10-K405 1 0001.txt ================================================================================ 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 [FEE REQUIRED] For the fiscal year ended December 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________________ to ________________. Commission File #0-12874 COMMERCE BANCORP, INC. (Exact name of registrant as specified in its charter) New Jersey 22-2433468 (State of other jurisdiction of (I.R.S. Employee Identification Number) incorporation or organization) Commerce Atrium 1701 Route 70 East 08034-5400 Cherry Hill, New Jersey (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: 856-751-9000 Securities registered pursuant to Section 12(b) of the Act: Common Stock New York Stock Exchange -------------- ----------------------------------------- Title of Class Name of Each Exchange on Which Registered Securities registered pursuant to Section 12(g) of the Act: None ---------------------------- Indicate by check mark whether the registrant ( 1 ) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____. Indicate by check mark if disclosure of' delinquent filers pursuant to Item 405 of Regulation S-K 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 ] The aggregate market value of voting stock held by non-affiliates of the Registrant is $1,749,057,600.(1) ---------------------------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Common Stock $1.5625 Par Value 31,960,287 ------------------------------ -------------------------------------- Title of Class No. of Shares Outstanding as of 3/2/01 ---------------------------- DOCUMENTS INCORPORATED BY REFERENCE Parts II and IV incorporate certain information by reference from the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000 (the "Annual Report"). Part III incorporates certain information by reference from the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. _______________ (1) The aggregate dollar amount of the voting stock set forth equals the number of shares of the Registrant's Common Stock outstanding reduced by the amount of Common Stock held by officers, directors, and shareholders owning in excess of 10% of the Registrant's Common Stock multiplied by the last sale price for the Registrant's Common Stock on March 2, 2001. The information provided shall in no way be construed as an admission that the officer, director, or 10% shareholder in the Registrant may be deemed an affiliate of the Registrant or that he is the beneficial owner of' the shares reported as being held by him, and any such inference is hereby disclaimed. The information provided herein is included solely for the recordkeeping purpose of the Securities and Exchange Commission. ================================================================================ COMMERCE BANCORP, INC. FORM 10-K CROSS-REFERENCE INDEX The preceding Annual Report and Form 10-K incorporates into a single document the requirements of the accounting profession and the Securities and Exchange Commission. There has been no action by the Commission, however, to approve or disapprove or pass upon the accuracy or adequacy of the Annual Report and Form 10-K. Page Part I Item 1. Business...........................................................87 Item 2. Properties.........................................................88 Item 3. Legal Proceedings .................................................94 Item 4. Submission of Matters to a Vote of Security Holders (This item is omitted since no matters were submitted for security holder vote during the fourth quarter of 2000.) Part II Item 5. Market for the Registrant's Common Stock and Related Stockholders Matters .....................................55 Item 6. Selected Financial Data ...........................................43 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..............................44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........53 Item 8. Financial Statements and Supplementary Financial Data .............57 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure (This item is omitted since it is not applicable) Part III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions (The information required by the items in this part has been omitted since it will be contained in the definitive proxy statement to be filed pursuant to Regulation 14A.) Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ...84 (a) (3) - Exhibits: 3.1 Restated Certificate of Incorporation of the Company, as amended. (I) 3.2 By-laws of the Company, as amended. (K) 4.1 Form of Trust Indenture, dated July 15, 1993, between the Company and United Jersey Bank, with respect to the Company's $23,000,000 8 3/8% Subordinated Notes due July 15, 2003. (I) 4.2 Form of Indenture between the Company and Wilmington Trust Company, as Debenture Trustee. (M) 4.3 Certificate of Trust of Commerce Capital Trust I. (M) 4.4 Form of Amended and Restated Declaration of Trust of Commerce Capital Trust I. (M) 4.5 Form of Capital Security Certificate for Commerce Capital Trust I (included in Exhibit 4.4). (M) 4.6 Form of Guarantee Agreement. (M) 10.1 Ground lease, dated July 1, 1984, between Commerce NJ and Group Four Equities, relating to the branch office in Gloucester Township, New Jersey. (A) 10.2 Ground lease, dated April 15, 1986, between Commerce NJ and Mount Holly Equities, relating to Commerce NJ's branch office in Mt. Holly, New Jersey. (C) *10.3 The Company's 1984 Incentive Stock Option Plan. (A) *10.4 The Company's Employee Stock Ownership Plan. (F) 10.5 Lease, dated March 29, 1985, between Commerce PA and Devon Properties (Ltd.), and lease dated September 4, 1985, between Commerce PA and Devon Properties (Ltd.), relating to Commerce PA's branch office in Devon, Pennsylvania. (B) 10.6 Assignment of Lease and Assumption Agreement dated November 30, 1987, between the Company and Commerce PA, relating to Commerce PA's branch office in Devon, Pennsylvania. (C) 