Exhibit 99.4
[LOGO OF COMMERCE BANK APPEARS HERE]
SELECTED FINANCIAL DATA
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5 Year
(Dollars in thousands, except per share amounts) Compound
Growth
Year Ended December 31, 1993 1992 1991 1990 1989 Rate
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Results of Operations:
Interest income $ 47,247 $ 44,939 $ 41,027 $ 35,273 $ 28,644 17.04%
Interest expense 20,983 22,414 24,458 21,925 16,987 12.32
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Net interest income 26,264 22,525 16,569 13,348 11,657 21.85
Provision for loan losses 2,825 4,225 2,925 2,695 715 32.57
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Net interest income after provision for
loan losses 23,439 18,300 13,644 10,653 10,942 20.87
Noninterest income 9,248 7,112 4,860 3,475 2,861 35.10
Securities gains 1,407 1,098 900 11 -- n/m
Noninterest expense(1) 23,706 19,091 15,584 13,475 11,448 19.49
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Income before income taxes 10,388 7,419 3,820 664 2,355 49.09
Income taxes 3,837 2,477 1,221 117 668 67.05
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Net income $ 6,551 $ 4,942 $ 2,599 $ 547 $ 1,687 42.50%
=============================================================================================================================
Per Share Data:
Net income:
Primary $ 2.38 $ 2.05 $ 1.36 $ .29 $ .86 32.17%
Fully diluted 2.28 1.97 1.35 .29 .86 31.04
Book value 16.22 14.90 13.63 12.79 13.07 6.88
Cash dividends declared .51 .26 .05 -- -- n/m
=============================================================================================================================
Daily Averages:
Assets $ 656,528 $571,461 $443,927 $347,634 $269,712 24.80%
Earning assets 606,714 526,600 406,751 318,480 247,086 25.28
Loans, net of unearned income 347,585 314,338 293,190 250,719 197,567 15.81
Investment securities 243,039 190,922 98,556 57,981 39,988 61.72
Deposits 604,608 529,560 410,756 319,620 245,430 25.20
Long-term debt 6,650 5,649 5,685 2,376 76 n/m
Shareholders' equity 40,783 31,577 22,309 21,156 19,595 19.46
Primary shares outstanding 2,748 2,412 1,913 1,945 1,969 7.91
Fully diluted shares outstanding 3,013 2,679 2,176 1,945 1,969 9.92
=============================================================================================================================
At Period End:
Assets $ 689,630 $644,849 $478,659 $405,437 $303,251 22.65%
Earning assets 638,864 590,494 437,149 368,856 276,801 23.31
Loans, net of unearned income 378,258 326,265 302,900 280,231 214,428 15.38
Investment securities 247,175 238,680 123,727 71,937 47,872 52.61
Deposits 634,141 597,984 445,175 374,366 278,067 22.91
Long-term debt 6,828 5,626 5,671 5,697 711 n/m
Shareholders' equity 43,589 37,413 23,770 21,105 20,549 20.24
Allowance for loan losses 6,527 5,671 3,717 3,387 2,228 29.04
Nonperforming assets 3,998 6,189 5,851 2,266 2,341 29.26
=============================================================================================================================
Financial Ratios:
Return on average assets 1.00% .86% .59% .16% .63% 14.42%
Return on average shareholders' equity 16.06 15.65 11.65 2.59 8.61 19.28
Net interest margin 4.33 4.28 4.07 4.19 4.72 n/m
Net overhead ratio(2) 2.23 2.27 2.64 3.14 3.48 n/m
=============================================================================================================================
n/m - not meaningful
(1) 1993 included a special non-recurring, noncash adjustment of $910,000 for
the write down of an intangible asset
(2) 1993 excludes item 1 above
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position of
Commerce Bank ("Commerce") for the years 1991 through 1993. This review should
be read in conjunction with Commerce's audited financial statements,
accompanying footnotes and supplemental financial data.
Summary of Financial Results
Commerce earned a record $6.55 million in 1993, an increase of 33%, or
$1.61 million over 1992, which resulted in a five year compound growth rate
of 43%. Primary net income per share grew to $2.38 from $2.05 in 1992,
representing a 16% increase on a larger number of average shares outstanding.
Fully diluted earnings per share were $2.28 for 1993 compared with $1.97 in
1992. The following summarizes performance highlights for 1993, which are
discussed more fully in the following sections.
. The continued superior performance of Commerce's retail branch network
contributed to record total assets of $689.6 million at December 31,
1993, while year-end loans grew 16% over 1992.
. Net interest income increased 17% to $26.3 million for 1993 due to a 15%,
or $80.1 million growth in average earning assets and increased interest
rate spreads.
. Noninterest income, exclusive of securities gains, increased 30% to $9.25
million for 1993, reflecting management's emphasis on growing fee-based
revenues and opportunities from customer relationship values. While all
categories experienced strong growth, mortgage brokerage income
contributed the most to the increase and was fueled by refinancing
activity and an improved residential real estate market.
. Securities gains were $1.41 million for 1993 compared with $1.10 million
for 1992.
. Noninterest expense for 1993 included a non-recurring adjustment of
$910,000 for the write-down of an intangible asset associated with the
purchase of several branches in 1990. Excluding this adjustment,
noninterest expense increased 19% or $3.71 million for 1993. Commerce's
net overhead ratio (noninterest expense less noninterest income excluding
security gains divided by average earning assets) fell to 2.23% in 1993
from 2.27% and 2.64% for 1992 and 1991, respectively. Commerce's
efficiency ratio (noninterest expense divided by net operating revenue,
exclusive of securities gains) remained at 64% for both 1993 and 1992,
compared with 73% for 1991.
. Asset quality remained high during 1993 with nonperforming assets as a
percentage of total assets declining to .58% from .96% at the end of
1992. As a result, Commerce reduced its provision for loan losses 33%, or
$1.4 million from $4.23 million for 1992 to $2.83 million for 1993,
contributing to 1993 earnings. The allowance for loan losses was $6.53
million or 1.73% of period end loans for 1993.
. The growing value of Commerce's franchise was reflected in profitability
measures as the return on average assets increased to 1.00% for 1993 from
.86% for 1992, while the return on average shareholders' equity increased
to 16.06% from 15.65% for 1992.
[BAR GRAPH OF NET INCOME APPEARS HERE]
[BAR GRAPH OF RETURN ON AVERAGE ASSETS APPEARS HERE]
[BAR GRAPH OF RETURN ON AVERAGE SHAREHOLDERS EQUITY APPEARS HERE]
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The following table presents an analysis of return on average assets
and equity for the three years ended December 31, 1993.
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Year Ended December 31, 1993 1992 1991
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As a percent of average
earning assets:
Net interest income 4.33% 4.28% 4.07%
Provision for loan losses (.47) (.80) (.72)
Noninterest income 1.52 1.35 1.20
Noninterest expense (3.90) (3.63) (3.83)
Securities gains .23 .21 .22
Provision for income taxes (.63) (.47) (.30)
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Return on average
earning assets 1.08% .94% .64%
Multiplied by
Average earning assets to
average total assets 92.41 92.15 91.63
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Return on average assets 1.00% .86% .59%
multiplied by
Ratio of average assets to
average equity 16.06 18.20 19.75
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Return on average
shareholders' equity 16.06% 15.65% 11.65%
=====================================================================
Significant items affecting the change in primary earnings per share
for the three years ended December 31, 1993 are summarized in the following
table:
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1993/ 1992/ 1991/
1992 1991 1990
- ---------------------------------------------------------------------
Primary earnings per
share for 1992, 1991 and
1990, respectively $ 2.05 $ 1.36 $ .29
Increase (decrease)
attributable to:
Net interest income 1.36 2.47 1.68
Provision for loan losses .51 (.54) (.12)
Noninterest income .78 .93 .72
Securities gains .11 .08 .47
Noninterest expense (1.68) (1.45) (1.10)
Provision for income taxes (.49) (.52) (.58)
Average shares outstanding (.26) (.28) --
- ---------------------------------------------------------------------
Net increase .33 .69 1.07
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Primary earnings per
share for 1993, 1992
and 1991, respectively $ 2.38 $ 2.05 $ 1.36
=====================================================================
ACQUISITION OF THRIFT DEPOSITS
During 1992 and 1991, Commerce completed two transactions with the
Resolution Trust Corporation in which it acquired approximately $117.9 million
in thrift deposits. These transactions have allowed Commerce to increase its
asset size and core deposit base and to improve its liquidity without a
commensurate increase in bank premises and other expenditures through the
utilization of its existing branch office system.
Commerce acquired $65.1 million in core deposits from the Resolution Trust
Corporation (RTC), as receiver of the failed Trustbank, F.S.B. on March 20, 1992
and received $65.1 million in cash. On July 12, 1991, Commerce acquired $52.8
million in core deposits and received $52.0 million in cash from the RTC, as
receiver of the failed Atlantic Permanent Savings Bank, F.S.B. See Financial
Statement Note 16 for additional information related to these transactions.
Three Years Ended December 31, 1993
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, Commerce's principal component of earnings,
represents the difference between income on earning assets and the cost of funds
supporting those assets. A number of factors interact to affect net interest
income including the mix and volume of earning assets and interest bearing
liabilities, movement in market interest rates, levels of noninterest bearing
liabilities available to support earning assets and the level of nonperforming
assets. Net interest income is fundamentally driven by management's ability to
generate income through asset/liability management strategies and measures the
efficiency of the use of earning assets and their underlying funding sources.
Net interest income was $26.3 million in 1993, up 17% over 1992, which followed
a 36% increase for 1992 over 1991. The increase in net interest income during
1993 was due to a 15% growth in average earning assets and a higher net interest
margin that reflected a wider net interest spread. Net interest margin rose to
4.33% in 1993 compared with 4.28% and 4.07% for 1992 and 1991, respectively.
Commerce's net interest spread (the difference between the yield on earning
assets and the cost of interest bearing liabilities) was 3.77% for 1993, a 7
basis point improvement over the 3.70% reported in 1992. This compares with the
36 basis point increase in net interest spread between 1991 and 1992. The
improvement in net interest spread in 1993 and 1992 reflected Commerce's
liability-sensitive position during a declining rate environment.
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Average earning assets during 1993 increased $80.1 million or 15% and
$119.8 million or 29% during 1992. Because deposit growth and funds from the
1992 stock offering exceeded loan growth, investment securities were used as a
deployment of excess liquidity. Consequently, the increase in average earnings
assets was principally in investment securities, which increased $52.1 million
or 27% to $243.0 million for 1993 compared with a 94%, or $92.4 million increase
between 1992 and 1991. Average loans increased $33.2 million during 1993 or 11%,
reflecting improvement in the Hampton Roads economy. While the yield on average
earning assets declined 74 basis points between 1993 and 1992, the cost of
interest bearing liabilities dropped 81 basis points, both reflecting the lower
interest rate environment. Average interest bearing deposits increased 12% and
29% over the preceding year for 1993 and 1992. In addition to a lower interest
rate environment, Commerce's funding structure has improved due to a favorable
change in its deposit mix to lower cost core deposits.
The following table presents Commerce's average balances, interest earned
or paid and the related yields and rates on major categories of its earning
assets and interest bearing liabilities for the periods indicated:
(Dollars in thousands)
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Average Balance Income/Expense Yield/Rate
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1993 1992 1991 1993 1992 1991 1993 1992 1991
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Assets:
Loans, net of unearned
income & deferred
fees(1)(2) $347,585 $314,338 $293,190 $ 30,861 $ 30,175 $ 31,725 8.88% 9.60% 10.82%
Investment securities(2) 243,039 190,922 98,556 15,689 13,689 8,275 6.46 7.17 8.40
Temporary investments 16,090 21,340 15,005 697 1,075 1,027 4.33 5.04 6.84
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Total earning assets 606,714 526,600 406,751 47,247 44,939 41,027 7.79 8.53 10.09
Allowance for loan losses (6,442) (4,628) (3,383)
Nonearning assets 56,256 49,489 40,559
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Total assets $656,528 $571,461 $443,927
==============================================================
Liabilities &
Shareholders' Equity:
Interest bearing deposits $514,909 $458,023 $355,139 $ 20,322 $ 21,845 $ 23,796 3.95% 4.77% 6.70%
Long-term debt 6,650 5,649 5,685 635 550 568 9.55 9.74 9.99
Short-term borrowings 864 495 1,415 26 19 94 3.01 3.84 6.64
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Total interest bearing
liabilities 522,423 464,167 362,239 20,983 22,414 24,458 4.02 4.83 6.75
Noninterest bearing
liabilities 93,322 75,717 59,379
Shareholders' equity 40,783 31,577 22,319
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Total liabilities
& equity $656,528 $571,461 $443,937
==============================================================
Net interest income $ 26,264 $ 22,525 $ 16,569
Net interest spread 3.77% 3.70% 3.34%
Net interest margin 4.33% 4.28% 4.07%
(1) Includes nonaccrual loans, and income on such loans is recognized on a cash
basis.
(2) Interest and yields are presented on a book basis, as tax-equivalent
adjustments are not significant.
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The following table presents the components of changes in net interest
income by volume and rate. The changes for each category of income and expense
are divided between the portion of change attributable to the variances in
average levels and yields or rates for that category, with the amount of change
that cannot be separated being allocated to each variance proportionately.
(In thousands)
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From 1993 to 1992 From 1992 to 1991
Increase (Decrease) Increase (Decrease)
Due to Changes In:(1) Due to Changes In:(1)
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Rate Volume Total Rate Volume Total
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Interest Income:
Loans, net of unearned income &
deferred fees $ (2,364) $ 3,050 $ 686 $ (3,736) $ 2,186 $ (1,550)
Investment securities (1,457) 3,457 2,000 (1,365) 6,779 5,414
Temporary investments (138) (240) (378) (314) 362 48
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Total interest income (3,959) 6,267 2,308 (5,415) 9,327 3,912
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Interest Expense:
Deposits (4,035) 2,512 (1,523) (7,846) 5,895 (1,951)
Short-term borrowings (5) 12 7 (30) (45) (75)
Long-term debt (11) 96 85 (14) (4) (18)
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Total interest expense (4,051) 2,620 (1,431) (7,890) 5,846 (2,044)
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Net interest income $ 92 $ 3,647 $ 3,739 $ 2,475 $ 3,481 $ 5,956
======================================================================================================================
Noninterest Income
The following table contains an analysis of Commerce's noninterest income
for each of the last three years:
(Dollars in thousands)
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Increase
-----------------------------------------
1993 over 1992 1992 over 1991
Year Ended December 31, 1993 1992 1991 Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 3,428 $ 3,006 $ 2,341 $ 422 14% $ 665 28%
Mortgage brokerage income 2,895 1,838 950 1,057 58 888 93
Credit card merchant fees 907 679 586 228 34 93 16
Trust income 633 508 390 125 25 118 30
Other income 1,385 1,081 593 304 28 488 82
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9,248 7,112 4,860 2,136 30 2,252 46
Securities gains 1,407 1,098 900 309 28 198 22
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Total noninterest income $10,655 $ 8,210 $ 5,760 $ 2,445 30% $ 2,450 43%
======================================================================================================================
Expanding noninterest income is a means of increasing return on average
assets and return on average equity without incremental strains on capital and
is indicative of customer relationship value. Noninterest income, exclusive of
securities gains, increased $2.14 million in 1993 to $9.25 million, a 30%
increase over 1992. This followed a 46%, or $2.25 million increase in 1992 over
1991. Noninterest income as a percent of total operating revenues has continued
to increase each year for the three years ending December 31, 1993.
