Commerce Bancorp 10Q
UNITED
STATES
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 quarterly period ended March
31, 2007
|
OR
(
)
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the transition period from ______________ to
______________
|
Commission
File #1-12069
(Exact
name of registrant as specified in its charter)
New
Jersey
|
22-2433468
|
(State
or other jurisdiction of
|
(IRS
Employer Identification
|
incorporation
or organization)
|
Number)
|
Commerce
Atrium, 1701 Route 70 East, Cherry Hill, New Jersey
08034-5400
|
(Address
of Principal Executive Offices) (Zip Code)
|
|
(856)
751-9000
|
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such report(s)), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large
accelerated filer X
|
Accelerated
filer __
|
Non-accelerated
filer __
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Common
Stock
|
191,373,248
|
(Title
of Class)
|
(No.
of Shares Outstanding
as
of May 1, 2007)
|
COMMERCE
BANCORP, INC. AND SUBSIDIARIES
INDEX
PART
1. FINANCIAL
INFORMATION
Item
1. Financial
Statements
COMMERCE
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(unaudited)
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
(dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
Assets
|
Cash
and due from banks
|
$
|
1,237,008
|
|
$
|
1,207,390
|
|
|
Federal
funds sold
|
|
506,400
|
|
|
9,300
|
|
|
Cash
and cash equivalents
|
|
1,743,408
|
|
|
1,216,690
|
|
|
Loans
held for sale
|
|
48,447
|
|
|
52,741
|
|
|
Trading
securities
|
|
156,241
|
|
|
106,007
|
|
|
Securities
available for sale
|
|
12,333,705
|
|
|
11,098,113
|
|
|
Securities
held to maturity
|
|
14,811,708
|
|
|
14,884,982
|
|
|
(market
value 03/07-$14,587,667; 12/06-$14,617,765)
|
|
|
|
|
|
|
|
Loans
|
|
15,934,006
|
|
|
15,607,049
|
|
|
Less
allowance for loan and lease losses
|
|
155,912
|
|
|
152,053
|
|
|
|
|
15,778,094
|
|
|
15,454,996
|
|
|
Bank
premises and equipment, net
|
|
1,801,998
|
|
|
1,753,670
|
|
|
Goodwill
and other intangible assets
|
|
145,923
|
|
|
141,631
|
|
|
Other
assets
|
|
552,108
|
|
|
562,986
|
|
|
Total
assets
|
$
|
47,371,632
|
|
$
|
45,271,816
|
|
|
|
|
|
|
|
|
|
Liabilities
|
Deposits:
|
|
|
|
|
|
|
|
Demand:
|
|
|
|
|
|
|
|
Noninterest-bearing
|
$
|
9,321,584
|
|
$
|
8,936,824
|
|
|
Interest-bearing
|
|
18,682,011
|
|
|
16,853,457
|
|
|
Savings
|
|
10,580,371
|
|
|
10,459,306
|
|
|
Time
|
|
5,391,900
|
|
|
5,038,624
|
|
|
Total
deposits
|
|
43,975,866
|
|
|
41,288,211
|
|
|
Other
borrowed money
|
|
122,725
|
|
|
777,404
|
|
|
Other
liabilities
|
|
391,848
|
|
|
405,103
|
|
|
Total
liabilities
|
|
44,490,439
|
|
|
42,470,718
|
|
|
|
|
|
|
|
|
|
Stockholders’
|
Common
stock, 192,751,235 shares
|
|
|
|
|
|
|
Equity
|
issued
(189,738,423 shares in 2006)
|
|
192,751
|
|
|
189,738
|
|
|
Capital
in excess of par value
|
|
1,779,523
|
|
|
1,744,691
|
|
|
Retained
earnings
|
|
1,007,299
|
|
|
958,770
|
|
|
Accumulated
other comprehensive loss
|
|
(49,364
|
)
|
|
(65,240
|
)
|
|
|
|
2,930,209
|
|
|
2,827,959
|
|
|
|
|
|
|
|
|
|
|
Less
treasury stock, at cost, 1,874,923 shares
|
|
|
|
|
|
|
|
(1,231,081
shares in 2006)
|
|
49,016
|
|
|
26,861
|
|
|
Total
stockholders’ equity
|
|
2,881,193
|
|
|
2,801,098
|
|
|
Total
liabilities and stockholders’ equity
|
$
|
47,371,632
|
|
$
|
45,271,816
|
|
See
accompanying notes.
COMMERCE
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(unaudited)
|
|
|
|
|
|
Three
Months Ended
March
31,
|
|
|
(dollars
in thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
Interest
|
Interest
and fees on loans
|
$
|
270,770
|
|
$
|
214,974
|
|
income
|
Interest
on investments
|
|
355,308
|
|
|
295,076
|
|
|
Other
interest
|
|
5,733
|
|
|
413
|
|
|
Total
interest income
|
|
631,811
|
|
|
510,463
|
|
|
|
|
|
|
|
|
|
Interest
|
Interest
on deposits:
|
|
|
|
|
|
|
expense
|
Demand
|
|
163,742
|
|
|
97,940
|
|
|
Savings
|
|
72,118
|
|
|
54,004
|
|
|
Time
|
|
58,863
|
|
|
36,261
|
|
|
Total
interest on deposits
|
|
294,723
|
|
|
188,205
|
|
|
Interest
on other borrowed money
|
|
4,132
|
|
|
14,328
|
|
|
Total
interest expense
|
|
298,855
|
|
|
202,533
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
332,956
|
|
|
307,930
|
|
|
Provision
for credit losses
|
|
10,000
|
|
|
6,501
|
|
|
Net
interest income after provision for credit losses
|
|
322,956
|
|
|
301,429
|
|
|
|
|
|
|
|
|
|
Noninterest
|
Deposit
charges and service fees
|
|
105,206
|
|
|
82,281
|
|
income
|
Other
operating income
|
|
51,366
|
|
|
48,721
|
|
|
Net
investment securities gains
|
|
2,879
|
|
|
|
|
|
Total
noninterest income
|
|
159,451
|
|
|
131,002
|
|
|
|
|
|
|
|
|
|
Noninterest
|
Salaries
and benefits
|
|
167,759
|
|
|
144,825
|
|
expense
|
Occupancy
|
|
58,072
|
|
|
46,240
|
|
|
Furniture
and equipment
|
|
42,852
|
|
|
35,960
|
|
|
Office
|
|
16,303
|
|
|
15,473
|
|
|
Marketing
|
|
10,433
|
|
|
7,811
|
|
|
Other
|
|
67,366
|
|
|
65,025
|
|
|
Total
noninterest expenses
|
|
362,785
|
|
|
315,334
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
119,622
|
|
|
117,097
|
|
|
Provision
for federal and state income taxes
|
|
41,686
|
|
|
39,800
|
|
|
Net
income
|
$
|
77,936
|
|
$
|
77,297
|
|
|
|
|
|
|
|
|
|
|
Net
income per common and common equivalent share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.41
|
|
$
|
0.43
|
|
|
Diluted
|
$
|
0.40
|
|
$
|
0.41
|
|
|
Average
common and common equivalent
|
|
|
|
|
|
|
|
shares
outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
189,278
|
|
|
180,917
|
|
|
Diluted
|
|
196,505
|
|
|
189,867
|
|
|
Dividends
declared, common stock
|
$
|
0.13
|
|
$
|
0.12
|
|
See
accompanying notes.