10.7 Lease between the Company and Astoria Associates, relating to the Company's and Commerce NJ's headquarters facilities. (B) 84 10.8 Ground lease, dated April 15, 1986, between Commerce NJ and U.S. Equities, relating to one of Commerce NJ's branch offices in Washington Township, New Jersey. (D) 10.9 Ground lease, dated February 1, 1988, between Commerce NJ and Diversified Properties of New Jersey, relating to one of Commerce NJ's branch offices in Washington Township, New Jersey. (D) 10.10 Ground lease, dated February 15, 1988, between Commerce NJ and Diversified Properties of New Jersey, relating to one of Commerce NJ's branch offices in Cherry Hill, New Jersey. (D) *10.11 The Company's 1989 Stock Option Plan for Non-Employee Directors. (E) *10.12 A copy of employment contracts with Vernon W. Hill, II, C. Edward Jordan, Jr., and Peter Musumeci, Jr., dated January 2, 1992. (G) *10.13 A copy of the Retirement Plan for Outside Directors of Commerce Bancorp, Inc. (H) *10.14 The Company's 1994 Employee Stock Option Plan. (J) *10.15 The Company's 1997 Employee Stock Option Plan. (L) *10.16 A copy of employment contracts with Dennis M. DiFlorio and Robert D. Falese dated January 1, 1998. (N) 10.17 Ground lease, dated June 1, 1994, between Commerce NJ and Absecon Associates, L.L.C., relating to Commerce NJ's branch office in Absecon, New Jersey. (N) 10.18 Ground lease, dated September 11, 1995, between Commerce Shore and Whiting Equities, L.L.C., relating to Commerce Shore's branch office in Manchester Township, New Jersey. (N) 10.19 Ground lease, dated November 1, 1995, between Commerce NJ and Evesboro Associates, L.L.C., relating to Commerce NJ's branch office in Evesham Township, New Jersey. (N) 10.20 Ground lease, dated October 1, 1996, between Commerce NJ and Triad Equities, L.L.C., relating to one of Commerce NJ's branch offices in Gloucester Township, New Jersey. (N) 10.21 Ground lease, dated October 11, 1996, between Commerce PA and Plymouth Equities, L.L.C., relating to Commerce PA's branch office in Plymouth Township, PA. (N) 10.22 Ground lease, dated January 16, 1998, between Commerce NJ and Ewing Equities, L.L.C., relating to Commerce NJ's branch in Ewing, New Jersey. (P) *10.23 The Company's 1998 Stock Option Plan for Non-Employee Directors. (O) 10.24 Ground lease, dated July 31, 1998, between Commerce NJ and English Creek Properties, L.L.C., relating to Commerce NJ's branch in Egg Harbor Township, New Jersey. (P) 10.25 Ground lease, dated November 30, 1998, between Commerce Shore and Brick/Burnt Tavern Equities, L.L.C., relating to Commerce Shore's branch office in Brick, New Jersey. (Q) 10.26 Ground lease, dated November 30, 1998, between Commerce Shore and Aberdeen Equities, L.L.C., relating to Commerce Shore's branch office in Aberdeen, New Jersey. (Q) 10.27 Ground lease, dated November 30, 1998, between Commerce NJ and Hamilton/Wash Properties, L.L.C., relating to Commerce NJ's branch office in Hamilton Township, New Jersey. (Q) 10.28 Ground lease, dated April 2, 1999, between Commerce PA and Abington Equities, L.L.C., relating to Commerce PA's branch office in Abington Township, Pennsylvania. (Q) 10.29 Ground lease, dated October, 1999, between Commerce PA and Bensalem Equities, L.L.C., relating to Commerce PA's branch office in Bensalem, Pennsylvania. 10.30 Ground lease, dated June 9, 2000, between Commerce NJ and Galloway Equities, L.L.C., relating to Commerce NJ's branch office in Galloway, New Jersey. 11.1 Computation of Net Income Per Share................71 13.1 The Registrant's Annual Report to Shareholders for its fiscal year ended December 31, 2000. 21.1 Subsidiaries of the Company (incorporated by reference from PART I, Item 1. "BUSINESS" of this Report on Form 10-K.)..............................87 23.1 Consent of Ernst & Young LLP. -------------- (A) Incorporated by reference from the Company's Registration Statement on Form S-1, and Amendments Nos. I and 2 thereto (Registration No. 2-94189). (B) Incorporated by reference from the Company's Registration Statement on Form S-2 (Registration No 33-12603). 85 (C) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. (D) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. (E) Incorporated by reference from the Company's Registration Statement on Form S-2 and Amendments Nos. 1 and 2 thereto (Registration No. 33-31042). (F) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989. (G) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. (H) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (I) Incorporated by reference from the Company's Registration Statement on Form S-2 and Amendments Nos. 1 and 2 thereto (Registration No. 33-62702). (J) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (K) Incorporated by reference from the Company's Registration Statement on Form S-4 (Registration No. 333-10771). (L) Incorporated by reference from the Company's Definitive Proxy Statement for its 1997 Annual Meeting of Shareholders, Exhibit A thereto. (M) Incorporated by reference from the Company's Registration Statement on Form S-3 (Registration No. 333-28311). (N) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (O) Incorporated by reference from the Company's Definitive Proxy Statement for its 1998 Annual Meeting of Shareholders, Exhibit A thereto. (P) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (Q) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. * Management contract or compensation plan or arrangement. (b) There were no reports on Form 8-K filed in the fourth quarter of 2000. (c)(d) Exhibits and Financial Statement Schedules - All other exhibits and schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and, therefore, have been omitted. Item 15. Signatures........................................................95 86 PART I Item 1. Business Forward-Looking Statements 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 this Annual Report and 