. 1 to the Stock and Warrant Purchase Agreement
(incorporated by reference on Form 10-K filed with the SEC on
March 30, 2000)
10.5. The Company's 2001 Directors Stock Option Plan (D)
10.6. Amendment to Network Agreement, including original Network
Agreement, by and among Commerce Bancorp, Inc., Pennsylvania
Commerce Bancorp, Inc. and Commerce Bank/Harrisburg (E)
11. Calculation of EPS
(The information required by this item appears in Note 13 of the
Consolidated Financial Statements of the Company's 2003 Annual
Report to Shareholders and is incorporated by reference herein.)
13. Pennsylvania Commerce Bancorp, Inc. 2003 Annual Report to
Shareholders
14. Pennsylvania Commerce Bancorp, Inc. Code of Ethics for Senior
Financial Officers
21. Subsidiaries of the Company (incorporated by reference from PART
I, Item 1. "BUSINESS" of this Report on Form 10-K.)
23. Consent of Beard Miller Company LLP.
31.1 Certification of CEO, required by SEC Rule
13a-14(a)/15d-14(a)
31.2 Certification of CFO, required by SEC Rule
13a-14(a)/15d-14(a)
32.1 Section 1350 Certification by CEO
32.2 Section 1350 Certification by CFO
(b) Reports on Form 8-K
On November 10, 2003, the Company filed a form 8-K which included
as exhibits a press release issued by us on October 21, 2003
reporting our financial results for its third quarter of 2003.
16
(c) Exhibits - The exhibits required to be filed as part of this
report are submitted as a separate section of this report.
(d) Financial Statement Schedules - None required.
- ------------------
(A) Incorporated by reference from Appendix "D" of the
Prospectus in the Company's Registration Statement on Form
S-4 filed with the SEC on May 14, 1999.
(B) Incorporated by reference from Exhibit 4 of the Company's
Registration Statement on Form S-4 filed with the SEC on
July 1, 1999. This is a compensatory arrangement in which
the Company's directors participate.
(C) Incorporated by reference from Exhibit 4 of the Company's
Registration Statement on Form S-4 filed with the SEC on
July 1, 1999. This is a compensatory arrangement in which
the Company's executive officers participate.
(D) Incorporated by reference from the Company's Definitive
Proxy Statement for its 2000 Annual Meeting of Shareholders,
Appendix A thereto, filed with the SEC on April 19, 2000.
This is a compensatory arrangement in which the Company's
directors participate.
(E) Incorporated by reference from Exhibit 10 to the Company's
Report on Form 10-Q, filed with the SEC on November 14,
2003.
17
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Pennsylvania Commerce Bancorp, Inc,
Date: March 30, 2004 By /s/ Gary L. Nalbandian
-----------------------------------
Gary L. Nalbandian
Chairman and President
Date: March 30, 2004 By /s/ Mark A. Zody
-----------------------------------
Mark A. Zody
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Gary L. Nalbandian Chairman of the Board, President and March 30, 2004
- ---------------------------------------- Director (Principal Executive Officer)
Gary L. Nalbandian
/s/ James R. Adair Director March 30, 2004
- ----------------------------------------
James R. Adair
/s/ John J. Cardello Director March 30, 2004
- ----------------------------------------
John J. Cardello
/s/ Douglas S. Gelder Director March 30, 2004
- ----------------------------------------
Douglas S. Gelder
/s/ Alan R. Hassman Director March 30, 2004
- ----------------------------------------
Alan R. Hassman
/s/ Howell C. Mette Director March 30, 2004
- ----------------------------------------
Howell C. Mette
/s/ Michael A. Serluco Director March 30, 2004
- ----------------------------------------
Michael A. Serluco
/s/ Samir J. Srouji, M.D. Director March 30, 2004
- ----------------------------------------
Samir J. Srouji, M.D.
18