Service charges on deposit accounts, the largest source of noninterest
income, continued its growth in 1993, increasing $422,000, or 14%, over 1992.
This compares with an increase of 28%, or $665,000 in 1992 over 1991. This
increase was due to account and activity growth along with the implementation of
various fee changes to help offset the escalating cost of deposit insurance
premiums. Noninterest income growth was strongest in mortgage brokerage income
which increased to $2.90 million, a 58% increase over 1992, as declining home
mortgage rates and market share gains resulted in significantly greater
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loan origination volume. This follows a $888,000 or 93% increase when comparing
1992 with 1991. Market share gains have resulted from the exit and closure of
many thrifts in Commerce's market, which have historically been the main
providers of mortgage products. Refinancing origination fees were a major
contributor to income growth for 1992 and 1993 and in anticipation of a
declining market for this portion of Commerce's mortgage banking operation,
management began to focus on first loan originations during 1992. Management
views the mortgage brokerage operation as a natural extension of the branch
office network and its growth, which should enhance the growth of first
origination volume. Trust income continued to perform well with an increase of
$125,000, or 25% over 1992, due to a larger volume of assets under management
and increased account activity. Other income rose to $1.39 million, a 28% or
$304,000 increase over 1992 compared with a $488,000 or 82% increase for 1992
over 1991. Management's emphasis to grow fee-based revenue sources through
customer relationships and a higher volume of fee-based customer services
contributed to the increase. Additionally, Commerce became an originator of
government guaranteed small business administration loans during 1992, which
accounted for $323,000 of the 1992 increase over 1991.
Gains from the sales of securities were $1.41 million in 1993 compared
with $1.10 million and $900,000 for 1992 and 1991, respectively. Please see
"Investment Securities" for further discussion.
Commerce continues to place emphasis on developing sources of noninterest
income and expects continued growth in 1994.
Noninterest Expense
Total noninterest expense for 1993 was $23.7 million and included a
special nonrecurring, noncash adjustment of $910,000 for the write-down of an
intangible asset (see Financial Statement Note 9). Excluding the adjustment,
total noninterest expense was $22.8 million representing a $3.71 million or 19%
increase over 1992. This follows an increase of 23%, or $3.51 million, between
1992 and 1991. The increase in noninterest expense is primarily due to the
incremental cost of growth in the branch franchise and related cost of servicing
a larger customer base along with higher deposit insurance premiums.
Salaries and benefits expense grew $1.80 million, or 20%, during 1993 when
compared with 1992. Comparatively, the increase between 1992 and 1991 was $1.52
million or 21%. The higher expense reflects regular merit increases, an increase
in the number of employees needed to service growth in the customer base and
higher incentive compensation costs through productivity initiatives. The number
of full-time-equivalent employees was 327 at December 31, 1993, compared with
284 and 258 for 1992 and 1991, respectively.
Occupancy expense increased 8% between 1993 and 1992 due to scheduled rent
increases and increased space for branch locations and operations. This compares
with a $200,000 or 10% increase between 1991 and 1992. Furniture and equipment
expense increased $229,000 during 1993 and $201,000 during 1992 representing a
16% increase for both periods as a result of expenses associated with
maintenance and depreciation charges from equipment upgrades. FDIC insurance
premiums increased 21%, or $227,000 during 1993 and 40%, or $315,000 during 1992
due to deposit growth. Other expense increased 24%, or $1.28 million, exclusive
of the intangible write-down when comparing 1993 with 1992. This follows a 31%,
or $1.27 million increase between 1992 and 1991. In addition to expense
associated with growth in customer service activity, the 1993 increase reflects
expense associated with special marketing campaigns and loan
[NET INTEREST INCOME GRAPH APPEARS HERE]
[NET INTEREST MARGIN GRAPH APPEARS HERE]
[NET OVERHEAD RATIO GRAPH APPEARS HERE]
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related expense. The increase in other expense during 1992 was attributable to
expense associated with foreclosed property, increased legal cost relating to
loan agreements and a higher level of contributions. The increase in 1992
contributions over 1991 was primarily due to a $150,000 contribution to
establish the Commerce Bank Foundation. See Financial Statements Note 13 for
further information on the components of other expenses.
Commerce continues to implement various programs aimed at improving
customer service and reducing delivery cost. During 1993, many costs saving
measures from the employee suggestion program were initiated. Additionally,
during 1992 Commerce implemented "Rhonda," a 24-hour help line that provides
account balance information.
Commerce's net overhead ratio is a measure of its ability to manage and
control costs. As this ratio decreases, more of the net interest income
earned flows through to net income. The net overhead ratio for 1993, 1992,
and 1991 was 2.23%, 2.27% and 2.64%, respectively.
The following table contains an analysis of Commerce's noninterest
expense for each of the last three years:
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Increase
(Dollars in thousands) 1993 over 1992 1992 over 1991
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1993 1992 1991 Amount Percent Amount Percent
- --------------------------------------------------------------------------------------------------------------
Salaries and benefits $10,721 $ 8,926 $ 7,403 $ 1,795 20% $ 1,523 21%
Occupancy of bank premises 2,443 2,268 2,068 175 8 200 10
Furniture and equipment 1,691 1,462 1,261 229 16 201 16
FDIC insurance premiums 1,329 1,102 787 227 21 315 40
Intangibles amortization 1,214 381 328 833 219 53 16
Other expense 6,308 4,952 3,737 1,356 27 1,215 33
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Total noninterest expense $23,706 $19,091 $15,584 $ 4,615 24% $ 3,507 23%
==============================================================================================================
Provision for Income Taxes
Commerce implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," ("SFAS 109") as of January 1, 1993. The
cumulative effect of this accounting change had no material effect on
Commerce's financial statements. Financial Statement Note 14 provides a
further discussion of the implementation of SFAS 109 and a reconciliation
between the amount of income tax expense computed using the federal statutory
income tax rate and Commerce's actual income tax expense. Also included in
Note 14 is information regarding the principal items giving rise to deferred
taxes for the three years ended December 31, 1993. The provision for income
taxes in 1993 was $3.84 million, compared with $2.48 million in 1992 and
$1.22 million in 1991 corresponding to increased earnings.
ASSET QUALITY
Credit Risk Management
Credit risk is the possibility that a loss may occur from the failure
of another party to perform according to the terms of an agreement. It
encompasses both the prospect of nonpayment and delay of payment. Commerce
employs extensive procedures and policies to enhance management of credit risk.
These procedures include review and evaluation of loans on an ongoing basis and
result in the classification of asset quality.
The loan portfolio is managed under a specifically defined credit process.
This process includes formulation of portfolio management strategy, guidelines
for underwriting standards and risk assessment, procedures for ongoing
identification and management of credit deterioration, and regular portfolio
reviews to verify loss exposure and compliance with bank policies. Commerce's
loan administration department provides an independent assessment of credit
ratings and asset quality. Appraisals on collateral for significant loans are
reviewed by an outside independent source. Loans that are classified other than
satisfactory are classified to indicate a
[TOTAL OPERATION REVENUE GRAPH APPEARS HERE]
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progressively less satisfactory condition of the borrower or industry. As loans
become classified, heightened management attention is devoted to protect the
bank's position and reduce loss exposure.
Management meets continuously to review asset quality trends and to
discuss loan policy issues. Potential losses are identified during this
review and reserves are established accordingly. A major element of credit
risk management is the diversification of risk. Commerce's objective is to
maintain a diverse loan portfolio to minimize the impact of any single event
or set of occurrences. Concentration parameters are based on individual risk
factors and policy constraints for customers, collateral and products.
The majority of asset quality problems the banking industry experienced
during the past economic recession generally were concentrated in loans
collateralized by commercial real estate values, which historically have
represented a relatively small portion of Commerce's portfolio. Loans
collaterized by real estate are generally made with original loan to value
ratios not greater than 80%. The impact of changes in market values of
collateral are considered in establishment of an adequate reserve for loan
losses. Although there are no major concentrations of credit to any particular
industry, the economic trends of Hampton Roads are significantly influenced
by the military presence, tourism, port activity and the housing industry. In
addition, Commerce is a community bank conducting its lending activities
within the communities of Hampton Roads. As a result, Commerce and its
borrowers may be vulnerable to the consequences of change in that economy.
Allowance/Provision for Loan Losses
Commerce, in conjunction with its lending activities, maintains an
allowance for loan losses, which is available to absorb potential losses
inherent in the loan portfolio. The allowance for loan losses is increased by
both charges to earnings in the form of provision for loan losses and recoveries
of prior loan charge-offs, and decreased by loans charged-off. The provision for
loan losses is based on factors which, in management's opinion, warrant current
recognition in providing an adequate allowance. The provision for loan losses
was $2.83 million, $4.23 million and $2.93 million for 1993, 1992, and 1991,
respectively. On December 31, 1993, 1992, and 1991, the allowance for loan
losses was respectively, $6.53 million, $5.67 million and $3.72 million, which
represented 1.73%, 1.74% and 1.21% of period end loans. Improved asset quality
as reflected in reduced levels of problem assets and net charge-offs (see
following discussions) allowed Commerce to reduce the 1993 provision for loan
losses to a more normal level, while still providing for loan growth and
conservative asset quality ratios. As a result, the 1993 provision for loan
losses was reduced by 33%, or $1.40 million when compared to 1992. The larger
provisions recorded in 1992 and 1991 reflected a conservative approach to asset
quality during the economic slowdown. Excluding unforeseen events, management
anticipates that the provision for loan losses in 1994 will decline below the
1993 levels further enhancing 1994 earnings.
The nature and process by which management determines the appropriate
allowance for loan losses requires the exercise of considerable judgement.
Management considers the allowance for loan losses to be a reasonable
estimate of potential loss exposure in the loan portfolio on December 31,
1993; however, subjective factors and factors beyond the control of Commerce
could impact this estimate on an on-going basis.
Net Charge-Offs
Charge-offs are generally viewed as lagging indicators of credit quality
since, in most cases, the reserve action for the loss took place in a prior
period. Net charge-offs were $1.97 million, $2.27 million and $2.60 million,
respectively for 1993, 1992 and 1991, and net charge-offs to average loans were
.57%, .71% and .88%, respectively. The reduction in net charge-offs reflects the
further strengthening of asset quality.
Commercial loan net charge-offs were $86,000, $88,100 and $2.02 million
for 1993, 1992, and 1991, respectively. The declining 1993 and 1992 amounts
reflect improved asset quality while the 1991 amount included a $1.1 million
write-off to one borrower. Consumer installment net charge-offs were $1.01
million, $906,000 and $435,000, respectively, for 1993, 1992 and 1991,
reflecting corrective action from increased bankruptcies during the past
economic recession.
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The following table summarizes activity in the allowance for loan
losses for the past five years:
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 5,671 $ 3,717 $ 3,387 $ 2,228 $ 1,824
Provision charged to earnings 2,825 4,225 2,925 2,695 715
Charge-offs:
Commercial and other 243 1,041 2,079 1,041 197
Real estate 840 516 153 65 142
Consumer installment 1,226 1,112 534 496 11
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Total charge-offs 2,309 2,669 2,766 1,602 350
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Recoveries:
Commercial and other 157 160 62 29 9
Real estate 15 32 10 -- --
Consumer installment 168 206 99 37 30
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Total recoveries 340 398 171 66 39
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Net charge-offs 1,969 2,271 2,595 1,536 311
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Balance at end of year $ 6,527 $ 5,671 $ 3,717 $ 3,387 $ 2,228
===============================================================================================================
Allowance for loan losses to period-end loans 1.73% 1.74% 1.21% 1.20% 1.02%
Net charge-offs to average loans .57 .72 .88 .61 .16
Allowance for loan losses to nonperforming loans 7.11X 11.57X 1.72X 2.60X .99X
Allowance for loan losses to nonperforming assets 1.63 .92 .64 1.50 .95
===============================================================================================================
The following table sets forth an allocation of the allowance for loan
losses according to the categories of loans indicated. In making the
allocation, consideration was given to such factors as management's
evaluation of risk in each category, current economic conditions and
charge-off experience. The following allocation does not indicate the
unavailability of any portion of the allowance for loan losses to absorb
losses in any category.
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 December 31, 1991 December 31, 1990
-------------------------------------------------------------------------------------------------
Percentage of Percentage of Percentage of Percentage of
Loans in Each Loans in Each Loans in Each Loans in Each
Allowance Category to Allowance Category to Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- --------------------------------------------------------------------------------------------------------------------------------
Commercial $ 1,223 44% $ 800 40% $ 1,200 38% $ 2,390 41%
Consumer 1,654 27 1,471 29 1,334 34 550 21
Real estate mortgage 900 23 808 25 400 23 153 26
Real estate construction
& development 150 5 200 5 193 4 30 10
Tax-exempt -- 1 -- 1 -- 1 -- 2
Unallocated 2,600 2,392 590 264
- --------------------------------------------------------------------------------------------------------------------------------
Total 6,527 100% 5,671 100% $ 3,717 100% 3,387 100%
================================================================================================================================
December 31, 1989
-------------------
Percentage of
Loans in Each
Allowance Category to
Amount Total Loans
- -------------------------------------------------
Commercial $ 1,249 44%
Consumer 595 21
Real estate mortgage 48 24
Real estate construction
& development 30 9
Tax-exempt -- 2
Unallocated 306
- -------------------------------------------------
Total 2,228 100%
=================================================
Nonperforming Assets
Total nonperforming assets, which consist of nonaccrual loans and
foreclosed property, were $4.00 million at year end 1993, declining from
$6.20 million and $5.85 million at December 31, 1992 and 1991, respectively.
Nonperforming assets to period-end assets declined to .58%, .96% and 1.22% at
December 31, 1993, 1992 and 1991, respectively. The higher level of
nonperforming assets during 1992 and 1991 when compared with 1993 were
attributable to an increase in foreclosed property resulting from recessionary
economic pressures.