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"); inflation; interest rates, market and monetary fluctuations; the timely development of competitive new products and services by the Company and the acceptance of such products and services by customers; the willingness of customers to substitute competitors' products and services for the Company's products and services and vice versa; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; future acquisitions; the expense savings and revenue enhancements from acquisitions being less than expected; the growth and profitability of the Company's noninterest or fee income being less than expected; unanticipated regulatory or judicial proceedings; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. General The Company is a New Jersey 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 December 9, 1982 and became an active bank holding company on June 30, 1983 through the acquisition of 100% of the outstanding shares of Commerce Bank, N.A. ("Commerce, NJ"). On January 2, 1987, the Company acquired all of the outstanding shares of Commerce Bank/Pennsylvania, N.A. ("Commerce PA"). On December 31, 1988 the Company acquired all of the outstanding shares of Citizens State Bank of New Jersey, Forked River, which was subsequently converted to a national charter and renamed Commerce Bank/Shore, N.A. ("Commerce Shore"). On September 30, 1993, the Company acquired all of the outstanding shares of The Coastal Bank, Ocean City, New Jersey, ("Coastal") which was merged into Commerce NJ. Effective January 21, 1997, the Company acquired Independence Bancorp, Inc., a bank holding company headquartered in Bergen County, New Jersey. Independence Bancorp, Inc.'s wholly-owned state-chartered bank subsidiary, Independence Bank of New Jersey, was subsequently renamed Commerce Bank/North ("Commerce North"). Effective January 15, 1999, the Company acquired Community First Banking Company ("CFBC"), a one-bank holding company headquartered in Tinton Falls, New Jersey. CFBC's wholly-owned bank subsidiary, Tinton Falls State Bank, was merged with and into Commerce Shore. Also effective January 15, 1999, the Company acquired Prestige Financial Corp. ("PFC"), a one-bank holding company headquartered in Flemington, New Jersey. PFC's wholly-owned state-chartered bank subsidiary, Prestige State Bank, was subsequently re-chartered as a national bank and renamed Commerce Bank/Central, N.A. ("Commerce Central"). In 1998, the Company received regulatory approvals to open Commerce Bank/Delaware, N.A. ("Commerce Delaware"). Commerce Delaware's first branch opened in New Castle County, Delaware, on December 18, 1999. On November 15, 1996, two insurance brokerage agencies, Keystone National Companies, Inc., Cherry Hill, New Jersey, and Morales, Potter & Buckelew, Inc., t/a Buckelew & Associates, Toms River, New Jersey, were acquired by the Company and thereafter merged to form Commerce National Insurance Services, Inc. ("Commerce National Insurance"). Commerce National Insurance is currently a wholly-owned subsidiary of Commerce North. In December 1996, Chesley & Cline, Inc., Mount Holly, New Jersey, was merged with and into Commerce National Insurance. In January 1997, Colkate, Inc., t/a The Morrissey Agency, Mt. Laurel, New Jersey, was merged with and into Commerce National Insurance. In December 1997, Joseph J. Reinhart and Associates, Inc., Cherry Hill, NJ, a risk/loss management and loss investigation consulting firm, and Associated Insurance Management Inc., Haddonfield, NJ, an employee and executive benefit consulting firm, were merged with and into Commerce National Insurance. In August 1998, J.A. Montgomery, Inc., Wilmington, DE, an insurance brokerage agency, was merged with and into Commerce National Insurance. In November, 1999, Mullaney Insurance Associates, Oakhurst, NJ, an insurance brokerage agency, was merged with and into Commerce National Insurance. In January, 2000, Traber and Vreeland, Inc., 87 Randolph, NJ and in October 2000, Guarantee Service Agency, Inc. t/a Maywood Agency, Maywood, NJ, insurance brokerage agencies, were merged with and into Commerce National Insurance. On March 27, 1998, the Company completed the acquisition of A. H. Williams & Co., Inc., ("Williams") Philadelphia, PA, a public finance investment firm, and combined Williams with Commerce Capital, the bank securities dealer division of Commerce NJ, to form Commerce Capital Markets, Inc. ("CCMI") a wholly-owned subsidiary of the Company. On June 9, 1997, the Company issued $57,500,000 of 8 3/4% Trust Capital Securities through Commerce Capital Trust 1, a newly formed Delaware business trust subsidiary of the Company. Except as otherwise indicated, all references herein to the Company include Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, Commerce Delaware, Commerce Capital Trust I, Commerce National Insurance, and CCMI. The Company's principal executive offices are located at Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400, and its telephone number is (856) 751-9000. The total number of full-time equivalent persons employed by the Company was 4,230 as of December 31, 2000. The Company believes that its relationship with its employees is good. Commerce NJ Commerce NJ provides retail and commercial banking services through 53 retail branch offices in Camden, Burlington, Gloucester, Mercer, Atlantic, and Cape May Counties in New Jersey. Commerce NJ' s deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). As of December 31, 2000, Commerce NJ had total assets of $4.560 billion, total deposits of $3.582 billion, and total stockholders' equity of $283.7 million. Service Area Commerce NJ's primary service area includes Burlington, Camden, Gloucester, Mercer, Atlantic and Cape May Counties, New Jersey. Commerce NJ has attempted to locate its branches in the fastest growing communities within its service area. Retail deposits gathered through these focused branching activities are used to