COMMERCE
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
Three
Months Ended
March
31,
|
|
|
(dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
Operating
|
Net
income
|
$
|
77,936
|
|
$
|
77,297
|
|
activities
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
Provision
for credit losses
|
|
10,000
|
|
|
6,501
|
|
|
Provision
for depreciation, amortization and accretion
|
|
40,805
|
|
|
37,553
|
|
|
Stock-based
compensation expense
|
|
2,352
|
|
|
403
|
|
|
Net
gain on sales of securities
|
|
(2,879
|
)
|
|
|
|
|
Proceeds
from sales of loans held for sale
|
|
222,900
|
|
|
114,892
|
|
|
Originations
of loans held for sale
|
|
(218,606
|
)
|
|
(122,150
|
)
|
|
Net
(increase) decrease in trading securities
|
|
(50,234
|
)
|
|
19,548
|
|
|
Decrease
in other assets, net
|
|
3,705
|
|
|
11,373
|
|
|
Decrease
in other liabilities
|
|
(18,175
|
)
|
|
(46,537
|
)
|
|
Net
cash provided by operating activities
|
|
67,804
|
|
|
98,880
|
|
|
|
|
|
|
|
|
|
Investing
|
Proceeds
from the sales of securities available for sale
|
|
457,890
|
|
|
|
|
activities
|
Proceeds
from the maturity of securities available for sale
|
|
827,743
|
|
|
447,545
|
|
|
Proceeds
from the maturity of securities held to maturity
|
|
697,774
|
|
|
446,707
|
|
|
Purchase
of securities available for sale
|
|
(2,493,218
|
)
|
|
(1,276,562
|
)
|
|
Purchase
of securities held to maturity
|
|
(626,614
|
)
|
|
(1,150,822
|
)
|
|
Net
increase in loans
|
|
(333,071
|
)
|
|
(826,378
|
)
|
|
Capital
expenditures
|
|
(86,094
|
)
|
|
(59,081
|
)
|
|
Net
cash used by investing activities
|
|
(1,555,590
|
)
|
|
(2,418,591
|
)
|
|
|
|
|
|
|
|
|
Financing
|
Net
increase in demand and savings deposits
|
|
2,334,379
|
|
|
2,072,460
|
|
activities
|
Net
increase in time deposits
|
|
353,276
|
|
|
312,934
|
|
|
Net
decrease in other borrowed money
|
|
(654,679
|
)
|
|
(236,690
|
)
|
|
Dividends
paid
|
|
(24,511
|
)
|
|
(21,479
|
)
|
|
Proceeds
from issuance of common stock under
dividend reinvestment and other stock plans
|
|
6,039
|
|
|
87,582
|
|
|
Other
|
|
|
|
|
33
|
|
|
Net
cash provided by financing activities
|
|
2,014,504
|
|
|
2,214,840
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
526,718
|
|
|
(104,871
|
)
|
|
Cash
and cash equivalents at beginning of year
|
|
1,216,690
|
|
|
1,296,764
|
|
|
Cash
and cash equivalents at end of period
|
$
|
1,743,408
|
|
$
|
1,191,893
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
$
|
286,784
|
|
$
|
201,341
|
|
|
Income
taxes
|
|
839
|
|
|
573
|
|
|
Other
noncash activities:
|
|
|
|
|
|
|
|
Fair
value of noncash assets and liabilities acquired:
|
|
|
|
|
|
|
|
Assets
acquired
|
|
75
|
|
|
680
|
|
|
Liabilities
assumed
|
|
24
|
|
|
10,076
|
|
See
accompanying notes.
COMMERCE
BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
Three
months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
in
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Excess
of
|
|
|
|
|
|
Other
|
|
|
|
|
Common
|
|
Par
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
|
|
|
Stock
|
|
Value
|
|
Earnings
|
|
Stock
|
|
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2006
|
$189,738
|
|
$1,744,691
|
|
$958,770
|
|
$(26,861
|
)
|
$(65,240
|
)
|
$2,801,098
|
|
Net
income
|
|
|
|
|
77,936
|
|
|
|
|
|
77,936
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on securities (pre-tax $27,817)
|
|
|
|
|
|
|
|
|
17,438
|
|
17,438
|
|
Reclassification
adjustment (pre-tax $2,403)
|
|
|
|
|
|
|
|
|
(1,562
|
)
|
(1,562
|
)
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
15,876
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
93,812
|
|
Cash
dividends declared
|
|
|
|
|
(24,821
|
)
|
|
|
|
|
(24,821
|
)
|
Shares
issued under dividend reinvestment
|
|
|
|
|
|
|
|
|
|
|
|
|
and
compensation and benefit plans (2,787 shares)
|
2,787
|
|
25,406
|
|
|
|
|
|
|
|
28,193
|
|
Acquisition
of insurance brokerage agency (226 shares)
|
226
|
|
7,074
|
|
|
|
|
|
|
|
7,300
|
|
Other
|
|
|
2,352
|
|
(4,586
|
)
|
(22,155
|
)
|
|
|
(24,389
|
)
|
Balances
at March 31, 2007
|
$192,751
|
|
$1,779,523
|
|
$1,007,299
|
|
$(49,016
|
)
|
$(49,364
|
)
|
$2,881,193
|
|
See
accompanying notes.
COMMERCE
BANCORP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated
Financial Statements
The
consolidated financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations. These consolidated financial statements were compiled
in
accordance with the accounting policies set forth in Note 1 - Significant
Accounting Policies of the Notes to Consolidated Financial Statements included
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2006. The accompanying consolidated financial statements reflect all adjustments
that are, in the opinion of management, necessary to reflect a fair statement
of
the results for the interim periods presented. Such adjustments are of a normal
recurring nature.
These
consolidated financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the registrant’s Annual
Report on Form 10-K for the year ended December 31, 2006. The results for the
three months ended March 31, 2007 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2007.
The
consolidated financial statements include the accounts of Commerce Bancorp,
Inc.
and its consolidated subsidiaries. All material intercompany transactions have
been eliminated. Certain amounts from prior periods have been reclassified
to
conform with 2007 presentation.
In
July
2006, the Financial Accounting Standards Board (FASB) issued Interpretation
No.
48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (FAS 109). This interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. The Company adopted FIN 48 effective January 1, 2007.
As
a result of the implementation of FIN 48, the Company recognized a $7.1 million
increase in its liability for unrecognized tax benefits, which was accounted
for
as a $4.6 million reduction, net of the federal tax benefit, to the January
1,
2007 balance of retained earnings. As of January 1, 2007, the Company’s
unrecognized tax benefits totaled $13.1 million, of which $8.5 million, if
recognized, would result in a reduction of the Company’s effective tax
rate.
The
Company recognizes interest and penalties related to its tax contingencies
as
income tax expense. At January 1, 2007 the Company had approximately $1.0
million accrued for interest and no accrual for penalties.
The
Company files income tax returns in the U.S. federal jurisdiction and numerous
state and local jurisdictions. The Company is no longer subject to Internal
Revenue Service examination for periods prior to 2002. All state and local
returns have been concluded and are no longer subject to examination through
2001, with certain returns concluded through 2006.
C. Commitments
In
the
normal course of business, there are various outstanding commitments to extend
credit, such as letters of credit and unadvanced loan commitments. Management
does not anticipate any material losses as a result of these transactions.
Fees
associated with standby letters of credit have been deferred and recorded in
“Other liabilities” on the Consolidated Balance Sheets. These fees are
immaterial to the Company’s consolidated financial statements at March 31,
2007.
D. Comprehensive
Income
Total
comprehensive income, which for the Company included net income and changes
in
unrealized gains and losses on the Company’s available for sale securities,
amounted to $93.8 million and $14.5 million, respectively, for the three months
ended March 31, 2007 and 2006.
E. Segment
Information
The
Company operates one reportable segment of business, Community Banks, which
includes both of the Company’s banking subsidiaries. Through its Community
Banks, the Company provides a broad range of retail and commercial banking
services, and corporate trust services. Parent/Other includes the holding
company, Commerce Banc Insurance Services, Inc. and Commerce Capital Markets,
Inc.