[LOGO OF COMMERCE BANK APPEARS HERE]
Foreclosed property includes assets that have been acquired in
satisfaction of debt or have been substantively repossessed from an accounting
perspective (insubstance foreclosures). Commerce had $3.08 million of foreclosed
property at December 31, 1993, compared with $5.70 million and $3.69 million for
December 31, 1992 and 1991, respectively. Loans, excluding consumer, generally
are placed on nonaccrual status when the collection of principal or interest is
90 days or more past due, or earlier if collection is uncertain based upon an
evaluation of the value of the collateral and the financial strength of the
borrower. Income recognized on consumer loans is generally discontinued after a
delinquent status period of 120 days, unless conditions warrant otherwise.
Nonaccrual loans were $918,000 at the end of 1993, compared with $490,000 and
$2.16 million at December 31, 1992 and 1991, respectively. The growth in
nonaccrual loans between 1993 and 1992 was primarily concentrated in loans
collateralized by real estate. Nonaccrual loans declined significantly from 1991
to 1992 as a result of increased monitoring and transfers to insubstance
foreclosures. The amount of loans past due 90 days or more that were not
classified as nonaccrual declined to $404,000 at December 31, 1993, from $1.40
million and $1.69 million at December 31, 1992 and 1991, respectively. There
were no material commitments to lend additional funds to customers whose loans
were classified as nonperforming on December 31, 1993.
The table below shows the level of nonperforming assets and related
information over the last five years.
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
December 31, 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 918 $ 490 $2,159 $1,303 $2,256
Foreclosed property 3,080 5,699 3,692 963 85
- -----------------------------------------------------------------------------------------------------------
Total nonperforming assets $3,998 $6,189 $5,851 $2,266 $2,341
Loans past due 90 days and still accruing interest $ 404 $1,395 $1,685 $1,256 $1,708
Nonperforming assets to period end loans 1.06% 1.89% 1.90% .80% 1.08%
Nonperforming assets to period end assets .58 .96 1.22 .56 .77
===========================================================================================================
Interest income would have increased $86,000, $267,000 and $389,000 for
1993, 1992 and 1991, respectively, if interest had been accrued on average
outstanding nonperforming loans.
Management closely reviews the composition of nonperforming assets and
related collateral values. Nonperforming assets vary widely with respect to
their quality, loss exposure and cash generating capacity. Although the level
of nonperforming assets may be related to charge-offs, it does not correlate
directly to losses on such assets. Commerce's diversification of risk is
illustrated in the table below which shows the dollar balance and number of
nonperforming assets by dollar amount at December 31, 1993. The table also
provides an analysis of nonperforming assets by collateral composition. At
December 31, 1993, 98%, or $3.92 million, of Commerce's nonperforming assets
were collateralized by real estate.
Analysis of Nonperforming Assets
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
December 31,1993 December 31, 1992
Number of Number of
Balance Items Percent Balance Items Percent
- -------------------------------------------------------------------------------------------------------
$500,000 and over $ 863 1 22% $ 863 1 14%
$250,000 to $500,000 1,561 5 39 1,653 5 27
$200,000 to $250,000 -- -- -- 200 1 3
$100,000 to $200,000 661 5 17 1,622 12 26
$50,000 to $100,000 697 9 17 1,250 17 20
$50,000 and under 216 22 5 601 54 10
- -------------------------------------------------------------------------------------------------------
Total $3,998 42 100% $ 6,189 90 100%
=======================================================================================================
[GRAPH OF NET CHARGE-OFFS TO ALLOWANCE FOR LOAN LOSSES APPEARS HERE]
[LOGO OF C0MMERCE BANK APPEARS HERE]
Nonperforming assets by collateral composition:
- ----------------------------------------------------------------------------------------------
(Dollars in thousands) December 31,1993 December 31, 1992
Number of Number of
Balance Items Percent Balance Items Percent
- ----------------------------------------------------------------------------------------------
Real property:
Single family
residential $1,621 11 41% $2,453 24 40%
Multi-family residential -- -- -- 200 3 3
Commercial property 280 1 7 652 5 10
Land 2,022 14 50 2,656 16 43
- ----------------------------------------------------------------------------------------------
3,923 26 98 5,961 48 96
Automobile,
equipment & other 75 16 2 288 42 4
- ----------------------------------------------------------------------------------------------
$3,998 42 100% $6,189 90 100%
==============================================================================================
In addition to classifying loans as nonperforming, Commerce also
maintains a watch list of those loans that are deemed to be potential problem
loans. Such loans are viewed as potential problem loans due to possible
credit problems of the borrowers that cause management to have doubts as to
the ability of such borrowers to comply with current repayment terms. Those
loans are subject to constant management attention and their classification
is reviewed on a regular basis.
FINANCIAL CONDITION
Summary
A financial institution's primary sources of revenue are generated by
its earning assets, while its major expenses are produced by the funding of
those assets with interest bearing liabilities. Effective management of these
sources and uses of funds is essential in attaining a financial institution's
maximum profitability while maintaining a minimum amount of risk.
In 1993, average earning assets grew to $606.7 million, a 15% increase
over 1992 following a 29% increase in 1992 over 1991. The performance of
Commerce's branch office network accounted for the increase. In 1993, average
loans increased 11% over 1992, which compares with an increase of 8% in average
loans during 1992 over 1991. The investment portfolio grew on average by 27% in
1993, following a 94% rise in 1992.
Average deposits, the primary source of funds supporting earning assets,
increased 14%, or $75.0 million, over 1992, following a 29% or $118.8 million
increase in 1992 over 1991. Thrift deposit acquisition activity accounted for
approximately 43% and 75% of the deposit growth in 1992 and 1991, respectively.
Loans
Commerce's primary market focus is on making commercial and mortgage
loans to small and medium-sized businesses, professional groups and
individuals in addition to offering a full range of consumer and other retail
loans in its market. Commerce maintains a policy not to originate or purchase
loans classified by regulators as highly leveraged transactions or loans to
foreign entities or individuals. Commerce generally does not make loans outside
its market area unless the borrower has an established relationship with
Commerce and conducts its principal business operations in the Hampton Roads
market.
Loans, net of unearned income and deferred fees, were $378.3 million at
December 31, 1993, representing a 16% increase over 1992 year end. This
followed a 10% increase in year end net loans in 1992 over 1991. Average
loans during 1993 increased 11%, to $347.6 million with a yield of 8.88%.
During 1993, Commerce launched a highly visible loan promotion, which
offered nine-minute loan approvals and payment of closing costs on certain
consumer loans. Additionally, a major marketing campaign that highlighted
Commerce's loyalty to
[BAR GRAPH OF AVERAGE EARNING ASSETS APPEARS HERE]
[PIE CHART OF PERIOD END LOANS APPEARS HERE]
[BAR GRAPH OF TOTAL LOANS APPEARS HERE]
[LOGO OF COMMERCE BANK APPEARS BANK]
customers and commitment to community was conducted. The growth in 1993 loans is
attributed to these campaigns, focus on customer service and general improvement
in the local economy. Management anticipates that the Hampton Roads local
economy will continue to improve during 1994, which is expected to stimulate
loan growth as consumer and business activity improves.
The following table sets forth Commerce's loan portfolio composition
for the five years ended December 31, 1993. (net of unearned income).
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
Commercial $ 165,421 44% $ 129,416 40% $ 114,765 38% $ 114,309 41% $ 95,147 44%
Consumer 101,008 27 93,864 29 101,751 34 58,700 21 45,768 21
Real estate mortgage 88,294 23 81,847 25 71,027 23 73,964 26 51,167 24
Real estate construction
& development 17,074 5 14,921 5 11,169 4 28,997 10 18,312 9
Tax-exempt 6,461 1 6,217 1 4,188 1 4,261 2 4,034 2
- --------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned
income and deferred fees $ 378,258 100% $ 326,265 100% $ 302,900 100% $ 280,231 100% $ 214,428 100%
================================================================================================================================
The following table sets forth the maturity distribution and interest
sensitivity of the loan portfolio at December 31, 1993. Maturities are based
upon contractually scheduled principal repayments. The timing of actual
principal repayments is expected to vary from scheduled repayments due to the
renewal of certain loans at their maturity and prepayment patterns.
(In thousands)
- --------------------------------------------------------
December 31, 1993
- --------------------------------------------------------
Fixed-rate loans with a remaining
maturity of:
Three months or less $ 24,294
Over three months through 12 months 34,091
Over one year through five years 150,585
Over five years 42,610
- --------------------------------------------------------
Total fixed-rate loans 251,580
Floating-rate loans with a repricing
frequency of:
Quarterly or more frequently 107,701
Annually or more frequently, but less
frequently than quarterly 11,087
Every five years or more frequently, but
less frequently than annually 6,972
- --------------------------------------------------------
Total floating-rate loans 125,760
Nonaccrual loans 918
- --------------------------------------------------------
Total $378,258
========================================================
The commercial loan portfolio increased 28%, or $36 million, at
December 31, 1993 from December 31, 1992. Approximately 44% of Commerce's
loan portfolio at December 31, 1993 was composed of commercial loans.
Commercial loans include loans made primarily to service, retail, wholesale
and manufacturing businesses for a variety of purposes, including revolving
lines of credit, working capital loans, equipment financing loans and
letters of credit. Although Commerce typically looks to the borrower's cash
flow as the principal source of repayment of such loans, many of the loans
within this category are collateralized by equipment, accounts receivable and
other forms of collateral. In addition, Commerce had $105.9 million and $79.9
million in commercial loans at December 31, 1993 and 1992, respectively, that
were collateralized in part by nonresidential real estate properties.
Commerce's commercial loans generally bear a floating rate of interest tied
to the prime rate subject to ceilings and floors. Depending on the type of
collateral and the strength of the borrower, the maximum loan-to-value ratio
applied to these loans varies.
Real estate mortgage loans of $88.3 million represented 23% of
Commerce's total loan portfolio at December 31, 1993 and were 8% above the
1992 levels. The Hampton Roads economy experienced growth during 1993 in
planned residential building permits. Commerce's residential mortgage loans
are typically collateralized by single-family residences located in its
market area.
These loans generally have a term of 15 to 30 years and bear a floating
rate of interest. In addition, growth in one-to-four family residential loans
carry reduced capital funding under regulatory risk-based capital guidelines,
which in turn has improved Commerce's risk-weighted asset structure. The
majority of the fixed-rate residential mortgage loans originated are sold in the
secondary mortgage market. Commerce's commercial and multi-family mortgage loans
are made with a variety of maturity and floating interest rate structures.
[LOGO OF COMMERCE BANK APPEARS HERE]
Commerce's real estate construction portfolio amounted to $17.1 million,
or 5%, of Commerce's total loan portfolio at December 31, 1993. The vast
majority of these loans relate to nonspeculative residential real estate
construction loans upon which Commerce expects to make the permanent loan for
the borrower or has obtained a permanent loan take-out commitment from another
lender. Speculative lending represents construction lending in which the end
user/owner is not identified at the time of the borrowing. Generally, Commerce
does not make speculative residential or commercial real estate construction
loans and does so only for customers with whom it has had a long-standing
relationship and who have demonstrated success in the residential or commercial
construction industry. Commerce's construction loans generally bear a floating
rate of interest and mature in one year or less. Construction loan underwriting
standards generally limit the loan amount to 80% of the completed value of the
project.
Consumer loans increased 8%, or $7.14 million during 1993 when compared
with December 31, 1992. New car loans exceeded 30% growth levels when comparing
1993 with 1992 in the Hampton Roads economy. Commerce remains optimistic that
the economic recovery will be sustainable in 1994 and that the level of consumer
buying activity will continue to increase resulting in increased loan demand. In
order to position for this opportunity, management created a consumer loan
division during 1993 to facilitate consumer lending. Management views growth in
consumer loans as a method of managing credit risk through diversification while
enhancing interest margins with higher yields. The increase in the consumer loan
portfolio reflected increased customer focus through the consumer lending
function, loan promotions and general economic improvements, which were
partially offset by increased prepayments and maturities within the portfolio.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which is effective for
fiscal years beginning after December 15, 1994 with earlier application
permitted. See Financial Statement Note 5 for further discussion.
Investment Securities
The investment securities portfolio plays a primary role in the management
of interest rate sensitivity of Commerce and generates substantial interest
income. In addition, the portfolio serves as a source of liquidity and is used
as needed to meet collateral requirements. The decision to purchase securities
is based upon an assessment of economic conditions, Commerce's liquidity
position and the interest rate environment. These conditions are subject to
unexpected changes and, as a result, repositioning of the portfolio may be
appropriate. Investment securities were $247.2 million at December 31, 1993
compared with $238.7 million a year earlier, and at December 31, 1993,
approximate market value exceeded book value by $4.42 million. In an effort to
stimulate the economy, the Federal Reserve significantly lowered interest rates
during 1991 and early 1992 and the yield curve spread between short and long-
term rates increased through 1993. As a result, management anticipated that high
coupon callable securities would be called and that mortgage backed securities
would experience high prepayments. Investment securities with these risk
characteristics were sold resulting in $1.10 million and $900,000, respectively,
for 1992 and 1991. Proceeds were reinvested into short- to intermediate-term
U.S. Treasury and government agency securities.
Because deposit growth exceeded loan growth in 1993, 1992 and 1991,
securities were used as a deployment of excess liquidity. Consequently, 1993
average investment securities increased 27%, or $52.1 million over the 1992
average of $190.9 million. This followed a 94% increase over the $98.6 million
averaged in 1991. Average investment securities represented 40%, 36%, and 24% of
total average earning assets for the three years ended December 31, 1993,
respectively. The objective of the investment portfolio is to complement
Commerce's asset/liability position while offering a balanced rate of return
with attention to liquidity needs for funding future loan growth. As a result,
the growth of the investment securities portfolio was blended between fixed and
variable-rate short to intermediate-term U.S. Treasury and government agency
securities. These securities are liquid assets that carry little or no credit
risk and should have a favorable impact on interest rate sensitivity and margin.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS No. 115) which requires investments in equity
securities that have readily determinable fair values and all investments in
debt securities to be divided into three separate categories: held-to-maturity,
trading, and available-for-sale. In effect, this Statement expands the use of
fair value accounting for securities that fall within its scope but retains the
use of amortized cost methods for securities that a bank has the ability and
interest to hold to maturity. In this regard, the "held-to-maturity" category is
very restrictive with respect to sales or transfers. In anticipation of adoption
of SFAS No. 115, the investment portfolio was repositioned during 1993, which
resulted in securities gains of $1.41 million. Commerce plans to adopt the
Statement as required during the first quarter of 1994. Financial Statement Note
4 provides further information concerning the adoption of SFAS 115 and the
composition of Commerce's investment portfolio.
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table presents the mix of the investment securities
portfolio along with the weighted average maturities and yields at December
31, 1993.