support Commerce NJ's lending throughout Southern New Jersey. Retail Banking Activities Commerce NJ provides a broad range of retail banking services and products, including free checking accounts (subject to minimum balances) and savings programs, money market accounts, negotiable orders of withdrawal ("NOW") accounts, certificates of deposit, safe deposit facilities, 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 and automated teller facilities. Commerce NJ also offers construction loans and permanent mortgages for houses. Trust Activities Commerce NJ offers trust services primarily focusing on corporate trust activities, particularly as bond trustee, paying agent, and registrar for municipal bond offerings. Commercial Banking Activities Commerce NJ offers a broad range of commercial banking services, including free checking accounts (subject to minimum balance), night depository facilities, money market accounts, certificates of deposit, short-term loans for seasonal or working capital purposes, term loans for fixed assets and expansion purposes, revolving credit plans and other commercial loans to fit the needs of its customers. Commerce NJ also finances the construction of business properties and makes real estate mortgage loans on completed buildings. Where the needs of a customer exceed Commerce NJ's legal lending limit for any one customer (approximately $47.6 million as of December 31, 2000), Commerce NJ may participate with other banks, including Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware in making a loan. Commerce PA In 1987, the Company acquired all of the issued and outstanding shares of capital stock of Commerce PA. As a result of this transaction, Commerce PA became a wholly-owned subsidiary of the Company. Commerce PA was organized as a national bank on December 28, 1983 and commenced operations on June 29, 1984. As of December 31, 2000, Commerce PA had total assets of $1.505 billion, total deposits of $1.411 billion and total stockholders' equity of $82.8 million. Commerce PA provides retail and commercial banking services through 36 retail branch offices in Philadelphia, Bucks, 88 Chester, Delaware and Montgomery Counties in Southeastern Pennsylvania. Commerce PA's deposits are insured by the FDIC. Commerce PA generally provides the same retail and commercial banking services and products as Commerce NJ, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware. Commerce PA offers trust services similar to those offered by Commerce NJ. Commerce Shore In 1988, the Company acquired all of the issued and outstanding shares of capital stock of Commerce Shore. As a result of this transaction, Commerce Shore became a wholly-owned subsidiary of the Company. Commerce Shore was organized as a state-chartered bank on December 8, 1972 and commenced operations on January 29, 1973. In 1989, Commerce Shore converted to a national charter. As of December 31, 2000, Commerce Shore had total assets of $1.175 billion, total deposits of $1.099 billion and total stockholders' equity of $73.7 million. Commerce Shore provides retail and commercial banking services through 25 retail branch offices in Ocean and Monmouth Counties, New Jersey. Commerce Shore's deposits are insured by the FDIC. Commerce Shore generally provides the same retail and commercial banking services and products as Commerce NJ, Commerce PA, Commerce North, Commerce Central, and Commerce Delaware. Commerce Shore does not offer trust services. Commerce North In 1997, the Company acquired Independence Bancorp, Inc. As a result of this transaction, Independence Bancorp Inc.'s wholly-owned state-chartered bank subsidiary, Independence Bank of New Jersey, became a wholly-owned subsidiary of the Company, and was subsequently renamed Commerce North. Commerce North was organized as a state-chartered bank in 1974 and commenced operations in 1975. As of December 31, 2000, Commerce North had total assets of $1.064 billion, total deposits of $850.0 million, and total stockholders' equity of $60.0 million. Commerce North provides retail and commercial banking services through 16 retail branch offices in Bergen and Passaic Counties, New Jersey. Commerce North's deposits are insured by the FDIC. Commerce North generally provides the same retail and commercial banking services and products as Commerce NJ, Commerce PA, Commerce Shore, Commerce Central, and Commerce Delaware. Commerce North does not offer trust services. Commerce Central Effective January 15, 1999, the Company acquired Prestige Financial Corp., and PFC's wholly-owned state-chartered bank subsidiary, Prestige State Bank, was subsequently re-chartered as a national bank and renamed Commerce Central. Commerce Central was organized as a state-chartered bank and commenced operations in 1990. As of December 31, 2000, Commerce Central had total assets of $433.5 million, total deposits of $394.0 million, and total stockholders' equity of $31.2 million. Commerce Central provides retail and commercial banking services through 15 retail branch offices in Hunterdon, Middlesex, Morris, Somerset, and Union Counties, New Jersey. Commerce Central's deposits are insured by the FDIC. Commerce Central generally provides the same retail and commercial banking services and products as Commerce NJ, Commerce PA, Commerce Shore, Commerce North, and Commerce Delaware. Commerce Central does not offer trust services. Commerce Delaware In 1998, the Company received regulatory approvals to open Commerce Delaware. Commerce Delaware began operations on December 18, 1999, with the opening of its first branch office. As of December 31, 2000, Commerce Delaware had total assets of $72.1 million, total deposits of $67.0 million, and total stockholders' equity of $6.0 million. Commerce Delaware generally provides the same retail and commercial banking services and products as Commerce NJ, Commerce PA, Commerce Shore, Commerce North, and Commerce Central. Commerce Delaware