Selected
segment information is as follows (in thousands):
|
|
|
|
|
|
Three
Months Ended
March
31, 2007
|
|
Three
Months Ended
March
31, 2006
|
|
|
Community
|
|
|
Parent/
|
|
|
|
|
Community
|
|
|
Parent/
|
|
|
|
|
|
|
Banks
|
|
|
Other
|
|
|
Total
|
|
|
Banks
|
|
|
Other
|
|
|
Total
|
|
Net
interest income
|
$
|
331,917
|
|
$
|
1,039
|
|
$
|
332,956
|
|
$
|
307,057
|
|
$
|
873
|
|
$
|
307,930
|
|
Provision
for loan losses
|
|
10,000
|
|
|
|
|
|
10,000
|
|
|
6,501
|
|
|
|
|
|
6,501
|
|
Net
interest income after provision
|
|
321,917
|
|
|
1,039
|
|
|
322,956
|
|
|
300,556
|
|
|
873
|
|
|
301,429
|
|
Noninterest
income
|
|
130,315
|
|
|
29,136
|
|
|
159,451
|
|
|
100,284
|
|
|
30,718
|
|
|
131,002
|
|
Noninterest
expense
|
|
334,875
|
|
|
27,910
|
|
|
362,785
|
|
|
289,884
|
|
|
25,450
|
|
|
315,334
|
|
Income
before income taxes
|
|
117,357
|
|
|
2,265
|
|
|
119,622
|
|
|
110,956
|
|
|
6,141
|
|
|
117,097
|
|
Income
tax expense
|
|
40,661
|
|
|
1,025
|
|
|
41,686
|
|
|
37,499
|
|
|
2,301
|
|
|
39,800
|
|
Net
income
|
$
|
76,696
|
|
$
|
1,240
|
|
$
|
77,936
|
|
$
|
73,457
|
|
$
|
3,840
|
|
$
|
77,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in millions)
|
$
|
42,618
|
|
$
|
3,186
|
|
$
|
45,804
|
|
$
|
36,597
|
|
$
|
2,691
|
|
$
|
39,288
|
|
The
calculation of net income per share follows (in thousands, except for per share
amounts):
|
|
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
Net
income available to common shareholders - basic
|
$
|
77,936
|
|
$
|
77,297
|
|
Average
common shares outstanding - basic
|
|
189,278
|
|
|
180,917
|
|
Net
income per common share - basic
|
$
|
0.41
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
Net
income available to common shareholders - diluted
|
$
|
77,936
|
|
$
|
77,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
189,278
|
|
|
180,917
|
|
Additional
shares considered in diluted computation assuming:
|
|
|
|
|
|
|
Exercise
of stock options
|
|
7,227
|
|
|
8,950
|
|
Average
common shares outstanding - diluted
|
|
196,505
|
|
|
189,867
|
|
|
|
|
|
|
|
|
Net
income per common share - diluted
|
$
|
0.40
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
G. |
New
Accounting Pronouncements
|
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (FAS 159). Under FAS 159, entities
are provided with an option to report selected financial assets and liabilities
at fair value, on an instrument-by-instrument basis. The objective is to improve
financial reporting by mitigating volatility in reported earnings caused by
measuring related assets and liabilities under different methods. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement methods for
similar types of assets and liabilities. FAS 159 is effective for fiscal years
beginning after November 15, 2007; however, it provides for early adoption
as of
January 1, 2007 assuming certain conditions are met. The Company did not early
adopt FAS 159 and is currently evaluating the impact, if any, that it will
have
on its results of operations.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
Executive
Summary
During
the first three months of 2007, the Company continued its core deposit growth,
which is the primary driver of the Company’s success. Core deposits grew to
$42.7 billion, an increase of 19% over March 31, 2006, and 7% on a linked
quarter basis. Comparable store core deposit growth per store was 17%. Total
assets increased to $47.4 billion, an increase of 16% over March 31, 2006,
while
total loans increased $2.5 billion, or 18%, from $13.5 billion at March 31,
2006
to $15.9 billion. Net income was $77.9 million and net income per share was
$0.40 for the first three months of 2007. These results were impacted by the
continued difficult interest rate environment, which has impeded the Company’s
historical net interest income growth.
Critical
Accounting Policy
The
Company has identified the policy related to the allowance for credit losses
as
being critical. The foregoing critical accounting policy is more fully described
in the Company’s annual report on Form 10-K for the year ended December 31,
2006. During the first three months of 2007, there were no material changes
to
the estimates or methods by which estimates are derived with regard to the
policy related to the allowance for credit losses.
Capital
Resources
At
March
31, 2007, stockholders’ equity totaled $2.9 billion or 6.08% of total assets,
compared to $2.8 billion or 6.19% of total assets at December 31,
2006.
The
Company and its subsidiaries are subject to risk-based capital standards issued
by bank regulatory authorities. Under these standards, the Company is required
to have Tier 1 capital (as defined in the regulations) of at least 4% and total
capital (as defined in the regulations) of at least 8% of risk-adjusted assets
(as defined in the regulations). Bank regulatory authorities have also issued
leverage ratio requirements. The leverage ratio requirement is measured as
the
ratio of Tier 1 capital to adjusted average assets (as defined in the
regulations).
The
table
below presents the Company’s and Commerce N.A.’s risk-based and leverage ratios
at March 31, 2007 and 2006 (amounts in thousands):
|
|
|
|
Per
Regulatory Guidelines
|
|
|
|
Actual
|
|
Minimum
|
|
“Well
Capitalized”
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1
|
|
$
|
2,784,634
|
|
|
11.63
|
%
|
$
|
957,928
|
|
|
4.00
|
%
|
$
|
1,436,892
|
|
|
6.00
|
%
|
Total
capital
|
|
|
2,953,572
|
|
|
12.33
|
|
|
1,915,857
|
|
|
8.00
|
|
|
2,394,821
|
|
|
10.00
|
|
Leverage
ratio
|
|
|
2,784,634
|
|
|
6.09
|
|
|
1,829,702
|
|
|
4.00
|
|
|
2,287,128
|
|
|
5.00
|
|
Commerce
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1
|
|
$
|
2,457,367
|
|
|
11.17
|
%
|
$
|
879,619
|
|
|
4.00
|
%
|
$
|
1,319,428
|
|
|
6.00
|
%
|
Total
capital
|
|
|
2,603,385
|
|
|
11.84
|
|
|
1,759,237
|
|
|
8.00
|
|
|
2,199,047
|
|
|
10.00
|
|
Leverage
ratio
|
|
|
2,457,367
|
|
|
5.91
|
|
|
1,663,461
|
|
|
4.00
|
|
|
2,079,327
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Regulatory Guidelines
|
|
|
|
Actual
|
|
Minimum
|
|
“Well
Capitalized”
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1
|
|
$
|
2,389,749
|
|
|
11.80
|
%
|
$
|
810,055
|
|
|
4.00
|
%
|
$
|
1,215,083
|
|
|
6.00
|
%
|
Total
capital
|
|
|
2,538,043
|
|
|
12.53
|
|
|
1,620,111
|
|
|
8.00
|
|
|
2,025,139
|
|
|
10.00
|
|
Leverage
ratio
|
|
|
2,389,749
|
|
|
6.09
|
|
|
1,570,680
|
|
|
4.00
|
|
|
1,963,350
|
|
|
5.00
|
|
Commerce
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1
|
|
$
|
2,135,415
|
|
|
11.50
|
%
|
$
|
742,788
|
|
|
4.00
|
%
|
$
|
1,114,182
|
|
|
6.00
|
%
|
Total
capital
|
|
|
2,262,134
|
|
|
12.18
|
|
|
1,485,576
|
|
|
8.00
|
|
|
1,856,970
|
|
|
10.00
|
|
Leverage
ratio
|
|
|
2,135,415
|
|
|
6.01
|
|
|
1,422,289
|
|
|
4.00
|
|
|
1,777,861
|
|
|
5.00
|
|
At
March
31, 2007, the Company’s consolidated capital levels and each of the Company’s
bank subsidiaries met the regulatory definition of a “well capitalized”
financial institution, i.e., a leverage capital ratio exceeding 5%, a Tier
1
risk-based capital ratio exceeding 6%, and a total risk-based capital ratio
exceeding 10%. Management believes that as of March 31, 2007, the Company and
its subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
Total
deposits at March 31, 2007 were $44.0 billion, an increase of $6.9 billion,
or
18% over total deposits of $37.1 billion at March 31, 2006, and up by $2.7
billion, or 7% from year-end 2006. Year over year deposit growth included core
deposit growth in all product and customer categories. The Company regards
core
deposits as all deposits other than public certificates of deposit. Core deposit
growth by type of customer is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
2007
|
|
%
of
Total
|
|
March
31,
2006
|
|
%
of
Total
|
|
Annual
Growth
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
17,906,912
|
|
|
42
|
%
|
$
|
15,643,435
|
|
|
44
|
%
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
16,895,083
|
|
|
40
|
|
|
13,641,723
|
|
|
38
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
7,896,701
|
|
|
18
|
|
|
6,627,282
|
|
|
18
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,698,696
|
|
|
100
|
%
|
$
|
35,912,440
|
|
|
100
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable
store core deposit growth is measured as the year over year percentage increase
in core deposits for stores open one year or more at the balance sheet date.