- -------------------------------------------------------------------------------------------------------------------------------
Average
Par Amortized Market Average Maturity
(Dollars in thousands) Value Cost Value Yield (1) In Years (2)
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury:
Within one year $ 15,000 $ 15,020 $ 15,203 6.50%
One to Five years 58,942 58,090 60,517 6.30
Five to Ten years 7,000 7,093 7,350 6.62
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury 80,942 80,203 83,070 6.37 2.61
- -------------------------------------------------------------------------------------------------------------------------------
Federal Agencies:
Within one year 1,050 1,020 1,042 7.34
One to Five years 39,150 39,127 39,778 5.61
Five to Ten years 29,400 28,920 29,135 5.76
- -------------------------------------------------------------------------------------------------------------------------------
Total Federal Agencies 69,600 69,067 69,955 5.70 4.69
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Obligations of
Federal Agencies:
Within one year 41,448 41,315 41,822 6.86
One to Five years 42,915 42,834 42,863 6.01
Five to Ten years 4,400 4,376 4,473 6.66
After Ten years 5,122 5,039 5,039 5.76
- -------------------------------------------------------------------------------------------------------------------------------
Total Mortgage-backed Obligations of
Federal Agencies: 93,885 93,564 94,197 6.42 2.63
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt State and Municipals:
Five to Ten years 700 701 728 4.94
After Ten years 300 300 300 4.80
- -------------------------------------------------------------------------------------------------------------------------------
Total Tax-Exempt State and Municipals 1,000 1,001 1,028 4.90 9.67
- -------------------------------------------------------------------------------------------------------------------------------
Other Securities:
Within one year 500 500 512 8.63
One to Five years 675 700 700 6.25
Five to Ten years 2,000 1,976 1,967 6.49
After Ten years 164 164 167 7.00
- -------------------------------------------------------------------------------------------------------------------------------
Total Other Securities 3,339 3,340 3,346 6.78 7.08
- -------------------------------------------------------------------------------------------------------------------------------
Total Portfolio $ 248,766 $ 247,175 $ 251,596 6.20% 3.29
===============================================================================================================================
(1) Presented on a book basis, as tax equivalent adjustments are not
significant.
(2) The maturity distribution of mortgage-backed obligations of federal agencies
is based on estimated average maturity in years. The remaining maturity
information is in years based on contractual maturity. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Temporary Investments
Temporary investments were $13.4 million at December 31, 1993 and
consisted of interest earning deposits with other banks in the amount of $1.0
million and mortgages held for sale of $12.4 million. Temporary investments
are used for daily cash management purposes, management of short-term
interest rate opportunities and interest rate risk and, as a result, daily
balances vary. The average balance of temporary investments during 1993 was
$16.1 million and represented 3% of total earning assets. See Financial
Statement Note 3 for further information.
[LOGO OF COMMERCE BANK APPEARS HERE]
Deposits and Borrowed Funds
Management's plan to enhance the funding structure of Commerce and to
improve its liquidity position benefitted from 1993, 1992 and 1991 deposit
trends. These trends reflect sustained emphasis on the growth of core deposit
relationships due to their relatively low cost and reasonably stable nature.
Sustained deposit growth is necessary to support growth in earning assets and
also represents the foundation on which additional business relationships are
based.
The following table sets forth a summary of Commerce's various deposit
categories and their respective cost rates for the past three years.
- ------------------------------------------------------------------------------------------------------------------------------------
Average Balance Cost Rate Interest Expense
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1993 1992 1991 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing
demand $ 62,497 $ 57,087 $ 36,814 2.48% 3.40% 4.86% $ 1,553 $ 1,940 $ 1,789
Money market savings 236,502 207,172 103,469 3.50 4.24 5.87 8,278 8,792 6,078
Regular savings 27,084 17,831 11,409 2.83 3.63 5.22 766 647 595
Certificates: Less than
$100,000 161,285 151,282 147,973 5.07 5.90 7.57 8,173 8,925 11,207
Greater than $100,000 27,541 24,651 55,474 5.64 6.25 7.44 1,552 1,541 4,127
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing 514,909 458,023 355,139 3.95 4.77 6.70 $ 20,322 $ 21,845 23,796
Noninterest bearing 89,699 71,537 55,617
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 604,608 $ 529,560 $ 410,756 3.36% 4.13% 5.79%
====================================================================================================================================
Total deposits averaged $604.6 million during 1993, representing a 15%
or $75.0 million increase over 1992. This followed a $118.8 million or 29%
increase in average deposits in 1992 over 1991. Total deposits at December
31, 1993 were $634.1 million, representing a $36.2 million, or 6% increase
over $598.0 million for 1992. The growth in average deposits was attributable
to a combination of the acquisition of thrift deposits from the RTC and
market share gains in existing branch locations. Several factors contributed
to the increase in market share including the growth and convenience of
branch office locations and a shift in consumer preference as a result of
consolidation in the banking industry and closure of thrifts.
During 1993 and 1992, average deposits, exclusive of certificates of
deposit greater than $100,000, comprised 95% of total average deposits,
compared with 86% for 1991. During 1993, average certificates of deposits
greater than $100,000 were $27.5 million or 5% of total average deposits. The
maturity of both non-core, large-denomination deposits during 1992 and a $15
million brokered certificate of deposit at the end of 1991 contributed to the
56% reduction in average certificates of deposit greater than $100,000, from
$55.4 million during 1991 to $24.7 million during 1992.
[PIE CHART PERIOD END DEPOSITS APPEARS HERE]
The following table presents information on the maturities of
certificates of deposit greater than $100,000 at the dates indicated:
- -------------------------------------------------------------------------------------------------------------------------
At December 31, 1993 At December 31, 1992
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------------
Fixed-rate:
Three months or less $ 13,586 35% $ 5,546 23%
Over three through twelve months 9,892 26 6,597 28
Over one year through five years 14,447 38 10,587 45
Over five years 536 1 898 4
- -------------------------------------------------------------------------------------------------------------------------
Total $ 38,461 100% $ 23,628 100%
=========================================================================================================================
[LOGO OF COMMERCE BANK APPEARS HERE]
Average money market savings accounts increased 14%, or $29.3 million
during 1993 compared with a $103.7 million increase during 1992 and represented
39% of total average deposits for 1993 and 1992 compared with 25% for 1991.
Management's emphasis to balance asset interest rate sensitivity with a stable
and diversified deposit base led to the design of variable rate deposit products
indexed to the New York Prime Rate. The acceptance of these products accounted
for the increase in average money market savings. In addition, consumer
preference has shifted to more liquid products as a result of the lower interest
rate environment.
Certificates of deposit less than $100,000 averaged $161.3 million
during 1993 compared with $151.3 million during 1992, and $148.0 million
during 1991. Certificates maturing in one year or less, represented 45% of
the $164.1 million outstanding at December 31, 1993.
Regular savings average balances grew 52%, or $9.25 million and 56%, or
$6.4 million, during 1993 and 1992, respectively, with consumer accounts
representing the majority of the growth. This compares with a 36% growth rate
between 1991 and 1990 average balances.
Average noninterest bearing deposit accounts grew to $89.7 million in
1993, up 25% over 1992 average levels. This followed an increase of 29% in
average noninterest bearing deposit accounts between 1992 and 1991. The
increase during 1991 was the result of a special deposit promotion campaign.
Commerce's average noninterest bearing demand deposits as a percent of
average earning assets increased to 14.8% for 1993 from 13.5% for 1992.
The average rate paid on interest bearing deposits was 3.95% for 1993,
compared with 4.77% for 1992 and 6.70% for 1991. The 82 basis point decrease
between 1993 and 1992 was due to the declining rate environment and favorable
changes in the mix of Commerce's deposit base. Additionally, management's
discipline to obtain favorable pricing during periods of high liquidity while
maintaining competitive market rates reduced overall funding cost.
Short-term borrowings were $1.40 million at December 31, 1993 and
consisted of federal funds purchased. Average short-term borrowings, which
consisted of federal funds purchased and securities sold under repurchase
agreements, were $864,000 during 1993 compared with $495,000 for 1992. These
borrowings are an accessible source of modestly priced funds that are used in
the management of daily cash needs and interest rate risk opportunities.
Financial Statement Note 10 provides further information on Commerce's short-
term borrowings.
Long-term debt was $6.83 million at December 31, 1993 and consisted of
$5.00 million, 10% convertible subordinated capital notes and $1.83 million
in capital lease obligations. Financial Statement Note 11 provides additional
information on Commerce's long-term debt.
Capital Resources
Management reviews Commerce's capital position continuously to ensure
compliance with regulatory capital adequacy requirements and to ensure that
sufficient funds are available for operating needs. These objectives have
been integrated with Commerce's risk management policies to achieve overall
financial goals more effectively while minimizing the cost of capital.
Management believes that a strong capital position is necessary to take
advantage of attractive growth and investment opportunities to enhance
shareholders' returns. Commerce continues to work toward these goals through
careful balance sheet positioning, improved internal capital generation and, as
conditions warrant, capital placements.
Shareholders' equity was $43.6 million at December 31, 1993, a 17%
increase over shareholders' equity of $37.4 million at year end 1992. In May
1992, Commerce issued 625,000 shares of common stock through an underwritten
public offering. Net proceeds from the offering were $9 million.
[GRAPH TOTAL DEPOSITS APPEARS HERE]
[GRAPH PERIOD END SHAREHOLDERS' EQUITY APPEARS HERE]
[LOGO OF COMMERCE BANK APPEARS HERE]
Commerce is subject to regulatory risk-based capital guidelines that
measure capital relative to risk-weighted assets and off-balance-sheet
financial instruments. Commerce's risk-based capital position reflects the
increase in qualifying capital as a result of the 1992 stock offering and
increased earnings. Commerce exceeded the required minimums of Tier 1 and
total capital of 4.0% and 8.0% at December 31, 1993. The leverage ratio is
defined as Tier 1 capital divided by average total assets less intangible
assets and has a regulatory minimum of 3%, with most institutions required to
maintain a ratio of at least 4.0% to 5.0% depending upon risk profiles and
other factors. Commerce has not been advised of a minimum leverage ratio
above the minimum of 3.0%. Commerce's Tier 1 leverage ratio was 6.49% at
December 31, 1993.
The following table provides information on the risk-based capital
position of Commerce:
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Tier I Capital:
Shareholder's equity $ 43,589 $ 37,413 $ 23,770
Less: intangible assets (1,024) (2,238) (2,245)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier I 42,565 35,175 21,525
- ------------------------------------------------------------------------------------------------------------------------------------
Tier II Capital:
Qualifying allowance for loan losses(1) 5,460 4,736 3,717
Mandatory convertible debt instruments 4,995 5,000 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier II 10,455 9,736 8,717
- ------------------------------------------------------------------------------------------------------------------------------------
Total Risk Based Capital $ 53,020 $ 44,911 $ 30,242
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 689,630 $ 644,849 $ 478,659
Total risk weighted assets 436,800 377,886 333,787
Risk weighted assets to total assets 63.34% 58.60% 69.73%
Risk based capital ratios:
Tier I 9.74% 9.31% 6.45%
Total 12.14% 11.88% 9.06%
Tier I Leverage Ratio 6.49% 6.18% 4.87%
===================================================================================================================================
(1) Limited to 1.25% of risk weighted assets
Common Stock and Dividends
Effective February 18, 1992, Commerce's common stock began trading on
the over the counter market (OTC) and was quoted on the NASDAQ (National
Association of Securities Dealers Automated Quotations) Regional Market
System under the symbol "CBVA." Price and volume information are given in
local major newspapers. Commerce's stock began trading on the NASDAQ National
Market on April 5, 1993, which will offer increased visibility, efficiency
and liquidity of the national market. Commerce's market makers are Wheat
First Securities, Inc., Scott and Stringfellow Investment Corporation, Alex
Brown and Sons, Inc. and Herzog, Heine, Geduld, Inc. The bank's convertible
subordinated capital notes are not listed. Prior to February 18, 1992,
Commerce's common stock was not listed on an exchange.
During 1993, Commerce implemented a Dividend Reinvestment and Stock
Purchase Plan. Under the plan, common shareholders of record may reinvest
quarterly common stock dividends in shares of common stock at prices 5% below
current average market prices, without payment of service charges or
brokerage commissions. Optional cash purchases of common stock may be made by
common shareholders at the current average market price. Optional cash
payments may not be less than $100 per payment and the total of all stock
payments may not exceed $5,000 in any calendar quarter. During 1993, 15,453
shares were issued under the Plan.
Prior to 1991, Commerce maintained a policy of retaining all earnings
to help support capital and other expenditures incurred in connection with
the development of its franchise. Based on Commerce's operating results and
other factors, the Board of Directors adopted a policy to pay quarterly cash
dividends beginning with the fourth quarter of 1991. Commerce paid $.05 per
share in dividends in 1991 and increased the quarterly rate during the third
quarter of 1992 to $.08 per share for a total of $.26 per share in 1992.
Total dividends declared in 1992 amounted to $596,000, compared with $83,000
in 1991. Based on Commerce's 1993 earnings performance and future outlook,
the Board of Directors increased the quarterly cash dividend during each
quarter of 1993 resulting in a current annual rate of $.60.
[LOGO OF COMMERCE BANK APPEARS HERE]
Cash dividends declared increased from $.26 per share for 1992 to $.51 per share
for 1993, representing a 96% increase. Total cash dividends declared in 1993
were $1.30 million. Additionally, a 5% stock dividend was declared during the
fourth quarter of 1993 and 1992.
The following table provides stock performance information.
Common Stock Performance and Related Information
- ------------------------------------------------------------------
December 31, 1993
- ------------------------------------------------------------------
Price/earnings ratio 10.53X
Price/book ratio 1.48X
Book value $16.22
Cash dividends declared
per share $ .51
Dividend yield 2.50%
Dividend payout percentage 19.80%
Number of shareholders 1,811
52 week range $25.50 - $19.13
==================================================================
Based on actual sales as reported by NASDAQ, the high and low sale
prices of Common Stock during 1993 and 1992 are set forth with other selected
quarterly financial data on page 41.
ASSET/LIABILITY MANAGEMENT
Liquidity Management
A key goal of asset/liability management is to maintain an adequate degree
of liquidity without impairing long-term earnings. Liquidity represents
Commerce's ability to provide adequate funding sources for loan growth or
deposit withdrawals, as well as unforeseen transactional requirements affecting
the asset and liability structure of the balance sheet. Asset management
policies guide the proportion of liquid assets to total assets, while liability
management policies emphasize the stability, diversification and accessibility
of funding sources. Liquidity risk represents the possibility that adequate
funding sources are not available due to mismatches in cash inflows and
outflows.
Commerce's Statement of Cash Flows provides information about the cash
provided and used by Commerce in its operating, investing and financing
activities. The retention of earnings provides a source of liquidity for
Commerce. The assumption of thrift deposits and growth in deposits from growth
in Commerce's office network have also provided a source of liquidity. In
addition to unrestricted cash balances, other sources of liquidity include
temporary investments, maturities of investment securities and loans, loan sales
and repayments and borrowings. Commerce experienced a relatively high degree of
liquidity during 1993, 1992 and 1991, through deposit growth in relation to
modest loan demand, increased earnings retention and repositioning of the
investment securities portfolio.