offers trust services similar to those offered by Commerce NJ and Commerce PA. Commerce Delaware provides retail and commercial banking services through five retail branch offices in New Castle County, Delaware. Commerce Delaware's deposits are insured by the FDIC. Commerce National Insurance Commerce National Insurance operates as a regional insurance brokerage firm concentrating on commercial property, casualty and surety as well as personal lines. In addition, Commerce National Insurance offers a line of employee benefit programs 89 including both group as well as individual medical, life, disability, pension, and risk management services. Commerce National Insurance currently operates out of 16 locations in New Jersey and three locations in Delaware. Commerce National Insurance places insurance for clients in multiple states, primarily New Jersey, Pennsylvania, and Delaware. Commerce Capital Markets, Inc. Commerce Capital Markets, Inc. is a wholly-owned subsidiary of the Company engaging in certain securities activities, including trading, underwriting, and advisory services. CCMI's principal place of business is Philadelphia, Pennsylvania, with branch locations in Cherry Hill and South Plainfield, New Jersey, Burlingame, California, and Fort Lauderdale, Florida. Other Activities NA Asset Management, a Delaware corporation, is a wholly-owned subsidiary of Commerce NJ which purchases, holds and sells investments of Commerce NJ. Commerce Mortgage Acceptance Corp., a Delaware Corporation is a wholly-owned subsidiary of Commerce NJ utilized in the securitization of certain residential mortgage loans. Shore Asset Management Corporation, a Delaware corporation, is a wholly-owned subsidiary of Commerce Shore which purchases, holds and sells investments of Commerce Shore. North Asset Management, a Delaware corporation, is a wholly-owned subsidiary of Commerce North which purchases, holds, and sells investments of Commerce North. Central Asset Management, a Delaware corporation, is a wholly-owned subsidiary of Commerce Central which purchases, holds, and sells investments of Commerce Central. Delaware Asset Management, a New Jersey corporation, is a wholly-owned subsidiary of Commerce Delaware, which purchases, holds, and sells investments of Commerce Delaware. As part of the Commerce Network, the Company has an equity investment in Commerce Bank/Harrisburg, Camp Hill, Pennsylvania (15.08% beneficial ownership). The Commerce Network provides certain marketing support and technical support services to its members. Competition The Company's service area is characterized by intense competition in all aspects and areas of its business from commercial banks, savings and loan associations, mutual savings banks and other financial institutions. Other competitors, including credit unions, consumer finance companies, factors, insurance companies and money market mutual funds, compete with certain lending and deposit gathering services offered by the Company. Many competitors have substantially greater financial resources and larger lending limits and larger branch systems than those of the Company. In commercial transactions, Commerce NJ's, Commerce PA's, Commerce Shore's, Commerce North's, Commerce Central's, and Commerce Delaware's legal lending limit to a single borrower (approximately $47.6 million, $13.6 million, $12.0 million, $9.6 million, $5.2 million, and $1.0 million, respectively, as of December 31, 2000) enables them to compete effectively for the business of smaller and mid-sized businesses. However, these legal lending limits are considerably lower than that of various competing institutions and thus may act as a constraint on Commerce NJ's, Commerce PA's, Commerce Shore's, Commerce North's, Commerce Central's, and Commerce Delaware's effectiveness in competing for financing in excess of these limits. The Company believes that it is able to compete on a substantially equal basis with larger financial institutions because it offers longer hours of operation than those offered by most of its competitors, free checking accounts for customers maintaining certain minimum balances and competitive interest rates on savings and time accounts with low minimum deposit requirements. The Company seeks to provide personalized services through management's knowledge and awareness of its market area, customers and borrowers. The Company believes this knowledge and awareness provides a business advantage in serving the retail depositors and the small and mid-sized commercial borrowers that comprise the Company's customer base. 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 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. 90 The Company The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("Holding Company Act"), and is therefore subject to supervision and regulation by the FRB. The Company is also regulated by the New Jersey Department of Banking. Under the Holding Company Act, the Company is required to secure the prior approval of the FRB before it can merge or consolidate with any other bank holding company or acquire all or substantially all of the assets of any bank or acquire direct or indirect ownership or control of any voting shares of any bank that is not already majority owned by it, if after such acquisition it would directly or indirectly own or control more than 5% of the voting shares of such bank. See "Interstate Banking." The Company is generally prohibited under the Holding Company Act from engaging in, or acquiring direct or indirect ownership or control or more than 5% of the voting shares of any company engaged in nonbanking activities unless the FRB, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making such a determination, the FRB considers whether the performance of these activities by a bank holding company can reasonably be expected to produce benefits to the public which outweigh the possible adverse effects. The FRB has by regulation determined that certain activities are closely related to banking within the meaning of the Holding Company Act. These activities include, among others, operating a mortgage, finance, credit card or factoring company; performing certain data processing operations, providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; and certain stock brokerage and investment advisory services. 