At
March 31, 2007, the comparable store core deposit growth was 17%.
Interest
Rate Sensitivity and Liquidity
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
levels of interest rate risk. The Company’s Asset/Liability Committee (ALCO) is
responsible for establishing policies to limit exposure to interest rate risk,
and to ensure procedures are established to monitor compliance with these
policies. The guidelines established by ALCO are reviewed and approved by the
Company’s Board of Directors.
Management
believes that the simulation of net interest income in different interest rate
environments provides the most meaningful measure of the Company’s interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will
do
so. Income simulation also attends to the relative interest rate sensitivities
of these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects
on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
In
March
2007, the ALCO Committee of the Board of Directors approved revised guidelines
for the Company’s income simulation model. The revised income simulation
guidelines measure interest rate sensitivity by projecting net interest income,
as opposed to net income, in alternative interest rate environments. The
revisions were made based on ALCO’s view that the measurement of changes in net
interest income in alternative interest rate environments is a more appropriate
indicator of the Company’s interest rate risk.
The
Company’s income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next twelve months in a flat rate
scenario, versus net interest income in alternative interest rate scenarios.
Management continually reviews and refines its interest rate risk management
process in response to the changing economic climate. Currently, the Company’s
model projects a proportionate plus 200 and minus 100 basis point change over
a
twelve month period. The Company’s ALCO policy has established that interest
income sensitivity will be considered acceptable if net interest income in
the
above interest rate scenarios are within 10% of forecasted net interest income
in the flat rate scenario over the next twelve months. The following table
illustrates the impact on projected net interest income at March 31, 2007 and
2006 of a plus 200 and minus 100 basis point change in interest
rates.
|
|
|
|
|
|
|
|
Basis
Point Change
|
|
|
|
Plus
200
|
|
Minus
100
|
|
March
31, 2007:
|
|
|
|
|
|
Twelve
Months
|
|
|
(8.5
|
)%
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
March
31, 2006:
|
|
|
|
|
|
|
|
Twelve
Months
|
|
|
(3.7
|
)%
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
These
forecasts are within an acceptable level of interest rate risk per the policies
established by ALCO. In the event the model indicates an unacceptable level
of
risk, the Company could undertake a number of actions that would reduce this
risk, including the sale of a portion of its available for sale investment
portfolio, the use of risk management strategies such as interest rate swaps
and
caps, or fixing the cost of its short-term borrowings.
Many
assumptions were used by the Company to calculate the impact of changes in
interest rates, including the proportionate shift in rates. Actual results
may
not be similar to the Company’s projections due to several factors including the
timing and frequency of rate changes, market conditions and the shape of the
yield curve. Actual results may also differ due to the Company’s actions, if
any, in response to the changing rates.
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 plus
200
and minus 100 basis point change in rates. The Company’s revised ALCO guidelines
indicates that the level of interest rate risk is unacceptable if the immediate
plus 200 and minus 100 basis point change would result in the loss of 25% or
more of the excess of market value over book value in the current rate scenario.
At March 31, 2007, the market value of equity model indicates an acceptable
level of interest rate risk.
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 plus 200 or minus 100 basis point change in interest rates.
One of the key assumptions is the market value assigned to the Company’s core
deposits, or the core deposit premium. Utilizing an independent consultant,
the
Company has completed and updated comprehensive core deposit studies in order
to
assign its own core deposit premiums. The studies have consistently confirmed
management’s assertion that the Company’s core deposits have stable balances
over long periods of time, are generally insensitive to changes in interest
rates and have significantly longer average lives and durations than the
Company’s loans and investment securities. Thus, these core deposit balances
provide a natural hedge to market value fluctuations in the Company’s fixed rate
assets. At March 31, 2007, the average life of the Company’s core deposit
transaction accounts was 17.7 years.
The
market value of equity model analyzes both sides of the balance sheet and,
as
indicated below, demonstrates the inherent value of the Company’s core deposits
in a rising rate environment. As rates rise, the value of the Company’s core
deposits increases which helps offset the decrease in value of the Company’s
fixed rate assets. The following table summarizes the market value of equity
at
March 31, 2007 (in millions, except for per share amounts):
|
|
|
|
|
|
|
|
Market
Value
|
|
|
|
|
|
of
Equity
|
|
Per
Share
|
|
|
|
|
|
|
|
Plus
200 basis points
|
|
$
|
9,551
|
|
$
|
49.55
|
|
|
|
|
|
|
|
|
|
Current
Rate
|
|
$
|
10,154
|
|
$
|
52.68
|
|
|
|
|
|
|
|
|
|
Minus
100 basis points
|
|
$
|
9,154
|
|
$
|
47.49
|
|
Liquidity
involves the Company’s ability to raise funds to support asset growth or reduce
assets to meet deposit withdrawals and other borrowing needs, to maintain
reserve requirements and to otherwise operate the Company on an ongoing basis.
The Company’s liquidity needs are primarily met by growth in core deposits, its
cash position and cash flow from its amortizing investment and loan portfolios.
If necessary, the Company has the ability to raise liquidity through
collateralized borrowings, FHLB advances, or the sale of its available for
sale
investment portfolio. As of March 31, 2007 the Company had in excess of $17.7
billion in available liquidity which includes securities that could be sold
or
used for collateralized borrowings, cash on hand, and borrowing capacities
under
existing lines of credit. During the first three months of 2007, deposit growth,
short-term borrowings and maturing investment securities were used to fund
growth in the loan portfolio and purchase additional investment
securities.
Short-Term
Borrowings
Short-term
borrowings, or other borrowed money, typically consist of securities sold under
agreements to repurchase, federal funds purchased or lines of credit, and are
used to meet short-term funding needs. During the first three months of 2007,
the Company reduced its short-term borrowings, primarily through increased
deposits. At March 31, 2007, short-term borrowings aggregated $122.7 million
and
had an average rate of 5.26%, as compared to $777.4 million at an average rate
of 5.29% at December 31, 2006.
Interest
Earning Assets
The
Company’s cash flow from deposit growth and repayments from its investment
portfolio totaled approximately $4.2 billion for the first three months of
2007.
This significant cash flow provides the Company with ongoing reinvestment
opportunities as interest rates change. For the three month period ended March
31, 2007, interest earning assets increased $2.0 billion from $41.8 billion
at
December 31, 2006 to $43.8 billion. This increase was primarily in investment
securities and the loan portfolio as described below.
Loans
Total
loans at March 31, 2007 were $15.9 billion, an increase of $2.5 billion or
18%
over total loans of $13.4 billion at March 31, 2006, and up by $327.0 million,
or 2% from year-end 2006. The following table summarizes the loan portfolio
of
the Company by type of loan as of March 31, 2007 and December 31,
2006.
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
thousands)
|
|
Commercial:
|
|
|
|
|
|
Term
|
|
$
|
2,432,065
|
|
$
|
2,392,889
|
|
Line
of credit
|
|
|
1,790,734
|
|
|
1,843,545
|
|
|
|
|
4,222,799
|
|
|
4,236,434
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
|
3,007,211
|
|
|
2,845,791
|
|
|
|
|
7,230,010
|
|
|
7,082,225
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
Mortgages
(1-4 family residential)
|
|
|
2,256,222
|
|
|
2,235,247
|
|
Installment
|
|
|
282,667
|
|
|
287,151
|
|
Home
equity
|
|
|
3,119,327
|
|
|
2,958,893
|
|
Credit
lines
|
|
|
138,794
|
|
|
137,429
|
|
|
|
|
5,797,010
|
|
|
5,618,720
|
|
Commercial
real estate:
|
|
|
|
|
|
|
|
Investor
developer
|
|
|
2,562,842
|
|
|
2,625,628
|
|
Construction
|
|
|
344,144
|
|
|
280,476
|
|
|
|
|
2,906,986
|
|
|
2,906,104
|
|
Total
loans
|
|
$
|
15,934,006
|
|
$
|
15,607,049
|
|
Investments
Total
investments at March 31, 2007 were $27.1 billion, an increase of $3.2 billion,
or 13% over total investments of $23.9 billion at March 31, 2006, and up by
$1.2
billion, or 4% from year-end 2006, The available for sale portfolio increased
$1.2 billion to $12.3 billion at March 31, 2007 from $11.1 billion at December
31, 2006, and the held to maturity portfolio decreased $73.3 million to $14.8
billion at March 31, 2007 from $14.9 billion at year-end 2006.