The liquidity ratio is one measure of a bank's ability to meet its
current obligations and is defined as the percentage of liquid assets (i.e.,
cash and due from banks, unpledged investment securities with maturities of
less than one year and Federal Fund s sold) to deposits. At year end 1993,
1992 and 1991, Commerce's liquidity ratio was 41%, 48% and 31%, respectively.
Interest Rate Sensitivity Management
Monitoring and managing interest rate risk is a significant objective
of asset/liability management. Interest rate risk represents the earnings
variation that would occur under a specific change in interest rates.
Management's goal is to position the structure of the balance sheet to
benefit from actual and anticipated interest rate changes while creating an
acceptable balance between soundness, profitability and liquidity. The proper
matching of assets and liabilities is fundamental to the stability of net
interest yields. Commerce attempts to fund assets with liability instruments
of similar maturity and interest rate sensitivity in order to reduce interest
rate risk. In addition, pricing policies are designed to facilitate the
matching concept, whereby an asset's yield is viewed in the context of the
cost of the underlying liability. Commerce has experienced significant growth
in variable rate deposits that are a percentage of, and fluctuate with, prime
lending rates. The growth of these products is expected to further enhance
management of interest rate sensitivity.
Management reviews the impact on earnings due to actual and forecasted
movements in interest rates on a monthly basis. This review is formulated
into policies and strategies to favorably position Commerce against interest
rate volatility.
Interest rate risk at a given point in time is represented by the
interest rate sensitivity position (GAP). The cumulative gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. The GAP presented at any point in time is one measure of the risk
inherent in the existing balance sheet structure as it relates to potential
changes in net interest income. GAP alone, does not accurately measure the
magnitude of changes in net interest income since changes in interest rates do
not affect all categories of assets and liabilities equally or simultaneously.
The distribution in interest rate sensitivity is based on a combination of
maturities, call provisions, repricing frequencies, and prepayment patterns.
Variable rate assets are distributed based on the repricing frequency of the
instrument. Variable rate liabilities, consisting of various money market
savings instruments indexed to the New York Prime Rate, are distributed based on
their index with the remainder being distributed to the non-sensitive column.
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table presents Commerce's interest sensitive position at
December 31, 1993. This is a one-day position which is continually changing
and is not necessarily indicative of Commerce's position at any other time.
Total Beyond
1 to 91 to 181 to within 1 to 3 to 5 years or
(In thousands) 90 days 180 days 365 days 1 year 3 years 5 years insensitive Total
- ------------------------------------------------------------------------------------------------------------------------------------
Loans - net $191,019 $ 17,410 $ 29,630 $ 238,059 $ 81,384 $ 34,177 $ 24,638 $ 378,258
Investment securities 34,518 25,459 29,406 89,383 112,831 37,874 7,087 247,175
Temporary investments 12,431 -- -- 12,431 1,000 -- -- 13,431
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 237,968 42,869 59,036 339,873 195,215 72,051 31,725 638,864
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets -- -- -- -- -- -- 50,766 50,766
Total Assets $ 237,968 $ 42,869 $ 59,036 $ 339,873 $195,215 $ 72,051 $ 82,491 $ 689,630
====================================================================================================================================
Interest bearing liabilities:
Savings and interest bearing
demand accounts $ 1,029 $ 1,029 $ 2,059 $ 4,117 $ 8,133 $ 8,641 $ 79,719 $ 100,610
Money market savings 187,434 1,033 2,067 190,534 4,135 4,135 28,947 227,751
Certificates of deposit greater
than $100,000 13,682 4,821 5,085 23,587 6,967 7,371 536 38,461
Certificates of deposit less
than $100,000 39,741 29,284 34,051 103,076 35,925 21,788 3,333 164,122
Other borrowings 1,418 19 40 1,477 5,577 71 1,102 8,227
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 243,304 36,186 43,302 322,791 60,737 42,006 113,637 539,172
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing
liabilities and equity -- -- -- -- -- -- 150,458 150,458
Total Liabilities and Equity $ 243,304 $ 36,186 $ 43,302 $ 322,791 $ 60,737 $ 42,006 $ 264,096 689,630
====================================================================================================================================
Interest rate sensitivity $ (5,336) $ 6,683 $ 15,734 $ 17,082 $134,478 $ 30,045 $ (181,605) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ (5,336) $ 1,348 $ 17,082 $ 17,082 $151,560 $181,605 -- --
====================================================================================================================================
The asset sensitivity of the cumulative one year GAP position was 2.7%
of total earning assets at December 31, 1993.
Effects of Inflation and Changing Prices
The financial statements and related financial data presented herein
have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the general levels of inflation. Interest rates do not
necessarily move in the same magnitude as the prices of goods and services.
Another impact of inflation is on noninterest expenses, which tend to rise
during periods of general inflation. The values of real estate collateralizing
Commerce's loans and foreclosed property could be affected by inflation or
changing prices due to market conditions.
Management believes the most significant impact on financial results is
Commerce's ability to react to changes in interest rates. As discussed
previously, management attempts to maintain a favorable position between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations.
[LOGO OF COMMERCE BANK APPEARS HERE]
COMMERCE BANK FINANCIAL HIGHLIGHTS
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
Results of operations:
Interest income $ 11,888 $ 11,957 $ 11,864 $ 11,538 $ 11,643 $ 11,591 $ 11,358 $ 10,347
Interest expense 5,167 5,192 5,299 5,325 5,460 5,658 5,885 5,411
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,721 6,765 6,565 6,213 6,183 5,933 5,473 4,936
Provision for loan losses 600 700 725 800 900 1,500 825 1,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan
losses 6,121 6,065 5,840 5,413 5,283 4,433 4,648 3,936
Noninterest income 2,346 2,625 2,190 2,087 2,266 1,749 1,624 1,473
Securities gains 53 1,268 -- 86 128 588 -- 382
Noninterest expense 5,995 6,831 5,542 5,338 5,510 4,713 4,588 4,280
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,525 3,127 2,488 2,248 2,167 2,057 1,684 1,511
Provision for income taxes 834 1,415 840 748 727 687 562 501
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,691 $ 1,712 $ 1,648 $ 1,500 $ 1,440 $ 1,370 $ 1,122 $ 1,010
==================================================================================================================================
Per Share Data:
Net income :
Primary $ .61 $ .62 $ .60 $ .55 $ .53 $ .51 $ .49 $ .50
Fully diluted .58 .60 .57 .53 .51 .49 .47 .48
Book value at period end 16.22 16.48 15.91 15.37 14.90 15.12 14.62 14.16
Cash dividends .15 .14 .12 .10 .08 .08 .05 .05
Common stock price: (1)
High 25.50 25.50 24.75 24.50 21.50 17.50 19.50 19.00
Low 23.00 22.75 21.00 19.12 17.00 15.75 15.75 13.50
Close 24.00 23.75 24.25 24.50 21.00 17.00 15.75 19.00
==================================================================================================================================
Average Balance Sheet Data
Assets:
Loans, net of unearned
income $369,323 $354,239 $339,361 $326,879 $319,527 $318,235 $313,020 $306,472
Investment securities 245,039 240,369 246,729 239,994 237,631 221,533 179,948 123,727
Temporary investments 12,356 20,941 16,409 14,625 19,163 19,852 30,436 15,950
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 626,718 615,549 602,499 581,498 576,321 559,620 523,404 446,149
Allowance for loan losses (6,844) (6,713) (6,313) (5,885) (5,535) (4,732) (4,334) (3,901)
Other assets 58,637 56,375 55,984 53,975 53,864 49,764 48,739 45,534
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $678,511 $665,211 $652,170 $629,588 $624,650 $604,652 $567,809 $487,782
==================================================================================================================================
Liabilities and Shareholders'
Equity:
Interest bearing deposits $529,081 $516,719 $511,875 $501,638 $496,694 $484,096 $458,847 $391,744
Short-term borrowings 1,337 818 859 429 509 529 551 388
Long-term borrowings 6,837 6,856 6,878 6,018 5,632 5,643 5,655 5,666
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 537,255 524,393 519,612 508,085 502,835 490,268 465,053 397,798
Noninterest bearing liabilities 98,291 99,022 92,636 83,117 84,760 78,629 74,034 65,314
Equity 42,965 41,796 39,922 38,386 37,055 35,755 28,722 24,670
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $678,511 $665,211 $652,170 $629,588 $624,650 $604,652 $567,809 $487,782
==================================================================================================================================
Financial Ratios:
Return on average assets .99 1.02% 1.01% .97% .92% .90% .79% .83%
Return on average equity 15.61 16.25 16.56 15.85 15.46 15.24 15.71 16.47
Net interest margin 4.28 4.36 4.37 4.33 4.27 4.22 4.21 4.45
==================================================================================================================================
(1) As reported by NASDAQ
[LOGO OF COMMERCE BANK APPEARS HERE]
BALANCE SHEET
(In thousands, except common stock data)
- -----------------------------------------------------------------------------------------------
December 31, 1993 1992
- -----------------------------------------------------------------------------------------------
Assets
Cash and due from banks (Note 2) $ 25,800 $ 28,232
Temporary investments (Note 3) 13,431 25,548
Investment securities:
(Market Value: 1993 - $251,596, 1992 - $242,323) (Note 4) 247,175 238,680
Loans: (Notes 5 & 7)
Commercial 165,409 129,565
Consumer 102,611 97,572
Real estate mortgage 88,850 82,199
Real estate construction & development 17,074 14,921
Tax-exempt 6,477 6,217
Less: Unearned income and deferred fees (2,163) (4,209)
- -----------------------------------------------------------------------------------------------
Loans, net of unearned income and deferred fees 378,258 326,265
Less: Allowance for loan losses (Note 6) (6,527) (5,671)
- -----------------------------------------------------------------------------------------------
Loans, net 371,731 320,594
Bank premises and equipment, net (Note 8) 18,384 15,459
Foreclosed property 3,080 5,808
Other assets (Notes 9 & 14) 10,029 10,528
- -----------------------------------------------------------------------------------------------
Total assets $ 689,630 $ 644,849
===============================================================================================
Liabilities
Deposits:
Noninterest bearing demand $ 103,197 $ 94,229
Interest bearing demand 72,221 62,962
Money market savings 227,751 248,001
Regular savings 28,389 19,794
Certificates of deposit less than $100,000 164,122 149,370
Certificates of deposit greater than $100,000 38,461 23,628
- -----------------------------------------------------------------------------------------------
Total deposits 634,141 597,984
Short-term borrowings (Note 10) 1,400 563
Long-term debt (Note 11) 6,828 5,626
Other liabilities 3,672 3,263
- -----------------------------------------------------------------------------------------------
Total liabilities 646,041 607,436
- -----------------------------------------------------------------------------------------------
Contingent Liabilities (Notes 8, 17 & 18)
Shareholders' Equity (Notes 12)
Common stock, $2.50 par value: 5,000,000 shares authorized:
2,686,792 shares in 1993 and 2,511,327 shares in 1992
issued and outstanding 6,717 6,278
Capital surplus 29,062 25,460
Retained earnings 7,810 5,705
Unrealized loss on marketable equity securities -- (30)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 43,589 37,413
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 689,630 $ 644,849
===============================================================================================
The accompanying notes are an integral part of the financial statements.
[LOGO OF COMMERCE BANK APPEARS HERE]
STATEMENT OF INCOME
(In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Income
Loans, including fees:
Taxable $ 30,370 $ 29,780 $ 31,391
Tax-exempt 491 395 334
Temporary investments:
Interest bearing deposits in other financial institutions 60 115 246
Federal funds sold 261 526 577
Mortgages held for sale 376 434 204
Investment securities:
Taxable 15,649 13,608 8,178
Tax-exempt 40 81 97
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 47,247 44,939 41,027
Interest Expense
Deposits 20,322 21,845 23,796
Short-term borrowings 26 19 94
Long-term debt 635 550 568
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 20,983 22,414 24,458
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 26,264 22,525 16,569
Provision for loan losses (Note 6) 2,825 4,225 2,925
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After
Provision For Loan Losses 23,439 18,300 13,644
Noninterest Income
Service charges on deposit accounts 3,428 3,006 2,341
Mortgage brokerage income 2,895 1,838 950
Credit card merchant fees 907 679 586
Securities gains 1,407 1,098 900
Trust income 633 508 390
Other income 1,385 1,081 593
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 10,655 8,210 5,760
Noninterest Expense
Salaries and benefits 10,721 8,926 7,403
Occupancy of bank premises 2,443 2,268 2,068
Furniture and equipment 1,691 1,462 1,261
Other expense (Notes 9 & 13) 8,851 6,435 4,852
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 23,706 19,091 15,584
Income Before Income Taxes 10,388 7,419 3,820
Provision for income taxes (Note 14) 3,837 2,477 1,221
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income $ 6,551 $ 4,942 $ 2,599
=================================================================================================================================
Net Income Per Share (Note 15)
Primary $ 2.38 $ 2.05 $ 1.36
Fully diluted 2.28 1.97 1.35
Weighted Average Shares Outstanding
Primary 2,748 2,413 1,913
Fully diluted 3,013 2,676 2,176
The accompanying notes are an integral part of the financial statements.
[LOGO OF COMMERCE BANK APPEARS HERE]
STATEMENT OF CASH FLOWS
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 6,551 $ 4,942 $ 2,599
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 2,825 4,225 2,925
Depreciation and amortization of premises and equipment 1,655 1,479 1,318
Net amortization of premiums and accretion of discounts (747) 429 98
Amortization of intangible assets (Note 9) 1,214 381 328
(Gain) loss on sale of property and equipment (80) -- 2
Gain on sale of investment securities (1,407) (1,098) (900)
(Increase) decrease in deferred income tax benefits (452) (648) 294
Increase in interest receivable (137) (705) (1,221)
(Decrease) increase in interest payable 211 (1,100) (342)
(Decrease) increase in other liabilities 63 (60) 622
Decrease (increase) in other assets 2,602 580 (545)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,298 8,425 5,178
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities, calls and prepayments of securities 32,024 31,722 12,590
Proceeds from sales of securities 51,433 35,853 42,585
Purchases of securities (89,799) (181,889) (106,157)
Net (increase) decrease in temporary investments 12,118 (7,271) 9,520
Purchases of premises and equipment (3,215) (1,720) (867)
Net sale (repurchase) of loan participations (615) 1,224 (2,947)
Net increase in loans (53,347) (36,383) (27,755)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (51,401) (158,464) (73,031)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increases in deposit accounts 36,157 87,673 17,975
Net cash received from acquired deposits -- 65,087 51,995
Proceeds from issuance of common stock 892 9,327 143
Net increase (decrease) in short-term borrowings 837 22 (726)
Principal payments on capital lease obligation (83) (45) (26)
Cash dividends paid (1,132) (487) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 36,671 161,577 69,361
- ---------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (2,432) 11,538 1,508
Cash and due from banks at beginning of year 28,232 16,694 15,186
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 25,800 $ 28,232 $ 16,694
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 20,772 $ 22,701 $ 24,675
Income taxes 3,837 3,114 1,054
Noncash financing and investing activities:
Transfer of loans to foreclosed property -- 2,007 2,730
Capital lease obligation 1,285 -- --
=================================================================================================================================
Cash and equivalents are defined as cash and noninterest bearing accounts due
from banks. The accompanying notes are an integral part of the financial
statements.