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. All of the Company's subsidiary banks are currently rated "satisfactory" under the Community Reinvestment Act. In addition, under the Holding Company Act, the Company is required to file periodic reports of its operations with, and is subject to examination by, the FRB. The Company is under the jurisdiction of the Securities and Exchange Commission ("SEC") and various 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. There are various legal restrictions on the extent to which the Company and its nonbank subsidiaries can borrow or otherwise obtain credit from its banking subsidiaries. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to any one of the Company or such nonbank subsidiaries, to ten percent of the lending bank's capital stock and surplus, and as to the Company and all such nonbank subsidiaries in the aggregate, to 20 percent of such lending bank's capital stock and surplus. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") contains a "cross-guarantee" provision that could result in any insured depository institution owned by the Company being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other depository institution owned by the Company. Also, under FRB policy, the Company is expected to act as a source of financial strength to each of its banking subsidiaries and to commit resources to support each such bank in circumstances where such bank might not be in a financial position to support itself. A discussion of capital guidelines and capital is included in the section entitled "Stockholders' Equity and Dividends" contained within Management's Discussion and Analysis of Financial Condition and Results of Operations on page 55 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2000, which page of the Annual Report appears elsewhere herein. Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware Commerce NJ, Commerce PA, Commerce Shore, Commerce Central, and Commerce Delaware, as national banks, are subject to the National Bank Act. Each is also subject to the supervision of, and is regularly examined by, the Office of the Comptroller of the Currency ("OCC") and is required to furnish quarterly reports to the OCC. The approval of the OCC is required for the establishment of additional branch offices by any national bank, subject to applicable state law restrictions. Commerce North, as a New Jersey state-chartered bank, is subject to the New Jersey Banking Act. Commerce North is also subject to the supervision of, and is regularly examined by, the New Jersey Department of Banking and Insurance ("Department") and the FDIC, and is required to furnish quarterly reports to each agency. The Approval of the Department and FDIC is necessary for the establishment of any additional branch offices by any New Jersey state-chartered bank, subject to applicable state law restrictions. Under present New Jersey law, Commerce NJ, Commerce Shore, Commerce North, and Commerce Central would be permitted to operate offices at any location in New Jersey, subject to prior regulatory approval. Under present Pennsylvania law, 91 Commerce PA would be permitted to operate offices within any county in Pennsylvania, subject to prior regulatory approval. Under present Delaware law, Commerce Delaware would be permitted to operate offices at any location in Delaware at which deposits are received, checks are paid, or money is lent, subject to prior regulatory approval. Under the Community Reinvestment Act, as amended ("CRA"), a bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with CRA. CRA requires that the applicable regulatory agency to assess an institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The CRA requires public disclosure of an institution's CRA rating and requires that the applicable regulatory agency provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system. An institution's CRA rating is considered in determining whether to grant charters, branches and other deposit facilities, relocations, mergers, consolidations and acquisitions. Performance less than satisfactory may be the basis for denying an application. In addition, under applicable regulations a bank having a less than satisfactory rating is not entitled to participate on the bid list for FDIC offerings. For their most recent examinations, Commerce NJ, Commerce PA, Commerce Shore, Commerce North, and Commerce Central each received a "satisfactory" rating. Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware are also members of the FDIC and, except for Commerce North, members of the FRB and, therefore, are subject to additional regulation by these agencies. Some of the aspects of the lending and deposit business of Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware which are regulated by these agencies include personal lending, mortgage lending and reserve requirements. The operation of Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware are also subject to numerous federal, state and local laws and regulations which set forth specific restrictions and procedural requirements with respect to interest rates on loans, the extension of credit, credit practices, the disclosure of credit terms and discrimination in credit transactions. Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware are subject to certain limitations on the amount of cash dividends that they can pay. See Note 18 of the Company's Notes to Consolidated Financial Statements which appears elsewhere herein. 