Detailed
below is information regarding the composition and characteristics of the
Company’s investment portfolio, excluding trading securities, as of March 31,
2007.
|
|
|
|
|
|
|
|
|
|
Available
|
|
Held
to
|
|
|
|
Product
Description
|
|
For
Sale
|
|
Maturity
|
|
Total
|
|
|
|
(in
thousands)
|
|
Mortgage-backed
Securities:
|
|
|
|
|
|
|
|
Federal
Agencies Pass Through
|
|
|
|
|
|
|
|
Certificates (AAA Rated)
|
|
$
|
1,378,225
|
|
$
|
1,981,996
|
|
$
|
3,360,221
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
Mortgage
|
|
|
|
|
|
|
|
|
|
|
Obligations (AAA Rated)
|
|
|
9,951,830
|
|
|
10,572,692
|
|
|
20,524,522
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies/Other
|
|
|
1,003,650
|
|
|
2,257,020
|
|
|
3,260,670
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,333,705
|
|
$
|
14,811,708
|
|
$
|
27,145,413
|
|
|
|
|
|
|
|
|
|
|
|
|
Duration
(in years)
|
|
|
2.86
|
|
|
3.47
|
|
|
3.19
|
|
Average
Life (in years)
|
|
|
4.99
|
|
|
5.18
|
|
|
5.09
|
|
Quarterly
Average Yield
|
|
|
5.77
|
%
|
|
5.48
|
%
|
|
5.61
|
%
|
At
March
31, 2007, the after tax depreciation of the Company’s available for sale
portfolio was $49.4 million.
The
Company’s mortgage-backed securities (MBS) portfolio comprises 88% of the total
investment portfolio. The MBS portfolio consists of Federal Agencies
Pass-Through Certificates and Collateralized Mortgage Obligations (CMO’s) which
are issued by federal agencies and other private sponsors. The Company’s
investment policy does not permit investments in inverse floaters, IO’s, PO’s
and other similar issues.
A
summary
of the amortized cost and market value of securities available for sale and
securities held to maturity (in thousands) at March 31, 2007 and December 31,
2006 follows:
|
|
|
|
|
|
At
March 31, 2007
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Market
Value
|
|
U.S.
Government agency and mortgage-backed
obligations
|
|
$
|
12,309,189
|
|
$
|
16,814
|
|
$
|
(106,474
|
)
|
$
|
12,219,529
|
|
Obligations
of state and political subdivisions
|
|
|
54,372
|
|
|
62
|
|
|
(191
|
)
|
|
54,243
|
|
Equity
securities
|
|
|
9,679
|
|
|
10,846
|
|
|
|
|
|
20,525
|
|
Other
|
|
|
39,486
|
|
|
|
|
|
(78
|
)
|
|
39,408
|
|
Securities
available for sale
|
|
$
|
12,412,726
|
|
$
|
27,722
|
|
$
|
(106,743
|
)
|
$
|
12,333,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agency and mortgage-backed
obligations
|
|
$
|
14,117,958
|
|
$
|
12,957
|
|
$
|
(238,193
|
)
|
$
|
13,892,722
|
|
Obligations
of state and political subdivisions
|
|
|
555,253
|
|
|
1,511
|
|
|
(316
|
)
|
|
556,448
|
|
Other
|
|
|
138,497
|
|
|
|
|
|
|
|
|
138,497
|
|
Securities
held to maturity
|
|
$
|
14,811,708
|
|
$
|
14,468
|
|
$
|
(238,509
|
)
|
$
|
14,587,667
|
|
|
|
At
December 31, 2006
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Market
Value
|
|
U.S.
Government agency and mortgage-backed
obligations
|
|
$
|
11,098,131
|
|
$
|
16,047
|
|
$
|
(129,931
|
)
|
$
|
10,984,247
|
|
Obligations
of state and political subdivisions
|
|
|
54,517
|
|
|
229
|
|
|
(1
|
)
|
|
54,745
|
|
Equity
securities
|
|
|
9,679
|
|
|
9,392
|
|
|
|
|
|
19,071
|
|
Other
|
|
|
40,221
|
|
|
|
|
|
(171
|
)
|
|
40,050
|
|
Securities
available for sale
|
|
$
|
11,202,548
|
|
$
|
25,668
|
|
$
|
(130,103
|
)
|
$
|
11,098,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agency and mortgage-backed
obligations
|
|
$
|
14,205,534
|
|
$
|
14,843
|
|
$
|
(283,519
|
)
|
$
|
13,936,858
|
|
Obligations
of state and political subdivisions
|
|
|
554,189
|
|
|
1,881
|
|
|
(422
|
)
|
|
555,648
|
|
Other
|
|
|
125,259
|
|
|
|
|
|
|
|
|
125,259
|
|
Securities
held to maturity
|
|
$
|
14,884,982
|
|
$
|
16,724
|
|
$
|
(283,941
|
)
|
$
|
14,617,765
|
|
Gross
gains and losses on securities sold during the first quarter of 2007 were $2.9
million and $0, respectively.
During
the first quarter of 2007, $84.2 million of securities were sold which had
unrealized losses at December 31, 2006. Gross gains and losses on these
securities sold were $477 thousand and $0, respectively.
There
were no securities sold during the first quarter of 2006.
As
described in Note 1 - Significant Accounting Policies of the Notes to
Consolidated Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2006, the Company reviews the
investment portfolio to determine if other-than-temporary impairment has
occurred. Management does not believe any individual unrealized loss as of
March
31, 2007 represents an other-than-temporary impairment.
Net
Income
Net
income for the first quarter of 2007 was $77.9 million, a slight increase over
the $77.3 million recorded for the first quarter of 2006. On a per share basis,
diluted net income was $0.40 for the first quarter of 2007, compared to $0.41
per common share for the first quarter of 2006.
Return
on
average assets (ROA) and return on average equity (ROE) for the first quarter
of
2007 were 0.68% and 10.87%, respectively, compared to 0.79% and 13.00%,
respectively, for the same 2006 period. Both ROA and ROE for the first quarter
of 2007 continue to be impacted by the current interest rate environment and
the
resulting impact on the Company’s net interest income.
Net
Interest Income
Net
interest income totaled $333.0 million for the first quarter of 2007, an 8%
increase over the $307.9 million in the first quarter of 2006. The increase
in
net interest income during the first quarter of 2007 was due to the Company’s
continued ability to grow deposits as well as its loan and investment
portfolios, offset by rate changes due to the current interest rate
environment.
On
a tax
equivalent basis, the Company recorded $340.5 million in net interest income
in
the first quarter of 2007, an increase of $26.7 million or 9% over the first
quarter of 2006. As shown below, the increase in net interest income on a tax
equivalent basis was due to volume increases in the Company’s earning assets,
which were fueled by the Company’s continued growth of low-cost core deposits
(in thousands).
|
|
Net
Interest Income
|
|
Quarter
Ended
|
|
Volume
|
|
Rate
|
|
Total
|
|
%
|
|
March
31
|
|
Increase
|
|
Change
|
|
Increase
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
2007
vs. 2006
|
|
$
|
50,707
|
|
$
|
(24,010
|
)
|
$
|
26,697
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
net
interest margin for the first quarter of 2007 was 3.27%, compared to 3.25%
for
the fourth quarter of 2006, and down 26 basis points from the 3.53% margin
for
the first quarter of 2006. The year over year compression in net interest margin
was primarily caused by the current interest rate environment.
The
following table sets forth balance sheet items on a daily average basis for
the
three months ended March 31, 2007, December 31, 2006 and March 31, 2006 and
presents the daily average interest earned on assets and paid on liabilities
for
such periods.