[LOGO OF COMMERCE BANK APPEARS HERE]
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized
Loss On
Common Stock Marketable
---------------- Capital Retained Equity
(In thousands) Shares Amount Surplus Earnings Securities Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 1,650 $ 4,126 $ 14,749 $ 2,236 $ (6) $ 21,105
Net income for 1991 -- -- -- 2,599 -- 2,599
Proceeds from issuance of common stock 12 29 114 -- -- 143
5% stock dividend 83 206 825 (1,031) -- --
Cash dividends declared ($.05 per share) -- -- -- (83) -- (83)
Change in valuation allowance for marketable
equity securities -- -- -- -- 6 6
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 1,745 $ 4,361 $ 15,688 $ 3,721 -- $ 23,770
Net income for 1992 -- -- -- 4,942 -- 4,942
Proceeds from issuance of common stock 646 1,617 7,710 -- -- 9,327
5% stock dividend 120 300 2,062 (2,362) -- --
Cash dividends declared ($.26 per share) -- -- -- (596) -- (596)
Change in valuation allowance for marketable
equity securities -- -- -- -- (30) (30)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 2,511 $ 6,278 $ 25,460 $ 5,705 $ (30) $ 37,413
Net income for 1993 -- -- -- 6,551 -- 6,551
Proceeds from issuance of common stock 49 121 771 -- -- 892
5% stock dividend 127 318 2,831 (3,149) --
Cash dividends declared ($.51 per share) -- -- -- (1,297) -- (1,297)
Change in valuation allowance for marketable
equity securities -- -- -- -- 30 30
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 2,687 $ 6,717 $ 29,062 $ 7,810 $ -- $ 43,589
===========================================================================================================================
The accompanying notes are an integral part of the financial statements.
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Accounting Policies
The accounting and reporting policies of Commerce Bank ("Commerce")
conform to generally accepted accounting principles and general practices within
the financial services industry. The following is a summary of the more
significant policies.
Temporary Investments
Temporary investments are carried at the lower of aggregate cost or
market value.
Investment Securities
Marketable debt securities are stated at cost adjusted for discount
accreted and premium amortized based on management's intention to hold these
assets on a long-term basis and Commerce's ability to hold them to maturity or
the foreseeable future. In making this determination, management considers
significant known liquidity requirements and capital planning; however,
investment securities may be sold as part of prudent asset/liability management.
Marketable equity securities are carried at the lower of aggregate cost or
market value, and unrealized losses are reflected as a reduction of
shareholders' equity in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 12. Gains and losses on the sale of securities are
determined by the specific identification method and are classified as
securities gains or losses in the accompanying statement of income. As described
in Note 4, Commerce will adopt SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" beginning in 1994.
Loans
Loans are carried at the principal amount outstanding, net of unearned
income and deferred loan fees, net of costs. Interest on loans and amortization
of unearned income, deferred fees and origination costs are computed by methods
which generally result in level rates of return on principal amounts
outstanding.
Commerce discontinues the accrual of interest on loans based on
delinquency status, an evaluation of the related collateral and the financial
strength of the borrower. Loans generally are placed in nonaccrual status when
the collection of principal or interest is 90 days or more past due, or earlier
if collection is uncertain based upon an evaluation of the net realizable value
of the collateral and the financial strength of the borrower. Income recognized
on consumer loans is generally discontinued after a delinquent status period of
120 days, unless conditions warrant otherwise. Management may elect to continue
the accrual of interest if the loan is well collateralized and in the process of
collection. Income is recognized on the cash basis for nonaccrual loans unless
there is doubt as to collectibility of principal, in which case interest
payments are applied to reduce principal. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. When loans are placed on nonaccural, uncollected
interest credited to income in the current year is reversed and uncollected
interest accrued in prior years is charged to the allowance for loan losses.
As described in Note 6, Commerce will be required to adopt SFAS No.
114, "Accounting by Creditors for Impairment of a Loan" beginning in 1995.
Allowance for Loan Losses
The allowance for loan losses is established by management based on an
evaluation of the potential loss exposure in the loan portfolio. The level of
the allowance for loan losses is based upon the quality of the loan portfolio as
determined by management after a detailed specific review of problem loans,
consideration of current and historical loan loss experience, diversification as
to the type of loans in the portfolio, the amount of collateralized and
uncollateralized loans, banking industry standards and averages, and general
economic conditions. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowance for
loan losses and additional write-downs in the valuation of real estate owned may
be necessary based on changes in economic conditions.
Bank Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization charges are computed by the
straight-line method. Premises and equipment are depreciated over the estimated
useful lives of the assets, except for leasehold improvements which are
amortized over the terms of the respective leases or the estimated useful lives
of the improvements, whichever is shorter. Generally, estimated lives of the
principal items of premise and equipment are buildings and improvements--15 to
40 years, furniture, fixtures and equipment--3 to 20 years, and capital leases
over lease terms. The costs of major renovations are capitalized, while the
costs of ordinary maintenance and repairs are expensed as incurred. Gains and
losses on dispositions are reflected in operations.
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Foreclosed Property
Foreclosed property consists of properties acquired through foreclosure,
acceptance in lieu of foreclosure, or insubstance foreclosures. In-substance
foreclosures are properties in which the borrower has little or no equity in the
collateral, where repayment of the loan is expected only from the operation or
sale of the collateral, and the borrower either effectively abandons control of
the property or the borrower has retained control of the property but his
ability to rebuild equity based on current financial conditions is considered
doubtful. These properties are carried at the lower of cost or estimated fair
value. Losses from the acquisition of property in full or partial satisfaction
of debt are charged against the allowance for loan losses at transfer from loans
into foreclosed property. Estimated fair value is reviewed periodically by
management on a specific property basis, and an allowance for loss is
established for any declines in value. Net operating expenses are charged to
noninterest expense.
Income Taxes
Effective January 1, 1993, Commerce changed its method of accounting
for income taxes from the deferred method under Accounting Principles Board
Opinion No. 11 to the liability method required by SFAS No. 109, "Accounting for
Income Taxes" (see Note 14 "Income Taxes"). For years prior to 1993, Commerce
deferred the past tax effects of timing differences between financial reporting
and taxable income. Under the asset and liability method, deferred tax assets
and liabilities are determined based on differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities
(i.e., temporary differences) and are measured at the enacted rates that will be
in effect when these differences reverse. As permitted under SFAS No. 109, prior
years' financial statements have not been restated.
The adoption of SFAS 109 did not have a material effect on Commerce's
financial position or results of operations for 1993.
Earnings Per Share
Primary earnings per share are calculated on the basis of the weighted
average number of shares outstanding during the year after giving retroactive
effect to the 5% stock dividends declared in 1993, 1992 and 1991. Dilutive stock
options have been converted to common stock equivalents for the calculation of
weighted average shares outstanding based upon the average market price of
Commerce's common stock. Fully diluted earnings per share assumes the conversion
of outstanding convertible subordinated capital notes and elimination of
interest paid thereon, after tax effect, and the exercise of dilutive stock
options, as of the beginning of each year. The dilutive effect of outstanding
options and convertible subordinated debt is computed using the greater of the
closing price or the average market price of Commerce's common stock.
Trust Assets and Income
Assets held in an agency or fiduciary capacity are not assets of
Commerce and are not included in the accompanying financial statements. Trust
service income is recognized on the accrual basis.
Other
Certain reclassifications have been made to amounts previously reported
in 1992 and 1991 to conform with the 1993 presentation.
Note 2 -- Restrictions on Cash
and Due from Banks
Commerce is required to maintain average reserve balances on
transactional deposit accounts with the Federal Reserve Bank under Regulation
D. The daily average amounts of these reserve balances for the years ended
December 31, 1993 and 1992 were $4.9 million and $4.6 million, respectively.
On December 31, 1993 and 1992, these reserve balances were $5.2 million and
$5.4 million, respectively.
Note 3 -- Temporary Investments
Temporary investments consist of the following:
(In thousands)
- ----------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------
Federal funds sold $ -- $ 7,000
Interest earning
deposits with other banks 1,000 500
Securities purchased
under resale agreements -- 5,000
Mortgages held for sale 12,431 13,048
- ----------------------------------------------------------
$13,431 $25,548
==========================================================
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Note 4 -- Investment Securities
The amortized cost and approximate market value at December 31, 1993
and 1992 were:
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
1993
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury $ 80,203 $ 2,867 $ -- $ 83,070
U.S. Government agencies & corporations 69,067 1,145 (257) 69,955
Mortgage-backed securities of
U.S. Government agencies 93,564 1,211 (578) 94,197
State and municipal 1,001 28 (1) 1,028
Other securities 3,340 15 (9) 3,346
- ------------------------------------------------------------------------------------------------------------------------------
$ 247,175 $ 5,266 $ (845) $ 251,596
==============================================================================================================================
1992
U.S. Treasury $ 74,355 $ 1,872 $ (164) $ 76,063
U.S. Government agencies & corporations 88,079 1,705 (661) 89,123
Mortgage-backed securities of
U.S. Government agencies 65,700 1,232 (519) 66,413
State and municipal 849 32 -- 881
Other securities 9,697 146 -- 9,843
- ------------------------------------------------------------------------------------------------------------------------------
$ 238,680 $ 4,987 $ (1,344) $ 242,323
==============================================================================================================================
The amortized cost and approximate market value of investment securities
at December 31, 1993, by contractual maturity, are show below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Approximate
Amortized Market
(in thousands) Cost Value
- ----------------------------------------------------------------------
Due in one year or less $ 16,540 $ 16,755
Due after one year through
five years 97,917 100,993
Due after five years
through ten years 38,690 39,185
Due after ten years 464 466
Mortgage-backed
securities 93,564 94,197
- ----------------------------------------------------------------------
Total investment
securities $ 247,175 $ 251,596
======================================================================
During 1993, Commerce purchased $89.8 million in investment securities
and had sales of $51.4 million that resulted in gains of $1.42 million and
losses of $20,000. During 1992, Commerce purchased $181.9 million in
investment securities and had sales of $35.8 million that resulted in gains
of $1.1 million and losses of $20,000. Securities with carrying values of
approximately $18.6 million and $13.5 million on December 31, 1993 and 1992,
respectively, were pledged to provide collateral for public deposits and for
other purposes required or permitted by law.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires investments in equity securities that have readily determinable fair
values and all investments in debt securities to be divided into three separate
categories: held-to-maturity, trading, and available-for-sale. The new standard
will be effective for 1994 reporting. Retroactive application is prohibited.
Under SFAS No. 115, securities are classified as held-to-maturity when
management has the ability and intent to hold them to maturity, and are
stated at cost adjusted for discount accreted and premium amortized. Trading
securities that are bought and held principally for the purpose of selling
them in the near term are reported at fair value, with unrealized gains and
losses included in earnings. Commerce does not anticipate establishment of a
trading account upon adoption of SFAS 115 or any effect on the results of
operations. Available-for-sale securities that management intends to hold
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
for an indefinite period of time but not necessarily to maturity, are reported
at fair value, with unrealized gains and losses, net of deferred tax, included
as a separate component of shareholders' equity.
SFAS 115 is effective for fiscal years beginning after December 15,
1993. Commerce plans to adopt the standard as required during the first
quarter of 1994 and anticipates classification of the investment portfolio at
January 1, 1994 as follows:
- ---------------------------------------------------------------------
Carrying Approximate
(In thousands) Value Market Value
- ---------------------------------------------------------------------
Held-to-maturity $ 29,068 $ 30,192
Available-for-sale 218,107 221,404
- ---------------------------------------------------------------------
$ 247,175 $ 251,596
=====================================================================
Note 5 -- Loans, Net of Unearned Interest and Deferred Fees
Excluding loans in nonaccrual status, loans net of unearned interest
and deferred fees on December 31, 1993 and 1992, with fixed and floating
rates of interest were $377.3 million and $325.8 million, respectively. Loans
on which the accrual of interest has been discontinued amounted to $918,000
and $490,000 on December 31, 1993 and 1992, respectively. Interest income
would have increased $86,000 and $267,000 for 1993 and 1992, respectively, if
interest had been accrued on average outstanding nonperforming loans. There
were no material commitments to lend additional funds to customers whose
loans were classified as nonperforming on December 31, 1993.
In May 1993, the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," which is effective
for fiscal years beginning after December 15, 1994 with earlier application
permitted. SFAS No. 114 requires that loans within its scope be measured on
either the present value of expected cash flows discounted at the loan's
effective interest rate or, if more practical, at the loan's observable
market price or the fair value of the collateral when the loan is collateral
dependent. SFAS No. 114 amends SFAS No. 5, "Accounting for Contingencies," to
clarify that a creditor should evaluate the collectibility of both
contractual interest and contractual principal of all receivables in
assessing the need for a loss accrual. The statement also amends SFAS No. 15,
"Accounting by Debtors and Creditors of Troubled Debt Restructuring," to
require a creditor to measure all restructured loans from troubled debt
restructurings that involve a modification of terms in accordance with this
statement.
Commerce is currently evaluating the impact of the new statement and
anticipates adoption during the first quarter of 1995, without restatement of
prior years. Commerce, however, does not believe the adoption of SFAS 114
will have a material adverse effect on its financial condition or results of
operations.
Note 6 -- Allowance for Loan Losses
A summary of the transactions in the allowance for loan losses follows:
(In thousands)
- ------------------------------------------------------------------
December 31, 1993 1992 1991
- ------------------------------------------------------------------
Balance at beginning
of year $5,671 $3,717 $3,387
Provision charged
to earnings 2,825 4,225 2,925
Losses charged
to allowance (2,309) (2,669) (2,766)
Recoveries of amounts
charged-off 340 398 171
- ------------------------------------------------------------------
Net charge-offs (1,969) (2,271) (2,595)
- ------------------------------------------------------------------
Balance at end of year $6,527 $5,671 $3,717
==================================================================
Note 7 -- Related Party Transactions
During 1993 and 1992, certain executive officers and directors of
Commerce, including their immediate families and companies with which they
are associated, were loan customers of Commerce. Total loans outstanding to
these persons on December 31, 1993, and 1992 amounted to $20.3 million and
$15.9 million, respectively. During 1991 an internally classified loan to a
former director was resolved by a charge to the allowance for loan losses in
the amount of $1.1 million.