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 and the Company's non-bank subsidiaries. The FDIC has similar authority with respect to Commerce North. All of the deposits of the banking subsidiaries are insured up to applicable limits by the FDIC and are subject to deposit insurance assessments. The insurance assessments are based upon a matrix that takes into account a bank's capital level and supervisory rating. Effective January 1, 1996, the FDIC reduced the insurance premiums it charged on bank deposits to the statutory minimum of $2,000 annually for "well capitalized" banks. Interstate Banking On September 29, 1994, the President signed into law the "Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Act"). Among other things, the Interstate Act permits bank holding companies to acquire banks in any state after September 29, 1995. Beginning June 1, 1997, a bank may merge with a bank in another state so long as both states have not opted out of interstate branching between the date of enactment of the Interstate Act and May 31, 1997. States may enact laws opting out of interstate branching before June 1, 1997, subject to certain conditions. States may also enact laws permitting interstate merger transactions before June 1, 1997, and host states may impose conditions on a branch resulting from an interstate merger transaction that occurs before June 1, 1997, if the conditions do not discriminate against out-of-state banks, are not preempted by Federal law and do not apply or require performance after May 31, 1997. New Jersey and Pennsylvania have enacted laws opting in immediately to interstate merger and interstate branching transactions. Interstate acquisitions and mergers would both be subject, in general, to certain concentration limits and state entry rules relating to the age of the bank. Delaware has enacted a law opting in to interstate branching by merger only. Under the Interstate Act, the Federal Deposit Insurance Act is amended to permit the responsible Federal regulatory agency to approve the acquisition of a branch of an insured bank by an out-of-state bank or bank holding company without the acquisition of the entire bank or the establishment of a "de novo" branch only if the law of the state in which the branch is located permits out-of-state banks to acquire a branch of a bank without acquiring the bank or permits out-of-state banks to establish "de novo" branches. Pennsylvania and New Jersey have each passed such a law. However, the New Jersey law does not authorize establishment of interstate branches other than by means of acquiring such branches from another institution. Delaware law does not permit interstate branching either through the original establishment of a branch in Delaware by an out-of-state bank or through acquisition of a branch in Delaware by an out-of-state bank. 92 Commerce National Insurance/ Commerce Capital Markets Commerce National Insurance, a nonbank subsidiary of Commerce North, is currently subject to supervision, regulation and examination by the New Jersey Department of Banking and Insurance. Commerce Capital Markets, a nonbank subsidiary of Commerce NJ, engages in certain permitted securities activities and is regulated by the SEC. Commerce Capital Markets is also subject to rules and regulations promulgated by the National Association of Securities Dealers, Inc., the Securities Investors Protection Corporation and various state securities commissions and with respect to public finance activities the Municipal Securities Rulemaking Board. Both Commerce National Insurance and Commerce Capital Markets are also subject to various state laws and regulations in which they do business. These laws and regulations are primarily intended to benefit clients and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. In such event, the possible sanctions which may be imposed include the suspension of individual employees, limitations on engaging in business for specific periods, censures and fines. Recent Legislation On November 12, 1999 the Gramm-Leach-Bliley Act (the "Act") became law, repealing the 1933 Glass-Steagall Act's separation of the commercial and investment banking industries. The Act expands the range of nonbanking activities a bank holding company may engage in, while preserving existing authority for bank holding companies to engage in activities that are closely related to banking. The new legislation creates a new category of holding company called a "Financial Holding Company," a subset of bank holding companies that satisfy the following criteria: (1) all of the depository institution subsidiaries must be well capitalized and well managed; and (2) the holding company must have made an effective election with the Federal Reserve Board that it elects to be a financial holding company to engage in activities that would not have been permissible before the Act. In order for the election to be effective, all of the depository institution subsidiaries must have a CRA rating of "satisfactory" or better as of its most recent examination. The Company has not elected to be a financial holding company. Financial holding companies may engage in any activity that (i) is financial in nature or incidental to such financial activity or (ii) is complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. The Act specifies certain activities that are financial in nature. These activities include - acting as principal, agent or broker for insurance; - underwriting, dealing in or making a market in securities; and - providing financial and investment advice. The Federal Reserve Board and the Secretary of the Treasury have authority to decide whether other activities are also financial in nature or incidental to financial activity, taking into account changes in technology, changes in the banking marketplace, competition for banking services and so on. These new financial activities authorized by the Act may also be engaged in by a "financial subsidiary" of a national or state