Average
Balances and Net Interest Income
|
|
|
|
|
|
March
2007
|
|
December
2006
|
|
March
2006
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
(dollars
in thousands)
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
25,237,398
|
|
$
|
348,630
|
|
|
5.60
|
%
|
$
|
24,610,625
|
|
$
|
335,665
|
|
|
5.41
|
%
|
$
|
22,325,450
|
|
$
|
289,739
|
|
|
5.26
|
%
|
Tax-exempt
|
|
|
611,725
|
|
|
8,984
|
|
|
5.96
|
|
|
586,903
|
|
|
8,596
|
|
|
5.81
|
|
|
549,794
|
|
|
6,956
|
|
|
5.13
|
|
Trading
|
|
|
96,838
|
|
|
1,290
|
|
|
5.40
|
|
|
103,468
|
|
|
1,157
|
|
|
4.44
|
|
|
108,670
|
|
|
1,255
|
|
|
4.69
|
|
Total
investment securities
|
|
|
25,945,961
|
|
|
358,904
|
|
|
5.61
|
|
|
25,300,996
|
|
|
345,418
|
|
|
5.42
|
|
|
22,983,914
|
|
|
297,950
|
|
|
5.26
|
|
Federal
funds sold
|
|
|
436,031
|
|
|
5,733
|
|
|
5.33
|
|
|
323,652
|
|
|
4,345
|
|
|
5.33
|
|
|
36,594
|
|
|
413
|
|
|
4.58
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
mortgages
|
|
|
5,447,516
|
|
|
95,522
|
|
|
7.11
|
|
|
5,192,406
|
|
|
92,553
|
|
|
7.07
|
|
|
4,491,557
|
|
|
76,193
|
|
|
6.88
|
|
Commercial
|
|
|
4,024,615
|
|
|
77,457
|
|
|
7.81
|
|
|
3,764,466
|
|
|
74,777
|
|
|
7.88
|
|
|
3,221,996
|
|
|
59,125
|
|
|
7.44
|
|
Consumer
|
|
|
5,711,130
|
|
|
90,500
|
|
|
6.43
|
|
|
5,533,248
|
|
|
88,846
|
|
|
6.37
|
|
|
4,817,562
|
|
|
74,127
|
|
|
6.24
|
|
Tax-exempt
|
|
|
599,202
|
|
|
11,217
|
|
|
7.59
|
|
|
538,746
|
|
|
10,104
|
|
|
7.44
|
|
|
492,283
|
|
|
8,506
|
|
|
7.01
|
|
Total
loans
|
|
|
15,782,463
|
|
|
274,696
|
|
|
7.06
|
|
|
15,028,866
|
|
|
266,280
|
|
|
7.03
|
|
|
13,023,398
|
|
|
217,951
|
|
|
6.79
|
|
Total
earning assets
|
|
$
|
42,164,455
|
|
$
|
639,333
|
|
|
6.14
|
%
|
$
|
40,653,514
|
|
$
|
616,043
|
|
|
6.01
|
%
|
$
|
36,043,906
|
|
$
|
516,314
|
|
|
5.81
|
%
|
Sources
of Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
10,448,840
|
|
$
|
72,118
|
|
|
2.80
|
%
|
$
|
10,643,889
|
|
$
|
72,947
|
|
|
2.72
|
%
|
$
|
9,712,691
|
|
$
|
54,004
|
|
|
2.25
|
%
|
Interest
bearing demand
|
|
|
17,886,395
|
|
|
163,742
|
|
|
3.71
|
|
|
16,280,718
|
|
|
146,773
|
|
|
3.58
|
|
|
13,584,371
|
|
|
97,940
|
|
|
2.92
|
|
Time
deposits
|
|
|
3,999,233
|
|
|
43,284
|
|
|
4.39
|
|
|
3,723,163
|
|
|
39,578
|
|
|
4.22
|
|
|
3,131,039
|
|
|
25,850
|
|
|
3.35
|
|
Public
funds
|
|
|
1,197,869
|
|
|
15,579
|
|
|
5.27
|
|
|
1,525,472
|
|
|
20,556
|
|
|
5.35
|
|
|
952,132
|
|
|
10,411
|
|
|
4.43
|
|
Total
deposits
|
|
|
33,532,337
|
|
|
294,723
|
|
|
3.56
|
|
|
32,173,242
|
|
|
279,854
|
|
|
3.45
|
|
|
27,380,233
|
|
|
188,205
|
|
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
borrowed money
|
|
|
314,552
|
|
|
4,132
|
|
|
5.33
|
|
|
267,992
|
|
|
3,568
|
|
|
5.28
|
|
|
1,316,437
|
|
|
14,328
|
|
|
4.41
|
|
Total
deposits and interest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
33,846,889
|
|
|
298,855
|
|
|
3.58
|
|
|
32,441,234
|
|
|
283,422
|
|
|
3.47
|
|
|
28,696,670
|
|
|
202,533
|
|
|
2.86
|
|
Noninterest-bearing
funds (net)
|
|
|
8,317,566
|
|
|
|
|
|
|
|
|
8,212,280
|
|
|
|
|
|
|
|
|
7,347,236
|
|
|
|
|
|
|
|
Total
sources to fund earning assets
|
|
$
|
42,164,455
|
|
|
298,855
|
|
|
2.87
|
|
$
|
40,653,514
|
|
|
283,422
|
|
|
2.76
|
|
$
|
36,043,906
|
|
|
202,533
|
|
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
margin
tax-equivalent basis
|
|
|
|
|
$
|
340,478
|
|
|
3.27
|
%
|
|
|
|
$
|
332,621
|
|
|
3.25
|
%
|
|
|
|
$
|
313,781
|
|
|
3.53
|
%
|
Other
Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
1,182,810
|
|
|
|
|
|
|
|
$
|
1,174,831
|
|
|
|
|
|
|
|
$
|
1,286,259
|
|
|
|
|
|
|
|
Other
assets
|
|
|
2,613,080
|
|
|
|
|
|
|
|
|
2,451,297
|
|
|
|
|
|
|
|
|
2,094,400
|
|
|
|
|
|
|
|
Total
assets
|
|
|
45,804,220
|
|
|
|
|
|
|
|
|
44,127,353
|
|
|
|
|
|
|
|
|
39,288,182
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
42,232,192
|
|
|
|
|
|
|
|
|
40,704,685
|
|
|
|
|
|
|
|
|
35,295,835
|
|
|
|
|
|
|
|
Demand
deposits (noninterest-
bearing)
|
|
|
8,699,855
|
|
|
|
|
|
|
|
|
8,531,443
|
|
|
|
|
|
|
|
|
7,915,602
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
390,627
|
|
|
|
|
|
|
|
|
379,025
|
|
|
|
|
|
|
|
|
298,278
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
2,866,849
|
|
|
|
|
|
|
|
|
2,775,651
|
|
|
|
|
|
|
|
|
2,377,632
|
|
|
|
|
|
|
|
Notes
|
-
|
Weighted
average yields on tax-exempt obligations have been computed on a
tax-equivalent basis assuming a federal tax rate of
35%.
|
|
-
|
Non-accrual
loans have been included in the average loan
balance.
|
Noninterest
Income
Excluding
net investment securities gains, noninterest income totaled $156.6 million
for
the first quarter of 2007, an increase of $25.6 million or 20% from $131.0
million in the first quarter of 2006. Deposit charges and service fees increased
$22.9 million, or 28%, during the first quarter of 2007 as compared to the
same
period in 2006, primarily due to the Company’s growth in customer accounts and
transaction volumes. Other operating income, which includes the Company’s
insurance and capital markets divisions, increased $2.6 million, or 5%, during
the first quarter of 2007 as compared to the same period in 2006. The increase
in other operating income is more fully depicted in the following chart (in
thousands):
|
|
|
|
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
Other
operating income:
|
|
|
|
|
|
Commerce
Banc Insurance
|
|
$
|
22,650
|
|
$
|
21,944
|
|
Commerce
Capital Markets
|
|
|
7,267
|
|
|
6,235
|
|
Operating
lease revenue
|
|
|
5,254
|
|
|
3,502
|
|
Loan
brokerage fees
|
|
|
2,963
|
|
|
1,937
|
|
Other
|
|
|
13,232
|
|
|
15,103
|
|
Total
other
|
|
$
|
51,366
|
|
$
|
48,721
|
|
All
other
operating income decreased $1.9 million for the first quarter of 2007 as
compared to the same period in 2006. Included in all other operating income
for
the first quarter of 2007 were $5.0 million of net losses related to the
Company’s equity method investments which were partially offset by increased
letter of credit fees and revenues generated by eMoney Advisor.