In the ordinary course of its business, Commerce has engaged in certain
transactions with certain of its directors and/or corporations and other
entities in which they are significantly interested. Commerce has engaged
legal services and has purchased equipment from directors. Except for the
lease agreement described in the next paragraph, no transactions amounted to
more than $60,000 for any one interested director for the three years ended
December 31, 1993. Also, during 1993, on behalf of Commerce, a director
provided appraisal services to customers of Commerce, which management used
in credit decisions. Customers reimburse Commerce for these services and the
director does not participate further on these credit transactions.
Commerce leases office space from an entity in which a director of
Commerce holds approximately a 33% interest. Lease expense for this location
was $246,000, $224,000, and $213,000 for 1993, 1992 and 1991, respectively.
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Note 8 -- Bank Premises and Equipment
Included in the accompanying balance sheets are the following
components of premises and equipment:
(In thousands)
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
Land $ 3,194 $ 2,423
Building and improvements 6,722 5,837
Furniture, fixtures and
equipment 11,216 10,154
Leasehold improvements 2,283 1,887
Capital leases: Building 1,455 728
- ---------------------------------------------------------------------
24,870 21,029
Less: Accumulated
depreciation and
amortization (7,915) (6,367)
- ---------------------------------------------------------------------
16,955 14,662
Construction in progress 1,429 797
- ---------------------------------------------------------------------
Total premises and
equipment $ 18,384 $ 15,459
=====================================================================
Commerce has entered into lease agreements for premises and equipment
which contain renewal options and escalation clauses. These leases provide
that Commerce pay taxes, maintenance, insurance and other operating expenses
applicable to the leased property. The future minimum lease payments under
noncancellable operating leases and capital leases with remaining terms in
excess of one year on December 31, 1993, are as follows:
(In thousands)
- ----------------------------------------------------------------------
Operating Capital
Leases Leases
- ----------------------------------------------------------------------
1994 $ 1,415 $ 228
1995 1,415 667
1996 1,205 141
1997 491 141
1998 296 141
Thereafter 2,731 1,977
- ----------------------------------------------------------------------
Total minimum lease
payments $ 7,553 $ 3,295
-------
Imputed interest (1,462)
Present value of net
minimum lease payments
(included in long-term debt) $ 1,833
======================================================================
Total lease expense for buildings and equipment was $1.3 million in
1993, $1.3 million in 1992, and $1.2 million in 1991.
Note 9 -- Intangible Assets
As of December 31, 1993, Commerce had unamortized intangible assets of
$1.0 million. This included the excess of cost over the fair value of net
tangible and identified intangible assets of acquired branches and deposit
based intangibles. During the third quarter of 1993 Commerce recorded a
special nonrecurring, noncash adjustment of $910,000 for the writedown of an
intangible asset of deposits acquired on September 15, 1990. The adjustment
better aligns management's estimate of the asset's value, given changes in
market and economic conditions. The remaining intangible asset is amortized
over a weighted average life of six years.
Note 10 -- Short-Term Borrowings
Short-term borrowings consist of federal funds purchased in the amount of
$1.4 million on December 31, 1993, and securities sold under agreement to
repurchase in the amount of $563,000 on December 31, 1992. These borrowings
generally mature within 1 to 21 days or are due upon demand. The following
amounts and rates applied during 1993 and 1992:
- --------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- --------------------------------------------------------------------
Amount outstanding on
December 31, $ 1,400 $ 563
Rate of interest on
December 31, 3.06% 2.50%
Highest amount outstanding
during the year $ 12,175 $ 563
Average amount outstanding
during the year $ 864 $ 411
Average rate of interest paid 3.01% 3.72%
====================================================================
Securities with carrying values of approximately $994,000 on December
31, 1992, were pledged as collateral for securities under agreements to
repurchase. On December 31, 1993, Commerce had unused federal funds lines of
credit of $18.6 million.
Note 11 -- Long-Term Debt
Long-term debt consists of the following:
(Dollars in thousands)
- -----------------------------------------------------------------------
December 31, 1993 1992
- -----------------------------------------------------------------------
10% Convertible subordinated
capital notes due 2002 $ 4,995 $ 5,000
Obligations under capital
leases (6% -9.25%) 1,833 626
- -----------------------------------------------------------------------
Total $ 6,828 $ 5,626
=======================================================================
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
The subordinated capital notes were issued by Commerce under terms of
an indenture dated September 1, 1990, and are convertible into Commerce's
common stock on or before August 31, 2002, unless previously redeemed at a
conversion price of $19.00 per share, subject to adjustment in certain
events. The notes are redeemable, in whole or in part, at Commerce's option
subject to regulatory approval, beginning September 1, 1995 at 105% of the
principal amount plus accrued and unpaid interest, and at reducing premiums
thereafter. The notes bear interest at 10% per annum with interest payable
quarterly. The notes are subordinated to the claims of depositors and certain
other creditors of Commerce, and are considered equity contract notes, which
are included in Tier 2 risk-based capital for bank regulatory purposes.
Note 12 -- Shareholders' Equity and Stock Option Plan
Commerce is authorized to issue 5 million shares of common stock, par
value $2.50 per share. A summary of shares of common stock reserved for
issuance as of December 31, 1993 follows:
- -------------------------------------------------------------------------
Shares Reserved
- -------------------------------------------------------------------------
Subordinated capital notes
(See Note 11) 262,895
Dividend Reinvestment and
Stock Purchase Plan 234,547
1985 and 1993 Stock Option
and Incentive Stock Plan 367,137
- -------------------------------------------------------------------------
Total 864,579
=========================================================================
Commerce is authorized to issue 1 million shares of preferred stock,
par value $5.00 per share. At December 31, 1993, no shares of preferred stock
were issued. The rights of common shareholders are subordinated to the rights
of preferred shareholders.
Commerce issued 625,000 additional shares of common stock during May,
1992, through an underwritten offering resulting in net proceeds of $9.0
million. During 1993, $5,000 of convertible subordinated capital notes were
converted to 250 shares of common stock. Prior to 1993, no amounts were
converted.
Under Commerce's Dividend Reinvestment and Stock Purchase Plan, common
shareholders of record may reinvest quarterly common stock dividends in
shares of common stock at prices 5% below current average market prices,
without payment of service charges or brokerage commissions. Optional cash
purchases of common stock may be made by common shareholders at the current
average market price. Optional cash payments may not be less than $100 per
payment and the total of all such payments may not exceed $5,000 in any
calendar quarter.
The 1985 Stock Option Plan provides for the granting of incentive stock
options and nonqualified options to key management employees of Commerce. The
option price is the fair market value of the stock at the date of grant. All
options shall expire not more than 10 years from the date of grant, if not
previously exercised.
In 1993, the Board of Directors adopted and the shareholders approved
the 1993 Incentive Stock Plan which provides for the granting of awards in
the form of stock options, stock appreciation rights and restricted stock to
key management employees of Commerce. The option price is the fair market
value of the stock at the date of grant. No options are exercisable until at
least six months after grant or after ten years from grant.
All stock option amounts have been adjusted to reflect stock dividends and
stock splits since the inception of the plan. Federal income tax effects
relating to exercised shares are credited to capital surplus. A summary of
activity in the 1985 Stock Option Plan and 1993 Incentive Stock Plan follows:
- ---------------------------------------------------------------------
Year ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------
Options outstanding
at January 1 227,131 234,131 251,025
Options granted 62,918 72,319 --
Options exercised (20,007) (7,000) --
Options canceled/
expired -- (72,319) (16,894)
- ---------------------------------------------------------------------
Options outstanding
at December 31 270,042 227,131 234,131
Options available
for grant at
December 31 97,095 2,516 2,516
- ---------------------------------------------------------------------
Total reserved shares 367,137 229,647 236,647
- ---------------------------------------------------------------------
Options exercisable
at December 31 202,672 221,269 226,585
- ---------------------------------------------------------------------
Option prices per share:
Granted $ 24.00 $ 18.00 --
Exercised $ 9.41/ $ 10.37/ --
12.34 12.96
Canceled -- $ 12.96 --
Outstanding $ 9.41/$ 9.88/ $ 14.69/
22.86 17.41 17.41
=====================================================================
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
In 1993, 1992 and 1991, Commerce declared 5% stock dividends which were
recorded at fair market value with cash being paid in lieu of fractional shares.
In 1993, 1992, and 1991, Commerce declared $.51, $.26 and $.05 per share in cash
dividends, respectively. Total cash dividends declared in 1993, 1992 and 1991
were $1.30 million, $596,000, and $83,000, respectively.
State law imposes restrictions on the ability of all banks chartered
under Virginia law to pay dividends. Among other requirements that must be
satisfied, a Virginia bank must maintain a surplus fund amounting to 20% of
its capital stock, and no dividends may be paid that would reduce the surplus
fund below this mandatory amount. On December 31, 1993, Commerce had a
surplus fund in excess of Virginia law. Commerce is also required to maintain
minimum amounts of capital to total risk-weighted assets, as defined by the
banking regulators. At December 31, 1993, Commerce was required to have
minimum Tier 1 and total capital ratios of 4.00% and 8.00%, respectively.
Commerce's actual ratios at that date were 9.74% and 12.14%, respectively.
Commerce's Tier 1 leverage ratio at December 31, 1993, was 6.49%.
Note 13 -- Other Expenses
The components of other expenses are as follows:
(In thousands)
- --------------------------------------------------------------------------------
December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
Advertising and marketing $ 957 $ 556 $ 309
Directors' fees 256 209 189
Stationery and supplies 662 531 477
Credit card merchant 710 526 448
Telephone, postage and
courier 813 695 606
FDIC and other insurance 1,666 1,347 1,036
State franchise tax and
assessments 231 143 136
Professional fees 396 299 234
Dues and subscriptions 119 76 62
Travel, education and
meetings 110 91 60
Outside processing 346 258 218
Intangibles amortization 1,214 381 328
Automatic teller machine 153 159 125
Contributions 158 203 48
Loan 478 212 189
Foreclosed property 195 231 45
Miscellaneous 387 518 342
- --------------------------------------------------------------------------------
Total other expenses $ 8,851 $ 6,435 $ 4,852
================================================================================
Note 14 -- Income Taxes
As discussed in Note 1, Commerce adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," for 1993.
Applying the provisions of SFAS No. 109 had no material effect on Commerce's
financial statements. Prior years' financial statements were not restated,
therefore, the amounts shown for fiscal years 1992 and 1991 were determined
in accordance with the provisions of the Accounting Principles Board Opinion
No. 11.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Commerce's deferred tax liabilities and assets at December 31,
1993 are as follows:
(In thousands)
Deferred tax liabilities:
Depreciation $ 921
Other 67
- ----------------------------------------------------------------------------
Total deferred tax liabilities 988
- ----------------------------------------------------------------------------
Deferred tax assets:
Loan loss 1,945
Deferred compensation 228
Loan origination fees 232
Other 3
- ----------------------------------------------------------------------------
Total deferred tax assets 2,408
- ----------------------------------------------------------------------------
Net deferred tax assets $ 1,420
============================================================================
The provision for income taxes is summarized as follows:
(In thousands)
- ----------------------------------------------------------------------------
December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
Federal income taxes current $ 4,298 $ 3,189 $ 1,168
Deferred (461) (712) 53
- ----------------------------------------------------------------------------
Provision for income taxes $ 3,837 $ 2,477 $ 1,221
============================================================================
The components of the provision for deferred income taxes for the
years ended December 31, 1993, 1992 and 1991 are as follows:
- ----------------------------------------------------------------------------
(In thousands) 1993 1992 1991
- ----------------------------------------------------------------------------
Deferred (benefit):
Provision for loan losses $ (375) $ (705) $ (112)
Loan origination fees and costs (20) (7) 56
Depreciation 44 12 129
Deferred compensation (53) (33) (23)
Other (57) 21 3
- ----------------------------------------------------------------------------
Provision for deferred
income taxes $ (461) $ (712) $ 53
============================================================================
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Commerce's income tax returns through 1991 have been examined or are no
longer subject to examination by the Internal Revenue Service. In addition to
federal income taxes, Commerce incurred Virginia bank franchise taxes of
$149,000 in 1993, $83,000 in 1992, and $77,000 in 1991. This tax is imposed upon
banks in Virginia in lieu of income and personal property taxes. Commerce remits
80% of the tax to the Virginia municipalities in which it does business and the
remaining 20% to the State.
The applicable federal income tax effect of investment security gains was
$481,000 in 1993, $374,000 in 1992, and $306,000 in 1991.
Differences between the provision for income taxes at the statutory rate
and that shown in the statement of income are summarized as follows:
(In thousands)
- ----------------------------------------------------------------------------
December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
Tax expense at
statutory rate $ 3,553 $ 2,522 $ 1,299
Increase (reduction)
in taxes resulting
from:
Tax-exempt interest (196) (146) (127)
Goodwill 363 88 40
Other 117 13 9
- ----------------------------------------------------------------------------
Provision for income
taxes $ 3,837 $ 2,477 $ 1,221
============================================================================
Note 15 -- Earnings Per Share
Earnings per share were determined as follows:
(In thousands, except per share)
- ----------------------------------------------------------------------------
Year ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
Primary
Average common
shares outstanding 2,660 2,351 1,913
Dilutive common
stock options
assumed exercised 88 62 *
- ----------------------------------------------------------------------------
Average primary
shares outstanding 2,748 2,413 1,913
- ----------------------------------------------------------------------------
Net Income $ 6,551 $ 4,942 $ 2,599
Per Share Amount $ 2.38 $ 2.05 $ 1.36
- ----------------------------------------------------------------------------
Fully Diluted
Average common
shares outstanding 2,660 2,351 1,913
Dilutive common
stock options 90 62 --
Dilutive convertible
subordinated capital
notes assumed
converted 263 263 263
- ----------------------------------------------------------------------------
Average fully diluted
shares outstanding 3,013 2,676 2,176
- ----------------------------------------------------------------------------
Net Income $ 6,551 $ 4,942 $ 2,599
Add interest on
convertible
subordinated
capital notes,
after taxes 324 336 336
- ----------------------------------------------------------------------------
Adjusted net income $ 6,875 $ 5,278 $ 2,935
- ----------------------------------------------------------------------------
Per share amount $ 2.28 $ 1.97 $ 1.35
============================================================================
* Anti-dilutive, therefore not considered in the calculation.
Note 16 -- Acquisitions of Deposits
Commerce acquired deposits from the Resolution Trust Corporation, as
receiver of the failed Trustbank, F.S.B., and Atlantic Permanent Savings Bank,
F.S.B., on March 20, 1992 and July 12, 1991, respectively. These acquisitions
were accounted for as purchases. The results of operations related to these
transactions are included in the financial statements since the date of such
acquisitions.