bank, except for insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development, and merchant banking, which must be conducted in a financial holding company. In order for the new financial activities to be engaged in by a financial subsidiary of a national or state bank, the Act requires each of the parent bank (and its sister-bank affiliates) to be well capitalized and well managed; the aggregate consolidated assets of all of that bank's financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and, if that bank is one of the 100 largest national banks, it must meet certain financial rating or other comparable requirements. The Act establishes a system of functional regulation, under which the federal banking agencies will regulate the banking activities of financial holding companies and banks' financial subsidiaries, the U.S. Securities and Exchange Commission will regulate their securities activities and state insurance regulators will regulate their insurance activities. The Act also provides new protections against the transfer and use by financial institutions of consumers' nonpublic, personal information. 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 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 foregoing discussion is qualified in its entirety by reference to the statutory provisions of the Act and the implementing regulations which are adopted by various government agencies pursuant to the Act. The exact impact of the Act on the Company and its subsidiaries, if any, cannot be predicted at this time. National Monetary Policy In addition to being affected by general economic conditions, the earnings and growth of the Company, Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware 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. 93 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 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, Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, and Commerce Delaware cannot be predicted. Legal Proceedings Other than routine litigation incidental to its business, none of the Company, Commerce NJ, Commerce PA, Commerce Shore, Commerce North, Commerce Central, Commerce Delaware, Commerce Capital Trust 1, Commerce National Insurance, or CCMI, or any of their properties is subject to any material legal proceedings, nor are any such proceedings known to be contemplated. Employee Stock Ownership Plan Effective January 1, 1989, the Company's Board of Directors approved the restatement of the Company's Stock Bonus Plan to an Employee Stock Ownership Plan ("ESOP"). The ESOP is intended to be a qualified retirement plan established and maintained in accordance with the Employee Retirement Income Security Act of 1974 for the benefit of the Company's and its bank subsidiaries' eligible employees. The ESOP is intended to invest primarily in "Qualifying Employer Securities" (i.e., common stock or preferred stock which is convertible into common stock). The assets of the ESOP are held in a trust fund pursuant to a Trust Agreement. The trustees under the Trust Agreement are authorized to invest up to 100% of the trust fund in Qualifying Employer Securities. The trustees are also authorized to borrow money for the purpose of purchasing Qualifying Employer Securities. Generally, each participant in the ESOP is entitled to direct the trustees with respect to the voting rights, if any, of the Qualifying Employer Securities allocated to the participant's account. The current trustees are Vernon W. Hill, II and C. Edward Jordan, Jr., the trustees under the Company's former Stock Bonus Plan. The Company is responsible for the operation and administration of the ESOP. The Company determines investment policies under which the trustees act. These duties are carried out by a committee appointed by the Board of Directors. The Board of Directors has the sole responsibility to appoint and remove members of the committee of trustees, to determine the amount of contributions to the ESOP by the Company and its subsidiary banks, and to amend or terminate, in whole or in part, the ESOP or the Trust Agreement. As of December 31, 2000, all of the approximately 890,000 shares of the Company's common stock held by the ESOP were allocated to participant accounts. 94 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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. By /s/ VERNON W. HILL, II --------------------------------------- Vernon W. Hill, II Date: March 27, 2001 Chairman of the Board and President By /s/ DOUGLAS J. PAULS --------------------------------------- Douglas J. Pauls Principal Financial and 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/ VERNON W. HILL, II Chairman of the Board and President March 27, 2001 ----------------------------- (Principal Executive Officer) Vernon W. Hill, II /s/ C. EDWARD JORDAN JR. Executive Vice President and Director March 27, 2001 ----------------------------- C. Edward Jordan Jr. /s/ ROBERT C. BECK Secretary and Director March 27, 2001 ----------------------------- Robert C. Beck /s/ DAVID BAIRD, IV Director March 27, 2001 ----------------------------- David Baird, IV /s/ JACK R BERSHAD Director March 27, 2001 ----------------------------- Jack R Bershad /s/ JOSEPH BUCKELEW Director March 27, 2001 ----------------------------- Joseph Buckelew /s/ MORTON N. KERR Director March 27, 2001 ----------------------------- Morton N. Kerr /s/ STEVEN M. LEWIS Director March 27, 2001 ----------------------------- Steven M. Lewis /s/ DANIEL J. RAGONE Director March 27, 2001 ----------------------------- Daniel J. Ragone /s/ WILLIAM A. SCHWARTZ JR. Director March 27, 2001 ----------------------------- William A. Schwartz Jr. /s/ JOSEPH T. TARQUINI JR. Director March 27, 2001 ----------------------------- Joseph T. Tarquini Jr. /s/ FRANK C. VIDEON SR. Director March 27, 2001 ----------------------------- Frank C. Videon Sr.
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