Noninterest
Expense
For
the
first quarter of 2007, noninterest expense totaled $362.8 million, an increase
of $47.5 million, or 15%, over the same period in 2006. Contributing to this
increase was new store activity over the past twelve months, with the number
of
stores increasing from 378 at March 31, 2006 to 437 at March 31, 2007. With
the
addition of these new stores, staff, facilities, and related expenses rose
accordingly.
Other
noninterest expense increased $2.3 million, or 4%, over the first quarter of
2006. The increase in other noninterest expense is more fully depicted in the
following chart (in thousands):
|
|
|
|
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
Other
noninterest expense:
|
|
|
|
|
|
Business
development costs
|
|
$
|
9,873
|
|
$
|
9,583
|
|
Bank-card
related service charges
|
|
|
12,310
|
|
|
12,371
|
|
Professional
services/Insurance
|
|
|
14,130
|
|
|
11,316
|
|
Provision
for non-credit-related losses
|
|
|
6,321
|
|
|
7,812
|
|
Other
|
|
|
24,732
|
|
|
23,943
|
|
Total
other
|
|
$
|
67,366
|
|
$
|
65,025
|
|
The
provision for non-credit-related losses, which includes fraud and forgery losses
on deposit and other non-credit-related items, decreased from the prior period
as the Company has implemented several loss prevention initiatives. Other
expenses were impacted by the Company’s continued focus on controlling costs
while continuing to execute its growth model.
The
Company’s operating efficiency ratio (noninterest expenses, less other real
estate expense, divided by net interest income plus noninterest income excluding
non-recurring gains) was 73.99% for the first three months of 2007 as compared
to 71.85% for the same 2006 period. The increase in the operating efficiency
ratio is primarily due to the current interest rate environment and the
resulting impact on the Company’s net interest income. The Company’s efficiency
ratio remains above its peer group primarily due to its aggressive growth
expansion activities.
Loan
and Asset Quality
Total
non-performing assets (non-performing loans and other real estate, excluding
loans past due 90 days or more and still accruing interest) at March 31, 2007
were $51.7 million, or 0.11% of total assets compared to $53.2 million or 0.12%
of total assets at December 31, 2006 and $33.6 million or 0.08% of total assets
at March 31, 2006.
Total
non-performing loans (non-accrual loans and restructured loans, excluding loans
past due 90 days or more and still accruing interest) at March 31, 2007 were
$46.7 million or 0.29% of total loans compared to $50.6 million or 0.32% of
total loans at December 31, 2006 and $33.1 million or 0.25% of total loans
at
March 31, 2006. At March 31, 2007, loans past due 90 days or more and still
accruing interest amounted to $658 thousand compared to $620 thousand at
December 31, 2006 and $332 thousand at March 31, 2006. Additional loans
considered as potential problem loans by the Company’s credit review process
($121.3 million at March 31, 2007, compared to $105.8 million at December 31,
2006 and $79.4 million at March 31, 2006) have been evaluated as to risk
exposure in determining the adequacy of the allowance for loan
losses.
Total
non-performing loans decreased by $3.9 million during the first quarter of
2007,
which was primarily due to a $13.2 million decrease in commercial non-accrual
loans that was offset by increases of $3.5 million and $5.0 million in consumer
and construction non-accrual loans, respectively. During the first quarter
of
2007, a large not-for-profit healthcare credit that was added to non-accrual
in
2006 was paid off. Other real estate/foreclosed assets totaled $5.0 million
at
March 31, 2007 as compared to $2.6 million at December 31, 2006 and $435
thousand at March 31, 2006. These properties/assets have been written down
to
the lower of cost or fair market value less disposition costs. As of March
31,
2007, the overall asset quality of the Company, as measured in terms of
non-performing assets to total assets, coverage ratios and non-performing assets
to stockholders’ equity, remained strong.
The
following summary presents information regarding non-performing loans and assets
as of March 31, 2007 and the preceding four quarters (dollar amounts in
thousands).
|
|
March
31,
2007
|
|
December
31,
2006
|
|
September
30,
2006
|
|
June
30,
2006
|
|
March
31,
2006
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
20,526
|
|
$
|
33,686
|
|
$
|
33,658
|
|
$
|
34,904
|
|
$
|
16,975
|
|
Consumer
|
|
|
15,343
|
|
|
11,820
|
|
|
9,325
|
|
|
8,927
|
|
|
9,285
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
8,575
|
|
|
3,531
|
|
|
496
|
|
|
1,708
|
|
|
1,726
|
|
Mortgage
|
|
|
2,277
|
|
|
1,565
|
|
|
1,828
|
|
|
2,523
|
|
|
2,096
|
|
Total
non-accrual loans
|
|
|
46,721
|
|
|
50,602
|
|
|
45,307
|
|
|
48,062
|
|
|
30,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
2,941
|
|
|
3,037
|
|
Total
restructured loans
|
|
|
|
|
|
|
|
|
|
|
|
2,941
|
|
|
3,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
|
46,721
|
|
|
50,602
|
|
|
45,307
|
|
|
51,003
|
|
|
33,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate/foreclosed assets
|
|
|
5,000
|
|
|
2,610
|
|
|
2,022
|
|
|
1,369
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
|
51,721
|
|
|
53,212
|
|
|
47,329
|
|
|
52,372
|
|
|
33,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
past due 90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
still accruing
|
|
|
658
|
|
|
620
|
|
|
441
|
|
|
583
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
past due 90 days or more
|
|
$
|
52,379
|
|
$
|
53,832
|
|
$
|
47,770
|
|
$
|
52,955
|
|
$
|
33,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of total period-end loans
|
|
|
0.29
|
%
|
|
0.32
|
%
|
|
0.31
|
%
|
|
0.36
|
%
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of total period-end assets
|
|
|
0.11
|
%
|
|
0.12
|
%
|
|
0.11
|
%
|
|
0.12
|
%
|
|
0.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets and loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
past
due 90 days or more as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of total period-end assets
|
|
|
0.11
|
%
|
|
0.12
|
%
|
|
0.11
|
%
|
|
0.12
|
%
|
|
0.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total non-performing loans
|
|
|
351
|
%
|
|
317
|
%
|
|
341
|
%
|
|
291
|
%
|
|
432
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total period-end loans
|
|
|
1.03
|
%
|
|
1.03
|
%
|
|
1.05
|
%
|
|
1.04
|
%
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets and loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
past
due 90 days or more as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of stockholders’ equity and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
allowance
for loan losses
|
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
1
|
%
|
The
Company maintains an allowance for losses inherent in the loan and lease
portfolio and an allowance for losses on unfunded credit commitments. The
following table presents, for the periods indicated, an analysis of the
allowance for credit losses and other related data (dollar amounts in
thousands).
|
|
Three
Months Ended
|
|
Year
Ended
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
Balance
at beginning of period
|
|
$
|
160,269
|
|
$
|
141,464
|
|
$
|
141,464
|
|
Provisions
charged to operating expenses
|
|
|
10,000
|
|
|
6,501
|
|
|
33,700
|
|
|
|
|
170,269
|
|
|
147,965
|
|
|
175,164
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
on loans previously charged-off:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,121
|
|
|
533
|
|
|
5,987
|
|
Consumer
|
|
|
289
|
|
|
511
|
|
|
1,604
|
|
Commercial
real estate
|
|
|
235
|
|
|
1
|
|
|
385
|
|
Total
recoveries
|
|
|
1,645
|
|
|
1,045
|
|
|
7,976
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
charged-off:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(4,294
|
)
|
|
(4,186
|
)
|
|
(14,107
|
)
|
Consumer
|
|
|
(2,974
|
)
|
|
(1,712
|
)
|
|
(8,179
|
)
|
Commercial
real estate
|
|
|
(589
|
)
|
|
(199
|
)
|
|
(585
|
)
|
Total
charge-offs
|
|
|
(7,857
|
)
|
|
(6,097
|
)
|
|
(22,871
|
)
|
Net
charge-offs
|
|
|
(6,212
|
)
|
|
(5,052
|
)
|
|
(14,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
164,057
|
|
$
|
142,913
|
|
$
|
160,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs as a percentage of average loans outstanding
|
|
|
0.16
|
%
|
|
0.16
|
%
|
|
0.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
Reserve Additions
|
|
$
|
3,788
|
|
$
|
1,449
|
|
$
|
18,805
|
|
Components:
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses
|
|
$
|
155,912
|
|
$
|
135,745
|
|
$
|
152,053
|
|
Allowance
for unfunded credit commitments
|
|
|
8,145
|
|
|
7,168
|
|
|
8,216
|
|
Total
allowance for credit losses
|
|
$
|
164,057
|
|
$
|
142,913
|
|
$
|
160,269
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the first three months of 2007, net charge-offs as a percentage of average
loans
outstanding were 0.16%, which was consistent with the same period in 2006.