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
The following table summarizes the acquisitions:
- ----------------------------------------------------------------------------
(In thousands) 1992 1991
- ----------------------------------------------------------------------------
Cash received $ 65,087 $ 51,995
Loans -- net 239 646
Other assets 622 330
Bank premises and
equipment -- --
Deposits (65,136) (52,834)
Other liabilities (812) (137)
============================================================================
Note 17 -- Contingent Liabilities
Commerce is subject to claims and lawsuits which arise primarily in the
ordinary course of business. Based on information presently available and advice
received from legal counsel representing Commerce in connection with such claims
and lawsuits, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits will not have a material adverse
effect on the financial position of Commerce.
Note 18 -- Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, in order to meet the financing needs of
its customers, Commerce is a party to financial instruments with off-balance
sheet risk. These include commitments to extend credit and standby letters of
credit. These instruments involve, to various degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statement of
financial position. Management conducts regular reviews of these instruments on
an individual customer basis, and the results are considered in assessing the
adequacy of Commerce's allowance for loan losses. Management does not anticipate
any material losses as a result of these transactions.
Commerce's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. Commerce uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Commerce evaluates each customer's credit-
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by Commerce upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies, but may include accounts
receivable, inventory, property, plant, and equipment, income-producing
properties and balances left on deposit.
Standby letters of credit are conditional commitments issued by Commerce
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
The following table indicates the amount of off-balance sheet
transactions:
(In thousands)
- ----------------------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------------------
Commitments to extend credit $61,644 $41,355
Standby letters of credit and
financial guarantees $ 5,223 $ 3,908
============================================================================
Note 19 -- Risk Factors
Commerce's operations are affected by various risk factors, including
interest rate risk, credit risk and risk from geographic concentration of
lending activities. Management attempts to manage interest rate risk through
various asset/liability management techniques designed to match maturities of
assets and liabilities. Loan policies and administration are designed to provide
a well diversified loan portfolio and assurance that loans will only be granted
to credit-worthy borrowers. Commerce considers the allowance for loan losses of
$6.53 million to be a reasonable estimate of potential loss exposure in the loan
portfolio on December 31, 1993; however, subjective factors and factors beyond
the control of Commerce could impact this estimate on an on-going basis. In
addition, Commerce is a community bank and, as such, is mandated by the
Community Reinvestment Act and other regulations to conduct most of its lending
activities within the Hampton Roads, Virginia market. As a result, Commerce and
its borrowers may be vulnerable to the consequences of change in the local
economy.
Note 20 -- Retirement Plan
Commerce has a 401(K) Retirement, Thrift and Profit Sharing Plan. The Plan
is a defined contribution plan covering all employees who have completed at
least 1,000 hours of service during the twelve-month period beginning
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
on the first day of employment. It is subject to the provisions of the Employee
Retirement Income Security Act of 1974. Commerce contributes an amount equal to
at least 50% of participant's payroll savings contribution up to 6% of a
participant's annual compensation. Additionally, a profit sharing contribution
may be made at the discretion of the Board of Directors. Each participant is
required to contribute at least 1% of their compensation but may contribute up
to the lesser of 15% of their compensation or $8,994. Bank contributions were
$304,000, $232,000, and $118,000 for 1993, 1992 and 1991, respectively.
Note 21 - Disclosures about Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires Commerce to disclose estimated fair value for each class of financial
instrument. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These valuations,
where applicable, do not reflect any premium or discount that could result from
offering for sale at one time Commerce's entire holdings of a particular
financial instrument. In addition, no market exists for a significant portion of
Commerce's financial instruments. Fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement, and changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on - and off - balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. SFAS 107 specifically excludes certain items that do not
meet the definition of a financial instrument. These items include such things
as Commerce's mortgage brokerage operation that contributes net fee income
annually, the trust department, deferred tax assets, property, plant, and
equipment and goodwill. In addition, the tax ramifications related to the
realization of the unrealized gains and losses may have a significant effect on
fair value and have not been considered in the estimates. Accordingly, the fair
value information presented does not purport to represent any underlying "market
value" of Commerce taken as a whole.
The following methods and assumptions were used to estimate the fair value
of Commerce's financial instruments.
Cash and Due from Banks
Cash and due from banks consist of currency and coin, cash items in
process of collection and demand account balances, and their carrying amounts
approximate fair value.
Temporary Investments
Temporary investments consist of interest bearing deposits with other
banks, and mortgages held for sale, and their carrying amounts approximate fair
value.
Investment Securities
Fair value for investment securities are based on quoted market prices
where available. Otherwise, fair values are based on bid quotations received
from independent securities dealers or are estimated utilizing independent
pricing services based on available market data. In addition, fair values are
calculated based on the value of one unit without regard to any premium or
discount that may result from concentrations of ownership of a financial
instrument, possible tax ramifications or estimated transactions costs. See Note
4 for related fair value information.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real estate,
installment and tax-exempt. Each loan category is further segmented into fixed
and adjustable rate interest terms and by performing and nonperforming
categories.
The fair values of performing loans (loans that are on accrual status) are
calculated by discounting estimated cash flows using estimated market rates that
reflect the credit and interest rate risk and prepayments inherent in the loan.
For nonperforming loans and certain loans where the credit quality of the
borrower has deteriorated significantly, fair values are estimated by
discounting expected cash flows at a rate commensurate with the risk associated
with the estimated cash flows, or recent appraisals of the underlying
collateral.
Deposit Liabilities
The recorded amounts of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, by definition approximate fair value.
The fair value of deposits with contractual maturities is based on the
discounted value of expected cash flows. The discount rates used are those
currently offered for deposits with similar remaining maturities.
Short-term Borrowings
Short-term borrowings consist of securities sold under agreement to
repurchase and represent overnight transactions, and the carrying values
approximate fair value.
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Long-term Debt
The fair value of the capital notes is calculated by discounting the
contractual cash flows using an incremental rate of borrowing that would be
currently available to Commerce for new debt of similar remaining maturity and
terms.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties which approximates carrying
value.
The fair value of financial instruments not presented in other portions of
the footnotes follows:
- ----------------------------------------------------------------------------
At December 31, 1993
-------------------------------
Carrying Estimated
(In thousands) Amount Fair Value
- ----------------------------------------------------------------------------
Cash and due from banks $ 25,800 $ 25,800
Temporary investments 13,431 13,431
Loans 378,258 380,499
Deposit liabilities 634,141 639,456
Short-term borrowings 1,400 1,400
Long-term debt 6,828 7,677
============================================================================
GRAPHICS APPENDIX LIST
----------------------
EDGAR Version Typeset Version
- ------------- ---------------
EX99_4A]2 NET INCOME BAR GRAPH - (Dollars in Millions)
PLOT POINTS - 1989 -- 1.7
1990 -- .5
1991 -- 2.6
1992 -- 4.9
1993 -- 6.6
EX99_4A]2 RETURN ON AVERAGE ASSETS BAR GRAPH
PLOT POINTS - 1989 -- .63%
1990 -- .16%
1991 -- .59%
1992 -- .86%
1993 -- 1.00%
EX99_4A]2 RETURN ON AVERAGE SHAREHOLDER'S EQUITY BAR GRAPH
PLOT POINTS - 1989 -- 8.61%
1990 -- 2.59%
1991 -- 11.65%
1992 -- 15.65%
1993 -- 16.06%
EX99_4A]6 NET INTEREST INCOME BAR GRAPH (DOLLARS IN MILLIONS)
X-AXIS COMPARES THE YEARS 1989 - 1993
EACH YEAR SHOWS: 1) INTERET INCOME
2) NET INTEREST INCOME
3) INTEREST EXPENSE
PLOT POINTS -
1989 - INTEREST INCOME -- 28.6
- NET INTEREST INCOME -- 11.7
- INTEREST EXPENSE -- 17.0
1990 - INTEREST INCOME -- 35.3
- NET INTEREST INCOME -- 13.4
- INTEREST EXPENSE -- 21.9
1991 - INTEREST INCOME -- 41.0
- NET INTEREST INCOME -- 16.6
- INTEREST EXPENSE -- 24.5
1992 - INTEREST INCOME -- 44.9
- NET INTEREST INCOME -- 22.5
- INTEREST EXPENSE -- 22.4
1993 - INTEREST INCOME -- 47.3
- NET INTEREST INCOME -- 26.3
- INTEREST EXPENSE -- 21.0
EX99_4A]6 BAR GRAPH - NET INTEREST MARGIN
X-AXIS COMPARES THE YEARS 1989 - 1993
EACH YEAR SHOWS: 1) YIELD ON EARNING ASSETS
2) NET INTEREST MARGIN
3) RATE ON INTEREST BEARING
LIABILITY
PLOT POINTS -
1989 - YIELD ON EARNING ASSETS -- 11.59%
- NET INTEREST MARGIN -- 4.72%
- RATE ON INTEREST BEARING LIABILITY -- 8.17%
1990 - YIELD ON EARNING ASSETS -- 11.08%
- NET INTEREST MARGIN -- 4.19%
- RATE ON INTEREST BEARING LIABILITY -- 7.87%
1991 - YIELD ON EARNING ASSETS -- 10.09%
- NET INTEREST MARGIN -- 4.07%
- RATE ON INTEREST BEARING LIABILITY -- 6.75%
1992 - YIELD ON EARNING ASSETS -- 8.53%
- NET INTEREST MARGIN -- 4.28%
- RATE ON INTEREST BEARING LIABILITY -- 4.83%
1993 - YIELD ON EARNING ASSETS -- 7.79%
- NET INTEREST MARGIN -- 4.33%
- RATE ON INTEREST BEARING LIABILITY -- 4.02%
EX99_4A]6 BAR GRAPH - NET OVERHEAD RATIO
PLOT POINTS - 1989 -- 3.48%
1990 -- 3.14%
1991 -- 2.64%
1992 -- 2.27%
1993 -- 2.23%
EX99_4A]7 BAR GRAPH - TOTAL OPERATING REVENUE (DOLLARS IN
MILLIONS) X-AXIS COMPARES THE YEARS 1989 - 1993
EACH YEAR SHOWS: 1) TOTAL OPERATING REVENUE
2) NET INTEREST INCOME
3) NON INTEREST INCOME AND
SECURITIES GAINS
PLOT POINTS -
1989 - TOTAL OPERATING REVENUE-- 14.5
- NET INTEREST INCOME -- 11.7
- NONINTEREST INCOME AND SECURITIES GAINS -- 2.9
1990 - TOTAL OPERATING REVENUE-- 16.8
- NET INTEREST INCOME -- 13.4
- NONINTEREST INCOME AND SECURITIES GAINS -- 3.5
1991 - TOTAL OPERATING REVENUE-- 22.3
- NET INTEREST INCOME -- 16.6
- NONINTEREST INCOME AND SECURITIES GAINS -- 5.8
1992 - TOTAL OPERATING REVENUE-- 30.7
- NET INTEREST INCOME -- 22.5
- NONINTEREST INCOME AND SECURITIES GAINS -- 8.2
1993 - TOTAL OPERATING REVENUE-- 36.9
- NET INTEREST INCOME -- 26.3
- NONINTEREST INCOME AND SECURITIES GAINS --10.7
EX99_4A]10 BAR GRAPH -- NET CHARGE-OFFS TO ALLOWANCE FOR
LOAN LOSSES (DOLLARS IN MILLIONS)
X-AXIS COMPARES THE YEARS 1989-1993
EACH YEAR SHOWS: 1) NET CHARGE-OFFS
2) END OF YEAR ALLOWANCE FOR
LOAN LOSSES
PLOT POINTS -
1989 -- NET CHARGE-OFFS -- .3
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 2.2
1990 -- NET CHARGE-OFFS -- 1.5
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 3.4
1991 -- NET CHARGE-OFFS -- 2.6
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 3.7
1992 -- NET CHARGE-OFFS -- 2.3
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 5.7
1993 -- NET CHARGE-OFFS -- 2.0
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 6.5
EX99_4A]11 BAR GRAPH -- AVERAGE EARNING ASSETS (DOLLARS
IN MILLIONS)
X-AXIS COMPARES THE YEARS 1989-1993
EACH YEAR SHOWS: 1) TEMPORARY INVESTMENTS
2) INVESTMENT SECURITIES
3) LOANS NET OF UNEARNED
INCOME & DEFERRED FEES
1989 - TEMPORARY INVESTMENTS -- 9.5
- INVESTMENT SECURITIES -- 40.0
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 197.6
- TOTAL AVERAGE EARNING ASSETS
FOR 1989 -- 247.1
1990 - TEMPORARY INVESTMENTS -- 7.8
- INVESTMENT SECURITIES -- 60.0
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 250.7
- TOTAL AVERAGE EARNING ASSETS
FOR 1990 -- 318.5
1991 - TEMPORARY INVESTMENTS -- 15.0
- INVESTMENT SECURITIES -- 98.6
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 293.2
- TOTAL AVERAGE EARNING ASSETS
FOR 1991 -- 406.8
1992 - TEMPORARY INVESTMENTS -- 21.4
- INVESTMENT SECURITIES -- 190.9
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 314.3
- TOTAL AVERAGE EARNING ASSETS
FOR 1992 -- 526.6
1993 - TEMPORARY INVESTMENTS -- 16.1
- INVESTMENT SECURITIES -- 243.0
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 347.6
- TOTAL AVERAGE EARNING ASSETS
FOR 1993 -- 606.7
EX99_4A]11 PIE CHART -- PERIOD END LOANS
CONSUMER INSTALLMENTS -- 27%
REAL ESTATE MORTGAGE -- 23%
REAL ESTATE CONSTRUCTION AND DEVELOPMENT -- 5%
TAX EXEMPT -- 2%
COMMERCIAL AND ALL OTHER -- 44%
EX99_4A]11 BAR GRAPH -- TOTAL LOANS (DOLLARS IN MILLIONS)
PLOT POINTS -
1989 -- 214.4
1990 -- 280.2
1991 -- 302.9
1992 -- 326.3
1993 -- 378.3
EX99_4A]15 PIE CHART - PERIOD END DEPOSITS
MONEY MARKET SAVINGS -- 36%
CERTIFICATES OF DEPOSIT LESS THAN $100,000 -- 27%
CERTIFICATES OF DEPOSIT MORE THAN $100,000 -- 6%
REGULAR SAVINGS -- 4%
NONINTEREST BEARING DEMAND -- 16%
INTEREST BEARING DEMAND -- 11%
EX99_4A]16 BAR GRAPH - TOTAL DEPOSITS (DOLLARS IN MILLIONS)
PLOT POINTS -
1989 -- 278.1
1990 -- 374.4
1991 -- 445.2
1992 -- 598
1993 -- 634.1
EX99_4A]16 BAR GRAPH - PERIOD END SHAREHOLDERS' EQUITY (DOLLARS
IN MILLIONS)
PLOT POINTS -
1989 -- 20.6
1990 -- 21.1
1991 -- 23.8
1992 -- 37.4
1993 -- 43.6