The
increase in net reserve additions for the first quarter of 2007 was reflective
of the growth in the Company’s loan portfolio.
The
Company considers the allowance for credit losses of $164.1 million adequate
to
cover probable credit losses in the loan and lease portfolio and on unfunded
credit commitments. The allowance for credit losses is increased by provisions
charged to expense and reduced by charge-offs net of recoveries. The level
of
the allowance for loan and lease losses is based on an evaluation of individual
large classified loans and nonaccrual loans, estimated losses based on risk
characteristics of loans in the portfolio and other qualitative factors. The
level of the allowance for losses on unfunded credit commitments is based on
a
risk characteristic methodology similar to that used in determining the
allowance for loan and lease losses, taking into consideration the probability
of funding these commitments. While the allowance for credit losses is
maintained at a level considered to be adequate by management for estimated
credit losses, determination of the allowance is inherently subjective, as
it
requires estimates that may be susceptible to significant change.
Forward-Looking
Statements
The
Company may from time to time make written or oral “forward-looking statements”,
including statements contained in the Company’s filings with the Securities and
Exchange Commission (including this Form 10-Q), in its reports to shareholders
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 or other forward looking
statements 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;
inflation; interest rates, market and monetary fluctuations; the timely
development of competitive new products and services by the Company and the
acceptance of such products and services by customers; the willingness of
customers to substitute competitors’ products and services for the Company’s
products and services and vice versa; the impact of changes in financial
services’ laws and regulations (including laws concerning taxes, banking,
securities and insurance); technological changes; future acquisitions; the
expense savings and revenue enhancements from acquisitions being less than
expected; the growth and profitability of the Company’s noninterest or fee
income being less than expected; the ability to maintain the growth and further
development of the Company’s community-based retail branching network;
unanticipated regulatory or judicial proceedings (including those regulatory
and
other approvals necessary to open new stores); changes in consumer spending
and
saving habits; and the success of the Company at managing the risks involved
in
the foregoing.
The
Company cautions that the foregoing list of important factors is not exclusive.
The Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
The
Company cautions that any such forward-looking statements are not guarantees
of
future performance and involve known and unknown risks, uncertainties and other
factors which may cause the Company’s actual results, performance or
achievements to differ materially from the future results, performance or
achievements the Company has anticipated in such forward-looking statements.
You
should note that many factors, some of which are discussed in this Form 10-Q
could affect the Company’s future financial results and could cause those
results to differ materially from those expressed or implied in the Company’s
forward-looking statements contained in this document.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
See
Item
2 - Management’s Discussion and Analysis of Financial Condition and Results of
Operation, Interest Rate Sensitivity and Liquidity.
Item
4.
Controls
and Procedures
Evaluation
of disclosure controls and procedures.
The
Company’s management, with the participation of its principal executive officer
and principal financial officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e),
as of March 31, 2007. Based on this evaluation, the principal executive officer
and principal financial officer concluded that, as of March 31, 2007, the
Company’s disclosure controls and procedures, as defined in Securities Exchange
Act of 1934 ("Exchange Act") Rule 13a - 15(e), were effective, at the reasonable
assurance level, to ensure that (i) information required to be disclosed by
the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s ("SEC") rules and forms and (ii)
information required to be disclosed by the Company in the reports that it
files
or submits under the Exchange Act is accumulated and communicated to the
Company’s management including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Changes
in internal control over financial reporting.
The
Company’s management, with the participation of its principal executive officer
and principal financial officer, also conducted an evaluation of changes in
the
Company’s internal control over financial reporting, as defined in Exchange Act
Rule 13a-15(f). Based on this evaluation, the Company’s management determined
that no changes, other than the changes discussed below, were made to the
Company’s internal control over financial reporting, as defined in Exchange Act
Rule 13a - 15(f), during the first quarter of 2007 that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
As
previously disclosed in Item 9A. Controls and Procedures in the Company’s Annual
Report on Form 10-K, filed with the SEC on March 16, 2007, the Company disclosed
material weaknesses in internal control over financial reporting as of December
31, 2006 with respect to the evaluation and interpretation of the applicability
of tax laws to the Company’s activities.
The
Company’s management, including the principal executive officer and principal
financial officer, believe that the material weakness in the Company’s internal
control over financial reporting, with respect to the evaluation and
interpretation of the applicability of tax laws to the Company’s activities, was
remediated during the quarter ended March 31, 2007. The remedial actions
included the design and implementation of enhanced controls, including
additional reviews, of the Company’s evaluation and interpretation of the
applicability of tax laws.
A
control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems,
no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected. The Company conducts
periodic evaluations to enhance, where necessary its procedures and
controls.
PART
II. OTHER
INFORMATION
Item
1. Legal
Proceedings
On
January 22, 2007, a purported shareholder derivative complaint was filed in
the
United States District Court for the District of New Jersey, by a party
identifying itself as a shareholder of Bancorp purporting to act on behalf
of
Bancorp against the Chairman and Chief Executive Officer of Bancorp and possibly
certain present and former directors and officers of Bancorp and their related
interests. Bancorp is also named as a “nominal defendant.” The suit alleges
breaches of fiduciary duty, waste of corporate assets and unjust enrichment
arising from certain related party transactions. The complaint seeks monetary
damages, disgorgement, and other relief against the defendants on behalf of
Bancorp. The complaint does not seek monetary damages from Bancorp but does
seek
that Bancorp take certain corrective actions.
Bancorp
has received two demand letters from law firms not involved in the derivative
action described above, on behalf of shareholders who also are not involved
in
the derivative action, demanding that the Board bring claims on behalf of
Bancorp against certain present and former directors and officers of Bancorp
and
their related interests based on allegations substantially similar to those
that
were alleged in the proposed shareholder derivative action described above
and,
separately, demand that certain records of Bancorp be made available for
inspection.
In
response to the complaint and demand letters, the Board adopted a board
resolution establishing a Special Litigation Committee (made up of independent
directors) to independently investigate, review and analyze the facts and
circumstances surrounding the allegations made in the complaint and demand
letters. The Special Litigation Committee has engaged independent outside
counsel to advise it. Bancorp intends to file a motion to stay the complaint
and
the demands set forth in the demand letters pending the outcome of the
investigation being conducted by the Special Litigation Committee.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
Period
|
|
Total
Number of
Shares
Purchased (1)
|
|
Average
Price
Paid per
Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
January
1 to January 31, 2007
|
|
|
643,842
|
|
$
|
34.41
|
|
|
|
|
|
|
|
February
1 to February 28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1 to March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
643,842
|
|
$
|
34.41
|
|
|
|
|
|
|
|
(1)
Purchases were made by the Company for the payment of income taxes on the
exercise of stock options by an executive officer.
Exhibits
*
Management contract or compensation plan or arrangement.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
COMMERCE
BANCORP, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAY
9, 2007
|
|
/s/
DOUGLAS J. PAULS
|
(Date)
|
|
DOUGLAS
J. PAULS
|
|
|
EXECUTIVE
VICE PRESIDENT AND
|
|
|
CHIEF
FINANCIAL OFFICER
|
|
|
(PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
|